Final Results

Land Securities Group Plc 16 May 2007 16 May 2007 For immediate release Land Securities Group PLC ('Land Securities'/ 'Group') Preliminary results for the year ended 31 March 2007 Highlights â€¢ Excellent progress on the development programme â€¢ Lettings totalling 1.5 million sq ft â€¢ Valuation surplus on development of Â£454m â€¢ Land Securities Trillium new business â€¢ Â£1.4bn invested â€¢ 45% growth in floor space under management â€¢ Conversion to REIT status on 1 January 2007, removing latent capital gains tax liability of Â£1.3bn â€¢ Combined portfolio valuation of Â£14.8bn - 10.6% valuation surplus â€¢ Pre-tax profit of Â£1,979.1m (2006:Â£2,359.2m) â€¢ Revenue profit up by 0.2% at Â£392.2m â€¢ Net assets per share up â€¢ Basic NAV up 44.3% to 2304.00p â€¢ Adjusted diluted NAV up 14.1% to 2181p (up 17.6% excluding conversion charge) â€¢ Earnings per share â€¢ Basic eps at 753.59p up 110.5% â€¢ Adjusted diluted eps marginally down by 0.4% at 70.20p. â€¢ Final dividend of 34.0p per share, giving a full year dividend of 53.0p (13.5% increase) â€¢ Move from bi-annual to quarterly dividend payments in 2007/08 at 16.0p per share for the first three quarters, implying a further increase of over 20% â€¢ Leading the sector in environmental achievements â€¢ First property company to achieve ISO14001 accreditation for Environmental Management System across entire property business â€¢ Only property company to participate in voluntary UK Emissions Trading Scheme, saving 11,145 tonnes of CO2 emissions over five years â€¢ Zero net carbon emissions for 2005/06 from own occupied offices and mall areas of shopping centres Commenting on the results, Francis Salway, Chief Executive of Land Securities said: 'We have delivered a total business return, in the form of growth in NAV and dividend, of 16.6%, demonstrating strong growth in the underlying value of the business for shareholders. 'We have had particular success in meeting our two key objectives for the year - leasing 1.5 million sq ft from our development programme and growing our property partnerships business, Land Securities Trillium, with Â£1.4bn invested and 45% growth in floor space under management. 'Land Securities' successful conversion to REIT status in January 2007 has enabled us to announce a substantial increase in the dividend. In addition, with tax considerations no longer constraining our investment decision making, we have sold or marketed for sale some Â£1.1bn worth of property since 1 January. As we expected, growth is slowing across some segments of the traditional property investment markets, endorsing our decision to focus on development activity and the expansion of our property outsourcing business.' -Ends- For further info, please contact: www.landsecurities.com/prelims2007 Francis Salway / Melissa Winsor Stephanie Highett / Dido Laurimore Land Securities Group PLC Financial Dynamics T +44 (0)20 7413 9000 T +44 (0)20 7831 3113 Notes to editors Land Securities is the UK's leading real estate investment trust. Our national portfolio of commercial property, worth many billions of pounds, includes some of Britain's best-known shopping centres, such as the Birmingham Bullring and Gunwharf Quays in Portsmouth, as well as London landmarks such as the Piccadilly Lights and Westminster City Hall. We are leading urban renaissance through our billion pound development programme, transforming Exeter, Bristol and Cardiff city centres as well as key sites in Central London. We are also one of the leading names in property outsourcing and through urban community development are involved in long-term, large-scale regeneration projects in the south-east. Chairman's statement This is my first statement to you as Chairman of Land Securities. My predecessor, Peter Birch, stepped down from the Board on 1 January 2007. Peter led a period of substantial change that has left the Group in good shape. The Board and I would like to thank him for his contribution. Land Securities invests in property to generate returns in excess of our weighted average cost of capital. Our total business return for the year of 16.6% compares with an average weighted cost of capital of 6.75%. Over a six year period, Land Securities has delivered a total shareholder return of 206.3% compared to 36.1% for the FTSE 100 and 194.8% for the FTSE Real Estate Index. We have announced a substantial increase in our dividend, with the proposed full year dividend representing a 13.5% increase over the preceding year. We have also announced a further significant increase for the current year. Our business activities comprise property investment, development and property outsourcing. Each presents different risks and opportunities and provides a different level of return. It is our challenge to maximise return taking into account our risk assessment for each activity. For property investment, this means adding value by active management and judging the right moment to buy or sell. For development, it means creating the right product and delivering it on time and on budget, at the right moment in the market cycle. For property outsourcing it means accessing new markets and new income streams profitably. I have been impressed by the people at Land Securities. We have a substantial pool of talent to draw from, encompassing a wide range of skills. Attracting, retaining and developing this talent is fundamental to our success. As a capital intensive business, access to capital, and its efficient use, is critical. Our debt structure is an important element. In the past year we raised Â£800m of publicly listed notes with an average coupon of 5.03%, refinanced our corporate banking facility of Â£1.5bn, arranged a Â£1.0bn acquisition facility and launched our Â£750m Euro Commercial Paper Programme. We used these funds to invest Â£1.9bn in Land Securities Trillium and development, which the Board identified 12 months ago as key drivers of future value. That decision was timely, given the lower levels of growth now evident across the investment market. My first day as Chairman of the company coincided with our conversion to Real Estate Investment Trust (REIT) status. This eliminated the double taxation of company and shareholder, which has been an impediment for the quoted property sector. REITs now offer tax equivalence to direct ownership of property, but with substantially greater liquidity and professional management. Since becoming Chairman, the Board and I have identified three key issues facing our business. The first I have already alluded to: generating returns from investment property. The era of valuation gains driven by market re-pricing is largely over. Our challenge will be to deliver returns through the application of our skills and the identification of new growth markets. We have demonstrated the latter through our move into the Public Private Partnership (PPP) and Private Finance Initiative (PFI) markets this year with the acquisition of SMIF. The second issue is transparency. Land Securities is recognised as a leader in this area. Under the new Transparency Directive all companies have to produce Interim Management Statements. We will be doing so, but will not be moving to quarterly reporting or quarterly valuations. The Board believes that the link between strategy and financial returns in the property sector is only evident over a longer time frame. The third issue is how we do things. We have a good reputation for the way in which we address the impact of our activities on communities and the environment. As one of the UK's leading developers, we are committed to providing attractive buildings and spaces that enhance the quality of the built environment, for the benefit of both occupiers and the wider community. We have led the property sector in being a voluntary participant in the UK Emissions Trading Scheme (UKETS) since its inception in 2002 and have reduced carbon emissions by three times the target set for us. The Board would like to thank our colleagues, customers and suppliers for helping to deliver another year of strong growth for Land Securities. Thanks to you the business is prospering and we can look to the future with confidence. Chief Executive's Report I am delighted that we achieved considerable success in implementing the two key objectives we set for the year. The first was to meet letting targets across our development programme. We exceeded our targets in leasing up some 143,000 sq m. The second objective was to grow Land Securities Trillium. We secured substantial new business opportunities resulting in floor space under management increasing by 45% over the year. The ungeared total property return on our investment portfolio was 16.2%, as compared to 15.8% on the Investment Property Databank (IPD) Quarterly Index. The ungeared return on capital employed on our property outsourcing business (excluding acquisitions made in the last two months of the year) was 16.9%. The Group pre-tax return on equity was 21.1%. Our pre-tax profit, which includes revaluation surpluses, profits on disposals and exceptional items, was Â£1,979.1m (2006: Â£2,359.2m). The reduction in pre-tax profit is explained by the slightly lower revaluation surplus in the current year, and the exceptional profit of Â£293.0m in the prior year from the sale of our interest in the Telereal joint venture. Revenue profit, our measure of underlying or recurring profit, was up marginally by 0.2% at Â£392.2m (2006: Â£391.3m). We achieved this despite both the expected reduction in profit on our largest property outsourcing contract with the Department for Work and Pensions (DWP) and the loss of rental income on a number of substantial investment properties being vacated prior to redevelopment. Our conversion to REIT status, which brings tax exemption on approximately 90% of our current activities, will result in us paying a REIT conversion charge in July this year estimated at Â£315.0m. The benefits of REIT conversion are the elimination of a latent capital tax liability of Â£1,327m and the boosting of post-tax earnings through exemption from corporation tax on qualifying activities. We will remit this saving in corporation tax to shareholders by way of an increased dividend. As such, we have announced a substantial increase to our final dividend payment, giving a full year dividend of 53.0p per share, up 13.5% (2006: 46.7p per share). The increase in dividend over three years has been 42.9%. In recognition of the importance of income distributions in a REIT environment, we will move to quarterly dividend payments. The first three payments, at 16.0p per share, will be payable in October 2007, January 2008 and April 2008. These quarterly dividend payments imply a further dividend increase for 2007/08 of over 20%. We have demonstrated strong execution in leasing up our development programme. In London, we have let, or agreed terms to pre-let, approximately 95,000sq m of offices since 1 April 2006. Our project at Cardinal Place in Victoria is now almost fully let, re-establishing Victoria as a location for major corporates, and substantially improving the future redevelopment prospects for our other extensive holdings in the area. In retail, we have made good progress on leasing up our six projects now under construction with 82,000sq m of development lettings during the year. Our shopping centre scheme in Exeter will open in the autumn and is already 85% pre-let or agreed to be pre-let. This scheme is breaking the mould both through its low carbon footprint and our commitment to let one of the streets to independent retailers. For Land Securities Trillium, 2006/07 has been a year of exceptional growth and achievement. We have consolidated our position in the infrastructure market through our Â£910.5m acquisition of SMIF, which now has equity stakes in 85 PPP contracts. We intend to secure third party investment into these assets by the end of calendar year 2007 while retaining asset management responsibilities. We have also concluded a property outsourcing contract with Royal Mail and, in partnership with QinetiQ, were appointed preferred bidder on a major Ministry of Defence (MoD) outsourcing contract. This phase of growth for Land Securities Trillium is significant because property outsourcing and PPP bring greater benefits from economies of scale than property investment. The UK economy is performing strongly. We expect growth in rental values across our investment portfolio to be slightly above trend in the short-term, driven particularly by buoyant leasing conditions in the London office market. However, the year end valuation of our investment portfolio showed a slowing in the rate of growth in capital values in the second half of the year. This is consistent with our view that the yield re-pricing of UK property assets is close to having run its course and, indeed, lesser quality property investments in the retail sector have seen weaker yield pricing and a fall in values over the last six to nine months. Against this background, we expect our property investment business to achieve outperformance on a relative basis primarily through our development capabilities and the scale of our development programme. We are also pleased to be investing substantial capital in property outsourcing and PPP/PFI (PPP) contracts, which offer attractive return prospects with low volatility. Business review Introduction Over the year we made excellent progress with our development programme. We also delivered on our aspiration to grow Land Securities Trillium by committing in excess of Â£1.4bn to acquisitions and new contracts for this business unit. Most notably during the period we converted to REIT status. This beneficial change in tax status for the Group is explained in more detail later in this review. Following conversion and our exemption from future capital gains tax, we have accelerated our sales programme, particularly in the retail sector. The low level of prevailing yields relative to our marginal cost of debt means that this sales programme will be accretive to earnings. Our combined portfolio delivered a total property return of 16.2%, outperforming the IPD Quarterly Index by 0.3%. This outperformance was attributable to our significant exposure to the buoyant London office market and also to development activities. The valuation surplus on our developments was Â£453.9m, which represented 33% of the overall valuation surplus on 17% of the assets. At the sector level, our assets underperformed their IPD sector benchmarks. This is largely explained by less positive rental value growth on our retail warehouse portfolio and the older office buildings in our Victoria estate. The growth in Land Securities Trillium came from the Â£910.5m acquisition of SMIF (the largest PPP investment business in the UK); the Â£439.0m acquisition of a hotel portfolio from Accor involving the provision of maintenance services, and a Â£71.1m property outsourcing contract with Royal Mail. In addition, our Metrix joint venture with QinetiQ was selected as preferred bidder on Package 1 of the MoD training outsourcing contract and provisional preferred bidder on Package 2. Regulatory The most important change in our regulatory environment was the new legislation introducing REITs in the UK from 1 January 2007 and, on that day, we elected to convert to REIT status. A REIT is a listed entity, whose main business is to invest in property and which enjoys exemption from UK corporation tax on income and capital gains from qualifying property. In return, a REIT is required to distribute to shareholders a minimum of 90% of its taxable profits from qualifying properties. Conversion to REIT status eliminated our latent capital gains tax liability on qualifying assets, which stood at Â£1,327m. This represents a 282p per share increase in our net asset value. However, this is partially offset by our liability on REIT conversion to a one-off tax charge calculated at 2% of the gross value of our qualifying properties. This tax charge is expected to be approximately Â£315.0m or 67p per share. Although it will be payable in July 2007 it has been recognised in this year's results. REIT conversion is not expected to constrain our business operations but rather provide some significant benefits which relate predominantly to tax. As we will no longer be subject to capital gains tax on the disposal of qualifying properties, this removes tax considerations in respect of selling property assets from the investment portfolio. In addition, our new tax status has boosted our post-tax returns relative to our weighted average cost of capital. As expected, our tax exempt activities include the majority of our property outsourcing business and also development activities if the developments are subsequently held as investments. For the full year, almost 90% of the income generated by the Group came from qualifying activities. A REIT is permitted to have up to 25% of its business, measured by both profits and gross assets, in non-qualifying taxable activities. We intend to use this capacity where we can identify opportunities which produce post-tax returns that are attractive relative to the untaxed returns from qualifying activities. An example of this is the PPP business, SMIF, which we acquired in February of this year and will be tax paying. We have also announced a substantial increase in our dividend, which reflects the increased tax savings we will enjoy as a REIT. This is covered in more detail below. Competitive landscape Land Securities operates principally in the UK commercial property market. We were the world's third largest REIT as measured by market capitalisation at 31 March 2007, which at Â£10.1bn represented 28.5% of the UK REIT sector. We have a diversified business model focused on retail property, London offices and property outsourcing. Within these core sectors, our activities include property management, investment, development and the provision of property related services. We are the only REIT to operate on a significant scale in the property outsourcing market. Since 1 January, 61.0% of the UK quoted property sector has elected for REIT status and this emerging sector now has a total market capitalisation of Â£35.3bn. We expect further growth in the sector over time with the flotation of new REITs. The UK commercial property market has an estimated total value of Â£710bn, excluding Government-owned property, with approximately half of this market held by owner occupiers. Of the balance, which comprises the property investment market, only 16% is held in REITs. Experience in other countries following the introduction of REIT structures indicates that it is reasonable to anticipate a substantial growth in the size of the quoted REIT sector in the medium-term even if, as we expect, only a small proportion of pension funds and other property investors move their holdings from direct property to REITs. Over the second half of the financial year we have seen a moderation in the level of investor demand for commercial property investments. Demand for London office investments is still strong, albeit less so, and the retail property investment market has seen a return to equilibrium conditions. However, the fundamental attractions of the UK commercial property markets remain. These include economic and political stability together with the UK's long-term lease structure. The reduction in investor demand has made the investment market less competitive in certain sectors, but property yields are still at a level which makes acquisitions less attractive than development and property outsourcing. This is where we continue to focus our activities while remaining alert to selective property acquisitions. The scale of our business continues to be a source of competitive advantage, as demonstrated by our ability to finance large scale development and investment acquisitions at a lower cost of debt than many others in the industry. We also have a relatively large market share of the sectors in which we invest, which provides competitive advantage in terms of relationship management with key customers. We plan to continue capitalising on this to increase market share in each of our core markets. Headline results Profit before tax was Â£1,979.1m, down from Â£2,359.2m a year ago. Revenue profit, our measure of underlying profit before tax, increased from Â£391.3m to Â£392.2m. Earnings per share more than doubled to 753.59p (2006: 357.95p) with adjusted diluted earnings per share showing a 0.4% decrease on last year to 70.20p (2006: 70.47p). The impact of conversion to REIT status has resulted in three exceptional items, two of which affect our post-tax results. The first is the Â£315.0m conversion charge payable in July this year. The second is the release of a Â£2,309.2m deferred tax provision, a non-cash item, relating primarily to the accumulated valuation surplus on the investment portfolio. The third is a net exceptional tax credit of Â£98.0m in respect of joint ventures, which is disclosed within profit before tax as part of our share of the joint ventures post-tax profits. The net effect of these three exceptional items is to increase profit after tax by Â£2,092.2 to Â£3,528.3m and a 110.5% increase in earnings per share. Adjusted diluted earnings per share, which is based on revenue profit and removes the effect of the exceptional items related to REIT conversion, showed a marginal decrease of 0.4%. The combined portfolio rose in value from Â£12.9bn to Â£14.8bn. This included a valuation surplus of Â£1,396.3m or 10.6%. Net assets per share rose by 44.3% to 2304p from 1597p, with adjusted diluted net assets per share rising by 14.1% to 2181p (2006: 1912p). Profit before tax The main drivers of our profit before tax performance are the change in value of our investment portfolio (including any profits or losses on disposal of properties), our net rental income, the performance of our Property Partnerships business, Land Securities Trillium, and the amount of interest we paid. The degree to which movement on these and other items led to the reduction against last year in our profit before tax to Â£1,979.1m (2006: Â£2,359.2m) is explained in Table 1 below: Table 1: Principal changes in profit before tax and revenue profit Profit Revenue before tax profit Â£m Â£m Year ended 31 March 2006 2,359.2 391.3 Valuation surplus (302.3) - Profit on disposal of Telereal (1) (293.0) - Distributions received from Telereal (2) (11.7) - Impact of Telereal sale 30 September 2005 (2) - (16.1) Profit on disposal of non-current properties 44.0 - Profit on sale of trading properties (3.9) - Increase in capitalised interest 7.7 7.7 Amortisation of bond de-recognition (3) 11.0 - Long-term development contract profits (4) (7.6) - Goodwill impairment (5) 64.5 - Property outsourcing profit (6) (2.0) (2.0) Net rental and service charge income (7) 60.5 60.5 Indirect costs (8) (2.5) (2.5) Interest on increased debt (46.7) (46.7) Debt restructuring charges (19.2) - Exceptional deferred tax release following REIT conversion 98.0 - within the joint ventures (9) Other 23.1 - Year ended 31 March 2007 1,979.1 392.2 (1) The disposal of our interest in the Telereal joint venture was completed on 30 September 2005. (2) Distributions/profits from Telereal ceased on 30 September 2005 following its disposal, although this has been largely mitigated by the Telereal II contract and interest on the disposal proceeds. (3) The debt instruments issued as part of the refinancing in November 2004 do not meet the requirements of IAS39 as they are not deemed to be substantially different from the debt they replaced. As a result, the book value of the new instruments is reduced to the book value of the debt it replaced and the difference is amortised over the life of the new instruments. The decrease in amortisation over the comparable period is a reflection of the maturity profile of debt replaced. (4) Lower levels of activity, with the recognition of profits on the development contract at Broadcasting House being below the profit recognised on Bankside 1 in the previous year. (5) Goodwill arising on the acquisition of Tops Estates PLC in June 2005 was impaired in the year ended 31 March 2006. There was no goodwill impairment in the current year. (6) Lower profits on DWP following increased vacation, offset by increases in Telereal II and Norwich Union. (7) Increase in rental income and service charge income is largely driven by acquisitions made in the year ended 31 March 2006. (8) Primarily due to higher staff costs for existing employees and increased employee numbers following acquisitions. (9) The results of joint ventures are reported post-tax. Revenue profit Revenue profit is our measure of the underlying pre-tax profit of the Group, which we use internally to assess our performance. It includes the pre-tax results of our joint ventures but excludes capital and other one-off items such as the valuation surplus, gains on disposals and profits on long-term development contracts. Revenue profit for the year grew by 0.2% from Â£391.3m to Â£392.2m. An explanation of the year on year change is also given in Table 1. While Land Securities Trillium's operating profit is at a similar level to last year, at the revenue profit level there has been a decline of Â£21.5m, largely attributable to the SMIF acquisition interest and the anticipated decline in profitability on the DWP contract. In addition, while operating profits have increased on certain contracts so too has the associated capital employed, and allocated interest cost, leading to a smaller pre-tax profit increase. Within London Portfolio, we have lost rental income as we freed up properties for redevelopment with no associated reduction in interest costs. At a Group level, the decline in underlying pre-tax profits in Land Securities Trillium and the loss of rental income in London have been offset by an increase in passing rents in our Retail Portfolio leading to the small increase in revenue profit over last year. Towards the end of the financial year, Land Securities Trillium purchased SMIF, a business which owns and provides management services to PPP projects. It has been our intention from the outset to divest the PPP investments by transferring them to a fund and bringing in outside investors while maintaining a minority interest. We have therefore accounted for these assets as a disposal group. The implications of this are that we do not consolidate the individual assets and liabilities of the PPP investments. Instead, they are held in the balance sheet at fair value less costs to sell and we do not recognise our share of the underlying net income of the PPP projects. However, we do include the interest cost of the loan associated with acquiring SMIF in Group revenue profit. Reconciliation between profit before tax and revenue profit is shown in Table 2. Table 2: Reconciliation of profit before tax to revenue profit Year ended Year ended 31/03/07 31/03/06 Â£m Â£m Profit before tax 1,979.1 2,359.2 Valuation surplus - Group (1,307.6) (1,579.5) valuation surplus - joint ventures (75.1) (105.5) Non-current property disposals (118.4) (75.3) Goodwill impairment - 64.5 Mark-to-market adjustment on interest rate swaps (17.4) 2.2 Eliminate effect of bond exchange de-recognition 17.1 28.1 Debt restructuring charges 19.2 - Credit arising from change in pension scheme benefits - (8.3) Profit on disposal of Telereal joint venture - (293.0) Adjustment to restate the Group's share of Telereal earnings from a distribution basis to an equity basis - 5.0 Joint venture tax adjustment (76.8) 37.5 Profit on sale of trading properties (13.6) (21.7) Long-term development contract profits (14.3) (21.9) Revenue profit 392.2 391.3 Earnings per share Basic earnings per share grew by 110.5% to 753.59p (2006: 357.95p), the increase predominantly relating to the one-off tax items associated with our adoption of REIT status, together with the reasons set out in more detail in Taxation below. In the same way that we adjust profit before tax to remove capital and one-off items to give revenue profit, we also report an adjusted earnings per share figure. This is a post-tax measure and includes some additional adjustments to revenue profit. The adjustments to earnings per share are set out in note 7 to the financial statements. They are based on the guidance given by European Public Real Estate Association (EPRA), with a limited number of further adjustments to reflect better our underlying earnings. Adjusted diluted earnings per share declined from 70.47p per share in 2006 to 70.20p per share in 2007, a 0.4% decrease. The decline in adjusted earnings per share is attributable to a reduction in profits on long-term development contracts and trading property sales, largely offset by a lower tax rate following REIT conversion. Total dividend We are recommending a final dividend payment of 34.0p per share. Taken together with the interim dividend of 19.0p, this makes a full year dividend of 53.0p per share (2006: 46.7p), which represents a 13.5% increase. Part of this substantial increase is attributable to the tax we have saved by being a REIT for the final quarter of this financial year. REIT conversion also impacts on the make-up of the Group's dividend, which now consists of two components: a property income distribution (PID) from the REIT qualifying activities and a dividend distribution from the non-qualifying activities (non-PID). The aggregate of these two components will still be referred to as our total dividend. We are obliged for certain shareholders to withhold tax, currently at a rate of 22% (decreasing to 20% from 6 April 2008), from the PID element of the dividend. Our total dividend is therefore a gross dividend. Since Land Securities only became a REIT on 1 January 2007, three-quarters of this financial year fell outside REIT status. While only one payment will be made on 23 July 2007, shareholders will find an explanation of the individual components of the total dividend on the tax voucher sent out with the payment. A note on the tax consequences for shareholders and forms to enable certain classes of shareholder to claim exemption from withholding tax are available on our website at www.landsecurities.com. Of the proposed final dividend of 34.0p, only 10.0p is a PID. This is subject to 22% withholding tax for relevant shareholders. Next year we expect a far higher proportion of the total dividend payments to be in the form of a PID. The full year dividend distribution is covered 1.3 times by adjusted earnings (2006: 1.5 times). Subject to approval by shareholders at the Annual General Meeting to be held on 17 July 2007, the final dividend will be paid on 23 July 2007 to shareholders on the Register on 22 June 2007. For the 2007/08 financial year, we will be making four dividend payments, in October 2007, January 2008 and April 2008, and (subject to shareholder approval) in July 2008. The first three quarterly payments will be 16.0p per share, implying an increase of over 20% on the 2006/07 year dividend on an annualised basis. The first three quarterly dividends will be 80% PIDs, with the final dividend to be confirmed at the time. Table 3: Total dividend Interim Final Total Dividend Dividend Dividend p p p Property income distribution - 10.0 10.0 Non-property income distribution 19.0 24.0 43.0 Total 19.0 34.0 53.0 Balance of business tests REIT legislation specifies conditions in relation to the type of business a REIT may conduct, which the Group is required to meet in order to retain its REIT status. In summary, at least 75% of the Group's profits must be derived from REIT qualifying activities (the 75% profits test) and 75% of the Group's assets must be employed in REIT qualifying activities (the 75% assets test). Qualifying activities means a property rental business. The result of these tests for the Group for the three month period we were a REIT, the whole financial year (which is more representative of our ongoing position), and at the balance sheet date is as follows: Table 4: REIT balance of business tests For the three months ended / For the year ended 31 March 2007 as at 31 March 2007 Tax-Exempt Residual Adjusted Tax-Exempt Residual Adjusted Business Business Results Business Business Results Adjusted profit before tax (Â£m) 104.5 4.1 108.6 358.3 42.9 401.2 Balance of business - 75% profits test 96.2% 3.8% 89.3% 10.7% Adjusted total assets (Â£m) 15,695.8 2,111.6 17,807.4 Balance of business - 75% assets test 88.1% 11.9% Net assets At the financial year end, net assets per share were 2304p, an increase of 707p over the year. A significant part of this increase resulted from our conversion to REIT status, as we were able to release all accumulated deferred tax on revaluation surpluses to 31 December 2006. The impact of this, less our REIT conversion charge, amounted to 447p per share. In common with other property companies, we calculate an adjusted measure of net assets which we believe better reflects the underlying net assets attributable to shareholders. In previous years, the main adjustment to net assets has been to remove the deferred tax on revaluations. Since we no longer provide for deferred tax on revaluations due to our REIT status, this adjustment is no longer required. As a result, our adjusted net assets are now lower than our reported net assets primarily due to the debt adjustment we continue to make. Under IFRS, we do not show our debt at its nominal value, although we believe it would be more appropriate to do so and we therefore adjust our net assets accordingly. At the year end, adjusted diluted net assets per share were 2181p per share, an increase of 14.1% from last year end despite the conversion charge of 67p per share. Excluding the conversion charge, adjusted net assets per share would have risen by 17.6%. Table 5: Net assets Year ended Year ended 31/03/07 31/03/06 Â£m Â£m Net assets at the beginning of the year 7,493.9 6,050.3 Profit after tax 3,528.3 1,675.9 Dividends paid (223.0) (238.9) Other (7.9) 6.6 Net assets at the end of the year 10,791.3 7,493.9 Deferred tax on investment properties - 145.0 Deferred tax on net revaluation surpluses - 1,739.7 Mark-to-market on interest rate hedges (23.6) 8.6 Debt adjusted to nominal value (519.1) (375.3) Adjusted net assets at the end of the year 10,248.6 9,011.9 Drivers of performance A key driver of the increase in our net assets is the underlying performance of the combined portfolio, which includes our share of joint ventures (see Table 6). This year, the combined portfolio saw a 10.6% valuation surplus. At 31 March 2007 the portfolio was valued at Â£14.8bn (2006: Â£12.9bn). Part of the increase in value is due to our net expenditure arising from purchases, sales and developments, with the balance comprising the valuation surplus. On the like-for-like portfolio, which allows for performance comparison of income growth and yield change over time, the valuation surplus for the year was Â£735.8m or 9.3%, of which Â£219.0m or 2.9% occurred in the six months since 30 September 2006. As expected, we saw a notable slowing of yield shift in the second half of the year and this is reflected in the lower rate of valuation growth. It is in these circumstances that our value creation capabilities can provide a point of differentiation, for example through leasing, development and refurbishment activities. Table 6: Valuation and rental income summary Rental Rental income income for the for the Open market Open market year year Rental value at value at Valuation ended ended income 31/03/07 31/03/06 Surplus (1) 31/03/07 31/03/06 change Â£m Â£m % Â£m Â£m % Shopping centres and shops 2,829.4 2,591.9 7.8 162.1 152.3 6.4 Retail warehouses 1,474.8 1,431.6 2.0 61.8 56.7 9.0 London retail 932.6 853.1 7.2 47.2 43.4 8.8 London offices 3,202.2 2,773.7 15.1 164.2 165.2 (0.6) Other 347.2 309.1 11.6 15.4 15.6 (1.2) Like-for-like investment 8,786.2 7,959.4 9.3 450.7 433.2 4.0 Portfolio (2) Completed developments 320.5 306.2 3.4 14.0 10.5 33.3 Purchases 3,092.5 2,278.0 6.8 133.1 67.3 97.8 Disposals and restructured - 930.4 - 33.9 67.8 (50.0) interests Development programme (3) 2,553.3 1,418.9 21.9 48.0 35.2 36.9 Combined portfolio 14,752.5 12,892.9 10.6 679.7 614.0 10.7 Adjustment for finance leases - - - (12.6) (13.2) 4.5 Combined portfolio (4) 14,752.5 12,892.9 10.6 667.1 600.8 11.0 (1)The valuation surplus and rental income value are stated after adjusting for the effect of spreading rents and rent free periods over the duration of leases in accordance with IFRS but before restating for finance leases. (2)Properties that have been in the combined portfolio for the whole of the current and previous financial periods. (3)Development programme comprising projects which are completed but less than 95% let, developments on site, committed developments (approved projects with the building contract let), and authorised developments (projects approved by the Board, but for which the contract has not yet been let). (4)The combined portfolio includes our proportionate share of the assets and rental income of our joint ventures. Table 7 details the top six performing properties over Â£50m in each sector by revaluation surplus together with an explanation of the key drivers of their performance. Yield shift played only a part in the creation of shareholder value. This analysis also demonstrates the strong contribution from London developments. Table 7: Top six performing properties over Â£50m for Retail Portfolio and London Portfolio Valuation Valuation Retail Portfolio surplus Description London Portfolio surplus Description % % Lewisham Shopping 21.1 Rental value growth and Dashwood House, EC2 64.7 Development Centre yield shift Gunwharf Quays, 15.5 Rental value growth and Bankside 2&3, SE1 61.3 Development Portsmouth yield shift Queslett Road, 15.3 Rental value growth and New Street Square, 41.9 Development Birmingham yield shift EC4 The Mall, 13.3 Reconfiguration and new Selborne House, SW1 27.7 Potential development Stratford lettings opportunity High Street, 13.1 Impact of our adjoining New London House, 26.9 Potential Exeter development EC3 refurbishment opportunity Poole Road, Poole 11.0 Development Cardinal Place, SW1 26.8 Development Future drivers of performance A key driver of our performance is development. We have a large and profitable development programme. Including our share of joint ventures and those properties completed and let in the year, our development programme produced a valuation surplus of 21.9% or Â£453.9m, of which Â£198.1m occurred in the second half of the year. We have an estimated further spend of Â£1,162m on the projects currently underway which, when complete and fully let, will produce Â£218m of annual income (at today's estimated rental value). Capital expenditure on proposed developments could total Â£597m if we proceed with these schemes, which are held as part of the investment portfolio and have a current carrying value of Â£329.3m. The figures given for capital expenditure represent the Group's actual or forecast cash outlays on developments, excluding land values and capitalised interest. Including these, the total development cost for the full development pipeline is Â£3.8bn, of which Â£2.9bn relates to our current development programme. Further details of our development pipeline are contained in the Retail Portfolio and London Portfolio sections of this review. Now that yield shift has slowed, rental value growth and minimising void levels are again becoming more important determinants of performance. Rental values on our like-for-like portfolio increased by 4.9% over the year, and the net reversionary potential of the like-for-like portfolio at the year end was 10.4% compared to 7.7% 12 months ago. Void levels on our like-for-like Retail portfolio have reduced slightly over the year from 3.4% to 3.3%. On our like-for-like London offices, void levels have increased from 3.2% to 8.1%, which is attributable to pre-development properties where we have intentionally been seeking vacant possession. Cash flow and net debt Cash receipts during the year totalled Â£841.0m from investment portfolio property disposals, which included Devonshire House, W1, Regis House, EC4, and White City Retail Park, Manchester. In total, we invested Â£1,497.0m in our properties including Â£523.7m on investment property acquisitions, Â£416.5m by Land Securities Trillium (primarily Accor hotels Â£305.2m and Royal Mail Â£77.8m) and Â£429.4m on development. The development expenditure, which includes land acquisitions but excludes capitalised interest and our share of joint ventures (which expended Â£70.1m on shopping centre developments in Bristol and Cardiff), was spent principally on New Street Square, EC4, Bankside 2&3, SE1, in London and shopping centre developments in Exeter and Livingston. As part of our strategy to expand Land Securities Trillium into the PPP market, we spent Â£919.0m acquiring SMIF and the remaining 50% of Investors in the Community (IIC). Further details are given in the Property Partnerships section. From our joint ventures, we received a net Â£50.0m, largely as a result of an equalisation receipt from the St David's Limited Partnership. At 31 March 2007, the Group's net debt was Â£5,087.9m, some Â£1,402.0m higher than 2006 (Â£3,685.9m). The factors contributing to this increase in net debt are shown in Table 8. Table 8: Cash flow and net debt Year ended Year ended 31/03/07 31/03/06 Â£m Â£m Operating cash inflow after interest and tax 361.5 375.9 Dividends paid (223.0) (238.9) Investment property acquisitions (523.7) (2,008.3) Property Partnerships property acquisitions (416.5) (6.8) Development and refurbishment capital expenditure (532.6) (338.3) Investment in properties (1,472.8) (2,353.4) Acquisition of SMIF and IIC (919.0) - Other capital expenditure (18.8) (26.9) Total capital expenditure (2,410.6) (2,380.3) Disposals (including Telereal in 2005/06) 869.8 972.6 Joint ventures 50.0 133.8 Other movements (49.7) (110.9) Increase in net debt (1,402.0) (1,247.8) Opening net debt (3,685.9) (2,438.1) Closing net debt (5,087.9) (3,685.9) Details of the Group's gearing are set out in Table 9, which includes the effects of our share of joint venture debt, although the lenders to our joint ventures have no recourse to the wider Group for repayment. Table 9: Gearing At At 31/03/07 31/03/06 % % Gearing - on book value of balance sheet debt 47.1 49.2 Adjusted gearing * 54.7 46.9 Adjusted gearing * - as above plus notional share Adjusted gearing * - of joint venture debt 58.8 51.1 * Book value of balance sheet debt increased to recognise nominal value of debt on refinancing in 2004 divided by adjusted net asset value. Financing strategy and financial structure Our financing strategy is to maintain an appropriate net debt to equity ratio (gearing). This ensures that asset-level performance is translated into enhanced returns for shareholders while maintaining an appropriate risk reward balance. One feature of our REIT status is that the effective cost of our debt has risen significantly for our REIT qualifying activities. As we no longer pay tax on these activities, we no longer benefit from the tax shield provided by the tax deductibility of interest charges. This results in a higher effective cost of debt, although it remains an attractive source of capital for us due to its ready availability and flexibility. However, in an environment of low capital returns and low to negative yield spreads (the difference between income on the investment and the cost of debt), underlying asset returns become a more important determinant of performance than levels of financial gearing. As previously stated, the Group made significant investment in property related activities, and net debt has grown by 38.0% from Â£3.7bn to Â£5.1bn. However, gearing has decreased from 49.2% to 47.1% due to the Â£2.3bn deferred tax release and the strong valuation growth of our portfolio. Looking ahead, we have to pay our REIT entry charge (Â£315.0m), complete the final phase of the Accor hotel acquisition (Â£150m) and satisfy the capital expenditure requirements of our development programme. Despite the increase in our year end net debt, our interest cover ratio, excluding our share of joint ventures, has fallen only marginally from 2.65 times in 2006 to 2.43 times in 2007. Under the rules of the REIT regime, we need to maintain an interest cover ratio in the exempt business of at least 1.25 times to avoid paying tax. As calculated under the REIT regulations, our interest cover ratio for the exempt business for the three months to 31 March 2007, the period for which we were a REIT in this financial year, was approximately 2.25 times. As well as having the right level of debt in the business, we also need to ensure that we have a financing structure that is both flexible and cost effective. Both of these issues were addressed in the 2004/05 year with the introduction of a new secured funding structure. Under this structure, we benefit from a lower cost of finance by utilising the credit strength of our investment portfolio without the more onerous restrictions of individually collateralised obligations. Operational flexibility is maintained through provisions which allow us to buy and sell assets, without restriction, and undertake development. At 31 March 2007, our debt investors had security over Â£11.6bn of investment properties in this structure against loans of Â£5.1bn, representing a loan to value ratio of 44.0%. As part of the funding structure, a committed revolving credit facility provides us with the financial flexibility to draw and repay loans at will, and react swiftly to investment opportunities. In August 2006, the Group replaced its existing five year Â£2.0bn revolving credit facility with a new seven year Â£1.5bn facility. The new facility carries lower margins, reduced commitment fees, a reduced and more focused bank group and extends the maturity by nearly four years. In October we also took the opportunity to diversify further and reduce the cost of our short-term debt by establishing a Â£750m Euro Commercial Paper Programme. During the course of the year, we increased the size of our Irish listed Note programme from Â£4bn to Â£6bn and issued two further Sterling bonds. The first was an issue of Â£300m with a fixed coupon of 4.875% and an expected maturity of 2023. The second was a Â£500m 5.125% fixed rate bond with an expected maturity of 2034. As a result of our flexible funding structure both deals were priced within four working days of announcement. In December 2006, we arranged a one year acquisition facility with an option to extend it by a further year, to provide funding for the purchase of SMIF. In the same month Land Securities Trillium refinanced its limited recourse DWP bank loan with a new secured facility which offers a lower margin and increased operational flexibility. The new facility matures in 2017 to coincide with the end of the underlying DWP contract. At 31 March 2007, Land Securities' total borrowings (including joint ventures) amounted to Â£6,096.0m, of which Â£183.0m was drawn under our Â£1.5bn secured bank facility and Â£71.0m related to finance leases. Committed but undrawn facilities amounted to Â£1,319.0m. The Group also has Â£238.5m of uncommitted facilities. The majority of debt due in less than one year relates to drawings under the Â£1.0bn committed acquisition facility. Hedging We use derivative products to manage our interest rate exposure, and have a hedging policy which requires at least 80% of our existing debt plus our net committed capital expenditure to be at fixed interest rates for the coming five years. Specific hedges are also used in geared joint ventures to fix the interest exposure on limited recourse debt. At the year end we had Â£1.8bn of hedges in place, and our debt was 96% fixed. Consequently, based on year end debt levels, a 1% rise in interest rates would increase full year interest charges by less than Â£3m. Future funding The Group's modest gearing levels and robust interest cover provide significant debt capacity to meet its projected capital requirements. Market capacity remains in Sterling and the Group has the flexibility, if necessary, to tap other markets such as the Euro. With Â£1.3bn of committed but undrawn facilities, the Group is confident that it will be able to finance its planned capital commitments. Taxation As a consequence of the Group's conversion to REIT status, income and capital gains from our qualifying property rental business are now exempt from UK corporation tax. This has had a major impact on our tax position, and for the year, we had a net tax credit of Â£1,549.2m (2006: Â£683.3m charge) comprised of the following items: â€¢ Â£99.4m corporation tax and Â£345.6m deferred tax on income and gains arising in the nine months to 31 December 2006 and on non-exempt (residual) income and gains for the three months to 31 March 2007; and â€¢ Two exceptional items: the Â£315.0m REIT conversion charge and a Â£2,309.2m release of deferred tax on revaluation reserves, capital allowances and other temporary differences which will no longer be taxed when they reverse as a consequence of our REIT status. Excluding the exceptional items and adjusting for prior year tax credits and non-allowable IFRS bond amortisation, the effective cash tax rate on our profit before revaluations, joint venture income and disposals was 17.6% (2006: 23.2%). This reduction is largely due to REIT tax exemption for the final quarter. Pension schemes The Group operates a number of defined benefit pension schemes which are closed to new members. At 31 March 2007 the schemes had a combined deficit, net of deferred tax, of Â£5.3m (2006: Â£4.5m). During the year we made a further special contribution of Â£1.5m (2006: Â£1.5m) to the principal defined benefit pension scheme and we are maintaining our enhanced contribution rate to address this relatively small deficit. Retail Portfolio Introduction Our Retail Portfolio business represents 49.0% of the combined portfolio and produced Â£273.0m of the Group's underlying operating profit. We own 1.8 million sq m of retail accommodation including 29 shopping centres and 31 retail parks. This represents a core market share of 5.8% and we have approximately 1,700 occupiers across this portfolio. Many of our retail properties form the central shopping districts of major cities and towns across the UK and we estimate that 300 million visits are made by consumers to our retail destinations each year. We are also investing Â£1.1bn to create the next generation of retail locations through a 255,000sq m development pipeline. The retail market The overall economic backdrop is favourable and the UK has seen continuing growth in like-for-like retail sales, which were 3.5% higher in the quarter to 31 March 2007 compared with the same period in 2006. Absolute sales growth continues at 5.7% per annum. For us this is the most important measure of retailer confidence since it includes the effect of retailers taking on new or improved floor space to grow market share. Over the past year the winners versus losers trend, identified by us some time ago, became increasingly apparent. Supermarkets and internet retailers have generally been the winners along with some major store groups, such as Marks and Spencer, John Lewis and Primark. Smaller retailers have found it harder to combat rising costs and price deflation, particularly in sectors impacted by online competition. The popularity of out-of-town shopping continues, driven by convenience, accessibility and plentiful car parking. The bulky goods sector, which has been depressed for two years, is now showing signs of improving trade. Across our like-for-like portfolio we saw rental income growth of 6.5% over the year and, in total we let retail units with an annual rent roll of Â£29.7m - equivalent to 8.8% of our current retail rent roll. This was in some 350 transactions involving approximately 180,000sq m of retail accommodation. This demonstrates an active leasing market and it has resulted in a reduction in the void levels across our like-for-like Retail Portfolio over the year. On our development projects, demand remains good and the trend of increasing lease incentives such as rent free periods has now stabilised. Following several years of strong favourable yield shift, the past 12 months have, as expected, seen the investment market for retail property returning to equilibrium. After a period of convergence between prime and secondary yields, we are now starting to see the yield gap widening again particularly in the retail warehouse sector. Our strategy We will seek to strengthen our position as a leading owner of retail property through: â€¢ Investment in dominant retail assets and application of our skills to create value â€¢ Development â€¢ Provision of market leading levels of customer service and property management Our focus this year has been more on development and asset management activities, rather than on acquisitions and disposals. However, towards the end of the financial year and following the elimination of latent capital gains tax liabilities upon REIT conversion, we sold a number of assets where we felt that opportunity to grow value was restricted. In the year to 31 March 2007, we made Â£62.8m of acquisitions and sold Â£417.1m of properties (based on the net effect of asset transfers into the St David's partnership), and since the year end we have sold or exchanged contracts for a further Â£233.5m of properties. In a year of consolidation, we restructured our property management activities to allow us to improve service delivery across the portfolio. We also invested Â£286.6m (2006: Â£76.9m) in the development programme, further details of which are contained later in this review. Our performance The valuation surplus on our Retail Portfolio was Â£368.1m or 5.4% over the year. However, the slowing of growth rates in recent months is evident from the fact that the valuation surplus in the second half of the year was only 0.3%. These lower levels of performance compared to the prior year primarily reflect the impact of reduced yield shift and also lower levels of like-for-like rental value growth of 1.7% (2006: 4.3%). Table 10: Retail Portfolio valuation and performance summary 31/03/07 31/03/06 Total retail* Combined portfolio valuation Â£7,226.2m Â£6,899.1m Like-for-like investment portfolio valuation Â£4,561.1m Â£4,254.2m Rental income Â£237.8m Â£223.2m Gross estimated rental value Â£266.5m Â£258.9m Voids by estimated rental value Â£8.7m Â£8.8m Gross income yield 5.0% 5.0% Shopping centres Combined portfolio valuation Â£4,157.9m Â£3,823.3m Like-for-like investment portfolio valuation Â£2,537.8m Â£2,318.8m Rental income Â£147.5m Â£137.5m Gross estimated rental value Â£163.3m Â£154.8m Voids by estimated rental value Â£5.4m Â£4.4m Gross income yield 5.5% 5.6% Retail warehouses Combined portfolio valuation Â£2,306.9m Â£2,314.6m Like-for-like investment portfolio valuation Â£1,474.8m Â£1,431.6m Rental income Â£61.8m Â£56.7m Gross estimated rental value Â£71.8m Â£71.0m Voids by estimated rental value Â£1.3m Â£1.9m Gross income yield 4.3% 4.1% Combined portfolio and by reference to the Reconciliation Tables (in the Business Analysis Section). * Retail includes shopping centres, retail warehouses, shops outside London, shops held through the Metro Shopping Fund LP, regional offices and sundry other properties outside London. Future growth will come from our significant reversionary potential of 10.9%, as rent reviews are settled, and from rental value growth. In mature centres and parks, rental value growth can only be achieved if void levels are low and so we are particularly pleased that our strong performance on leasing (Â£20.0m of rent secured excluding development) has kept voids to 4.6% in our shopping centre portfolio and reduced them to 1.6% in our retail warehouses. Over the past few years we have restructured the shopping centre element of our retail portfolio to respond to longer-term trends in the retail markets, particularly retailers' desire for more efficient retail units. Over the coming year we will be looking to restructure our retail park portfolio, now that REIT status has eliminated our latent capital gains tax position, which has previously inhibited trading of this portfolio. We have already sold two retail parks at Erdington, Birmingham and White City, Manchester for an aggregate of Â£127.2m and, since the year end, we have exchanged contracts on two more retail warehouse assets for Â£40.1m. Application of skills to create value in investment properties Across the shopping centre portfolio, we focused on adding value through asset management activities. At Gunwharf Quays we have driven financial performance through innovative consumer marketing events, a long-term approach to tenant mix (where the optimum balance does not always lead to the highest level of rent) and exemplary on-site customer service. During the year 10 new lettings improved the overall attraction of the centre. Through Gunwharf Quays, we have gained invaluable experience of Factory Outlet Centre model, and are now rolling out these management techniques to Hatfield Galleria and the recently opened Banbridge in Northern Ireland. At our shopping centre in Stratford we are repositioning the tenant mix of the scheme to optimise trading in the lead up to the Olympics and beyond. Our asset management has improved both the fashion and food offer, and rental growth has been immediately achieved, with rental values up 11.8% over the year. In our retail warehouse portfolio, we continue to reconfigure space to provide the right size of units for retailers. In Edmonton we have agreed to relocate Wickes into the former Courts store and we have refurbished it for them. We have secured planning consent for the redevelopment of the former Wickes into five units of 700sq m, each with mezzanines, and are currently discussing terms with potential occupiers. As part of the refurbishment of our scheme in Poole, we have exchanged contracts with Homebase to surrender their existing lease, which had five years to run, for a new 20 year lease. Homebase will completely re-image the external elevations to match the new scheme design and extend into the former Comet unit. Comet also relocated within the scheme. As demonstrated by the examples above, we aim to create a strong platform from which our retail customers can trade profitably and an attractive environment for shoppers visiting our properties. It is our responsibility to make sure that our retail environments remain safe and clean and to provide relevant promotion and marketing activities. To some extent we can assess the success of these activities through the number of visitors to the portfolio, which is measured for us by a third party provider and then compared to a national index. In the year to December 2006, the number of visitors to our portfolio increased by 1.0%, as compared to a 5.1% fall in the national index. This increase can partially be explained by the completion of our development in Canterbury, the success of which is reflected in much higher visitor numbers. It can also be explained by the success we have had in identifying and acquiring those centres which provide a rewarding experience and therefore attract a greater number of visits. We also work closely with our retailers to monitor sales trends at each of our centres. Last year we introduced a new trading index at the St David's Centre. This innovative use of technology provides retailers with weekly trading trends across a number of categories, so that they can compare their trading with competitors in the Centre. It also provides feedback on consumer spending patterns. Development We have continued with our extensive development programme and have made good progress. We have achieved our letting targets for all our developments on site, achieving 82,300sq m of lettings during the year, with a further 22,700sq m under offer or in solicitors' hands. This represents future cash rental income of Â£15.3m (our share). In Exeter we have had a very encouraging response from both retailers and customers to the first phase of Princesshay which opened in April. The development reflects our objective to create vital and vibrant mixed use destinations and is framed around high quality public spaces, adopting an innovative design approach to produce a number of individual and distinctive buildings. In a challenging market we are pleased to now have some 80% of the scheme let and a further 5% in solicitors hands, including a strong line up of national retail brands and restaurants. To create a point of differentiation and a local identity, we have also reserved an element of the scheme for independent retailers. The scheme is scheduled for completion in autumn 2007. Cabot Circus in Bristol, which we are developing in partnership with Hammerson, is proceeding on programme and is due for completion in September 2008. It has a wide range of uses and the tenant mix has been carefully planned to create areas within the scheme with a distinct appeal, such as the mid to upper market in Quakers Friars with lettings to Harvey Nichols and Ted Baker. The scheme is now 47% let with a further 8% in solicitors hands. At St David's 2 in Cardiff, which we are developing in partnership with Capital Shopping Centres, we have started on the main building contract after a series of demolition and enabling works, and completion is due in autumn 2009. The scheme is to be anchored by Debenhams and a 24,150sq m store for John Lewis, their first in Wales. In addition to our committed schemes we have recently submitted a planning application for an extension to Buchanan Galleries, Glasgow. This will be undertaken in partnership with Henderson Global Investors and will double the size of the scheme to 120,000sq m. We are also conducting feasibility studies for a number of other major schemes including a substantial refurbishment of St John's Centre, Liverpool, and a second phase of development in Corby. Last year we reported that we had agreed a forward purchase of a retail park development site in Banbridge, Northern Ireland, immediately adjacent to our factory outlet development. A planning application for 33,450sq m has now been submitted for the retail park scheme and a conditional land sale deal signed with Tesco for approximately 40% of the site. We outline our development pipeline in Table 11. Table 11: Retail development pipeline at 31 March 2007 Property Estimated/ actual Description Size Planning Letting completion Cost of use sq m status status date Â£m SHOPPING CENTRES AND SHOPS Developments approved and those in progress Cabot Circus, Bristol - The Bristol Retail 83,610 43% Sep 2008 215 Alliance - a limited partnership Leisure 9,000 with Hammerson plc Offices 28,000 Residential 18,740 Christ's Lane, Cambridge Retail 5,800 84% Dec 2007 27 Residential 1,350 Princesshay, Exeter Retail 37,360 76% Jul 2007 160 Residential 7,200 Willow Place, Corby Retail 16,260 34% Oct 2007 34 St David's, Cardiff - St David's Retail/ 89,900 7% Sep 2009 294 Partnership- a limited partnership leisure with Capital Shopping Centres Residential 16,500 The Elements, Livingston Retail 32,000 17% Sep 2008 130 Leisure 5,670 RETAIL WAREHOUSES Developments, let and transferred or sold Kingsway Retail Park, Dundee, Retail 8,650 64% May 2004 16 Phase II Developments completed Commerce Centre, Poole Retail 19,100 76% Aug 2006 22 Developments approved and those in progress Maskew Avenue, Peterborough Retail 13,380 91% Sep 2007 32 Thanet Leisure, Thanet Leisure 8,970 100% Aug 2007 24 Proposed developments Almondvale South Phase ll b, Livingston Retail 4,180 PR 2008 Cost (Â£m) refers to the estimated capital expenditure required to develop the scheme from the start of the financial year in which the property is added to our development programme. Finance charges are excluded from cost. Floor areas shown above represent the full scheme whereas the cost represents our share of costs. Letting % is measured by ERV and shows letting status at 31 March 2007. Trading property development schemes are excluded from the development pipeline. Planning status PR - Planning Received London Portfolio Introduction Our London Portfolio represents 50.6% of the combined portfolio and produced Â£270.5m of the Group's underlying operating profit. We own 929,000sq m of office accommodation and 101,000sq m of retail floorspace. Our office portfolio represents approximately 4.5% of the total London office floorspace with over 400 occupiers accommodating more than 50,000 people. We are investing Â£2.7bn on development, to meet demand for effective modern business accommodation. London office market The London office market has been historically more volatile than the retail market. This reflects its economy and particularly its dependence in the City on the financial services industry. It is also affected by the supply of new development stock. Market letting conditions today are favourable with lower vacancy levels across the core markets, as we anticipated last year. The West End is demonstrating significant under supply and the City is also now under supplied and will remain so for the short-term as limited new office development stock is delivered. We are cautious about the future supply of offices in the City of London in the medium-term and will be monitoring new development starts over the next 12 months, although we are confident in the timing and scale of the development programme we have under way already. We believe the opportunities in the West End for new development are more limited and therefore expect continuing robust market conditions. London investment market The trading of investment properties in London has been at an historic high, with yields reducing and capital values rising significantly during the year. There is a sense of 'overheating' in some market segments but, for the time being, prime London assets continue to attract buyers at strong prices. Our strategy Four years ago we set our strategy for the London Portfolio to address the more cyclical nature of the operating environment in London. We stated that we would seek to create value through: â€¢ Focus on geographic areas of activity - clustering â€¢ Development activity, particularly mixed use â€¢ Active asset management â€¢ Leveraging strong relationships with occupiers In the past 12 months we acquired Â£478.7m and sold Â£480.5m of property, including the Â£275.3m sale of Devonshire House, W1. We made substantial progress on our development programme; spending Â£315.7m on development, started 72,300sq m of new projects, achieved 60,700sq m of lettings and submitted planning applications for a further 89,700sq m of commercial accommodation. Our performance Our London Portfolio grew in size over the year from Â£5.9bn to Â£7.5bn, showing a 16.2% valuation surplus. Our development activities showed a Â£425.8m or 28.4% surplus and our like-for-like investment holdings a Â£476.3m or 13.4% surplus. Table 12: London Portfolio valuation and performance 31/03/07 31/03/06 London Portfolio* Combined portfolio valuation Â£7,461.3m Â£5,932.4m Like-for-like investment portfolio valuation Â£4,160.1m Â£3,645.8m Rental income Â£209.2m Â£206.2m Gross estimated rental value Â£236.4m Â£218.9m Voids by estimated rental value Â£16.2m Â£6.2m Gross income yield 4.3% 5.2% London offices Combined portfolio valuation Â£6,081.8m Â£4,788.2m Like-for-like investment portfolio valuation Â£3,185.6m Â£2,760.1m Rental income Â£162.7m Â£163.8m Gross estimated rental value Â£186.0m Â£169.9m Voids by estimated rental value Â£15.2m Â£5.4m Gross income yield 4.3% 5.4% London shops Combined portfolio valuation Â£1,182.6m Â£1,053.8m Like-for-like investment portfolio valuation Â£879.2m Â£805.3m Rental income Â£42.3m Â£38.6m Gross estimated rental value Â£45.2m Â£44.4m Voids by estimated rental value Â£0.9m Â£0.7m Gross income yield 4.4% 4.8% Combined portfolio and by reference to the Reconciliation Table (in the Business Analysis Section). *The London Portfolio includes London offices, London shops (with the exception of shops held through the Metro Shopping Fund LP) and sundry other properties in London Unique opportunities exist within our portfolio to exploit London's attractiveness as a place to visit and live. We are looking to redevelop and improve the environment in key areas of the West End and Bankside/South Bank which will not only assist the performance of our commercial holdings but also drive additional value from residential and retail development. This diversity has strong defensive qualities against a cyclical office market. Future growth in income comes from rent reviews, lease renewals and new lettings. During the year we achieved lease renewals and new lettings (including developments) for Â£26.9m of income and settled 36 rent reviews achieving or exceeding estimated rental value. We have managed to reduce the over-rented element of the portfolio from 6.2% to 2.0%, predominantly as a result of our investment activities and as a result of the strong rental growth across all our core markets. The reversionary potential of the London Portfolio has therefore improved from 6.7% to 8.6%. Void levels have increased, but this is a temporary issue explained by the emptying of major holdings prior to redevelopment. London retail like-for-like is 14.6% reversionary and void levels remain low at 2.0% on a like-for-like basis with new developments offering the prospect of good growth in the future as new locations develop and attract more customers. In 2003 we started a development programme which has delivered some Â£765m of value during this time. This was in anticipation of the improved market conditions that we foresaw in the London commercial property markets. From 2004 we started a substantial restructuring of the portfolio, which has seen the acquisition of Â£1.5bn of investment properties let at low rents averaging Â£278.2sq m. We have now commenced a sales programme for selected buildings where we are able to secure a premium in today's strong investment market. Active asset management and recycling of capital Across the London Portfolio, we focused on adding value through asset management activities. Two examples of this are: Devonshire House, W1 Devonshire House had been in Land Securities' portfolio since 1955, but we took the decision to sell it last year. We assessed the demand from investors for premium large scale property assets to be reaching a peak during the second half of 2006. Devonshire House needed significant refurbishment and capital expenditure, so we undertook to refurbish one floor in order to demonstrate the strength of demand in the underlying occupational market and to assist with selling the asset. We secured Â£1,184 per sq m rent on the refurbished floor and achieved a significant premium (21%) to book value on the disposal. Dashwood House, EC2 Dashwood House is a recognisable City landmark which was reaching the end of its occupational leases (2010/11). While full redevelopment was a possibility, our approach has been to secure early vacant possession and accelerate a planning application for a major refurbishment including some additional office floors. By adopting this strategy we have targeted completion at an earlier date which we expect to be at a strong point in the City occupational market. Focus on geographic areas of activity - clustering We have been developing this policy for a number of years. The principle is to develop and invest in geographic locations where the performance of the investment holdings can benefit from active asset management or development in the immediate locality. We have benefited from significant performance of our assets around New Street Square as well as a strong performance of the development itself. It has also enabled us to hold constructive discussions with occupiers in the area to manage their medium and long term occupational requirements using our substantial holdings. The extent of our ownerships in Victoria Street and the immediate vicinity have enabled us to bring forward two significant redevelopment proposals. We have achieved this in a timely manner while managing the risk these assets pose as dominant holdings in the area. In addition we have been able to relocate occupiers within the portfolio, for example the Department for Constitutional Affairs shortly to become the Ministry of Justice, will be moving to 50 Queen Anne's Gate from our holdings on Victoria Street. Meanwhile the redevelopment of Cardinal Place has demonstrated the attractiveness of comprehensive redevelopment providing a mix of uses and open space. It has also secured some very high profile occupiers such as 3i, P&O, Wellington Management and Microsoft in a location not previously recognised for this type of occupier. We expect this to have an ongoing benefit when redeveloping and re-leasing accommodation in this location. The retail accommodation at Cardinal Place has demonstrated a strength of demand for good quality units and for food and beverage outlets. We anticipate this will continue, given the volume of people passing through Victoria Station (approximately 100 million per annum). We have also invested significantly on the South Bank around our developments at Bankside 1&3, the cultural hub of Tate Modern and the new residential activity that is ongoing. Development activity including a focus on mixed use We have continued to deliver substantial value from our development activities with a valuation surplus of Â£425.8m over the 12 months. We believe we have achieved our objective of delivering our developments early in the cycle to ensure lease-up and strong performance. Our developments have also largely been mixed use, which helps to mitigate risk exposure to any one particular sector. Within the next 12 months we will complete significant amounts of office floor space at Bankside 2&3 in Southwark, New Street Square in Mid-town and Wood Street in the City. During the development phase we have been securing pre-lettings and pre-commitments on a progressive basis with a view to improving returns while managing risk. We now have approximately 80% of this office floorspace either pre-let or in solicitors' hands. We have also been able to secure good rental growth in these developments as the leasing programme has progressed. We have also started One New Change, EC4, which is a mixed use scheme of 19,830sq m retail and 31,660sq m office accommodation. Planning consents are important to the underlying value of the assets we hold in our investment portfolio. We have secured a number of new planning consents this year including: â€¢ Dashwood House We have now started our scheme at Dashwood House, EC2, as described above with a view to completing it by November 2008. â€¢ Park House Park House, Oxford Street, W1, is awaiting the outcome of a Judicial Review. Its associated development at Wilton Plaza will be providing student housing and affordable housing together with a small component of private residential flats which will be completed in the early part of 2009. â€¢ 20 Fenchurch Street The scheme at 20 Fenchurch Street, EC3, received planning consent from the City of London in November last year. Unfortunately it was called in for a planning inquiry by the Secretary of State, despite no stakeholders or statutory consultees referring it to the Minister. The planning inquiry has now been held and we await the Planning Inspector's decision. These schemes are innovative in terms of design and environmental features and attractive in terms of commercial floor space layout and the mix of uses appropriate to their locations. We have also advanced our plans for Victoria Transport Interchange and Victoria Masterplan which will be a coordinated yet comprehensive redevelopment of a significant number of our holdings in Victoria over the next decade. We believe Victoria is an area of the West End office market with potential for significant growth and it also offers substantial retail and residential potential. It is one of the busiest transport nodes in London and it is adjacent to one of the highest value residential districts. We are confident that Victoria will become a core market within the West End over the next 10 years providing exciting new and prestigious residential and commercial floor space. Table 13: London Portfolio development pipeline at 31 March 2007 Estimated/ actual Description Planning Letting completion Cost Property of use Size status status date Â£m CENTRAL AND INNER LONDON PROPERTIES Developments approved and those in progress Cardinal Place, SW1 Offices 51,130 93% Jan 2006 270 Retail 9,420 100% Bankside 2&3, SE1 Offices 35,550 * Aug 2007 121 Retail/ 3,170 10% leisure 1 Wood Street, EC2 Offices 15,020 100% Sep 2007 103 Retail 1,500 New Street Square, EC4 Offices 62,340 61% Apr 2008 312 Retail 2,980 50 Queen Anne's Gate, SW1 Offices 30,140 100% Dec 2007 127 10 Eastbourne Terrace, W2 Offices 6,150 May 2008 23 Dashwood House, EC2 Offices 13,870 Nov 2008 62 Retail 740 One New Change, EC4 Offices 31,660 Sep 2010 340 Retail 19,830 1% Proposed developments Park House, W1 Offices 15,550 PI 2010 Retail 8,470 Residential 11,890 20 Fenchurch Sreet, EC3 Offices 54,810 PI 2011 Retail 560 * 100% of the office space was placed in solicitors hands after 31 March 2007 Cost (Â£m) refers to the estimated capital expenditure required to develop the scheme from the start of the financial year in which the property is added to our development programme. Finance charges are excluded from cost. Floor areas shown above represent the full scheme whereas the cost represents our share of costs. Letting % is measured by ERV and shows letting status at 31 March 2007. Trading property development schemes are excluded from the development pipeline. Planning status PI - Planning Inquiry Property Partnerships Introduction A year ago we stated that Land Securities Trillium was positioned for a phase of further growth. This happened in the second half of the financial year under review. As a result this business has grown from 3.3 million sq m to 4.8 million sq m of floorspace, with eight clients and 105 PPP contracts. We now provide accommodation services to more than 450,000 people. Property Partnership markets Property Partnership markets encompass both the property outsourcing and PPP markets. Our target markets are public and private sector organisations and we estimate the potential property values which could be accessed through Property Partnership contracts at in excess of Â£100bn, excluding any leasehold property which may also be transferred in a property outsourcing contract. A year ago we described the changes that have taken place in the Property Partnership markets and the actions we were taking in response to these changes. In summary, we recognised that the market for major property outsourcing projects, which began in earnest in 1998 with the DWP contract, was constrained in terms of the number of organisations with portfolios suitable for a full outsourcing contract. In recognition of this we evolved our business model to respond to our clients' need for smaller, tailored property outsourcing contracts, such as those undertaken by the DVLA and Norwich Union. We also recognised that PPP projects are a form of property outsourcing. As a result we decided to focus on this area, in particular on defence, education and community assets. The PPP market was established in 1992 and has since grown to a substantial and increasingly global method for Governments to procure capital projects for accommodation and infrastructure. In the UK alone, nearly Â£50bn of projects have been completed and some Â£5bn per annum of new projects are anticipated. This market is expanding in Continental Europe and shows strong growth potential and demonstrate good resilience to downturns in the economic cycle. Our strategy Our strategy remains the same: â€¢ Access new opportunities for property partnerships in existing and new markets â€¢ Grow our business with existing and new clients â€¢ Lead innovation in the outsourcing industry Through the acquisition of SMIF and IIC, Land Securities Trillium has positioned itself as the clear market leader in the UK and has unrivalled capability in the primary and secondary PPP markets (the primary market involving bidding for new contracts and the secondary market being the acquisition of existing contracts). At the same time, Land Securities Trillium has remained at the forefront of the property outsourcing market as demonstrated by the Royal Mail and Accor transactions and, our appointment as Preferred Bidder on the MoD Defence Training Review Package 1 in the last quarter of this financial year. We are now seeking to exploit the advantages of scale and diversity created over the past year to access UK and Continental European PPP markets. In the UK, primary bidding activity for new contracts will focus upon sectors where we have competitive advantage, for example the Building Schools for the Future programme, using the service skills within our organisation. In Europe, we will target countries where we can both quickly acquire diversified portfolios of existing contracts at attractive returns and look over the medium-term to develop our partnering and primary bidding strategies. All our targets have common characteristics. They generate high prospective cashflows that: â€¢ Have good credit quality - being generated from either an investment grade or Government counter-party â€¢ Are often inflation linked â€¢ Have low volatility - reflecting performance and availability risk which Land Securities Trillium is very competent at managing We are very pleased with the progress we have made to deliver against our strategy. Our new contracts The Land Securities Trillium business has evolved substantially in the past year, developing from being market leader in property outsourcing to being market leader in both property outsourcing and the PPP market. The second half of the year was notable for the high level of acquisitions and new business activity. We made acquisitions totalling Â£1.4bn, including the Â£910.5m acquisition of SMIF, the Â£439.0m acquisition of the Accor hotel portfolio (including eight properties yet to complete), the Â£71.1m acquisition of Royal Mail and with our purchase of the remaining 50% of IIC for Â£8.5m. Our Metrix joint venture with QinetiQ was appointed preferred bidder on Package 1 of the Defence Training Review and provisional preferred bidder on Package 2. â€¢ SMIF Land Securities Trillium completed the acquisition of SMIF in February 2007. Togther with our outright acquisition of IIC, the joint venture set up with Mill Group in 2006, this establishes us as the leader in the UK market for PPP projects. We have equity and/or management interests in 105 projects and offer a market leading bidding and business development capability across key target sectors of community infrastructure. This includes education, health, security and general accommodation. At the time of acquiring SMIF we stated our intention to divest the underlying projects by transferring them to a fund and bringing in third party investors, while maintaining a minority interest. We have appointed an Investment Bank to execute this strategy and anticipate its successful implementation by the end of 2007. â€¢ Metrix In January 2007, the Secretary of State for Defence announced that the Metrix consortium was awarded preferred bidder status for Package 1 (Technical training) and provisional preferred bidder status for Package 2 (Non-technical training) of the Defence Training Review (DTR) programme. The DTR will provide the best possible specialist training for all three Armed Services by creating National Centres of Excellence, through a programme of investment, rationalisation and modernisation. We are a 50% shareholder in the successful Metrix consortium with leading defence service provider QinetiQ and we will also provide full construction management and facilities management services to Metrix. This project will be one of the largest PPP projects yet undertaken and involves the building, maintenance and operation of a new Defence Training Academy at RAF St Athan in South Wales. Improvements and investments also planned at a number of other training sites. â€¢ Accor Hotels In February 2007, we agreed terms for the purchase of 30 Ibis and Novotel hotels in the UK from Accor, the fourth largest hotel chain in the world. The consideration was Â£439m with a commitment to contribute Â£35m towards improvement works over four years and to assist Accor in locating and acquiring new sites. The current hotels, primarily in major city centre locations, are leased back to Accor for 84 years with 12 yearly tenant break clauses. The rent is set as a percentage of the hotels' turnover. We also provide maintenance services for the external fabric of the hotels. The partnership model adopted here is important to Accor's expansion strategy and exemplifies our property partnership approach. â€¢ Royal Mail In March 2007, Land Securities Trillium completed the acquisition of a portfolio of 295 properties from Royal Mail for a net consideration of Â£71.1m. This includes 114 vacant, surplus leasehold properties on which we have taken full risk transfer and operational responsibility, 176 freehold properties occupied by Royal Mail under a 15 year leaseback, and five investment properties not occupied by Royal Mail. Royal Mail occupies only the space it requires in these buildings and we manage both sub-tenants and vacant space. This transaction represents just 3% of the operational space of Royal Mail and is a key element in their drive to increase efficiency, with scope to grow the partnership in future. â€¢ Workplace 2010 Land Securities Trillium has reached the Best and Final Offer stage of the Workplace 2010 procurement. This is a 20 year full property outsourcing contract by the Northern Ireland Civil Service (NICS), involving significant new build and refurbishment across an initial estate of 270,000 sq m (77 properties), with potential for expansion at phase 2. This programme is a major element in the adoption of modern working practices by NICS. If successful, initial investment would be up to Â£300m in freehold purchases and capital spend on building improvements. Our performance Land Securities Trillium produced an underlying operating profit of Â£98.8m excluding IIC (2006: Â£96.6m). This performance reflected our expectations for growth in profits across all contracts except the DWP. Table 14: Land Securities Trillium financial results Year ended Year ended 31/03/2007 31/03/2006 Â£m Â£m Contract level operating profit - Barclays 3.3 2.5 - BBC 2.8 0.5 - Driver and Vehicle Licensing Agency (DVLA) 1.7 1.0 - Department for Work and Pensions (DWP) 81.0 97.7 - Norwich Union 9.2 5.0 - Telereal II* 16.1 6.9 - Accor 1.5 - Bid costs (2.8) (7.4) Central costs (14.0) (9.6) Underlying operating profit 98.8 96.6 Profit on sale of non-current properties 7.5 1.0 Net (deficit) / surplus on revaluation of investment (13.6) 1.9 properties Profit on disposal of joint venture (Telereal) - 293.0 Segment profit 92.7 392.5 Share of loss from Investors in the Community (IIC) joint (3.0) - venture Distribution received from Telereal - 11.7 * The operating profit for Telereal II for the year to 31 March 2006 related to a six month period only. The reduction in DWP profitability is in line with expectations and reflects the full year impact of prior year vacations plus further vacations during 2006/07 in accordance with their contractual entitlement of 220,500sq m. The improved profit contributions from both DVLA and Norwich Union reflect the increases in income as more space is occupied by our clients as further phases of refurbishment work are completed. The BBC contract concluded in June 2006, and Telereal II reflects a full year's result. One month of Accor profitability is included. The increase in central costs primarily reflects the increase in overheads associated with new business and also the costs associated with the implementation of new systems. The majority of the bid costs associated with DTR were incurred in the prior year. The deficit on revaluation reflects the impact of stamp duty and other purchase costs on the Accor and Royal Mail portfolios which were acquired close to the year end. The IIC losses reflect the high level of new business activity, much of which continued over the year end, which is expensed prior to selection as preferred bidder. Land Securities Trillium business model We have integrated IIC and the management of our SMIF investments into Land Securities Trillium and organised the business into four core operating areas, supported by Finance and Human Resource functions. These four areas are: Origination We now have unrivalled business development capability in both the PPP and property outsourcing markets. The focus is on long-term customer focused partnerships generating high quality cash flows with significant enhancement prospects through our asset management skills and the application of economies of scale. The opportunities could be in either the primary market, in which we are currently active in bidding on the NICS outsourcing contract and various Building Schools for the Future projects, or the secondary market. The key areas of focus are health, education and office accommodation, but we will consider assets in other sectors in the UK and continental Europe that meet our return criteria and where we can deploy our expertise. Partnerships delivery The role of partnerships delivery is to provide excellent customer service across all elements of our offering and to manage our operational risks. If achieved effectively, this leads to strong partnering relationships in which customers are keen to expand the services and risks we manage on their behalf, secure in the knowledge that we are providing high quality, value for money solutions. Over the past 12 months we have again achieved very high levels of customer satisfaction in our DWP operation, securing a 91% rating, while continuing to work in a flexible and responsive manner with this customer to help it meet its business challenges. As predicted, the rate at which DWP has utilised its free flexible vacation allowance has continued to increase over the past 12 months. In all, DWP vacated 220,500sq m during the year, and over the same period we mitigated our exposure by letting or otherwise disposing of 148,800sq m of vacant space from across our portfolio. In other key contracts, we are continuing to deliver our successful refurbishment project at the Norwich Union headquarters. At the DVLA in Swansea our relationship has grown to the extent that we have now more than doubled the capital we will invest in refurbishment and new build projects. These projects are playing their part in transforming the way in which the DVLA carries out its business. We continue to focus on the environmental aspects of our business and we were very pleased to retain our ISO:14001 accreditation for the Environmental Management System we operate across the DWP contract. In addition to this continued external recognition, we identified and trained a number of people as 'Environmental Champions' throughout our business. With their support, we undertook a series of biodiversity surveys, sustainable catering and eco-friendly cleaning initiatives across our estate. Together with our supply chain we continue to focus on environmental initiatives and we set challenging targets aimed at continuing to improve our collective performance. Commercial and business strategy Commercial and Business strategy has overall responsibility for the profitability of our partnerships and for developing business plans across Land Securities Trillium. It owns and drives value enhancement plans which allow us to leverage our scale and achieve aggregation benefits in areas such as refinancing, insurance pooling and life cycle expenditure. Investment capital group Following the completion of the SMIF acquisition and as part of the general reorganisation of Land Securities Trillium, a new division, the Investment Capital Group (ICG) was established. ICG's principal activities are the recycling and management of equity capital utilised within Land Securities Trillium's ongoing PPP activities. ICG is committed to reduce substantially the capital invested in SMIF by the end of calendar year 2007, while retaining a significant management role and a minority equity holding in its existing PPP portfolio. The market and investor appetite for mature, long dated PPP investment is strong and we are evaluating a number of options to access it. These options include the establishment of a fund that should enable Land Securities Trillium to achieve its capital recycling objectives as we continue to acquire new contracts in the PPP market in line with our business plan. Urban Community Development Urban Community Development seeks to generate high long-term returns from large scale mixed use residential led development projects. The continuing imbalance between supply and demand is creating strong growth in the residential markets within London and the South East, to our benefit. Kent Thameside Our primary area of activity is Kent Thameside where we own or have development rights over approximately 512 hectares of development land. Early in the first half of the year, we completed the sale of the remainder of our land interests at Crossways Business Park, generating overall profits of approximately Â£5.7m. We also completed a 2,380sq m office building forward sold to Moat Housing Association. At Waterstone Park, substantial progress has been made on the delivery of the second phase of this development which is being led by our development partner, Countryside Properties. This award winning residential scheme in a contemporary style has achieved strong sales over the year with over 32 houses and 58 apartments completed. Our principal holdings in Kent Thameside are Eastern Quarry and Ebbsfleet. Together these form Ebbsfleet Valley, the 420 hectare mixed use development located north of the A2, between the Bluewater Shopping Centre and the new Ebbsfleet International High Speed Rail Station. This area has seen a step change in activity as the opening of the station for international services in November 2007 draws closer. At Eastern Quarry, we are making gradual progress towards concluding an agreement with the Highways Agency on the transport measures required to accommodate our development proposals for some 6,250 new homes and space totalling 232,000 million sq m for employment, retail, leisure and other uses. We remain confident that it will be possible for planning permission to be granted in the near future. We have almost completed the first phase of the earth works needed to create the development platform for the first residential village in Eastern Quarry. At Ebbsfleet, outline planning permission has already been obtained and work during the year has concentrated on the detailed master planning studies needed to deliver development in the period up to the commencement of high speed domestic rail services into London St Pancras in 2009. These will significantly reduce current train travel times from Ebbsfleet to London from approximately 50 minutes to 17 minutes. At Springhead Park, within the Ebbsfleet site, we proposed some 600 new homes and approximately 46,500sq m of new business space. Detailed planning permission has been obtained for the first phase of 383 new homes, which is to be undertaken in our second joint venture with Countryside Properties. Work started on this phase in March 2007. The delivery of this scale of development over a 25 year period as proposed at Ebbsfleet Valley requires innovation, commitment and partnership with other key stakeholders. During the year, strategic alliances have been created to ensure the most cost effective delivery of the utilities infrastructure that will be needed. Heads of Terms have been entered into with Thames Water and EDF to create the Ebbsfleet Valley Multi Utility Company which, subject to the approval of the Regulator, will deliver the full range of utility services needed. Heads of Terms have also been reached with British Telecom and Sky to deliver a fibre optic network providing state of the art telephony and entertainment services to new homes and businesses throughout Ebbsfleet Valley. Stansted At Easton Park, our 650 hectare landholding adjacent to Stansted Airport, we have submitted further representations as part of the review of the Regional Spatial Strategy for the East of England. These have identified the potential of the site to help accommodate the growth forecast for the region and in the event that permission for a second runway is granted on expansion of Stansted Airport. As part of our strategy to maximise medium-term income from the Easton Park estate, we have submitted a planning application together with Aggregate Industries to seek approval for the extraction of some four million tons of sand and gravel. Business Analysis Portfolio valuation The market value of the investment property interests in the combined portfolio, including a pro-rata share of our property joint ventures totalled Â£14,752.5m at 31 March 2007 (31 March 2006: Â£12,892.9m). Detailed breakdowns by sector, including comprehensive analyses of the Group's valuation, rental income and yield profiles, follow in the investment portfolio analysis. The aggregate of the market values of those investment properties held by the Group, excluding joint ventures and Land Securities Trillium, as at 31 March 2007 was Â£13,114.8m (31 March 2006: Â£11,619.0m). The valuation of the freehold and leasehold investment properties in the combined portfolio at 31 March 2007 was undertaken by Knight Frank LLP as External Valuer. The valuations were in accordance with the Royal Institute of Chartered Surveyors Appraisal and Valuation Standards and the International Valuation Standards. The valuation of each property was on the basis of market value, subject to the assumptions that investment properties would be sold subject to any existing leases and that properties held for development would be sold with vacant possession in existing condition. The External Valuer's opinion of market value was primarily derived using comparable recent market transactions on arm's length terms. Combined portfolio analysis Table 15: Top 12 property holdings (by market value) Total value Â£4.1bn (28.1% of combined portfolio) Values in excess of Â£240.0m Cardinal Place, SW1 New Street Square, EC4 White Rose Centre, Leeds 50 Queen Anne's Gate, SW1 Bullring, Birmingham Arundel Great Court and The Howard Hotel, WC2 Gunwharf Quays, Portsmouth Almondvale Centre, Livingston Portland House, SW1 Retail World, Gateshead The Bridges, Sunderland Eland House, SW1 Investment property business valuation analysis Combined portfolio reconciliation Table 16: Income statement - gross rental income reconciliation Other Year Other Year Retail London Investment ended Retail London Investment ended Portfolio Portfolio Portfolio 31/03/07 Portfolio Portfolio Portfolio 31/03/06 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Combined portfolio 389.3 261.0 27.1 677.4 356.8 236.9 18.5 612.2 Central London shops (52.5) 52.5 - - (47.1) 47.1 - - (excluding Metro Shopping Fund LP) Inner London offices 1.5 (1.5) - - 1.5 (1.5) - - in Metro Shopping Fund LP Rest of UK offices 2.3 - - 2.3 1.8 - - 1.8 Allocation of other 10.6 7.8 (18.4) - 10.1 4.2 (14.3) - 351.2 319.8 8.7 679.7 323.1 286.7 4.2 614.0 Less finance lease (4.4) (8.2) - (12.6) (5.1) (8.2) 0.1 (13.2) adjustment Total rental income 346.8 311.6 8.7 667.1 318.0 278.5 4.3 600.8 Table 17: Open market value reconciliation Other Year Other Year Retail London Investment ended Retail London Investment ended Portfolio Portfolio Portfolio 31/03/07 Portfolio Portfolio Portfolio 31/03/06 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Combined portfolio 8,060.7 6,102.9 498.8 14,662.4 7,590.1 4,806.5 408.3 12,804.9 Central London shops (1,182.6) 1,182.6 - - (1,053.8) 1,053.8 - - (excluding Metro Shopping Fund LP) Inner London offices 21.0 (21.0) - - 18.3 (18.3) - - in Metro Shopping Fund LP Rest of UK offices 90.1 - - 90.1 88.0 - - 88.0 Allocation of other 237.0 196.8 (433.8) - 256.5 90.4 (346.9) - Combined portfolio 7,226.2 7,461.3 65.0 14,752.5 6,899.1 5,932.4 61.4 12,892.9 Table 18: Gross estimated rental value reconciliation Other Year Other Year Retail London Investment ended Retail London Investment ended Portfolio Portfolio Portfolio 31/03/07 Portfolio Portfolio Portfolio 31/03/06 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Combined portfolio 512.4 394.3 23.4 930.1 470.3 344.4 26.3 841.0 Central London shops (70.7) 70.7 - - (57.5) 57.5 - - (excluding Metro Shopping Fund LP) Inner London offices 1.0 (1.0) - - 0.9 (0.9) - - in Metro Shopping Fund LP Rest of UK offices 4.7 - - 4.7 5.0 - - 5.0 Allocation of other 8.5 10.7 (19.2) - 15.3 6.7 (22.0) - Combined portfolio 455.9 474.7 4.2 934.8 434.0 407.7 4.3 846.0 Table 19: Top 12 occupiers Current gross rent roll % Central Government 10.1 Deloitte 2.0 J Sainsbury PLC 1.8 DSG International PLC 1.8 Taveta Limited (Arcadia Group) 1.7 The Boots Company PLC 1.6 The Home Retail Group PLC (Argos and Homebase) 1.2 Metropolitan Police Authority 1.1 M&S Group PLC 1.1 Next PLC 1.1 Lloyds TSB Group PLC 1.0 Virgin Group Investments Limited 1.0 Total 25.5 Table 20: % Portfolio by value and number of property holdings at 31 March 2007 Â£m Value Number of % properties 0 - 9.99 1.4 60 10 - 24.99 3.7 32 25 - 49.99 10.2 39 50 - 99.99 17.0 38 100 - 149.99 18.3 22 150 - 199.99 11.1 9 Over 200 38.3 19 Total 100.0 219 Note: Includes share of joint venture properties. Table 21: Combined portfolio value by location Shopping centres and Retail shops warehouses Offices Other Total % % % % % Central inner and outer London 10.5 0.7 43.8 0.6 55.6 South East and Eastern 6.2 3.8 - 0.6 10.6 Midlands 3.6 2.0 - - 5.6 Wales and South West 4.8 1.4 0.1 - 6.3 North, North West, Yorkshire and Humberside 8.1 6.1 0.3 0.1 14.6 Scotland and Northern Ireland 5.4 1.7 - 0.2 7.3 Total 38.6 15.7 44.2 1.5 100.0 % figures calculated by reference to the combined portfolio value of Â£14.8bn. Table 22: Average rents as at 31 March 2007 Average rent Average ERV Â£/sq m Â£/sq m Retail Shopping centres and shops 392 460 Retail warehouses (including supermarkets) 304 358 Offices Central and inner London 404 550 Source IPD Notes: This is not a like-for-like analysis with the previous year. The shopping centres and shops average rent is an overall rent and are not Zone A rents. Excludes properties in the development programme and voids Table 23: Like-for-like reversionary potential as at 31 March 2007 Reversionary potential 31/03/07 31/03/06 % of rent % of rent roll roll Gross reversions 12.2 11.1 Over-rented (1.8) (3.4) Net reversionary potential 10.4 7.7 Notes: The reversion is calculated with reference to the gross secure rent roll after the expiry of rent free periods on those properties which fall under the like-for-like definition as set out in the notes to combined portfolio analysis. Of the over-rented income, 65.2% is subject to a lease expiry or break clause in the next five years. Reversionary potential excludes additional income from the letting of voids. Table 24:Business analysis is available on the company's website Table 25: Development pipeline financial summary Cumulative movements on the development programme to 31/03/07 Total scheme details Valuation Reval- Estimated Estimated surplus/ Capital uation total Estimated total (deficit) Market expend- Capit- surplus/ Disposals, Market capital total cost Net for year value at iture alised (deficit) SIC 15 rent value expend- capita- less income/ ended start of incurred interest to date and other at iture alised proceeds ERV 31/03/07 scheme to date to date (note 1) adjustments 31/03/07 (note 4) interest (note 2) (note 3) (note 1) Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Development programme let, transferred or sold Retail warehouses 5 16 1 11 - 33 16 1 22 2 (2) Development programme completed, approved or in progress Shopping centres and shops 110 328 18 53 (5) 504 860 63 963 63 32 Retail warehouses 31 54 1 6 3 95 78 3 112 7 6 London Portfolio 387 752 55 719 41 1,954 1,358 126 1,871 148 421 528 1,134 74 778 39 2,553 2,296 192 2,946 218 459 Movement on proposed developments for the year ended 31/03/07 Proposed developments Shopping centres and shops Retail warehouses 6 - - - - 6 4 - 10 1 - London Portfolio 281 14 - 26 2 323 617 51 827 58 26 287 14 - 26 2 329 621 51 837 59 26 NOTES 1) Includes profit realised on the disposal of property. 2) Includes the property at the market valuation at the start of the financial 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 2007 is included in the estimated total cost. Estimated total cost is stated net of residential proceeds for shopping centres and shops of Â£70m for developments in progress. The London Portfolio proposed developments are stated net of residential proceeds of Â£122m. Allowances for rent free periods are excluded from cost. 3) Net headline annual rental payable on let units plus net ERV at 31 March 2007 on unlet units. 4) For those schemes transferred or sold, completed or in progress the cost for each scheme is shown on the preceding pages. The costs of the proposed development properties are not shown on a scheme by scheme basis as the schemes have not yet been finalised and could still be subject to material change. For proposed development properties the estimated total capital expenditure represents the outstanding costs required to complete the scheme as at 31 March 2007 together with pre-development costs incurred prior to that date if the benefit of that expenditure has been excluded from the valuation as at 31 March 2007. Such pre-development costs are included in the accounts as prepayments and are not included in the property additions. Table 26: Land Securities Trillium contract analysis Contract IIC Norwich Telereal Other (50%) Year ended 31/03/07 DWP BBC Union DVLA Barclays II (3) Total (2) Contract length Term (years) (1) 20.0 5.0 25.0 20.0 20.0 4.5 Expiry date Mar Jun Jun Mar Dec Mar 2018 2006 2029 2025 2024 2010 Income statement Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Unitary charge 519.8 16.4 12.3 8.3 2.1 - - 558.9 - Third party (sublet) 8.0 - 0.9 - 1.6 - 0.9 11.4 - income Capital projects 129.4 10.5 0.5 6.6 - - 0.5 147.5 - Other revenue 10.6 6.4 0.9 1.2 - 44.9 2.9 66.9 1.6 Proceeds of sales of - - 1.7 - - - - 1.7 - trading properties Finance lease income - - 5.1 1.0 - - - 6.1 - Gross property income 667.8 33.3 21.4 17.1 3.7 44.9 4.3 792.5 1.6 Rents payable (174.4) - (3.7) (1.8) - - - (179.9) - Service partners (155.8) (11.7) (3.6) (4.0) - - (1.0) (176.1) - (maintenance, facilities, etc) Life cycle maintenance (23.0) - (1.1) (0.7) - - - (24.8) - costs Capital projects (126.1) (8.6) (0.5) (6.3) - - (0.5) (142.0) - Cost of sale of trading - - (0.5) - - - - (0.5) - properties Other costs, including (82.7) (10.2) (2.1) (2.2) (0.4) (28.8) (14.8) (141.2) (3.6) overheads Bid costs - - - - - - (2.8) (2.8) (0.9) Depreciation (24.8) - (0.7) (0.4) - - (0.5) (26.4) (0.1) Underlying operating 81.0 2.8 9.2 1.7 3.3 16.1 (15.3) 98.8 (3.0) profit /(loss) Profit on sale of 2.8 4.7 - - - - - 7.5 - non-current assets Net surplus / (deficit) - - - - 0.8 - (14.4) (13.6) - on revaluation of investment properties Segment profit / (loss) 83.8 7.5 9.2 1.7 4.1 16.1 (29.7) 92.7 (3.0) Capital expenditure Life cycle maintenance (18.7) - (0.2) - - - (0.1) (19.0) costs capitalised Estates costs (7.6) - - - - - (0.3) (7.9) capitalised Book value of assets at 31 March 2007 Investment in associate - - - - - - 5.0 5.0 Investment properties - - - - 27.9 - 399.7 427.6 Operating properties 507.5 - 43.4 - - - 0.6 551.5 (1) Barclays contract is a sale and leaseback term (2) IIC includes the results for which it was a joint venture (3) Other includes: i. Royal Mail - Revaluation deficit of Â£6.1m in relation to acquisition costs ii. Accor - One month trading Â£1.5m and revaluation deficit of Â£11.7m in relation to stamp duty and other acquisition costs iii. Other - revaluation surplus of Â£3.4m Table 27: Land Securities Trillium contract analysis at 31 March 2007 Norwich Telereal Royal DWP Union DVLA Barclays II Mail Accor Other Total Floor space 000sq m 000sq m 000sq m 000sq m 000sq m 000sq m 000sq m 000sq m 000sq m Client occupied 1,996.0 107.0 16.2 11.4 - 92.7 251.0 14.2 2,488.5 Third party (sublet) 81.0 5.3 - 18.1 - 94.1 - 11.0 209.5 Vacant 244.2 2.7 - 7.5 - 68.5 - - 322.9 Total 2,321.2 115.0 16.2 37.0 - 255.3 251.0 25.2 3,020.9 Freeholds / valuable 840.0 40.0 - 11.3 - 128.5 251.0 25.2 1,296.0 leaseholds Leaseholds 1,481.2 75.0 16.2 25.7 - 126.8 - - 1,724.9 Total 2,321.2 115.0 16.2 37.0 - 255.3 251.0 25.2 3,020.9 Estate managed but not 78.7 8.7 86.7 - 150.0 - - - 324.1 transferred PPP assets held for sale - 1,458,000sq m Table 28: Land Securities Trillium vacation allowance and portfolio activity - DWP 000sq m 31/03/06 Acquisitions Vacations * Lettings Disposals 31/03/07 Client occupied 2,216.2 0.3 (220.5) - - 1,996.0 Third party (sublet) 66.4 - (9.0) 34.6 (11.0) 81.0 Vacant 163.5 - 229.5 (34.6) (114.2) 244.2 Total 2,446.1 0.3 - - (125.2) 2,321.2 Freeholds / valuable leaseholds 861.5 0.3 - - (21.8) 840.0 Leaseholds 1,584.6 - - - (103.4) 1,481.2 Total 2,446.1 0.3 - - (125.2) 2,321.2 Estate managed but not transferred 93.1 - (14.4) - - 78.7 31/03/06 31/03/07 Vacation allowance used to date - - - 234.1 392.7 Available allowance - - - 289.7 130.5 Future allowance - - - 198.2 164.4 * Includes core vacations Table 29: Land Securities Trillium portfolio activity - Barclays 000sq m 31/03/06 Acquisitions Vacations Lettings Disposals * 31/03/07 Client occupied 11.4 - - - - 11.4 Third party (sublet) 14.8 - (0.1) 3.4 - 18.1 Vacant 23.9 - 0.1 (3.4) (13.1) 7.5 Total 50.1 - - - (13.1) 37.0 Freeholds / valuable leaseholds 11.3 - - - - 11.3 Leaseholds 38.8 - - - (13.1) 25.7 Total 50.1 - - - (13.1) 37.0 * Includes lease surrenders, lease expiries and disposals. Table 30: Land Securities Trillium portfolio activity - Royal Mail 000sq m 31/03/07 Client occupied 92.7 Third party (sublet) 94.1 Vacant 68.5 Total 255.3 Freeholds / valuable leaseholds 128.5 Leaseholds 126.8 Total 255.3 Since acquisition (07/03/07) there has been no change in the portfolio. Table 31: Land Securities Trillium number of people by occupation As at 31/03/07 Total Asset management 80 Call centre 78 Capital projects 143 Quality assurance 31 Facilities management 389 HR/finance 110 Business development and commercial 88 Total 919 Table 32: Land Securities Trillium existing portfolio by use Office 61% Education 17% Health 14% Other 8% Table 33: Land Securities Trillium existing portfolio by floor area Business million sq m DWP 2,400,000 Norwich Union 116,000 DVLA 103,000 Barclays 37,300 Telereal II 150,000 IIC 12,000 SMIF 1,384,000 Leicester Grammar School 16,000 Accor 250,000 Royal Mail 251,000 SMIF (new) 41,000 DTR 660,000 Northern Ireland Civil Service 270,000 Financial Statements Consolidated income statement Before Before Exceptional Exceptional 2007 Exceptional Exceptional 2006 items items Total items items Total Notes Â£m Â£m Â£m Â£m Â£m Â£m Income: Group and share of joint ventures 1,722.7 - 1,722.7 1,988.2 - 1,988.2 Less: share of joint ventures' income 10 (81.6) - (81.6) (159.5) - (159.5) Group revenue 2 1,641.1 - 1,641.1 1,828.7 - 1,828.7 Costs 2 (1,046.2) - (1,046.2) (1,267.8) - (1,267.8) 594.9 - 594.9 560.9 - 560.9 Profit on disposal of non-current properties 2 118.2 - 118.2 74.5 - 74.5 Net surplus on revaluation of investment 2 1,307.6 - 1,307.6 1,579.5 - 1,579.5 properties Goodwill impairment 2,4 - - - - (64.5) (64.5) Profit on disposal of joint venture (Telereal) 2,4 - - - - 293.0 293.0 Operating profit 2,020.7 - 2,020.7 2,214.9 228.5 2,443.4 Interest expense 3 (233.3) - (233.3) (201.8) - (201.8) Interest income 3 12.4 - 12.4 7.3 - 7.3 1,799.8 - 1,799.8 2,020.4 228.5 2,248.9 Share of the profit of joint ventures 10 81.3 98.0 179.3 98.6 - 98.6 (post-tax) Distribution received from joint venture 10 - - - 11.7 - 11.7 (Telereal) Profit before tax 2 1,881.1 98.0 1,979.1 2,130.7 228.5 2,359.2 Income tax (expense) / credit 5 (445.0) 1,994.2 1,549.2 (593.3) (90.0) (683.3) Profit for the financial year attributable to 15 1,436.1 2,092.2 3,528.3 1,537.4 138.5 1,675.9 equity shareholders Earnings per share Basic earnings per share * 7 753.59p 357.95p Diluted earnings per share * 7 750.54p 356.50p * adjusted earnings per share is given in note 7 Consolidated statement of recognised income and expense 2007 2006 Â£m Â£m Actuarial losses on defined benefit pension schemes (1.3) (5.0) Deferred tax on actuarial losses on defined benefit pension schemes 1.0 1.5 Fair value movement on cash flow hedges taken to equity - Group 6.7 (2.2) Fair value movement on cash flow hedges taken to equity - joint ventures 11.8 (2.7) Deferred tax on fair value movement on cash flow hedges taken to equity - Group (1.6) 0.6 Deferred tax on fair value movement on cash flow hedges taken to equity - joint ventures (2.3) 0.8 Net gains / (losses) recognised directly in equity 14.3 (7.0) Profit for the financial year 3,528.3 1,675.9 Total recognised income and expense attributable to equity shareholders 3,542.6 1,668.9 Consolidated balance sheet Notes 2007 2006 Â£m Â£m Non-current assets Investment properties 9 12,891.7 11,440.5 Property, plant and equipment Property partnerships properties 9 979.1 563.2 Other property, plant and equipment 9 78.2 73.6 9 13,949.0 12,077.3 Net investment in finance leases 262.4 233.9 Goodwill 129.6 34.3 Investments in joint ventures 10 1,338.8 829.5 Total non-current assets 15,679.8 13,175.0 Current assets Trading properties and long-term development contracts 148.3 255.9 Trade and other receivables 641.8 578.9 Cash and cash equivalents 52.7 15.6 Total current assets (excluding non-current assets classified as held for sale) 842.8 850.4 Non-current assets classified as held for sale 11 2,420.3 - Total current assets 3,263.1 850.4 Total assets 18,942.9 14,025.4 Current liabilities Short-term borrowings and overdrafts (1,683.2) (163.6) Trade and other payables (783.9) (585.0) Current tax liabilities (535.8) (212.5) Total non-current liabilities (excluding liabilities directly associated with non- (3,002.9) (961.1) current assets classified as held for sale) Liabilities directly associated with non-current assets classified as held for 11 (1,601.0) - sale Total current liabilities (4,603.9) (961.1) Non-current liabilities Provisions (80.7) (58.2) Borrowings 12 (3,457.4) (3,537.9) Net pension benefit obligations 13 (5.6) (6.5) Deferred tax liabilities 14 (4.0) (1,967.8) Total non-current liabilities (3,547.7) (5,570.4) Total liabilities (8,151.6) (6,531.5) Net assets 10,791.3 7,493.9 Equity Ordinary shares 15 47.0 46.9 Own shares 15 (14.5) (3.4) Share-based payments 15 7.9 6.3 Share premium 15 51.5 43.2 Capital redemption reserve 15 30.5 30.5 Retained earnings 15 10,668.9 7,370.4 Total shareholders' equity 10,791.3 7,493.9 Consolidated cash flow statement Notes 2007 2007 2006 2006 Â£m Â£m Â£m Â£m Net cash generated from operations Cash generated from operations 16 682.4 591.5 Interest paid (237.5) (187.7) Interest received 12.4 7.3 Funding pension scheme deficit (3.9) (4.9) Taxation (corporation tax paid) (91.9) (30.3) Net cash inflow from operations 361.5 375.9 Cash flows from investing activities Investment property development expenditure (429.4) (236.6) Acquisition of investment properties (523.7) (1,429.2) Other investment property related expenditure (77.2) (78.8) Acquisition of properties by Property partnerships (416.5) (6.8) Capital expenditure by Property partnerships (26.0) (22.9) Capital expenditure on properties (1,472.8) (1,774.3) Disposal of non-current investment properties 841.0 675.5 Disposal of non-current operating properties 28.8 4.1 Net expenditure on properties (603.0) (1,094.7) Net expenditure on non-property related non-current assets (18.8) (26.9) Net cash outflow from capital expenditure (621.8) (1,121.6) Receivable finance leases acquired (43.3) (84.8) Receipts in respect of receivable finance leases 3.8 2.3 Net loans from / (to) joint ventures and cash contributed 10.8 (72.8) Distributions from joint ventures 39.2 206.6 Net cash advanced to disposal group (372.6) - Proceeds from disposal of joint venture (Telereal) - 293.0 Acquisitions of Group undertakings (net of cash acquired) 17 (521.4) (321.2) Net cash used in investing activities (1,505.3) (1,098.5) Cash flows from financing activities Issue of shares 8.4 11.9 Purchase of own share capital (36.2) (1.9) Increase in debt 1,433.9 1,221.2 Debt repaid on acquisition of Group undertaking 17 - (257.9) Decrease in finance leases payable (2.2) (1.2) Dividends paid to ordinary shareholders (223.0) (238.9) Net cash inflow from financing activities 1,180.9 733.2 Increase in cash and cash equivalents for the year 37.1 10.6 Notes to the financial statements To view the Notes to the financial statements, follow the link below; http://www.rns-pdf.londonstockexchange.com/rns/5942w_-2007-5-16.pdf This information is provided by RNS The company news service from the London Stock Exchange

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Land Securities Group (LAND)

Tuesday, 3rd December 2024

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