Interim Results - Part 1

Land Securities Group Plc 19 November 2003 For immediate release 19 November 2003 LAND SECURITIES GROUP PLC ('Land Securities' / 'Group' / 'Company') Interim results for the period 30 September 2003 HIGHLIGHTS • Adjusted diluted net asset value increased 4.0% to 1264p (31 March 2003: 1215p) • Investment portfolio valuation uplift of 2.0% (31 March 2003: 0.4%) • Adjusted earnings per share increased by 9.7% to 26.65p (30 September 2002: 24.29p) • Pre-tax revenue profit down 3.3% to £168.7m (30 September 2002: £174.5m) • Profit before tax increased by 15.7% to £181.7m (30 September 2002: £157.1m) • High level of investment portfolio activity demonstrated by • £254.6m of investment property sales including FRS3 profits of £11.7m • £243.6m investment on property acquisitions, development and other capital expenditure • 149 rent review settlements completed at an average of 5.9% above our valuers' ERVs • Land Securities Trillium agrees extension to the DWP contract for an additional 828,000 sq m • Continued strong performance in retail portfolio substantially offset impact of weak Central London office market • Three completed developments at Bullring, Dundee and Portman House showing an average profit on cost of 25% • Interim dividend increased by 4.2% to 9.9p (30 September 2002: 9.5p) Peter G Birch, Chairman, commented: 'We have made good progress across all areas of our business in the period under review. Our asset and property management activities have resulted in a 2.0% increase in value of the total investment portfolio; the Bullring, Birmingham opened amid much fanfare; we delivered the first phase of White City to the BBC and we agreed terms with the Department for Work and Pensions for the extension to our existing contract to include the former Employment Services estate. These are notable successes in difficult market conditions.' For further information: Ian Henderson/Andrew Macfarlane/Emma Denne Steve Jacobs/Stephanie Highett Land Securities Group PLC Financial Dynamics 020 7413 9000 020 7831 3113 FINANCIAL HIGHLIGHTS Six months to Six months to Year to 30 September 30 September 31 March 2003 2002 % Change 2003 ----------- ----------- ----------- ----------- Gross property income ----------- ----------- ----------- ----------- Property investment and trading £304.7m £285.4m 6.8% £579.3m Total property outsourcing (including 50% share of joint venture) £342.1m £296.4m 15.4% £660.2m ----------- ----------- ----------- ----------- Total £646.8m £581.8m 11.2% £1,239.5m ----------- ----------- ----------- ----------- Operating profit (total) £279.8m £277.4m 0.9% £550.2m ----------- ----------- ----------- ----------- Pre-tax profit £181.7m £157.1m 15.7% £319.6m Add back: profit on fixed asset property sales, bid costs and exceptional items (pre-tax) (£13.0)m £17.4m £21.3m ----------- ----------- ----------- ----------- 1 Revenue profit (pre-tax) £168.7m £174.5m -3.3% £340.9m ----------- ----------- ----------- ----------- Effective tax rate 27.9% 28.0% 28.1% 2 Adjusted diluted earnings per share 26.65p 24.29p 9.7% 50.36p Earnings per share (basic) 28.10p 21.69p 29.6% 46.46p Dividends per share 9.9p 9.5p 4.2% 35.50p 3 Interest cover (times) 2.15 2.50 2.42 ----------- ----------- ----------- ----------- 30 September 31 March 2003 2003 % Change ----------- ----------- ----------- 4 Adjusted diluted net assets per share 1264p 1215p 4.0% Diluted net assets per share 1238p 1188p 4.2% 5 Carrying value of investment properties £7,976.8m £7,823.9m Net debt £2,647.4m £2,589.3m Equity shareholders' funds £5,767.4m £5,532.7m 6 Gearing (net) 46.1% 47.3% ----------- ----------- ----------- 1 Excludes results of fixed asset property sales, bid costs and exceptional items (deficit on purchase and redemption of convertible bonds, cost of cancellation of interest rate swaps and the costs of reorganising the Group) 2 Excludes results of fixed asset property sales, bid costs, exceptional items and deferred tax arising from capital allowances on investment properties 3 Number of times gross interest payable (i.e. pre-capitalisation) is covered by operating profit and interest receivable but excluding the activities of Telereal and exceptional finance costs incurred in the six months to 30 September 2002 4 Excludes the additional deferred tax arising from capital allowances on investment properties 5 Market value less UITF28 adjustment 6 Net debt (borrowings less short term deposits and cash), at book value, plus non-equity B shares as a percentage of equity shareholders' funds Corporate overview We have made good progress across all areas of our business in the period under review. Our asset and property management activities have resulted in a 2.0% increase in value of the total investment portfolio; the Bullring, Birmingham opened amid much fanfare; we delivered the first phase of White City to the BBC and we agreed terms with the Department for Work and Pensions for the extension to our existing contract to include the former Employment Services estate. These are notable successes in difficult market conditions. Total shareholder returns % return for twelve months to % return for period since 30 September 2003 31 March 2000 Land Securities 19.0 31.5 FTSE 100 14.0 (30.8) FTSE Real Estate 18.9 32.0 Source: Datastream The strong appeal of commercial property as an investment remains undiminished. This, we believe, is being increasingly recognised by Government and we understand that it is examining the potential for creating a UK real estate investment trust. We see this as a positive step since it would provide a liquid, tax transparent vehicle for property investment, accessible to both private and institutional investors. However, we still remain cautious about how and when the Government might introduce such a vehicle and do not expect an announcement earlier than the budget in 2005. Results During the six months to 30 September 2003, revenue profits were marginally down at £168.7m (30.9.2002: £174.5m). The pre-tax profits were up 15.7% to £181.7m. Adjusted diluted earnings per share rose by 9.7% to 26.65p (30.9.2002: 24.29p) and adjusted diluted net assets per share have increased since 31 March 2003 by 4.0% to 1264p per share. The Group realised a profit of £11.8m from property disposals and received distributions of £25.5m from Telereal. It expended £343.6m on property acquisitions, development and other capital expenditure. The Board has declared an interim dividend of 9.9p per share, an increase of 4.2%, which will be paid on 5 January 2004 to shareholders on the register at 5 December 2003. Board appointments and Corporate Governance We were pleased to announce that Stuart Rose joined the Board as a non-executive Director on 21 May 2003. Previously he was Chief Executive of Arcadia Group plc, the owner of several well-known high street retailers including Dorothy Perkins, Evans, Miss Selfridge, Top Shop and Top Man. Stuart brings to the Board substantial retail experience and an excellent understanding of retailers and their customers' needs. At the year-end the Board said it was assessing the impact of the Higgs and Smith recommendations on corporate governance. As a result, in light of the Combined Code on Corporate Governance issued in July 2003, David Rough, who joined the Board as a non-executive director in January 2002, has been appointed to the role of senior independent director. In due course the Board will seek to appoint two further non-executive directors. At the same time the board has reviewed the composition and terms of reference of its Nominations and Audit Committees. Minor amendments have been made to the terms of reference of the Audit Committee. In the past the entire board of Land Securities formed the Nominations Committee. In future this will be an ad-hoc committee, comprising a mixture of executive and non-executive directors, with, typically, non-executive directors as a majority. The Chairman will be the chairman of the Nominations Committee, unless the Committee is considering the appointment of the Chairman or Group Chief Executive, in which case the Nominations Committee will be chaired by the senior independent director. Valuation Total investment portfolio The total investment portfolio covers four principal sectors of the UK commercial property market and benefits from inherent diversification in terms of both occupier covenant and business sector risk. It comprises 248 assets, more than 4,500 tenancies and over 2,000 occupiers. The average lot size is £32.2m. On 30 September 2003 Knight Frank valued the total investment portfolio at just under £8.0bn. A detailed analysis of the portfolio is included in the schedule at the end of the Corporate Review. The six months to 30 September 2003 saw continued strong investor demand from both international and domestic institutions, as well as leveraged investors taking advantage of the debt markets. The valuation change over the period was 2.0% demonstrating the benefits of a diversified portfolio. Retail and retail warehouse assets, which now represent 52.3% of our total investment portfolio, produced a 5.9% uplift in value and this performance more than outweighed the negative performance of 2.9% for our central London offices which represents 38.4% of our portfolio. The valuation improvement can partly be accounted for by 54 assets that benefited from Disadvantaged Areas status and Stamp Duty relief resulting in an uplift of £68m, 0.85% of the total value change. The current legislation is in place only until 2006 and therefore the benefit is temporary and only crystallised on sale. Like-for-like portfolio In order to improve the clarity of our reporting about the total investment portfolio we are providing a more detailed analysis about the like-for-like performance of our properties. This is included in the analysis at the end of the Corporate Review. The like-for-like portfolio comprises investment properties which have been in the portfolio throughout the current and prior financial year and which have not been part of the development programme during that time. It also excludes sales and purchases. This portfolio was valued at £6.42bn and showed a 2.3% increase in value since 31 March 2003. The annual rent roll, net of ground rent, of the like-for-like portfolio was £440.2m. In the like-for-like portfolio, retail assets have shown good growth with a 5.2% uplift in value as a result of both strong investment demand and rental growth. Retail warehouses have shown the best performance, with a 6.3% increase over the period. In central London offices, values overall have experienced a small decline of 1.1%. This softening varied considerably depending on the market sub-sectors. Investment activity In the six months under review we purchased £62.7m of assets. The largest of these was 120 Cheapside, a property in the City of London, which produces a 9.4% yield and provides medium term development opportunities. As we have demonstrated in the past, we can benefit from adverse market conditions to make opportunistic acquisitions for future value creation and will continue to do so as opportunities arise. Investor appetite for property shows no signs of diminishing and we have taken advantage of this by selling a further 13 investment properties for £254.6m, the largest of which was Grand Buildings, London WC2 which realised £136.8m. From the sales completed this year, we have generated FRS3 profits of £11.7m, 4.8% ahead of value. We have continued to sell mature assets over the last 18 months, taking advantage of the buoyant market for investment properties. The capital released is partly being recycled into other areas of the business as the keen pricing of investment assets currently makes the sourcing of suitable properties more difficult. However, through our development pipeline we are able to create new assets for the portfolio, as exemplified at Bullring Birmingham, which we are confident will continue to show strong performance on top of the value already created by development. The strategy for our investment portfolio remains to focus on core sectors of the UK property market that we believe will benefit from long-term constraints in the supply of land. We continue to be active managers of our portfolio, and since the year-end we have concluded 149 rent reviews at an average of 5.9% above estimated rental value and negotiated 39 lease renewals at an average 5.3% above estimated rental value. Central London offices Market overview - total investment portfolio Demand for well-let investment property in central London continues to be strong but occupier demand remains subdued. We are becoming increasingly optimistic about certain sub-sectors of this market, particularly the West End, which represents 48% of our Central London portfolio, and which we believe could show signs of improvement as early as next year. However, in the short term, the outlook continues to be difficult for the City. The office vacancy rate in the central London market is currently running at 13.2% of total stock, although much of this space is surplus to occupiers' requirements rather than landlord supply. During the period there has been an improvement in take-up of accommodation and we are beginning to see some cases of this surplus occupiers' space being withdrawn from the market. With more positive signs on the horizon, we believe that the steps we have taken to restructure the Central London portfolio and position our development pipeline leave us well placed to benefit as market conditions improve. It was recently announced that the Chancellor of the Exchequer has commissioned Sir Michael Lyons to undertake a review of the potential for decentralising some Civil Service jobs from London and the south east. The interim report has now been produced and identifies the potential for relocation of 20,000 jobs or more out of a total of 230,000 in London and the south east. The report recognises that support teams or more specialist or technical departments such as the Highway Agency may be best suited for relocation. Policy related jobs in the large Ministries, however, are less likely to be relocated. As our government let office buildings are predominantly in Victoria within the 'division bell' area for Parliament, we consider it unlikely they will be at greatest risk from this initiative. The initiative may also generate some opportunities for the Group in terms of property outsourcing. Portfolio management The like-for-like decrease in value of our central London office portfolio was 1.1%, representing a much slower rate of decline than the prior six months. Our West End portfolio held up well showing a nominal valuation decline of only 0.1% over the six-month period. This is partly attributable to the preponderance of holdings in Victoria, where our void rate is 0.7% as compared to a market vacancy rate of around 6.0%. In addition, as described below, our West End portfolio has also benefited in performance terms from lease restructurings on properties in Victoria. Partly due to a change in the way we calculate our voids to include certain pre-development properties, as explained in the notes accompanying the total investment portfolio analysis, voids in the central London office portfolio have increased to 3.1%. The average weighted lease length for this portfolio is 9.3 years. There are 10.7 years remaining on our West End portfolio, with 9.0 years remaining on our City portfolio. This has decreased slightly over the last three years as a result of our strategy of selling properties with medium-term income and low growth prospects and reinvesting into properties with shorter term income and opportunities to create value. The running yield on this portfolio is 7.8%. We continue to work closely with the Government to meet its various occupational needs. During the half year, we concluded a lease extension at the current Home Office building, Queen Anne's Mansions, 50 Queen Anne's Gate, London SW1, a 28,310 sq m office block which we have owned since 1977. This is to be refurbished as the future headquarters of the Department for Constitutional Affairs (formerly the Lord Chancellor's Department), and the new lease arrangement will give a clear 20-year term with an indexed rent throughout the lease. Landflex Landflex has met with a positive response from occupiers and we are very pleased that 7 Soho Square is 85% let, with only one floor remaining. Soho Square was launched in May this year and the speed at which it has let and the terms we have achieved confirm our view that providing customers with greater flexibility and price certainty successfully differentiates our product. The contracts that are currently agreed range from one to three years in length. Rents are at or slightly above market rates for conventional leases, but we have agreed significantly shorter rent free periods, which result in a better contribution to our profit and loss account. Our customers include Expedia and the Metropolitan Police. We also completed and launched Empress State, SW6, in the summer and we are pleased with the response we have had to date. We currently have interest from potential customers for a total of 18 floors or approximately 28,000 sq m of accommodation, representing just over 70% of the building. Development We have progressed well with our plans for the central London development pipeline. Our strategy has been to position the pipeline so that we are able to respond to any major occupier that has a requirement for new accommodation between now and 2008. In addition to schemes already under construction, we have planning consents for approximately 150,000 sq m of office-led development that can be delivered in stages over the next six years, depending on occupier demand. We are pleased with the progress made on lettings and letting enquiries over the last six months. Of our completed schemes, Portman House and 190 High Holborn are now fully let and, as stated above, 7 Soho Square is now 85% let. The letting at 190 High Holborn at approximately 8,500 sq m is reported to have been the largest to date in the West End and Mid-Town markets during 2003. The agreement with Pearson plc was finalised shortly after our 30 September reporting date and is for a 20-year lease without break clauses. A substantial rent-free period was agreed to secure the long lease duration. Since 1 April this year, we have let 12,500 sq m of offices within our London development programme and we are in discussions on over 56,000 sq m of accommodation at Empress State and 30 Gresham Street in the City. The property at 30 Gresham Street is due for completion in December this year and will provide 35,150 sq m of offices with ancillary retail accommodation. In addition, we are in discussions on over 55,000 sq m of potential pre-lettings for our sites in New Street Square, EC4 and Bankside 123, SE1. We submitted a revised planning application for the New Fetter Lane site in order to broaden the scheme's appeal to occupiers and to increase the overall office accommodation by offering a range of building sizes. The revised scheme brings increased access and street life to the location and is centred round a new London square, to be called New Street Square. Our proposals include a variety of uses at ground level and office buildings of various sizes ranging from 3,600 sq m to 21,400 sq m with a total office floor area of 62,500 sq m. At Bankside 123 on Southwark Street, SE1, where we have planning consent for 75,300 sq m of offices and 10,000 sq m of ancillary uses, we are demolishing the existing building and preparing the site so that we can start work promptly when a pre-let is secured. Construction continues at Cardinal Place, Victoria, SW1, which will provide 50,750 sq m of offices in two buildings and 9,250 sq m of retail accommodation, with the majority completing in mid-2005. With the low current vacancy rate in Victoria, and the anticipation of a shortage of new buildings across the West End market as a whole, we consider that the completion date will be well timed. We have also started to prepare development schemes for our holdings at One New Change in EC4, Bankside Industrial Estate in SE1, Bowater House in SW1 and Park House, Oxford Street, W1. At this stage, these potential schemes are not yet included in our formal Development Pipeline, but they represent development opportunities for the second half of this decade totalling in excess of 150,000 sq m. Shopping centres, shops and central London retail Market overview - total investment portfolio Investor demand continues to be strong for all types of retail property. Capital growth has accelerated since the year-end, but as predicted the rate of rental growth slowed. With further interest rates rises possible this could impact adversely on consumer spending, which in turn could result in occupier demand softening in 2004/05. The occupational market remains strong however for the best locations, as demonstrated at the Bullring in Birmingham which opened in September virtually fully let. Portfolio management The like-for-like increase in the value of our in-town retail portfolio was 4.7%, slightly ahead of the prior six months. Voids remain low at 1.9% and we continue to be proactive in the management of our shopping centre assets in order to create opportunities that will both satisfy retailer demand and establish market evidence in advance of rent reviews. The average weighted lease length for this portfolio is 10 years, with more than 8.9 years remaining on our central London shops and 10.7 years on our shopping centres. The running yield is 6.4%. We estimate that more than 400 million shoppers visit our retail assets every year. To ensure that we maximise this footfall, encourage dwell-time and customer spend we continue to focus on effective management of the retail environment, local promotion and marketing initiatives in order to assist retailers to maximise their profitability. We have been very active during the period as we continue our focus on the customer. Our achievements include relocating New Look in The Bridges, Sunderland to a 1,700 sq m unit in a less prime position and re-letting their previous unit to Warner Bros and French Connection, thereby adding to the number and quality of fascias while giving all these retailers units that conform to their preferred occupational requirement. At White Rose Centre, Leeds, the surrender of the Mothercare unit has enabled us to upgrade Clinton Cards to their optimum 1,010m sq m unit size, while splitting their former unit to accommodate two new retailers to the centre. Similarly in Almondvale, Livingston, we have used the insolvency of What Everyone Wants to reconfigure the unit and increase the rental value by 60%. Development We were delighted with the public recognition of the tremendous success of the Bullring in Birmingham, which nearly five million people visited in its first month of opening. This 110,000 sq m scheme, which was developed in partnership with Hammerson and Henderson Global Investors (The Birmingham Alliance), was 95% let on opening and is now 97% let. Our share of the annual rent roll income exceeds £13.0m, which represents a material addition to Group rental income. The Birmingham Alliance is now assessing options for a further phase of retail-led, mixed-use development at Martineau Galleries. Whitefriars in Canterbury, a 37,685 sq m retail scheme, is now 57% let or in solicitors' hands to retailers including Marks & Spencer, Boots and Tesco. The first phase is due to open in Summer 2004 with the entire scheme due for completion in Summer 2005. In Exeter, we have planning consent for a 37,512 sq m retail-led scheme comprising an anchor department store, four large stores and 50 new shops as well as leisure and residential accommodation. We have started preliminary enabling works and the main construction work is due to commence early in 2005. We continue to make progress with our retail developments in Bristol and Cardiff. In Bristol, working in conjunction with Hammerson and Morley Fund Management, we have outline consent for a 125,700 sq m retail led development together with 260 residential units and we are in discussions for the letting of the anchor store. In Cardiff, we are working in conjunction with Capital Shopping Centres and have achieved an outline planning consent for approximately 70,000 sq m of retail accommodation and 39,750 sq m (gross) of hotel and residential space. We were disappointed to have received notification from the Office of the Deputy Prime Minister that our proposals for a 27,000 sq m scheme at York had been rejected. The principle of development on this historically sensitive site was established in the Inspector's Report and the decision letter. However, we have now removed this scheme from our development pipeline while we re-evaluate the situation. In the meantime, our current investment in the site is small at under £10m and continues to generate an income return at or slightly in excess of our weighted average cost of capital. While disappointing, this decision must be viewed in the context of our retail development programme where we have planning consent to deliver a total of approximately 150,000 sq m of new retail accommodation (based on our effective share of schemes being undertaken in partnership) across the United Kingdom. Retail warehouses Market overview - total investment portfolio The retail park market continues to be one of the most dynamic in the retail sector. While the traditional bulky goods retailers are becoming more cautious in their expansion plans, new high street entrants continue to see opportunities in this sector and overall occupier demand remains strong. We believe that the very strong rental and capital growth of prior years may slow but we still expect this sector to show sustained good performance. Portfolio management The like-for-like increase in the value of our retail warehouse portfolio was 6.3%, demonstrating the strength of this market. Voids remain relatively low at 2.2% and the running yield is 5.5%. We are working with retailers to reposition a number of our retail parks towards high street type shopping, taking advantage of the high percentage of open A1 consents within the portfolio. At West Thurrock we have taken back five stores that we are combining to form a 10,000 sq m Marks & Spencer Lifestore. At Retail World in Gateshead, Boots is joining Next, Holiday Hypermarket and TK Maxx. Elsewhere in the portfolio we have planning permission for a further 29,233 sq m of development, of which 8,650 sq m is currently under construction. South east industrial premises Market overview - total investment portfolio As we have seen in central London, the relationship between the occupational and investment sectors of the industrial property market remains disconnected. It is still difficult to purchase quality standing investments due to the competitive investment market, but occupier demand remains muted. However since there is limited supply through new development we are still able to secure satisfactory lease and rental terms. With a development programme of over 100,000 sq m on prime sites around the south east, we are seeing satisfactory occupier interest although it is taking longer for potential occupiers to commit. In response to this we will be holding back on further new construction until late 2004 when we anticipate stronger tenant demand. Portfolio management The like-for-like increase in the value of our industrial portfolio was 2.1% and the running yield is 7.3%. Investment voids are 7.1% (£1.7m per annum by rental value). We continue to add to our portfolio through the development of new stock with the completion of 35,750 sq m at Oxford, Croydon and Basildon, but have also decided to take advantage of strong investor demand to sell a 106,000 sq m portfolio of industrial and warehouse properties, which no longer fulfill our investment criteria. At same time we will continue to acquire sites in the South east, focusing on properties that are self-financing with future opportunities for development. Kent Thameside We continue to progress well with our plans at Kent Thameside. At Eastern Quarry, we submitted an outline planning application for 7,250 residential units and approximately 200,000 sq m of leisure, retail, office and community accommodation in January this year. At Ebbsfleet, where we already have outline planning consent, we have now received approval for the Quarter Master Plan for the first phase of office and residential development, which is the precursor to our submitting detailed planning applications next year. Where residential development is already under way at Waterstone Park in partnership with Copthorne Homes, a subsidiary of Countryside Properties, 91% of the units in the first phase have now been sold. Planning consent has been obtained for the second phase of up to 450 units, subject to completion of a Section 106 Agreement. Total property outsourcing Market overview We are seeing interest in Land Securities Trillium's property outsourcing continuing to grow. In the last six months we negotiated the transfer of a further government portfolio in the form of the former Employment Services estate and other new client opportunities are now in the public domain. In the corporate sector, companies are seeking new ways of achieving property cost reduction, capital release or reconfiguring their estates and are exploring how the property outsourcing model can deliver on these objectives. In particular, Aviva plc has invited a number of companies to tender for the acquisition and maintenance of a range of major properties in its UK occupied property portfolio. We expect to see further activity in this area before the financial year-end. In the public sector, our marketing activities with local authorities are now generating opportunities and we are assessing how the property partnership model can work for a number of local authorities. Land Securities Trillium has been short-listed by Bradford City Council for its Asset Management project. They are seeking a long-term agreement encompassing asset transfer, facilities services delivery and strategic estate management and development. On completion of a successful procurement by Bradford, other local authorities might follow the example. Review of activity Land Securities Trillium continues to perform strongly and is now making a robust contribution to Group profits. In the first six months, it generated income of £342.1m, some 15% up on the equivalent period last year (30.09.02: £296.4m). This growth in revenue was generated from the existing Department for Work and Pensions ('DWP') and BBC contracts and represents uplifts in both the underlying accommodation charge and the provision of additional space and capital expenditure projects. As anticipated, vacations and lower disposal proceeds meant that our share of revenue from Telereal (which operates the BT contract) fell to £82.2m from £84.5m as compared to the same period last year. In addition to our existing portfolio, Land Securities Trillium secured a significant new contract since the period end. We recently announced that we had successfully concluded negotiations to acquire the former Employment Services estate that is to be merged with our existing DWP portfolio and managed under one expanded contract expiring in 2018. This will add 828,000 sq m to our holdings and generate additional revenue averaging £147m per annum over the first five years. Approximately 30% of the new properties are freehold and we will make a transfer payment to DWP of £100m. The contract effectively mirrors the terms of the existing contract and gives the DWP the ability to vacate 228,000 sq m of the former Employment Services estate over three years. We anticipate that the contract will be completed in December so that we will be fully operational next year, with the new contract starting to contribute to profits from 2005. Further business growth has been achieved on the BBC contract where, in conjunction with Land Securities Development, Land Securities Trillium has extended its existing relationship with the BBC to include redevelopment of the landmark 50,000 sq m Broadcasting House in the West End of London. Department for Work and Pensions As we continue to work with the DWP to finalise contract terms for the Employment Services estate, we are preparing to mobilise the expanded contract by the end of the year. This mobilisation is being planned jointly with DWP and the process is well underway and on programme. On the existing estate continued good progress has been made in supporting the DWP's ongoing modernisation programme with the completion in September 2003 of the Pensions Service roll-out which encompassed 32,000 sq m of accommodation. Following the successful delivery of year one of the Jobcentre Plus roll out, we are now well underway with year two which includes Land Securities Trillium managing 124 major capital refurbishment schemes with a value of circa £115m, with another 500 schemes due in years three and four. Elsewhere, the contract has performed well in terms of both earnings and customer feedback. A recent customer satisfaction census recorded an overall satisfaction level of 90% across the PRIME estate with a 99% rating being achieved for the performance of our Customer Service Call centre. BBC In addition to the project management of Broadcasting House in London, our national relationship with the BBC continues to evolve. We are working with the BBC to plan and support its development programme, notably on Pacific Quay, the BBC's new Broadcasting Centre facility in Glasgow, and on the development of proposals for a possible new broadcasting facility in Manchester. The BBC's new media village at White City in London, developed and fully serviced by Land Securities Trillium, is nearing completion. The BBC will occupy the building in phases and the site is expected to be fully operational by mid May 2004. In the first year of operation, the facilities management services which we provide to the BBC have generated a significant increase in customer satisfaction levels. We were also delighted to receive ISO 9001 accreditation in October 2003. Telereal Telereal, our joint venture with the Pears Group, made a £16.4m contribution to half-year pre-tax profits, including £2.9m from property sales. In addition Telereal has exchanged contracts (conditional on BT vacation) to sell on three central London telephone exchanges. These have a floor area of 10,000 sq m and should realise some £42m. Such opportunities are created by the Telereal corporate real estate team which works closely with BT to reconfigure its occupational portfolio. This helps reduce costs for BT while realising profits for Telereal in which BT also shares. Our People We have made excellent progress in the past six months, under Ian Henderson's continued leadership, and we are on track to meet the Group's objectives. We would like to thank all our colleagues for their contribution to our success to date. Group Objectives and Outlook At the year-end, we set certain objectives for the business as follows: • To maximise returns from the investment portfolio • To complete and let the development programme • To grow total property outsourcing • To focus on customers with products that meet their needs • To build and retain the best team in the property industry; and • To focus on earnings generation from our capital investment to drive total returns. We are very pleased with the results for the first half of the year, which demonstrate that we are making good progress towards achieving these objectives. We believe that we have positioned our business units well, to benefit from their respective market conditions. Peter G Birch Ian Henderson Chairman Group Chief Executive 19 November 2003 Financial Review Headline profits before tax for the six months to 30 September 2003 increased by 15.7% to £181.7m (30.09.02: £157.1m). Last year's figures were, however, distorted by various exceptional costs incurred in redeeming our convertible bonds and preparing for the return of capital to shareholders. Revenue profits, which exclude the distortions caused by exceptional items and certain potentially non-recurring costs and revenues were £168.7m for the period, as compared to £174.5m last year. However, we returned £511m of capital to shareholders in September 2002 and subsequent results reflect the full interest cost of financing that outlay. If this factor is also taken into consideration, underlying revenue profits in the first six months were some 3.2% higher than the same period last year. Our business is not seasonal and the comparison of revenue profits in the first half of this year with the immediately preceding six months to 31 March 2003 shows growth of 1.4%. Headline earnings per share were up by 29.6% reflecting the increase in profits before tax and the accretive impact of last year's return of capital. Adjusted diluted earnings per share, which are based on revenue profits rose by 9.7%, and were significantly influenced by the return of capital. The revaluation surplus on our investment properties has increased by £153.0m since last year-end, representing a 2.0% increase across the portfolio. This includes a one-time benefit of £68m arising from the new Stamp Duty regime for property in Disadvantaged Areas. Together with retained profits of £84.7m (30.09.02: £67.4m) this has resulted in a 4.0% increase in adjusted diluted net assets per share, which have risen to 1264p compared with 1215p at 31 March 2003. Total investment portfolio Rental income in the first half decreased by 0.5% from £258.5 to £257.2m, but by 1.5% when compared with the second half of last year. As previously outlined we are disclosing more detailed information about the like-for-like performance of our properties. The table below analyses the reasons for the changes in rental income over the last three six month periods. Gross rental income for 30.09.03 30.09.03 31 03.03 31 03.03 30.09.02 the 6 months ended % % £m change £m change £m Like-for-like portfolio: Offices 105.4 -2.0 107.5 +3.4 104.0 Retail 110.2 +2.0 108.0 +3.6 104.2 Industrial & other 15.0 -5.7 15.9 +9.7 14.5 --------- --------- --------- --------- --------- Total like-for-like portfolio 230.6 -0.3 231.4 +3.9 222.7 Property purchases 3.2 0.4 0.0 Property sales 6.4 12.5 22.1 Developments 17.0 16.9 13.7 --------- --------- --------- --------- --------- Total investment portfolio 257.2 -1.5 261.2 +1.0 258.5 ====== ====== ====== ====== ====== The like-for-like properties have shown modest rental income growth over the last eighteen months, principally on the retail part of the portfolio. The office portfolio has shown very little income growth due to the difficult conditions in the London office market. While we have achieved some increases in rent from reviews, this has been offset partly by voids and partly by the loss of some income on certain office properties that are being prepared for development. Voids in the like-for-like portfolio, which are actively managed, have increased from 2.5% at September 2002 to 2.9% at September 2003. We also continue to control tenant receivables carefully, and the cost of bad and doubtful debts during the six months to 30 September 2003 was some £1.2m, equivalent to approximately 0.2% of the net rent roll (30.09.02: 0.2%). As the table shows, new rents from property acquisitions and developments have offset the loss of rent from disposals. The main contributors to development rents in the year to 31 March 2003 were: • Designer Outlet Mall, Livingston; • Lakeside Retail Park West Thurrock; • Racecourse Retail Park, Liverpool; • Juniper Site, Basildon; • The Gate, Newcastle upon Tyne. In the current period, we have also completed and let The Bullring in Birmingham, Portman House in W1 and Phase I of the Kingsway West Retail Park in Dundee. Since September 2002, the net reversionary potential of the like-for-like portfolio has fallen from 10.4% to 2.2%. However, within the portfolio, retail remains reversionary overall whereas the London office portfolio, and in particular the City, is increasingly over rented. The mean weighted unexpired lease term for the total portfolio is 10.6 years (30.09.02: 11.6 years) on the assumption that all lease breaks and expiries occur. During the period, we sold investment properties with a book value of £242.9m (30.09.02: £294.1m) at an average rental yield of 7.2%. We realised profits on sales of £11.7m and crystallised £94.8m of previous valuation surpluses. Development Projects that comprise the current development programme are listed in the pipeline schedule above. To be included in the programme, a project must have, or be close to obtaining, final approval to proceed. For reporting purposes, we retain properties in the development programme until they are 95% let, when we transfer responsibility to the Portfolio Management business unit. The carrying value of development programme assets (which excludes the BBC construction project at White City, trading properties, proposed developments and the project at Kent Thameside) was £706.8m (31.03.03: £967.4m). During the period, we spent £119m on the development programme and capitalised associated finance costs of £16.9m. The estimated future cash spend required to complete the development programme, excluding interest, is approximately £326m. Proposed developments (excluding Kent Thameside) have a current carrying value of £137.5m and the estimated future cash spend required to complete these schemes, if we proceed with them, is approximately £840m, excluding interest. During the period, we completed and let our schemes at The Bullring in Birmingham (where we have a one-third share), Portman House on Oxford Street, W1, and Phase I of Kingsway West retail park in Dundee. At 30 September 2003, these schemes had an aggregate value of £393.7m and generated development profits of £78.8m over the lives of the projects. On a profit and loss basis, we recognised rental income from these schemes of £5.3m in the six months to 30 September 2003. They will contribute some £24.0m of gross rental income annually. Total property outsourcing Land Securities Trillium, including our share of Telereal, generated 52.9% of the Group's gross property income in the period (30.09.02: 50.9%). This business unit continues to make good progress towards its target of representing 25% of our operating profit in the medium term, having contributed 13.1% in the current period. Excluding Telereal, Land Securities Trillium's underlying profits were £19.1m for the first half, similar to 2002. At the contract level, PRIME and BBC have both continued to perform in line with expectations. In the first six months of this year, Land Securities Trillium incurred costs of some £2m, in addition to bid costs, in preparation for the Employment Services extension to the PRIME contract. We expect to assume responsibility for this estate around the end of the calendar year and anticipate that it will reduce pre-tax profits this year by £15-20m in total. However, we expect that Employment Services will generate up to £5m of pre-tax profits in the next financial year, although it is likely to be loss making in the first half. We completed construction at White City II on 4 October 2003 and our unitary charge on that project will increase by £24m per annum with effect from 1 October 2003. We continue to expect that the BBC contract will broadly break even for 2003/04 as a whole. During the period, we incurred a further £82m on the White City II building, including interest. Our investment in White City II at 30 September 2003 was £237m, (including interest) with estimated cash costs of £25m still to be incurred. Telereal continues to make a good contribution to earnings, despite a small reduction in the unitary charge reflecting the sale of investment properties during last year. Telereal produced revenue profits in the first half in excess of those for the whole of last year as a result of lower contract costs, partly attributable to property sales last year. Telereal has continued to be cash positive allowing it to make distributions to the Group and our joint venture partners. As a result, our investment in Telereal has reduced and was £89.0m at 30 September 2003 (30.09.02: £131.7m) and £106.8m at 31 March 2003. Telereal is generating very attractive leveraged returns for the Group. Taxation The requirement in FRS 19 (Deferred Tax) to make full provision for timing differences means that, in profit and loss account terms, our reported tax rate for the period was 27.9% (30.09.02: 28.0%). The factors causing this are explained in note 4 to the Accounts. We estimate that our current tax charge for the period was 23.8% (30.09.02: 24.3%) of profit on ordinary activities and this reflects the benefit of capital allowances from developments, refurbishments and acquisitions, and financing transactions during the year. We also benefit from a lower tax rate payable on profits on properties that we have sold. The full year current tax charge last year was 12.1% of profit on ordinary activities and, as indicated last year-end, was influenced by particular factors that are unlikely to recur. We estimate that the current tax rate for the year as a whole will be in the range of 25.0 to 30.0%. Following the latest property valuation and, on the hypothetical assumption that all properties are sold at their revalued amounts without any tax mitigation, the Group has an estimated potential capital gains tax liability in the region of £490m (30.09.02: £450m). However, it is unlikely that such an amount would be payable even in the event of a sale of all investment property assets. In particular, the sale of certain property portfolios by means of the disposal of various asset-owning companies could reduce this liability significantly. Cash flow and debt Our operating cash inflow after interest, tax and distributions from Telereal, was £128.3m, compared with £63.4m for the corresponding period last year. The increase over last year is due to the phasing of £46m of interest payments due around 31 March 2002, and to the exceptional costs incurred last year. We spent £316.2m (30.09.02: £277.3m) on additions to properties including capital expenditure on developments. This was offset by receipts of £279.9m (30.09.02: £221.0m) from the sale of properties so that we had net capital expenditure of £46.7m for this period compared with net expenditure of £62.3m for the corresponding period last year. After payment of equity dividends of £121.7m in the first half (which was the final dividend for last year) and the loan repayments received from Telereal, the Group had a cash outflow (before financing) of £40.1m for the first half compared with £106.0m for the corresponding period last year. This cash outflow, together with the payment of £18.8m to redeem B shares earlier this year, accounts for the increase in net debt from £2,589.3m at 31 March 2003 to £2,647.4m at 30 September 2003. Although net debt has increased by only £58.1m since 31 March 2003, gross debt has increased by £145.2m because we had £169.7m (31.03.03: £82.6m) of cash and short-term deposits at the period end. This includes cash deposited with debenture trustees as security in lieu of mortgaged properties that had been sold close to the period end. This deposit has now been released. At 30 September 2003 the fair values of the Group's financial liabilities exceeded book value by £685.0m (31.03.03: £598.5m) reflecting the reduction in long term interest rates since the Group's fixed rate borrowings and interest rate hedges were taken out. However, the increase in the size of this liability since 31 March 2003 reflects the recent improvement in the credit spreads on our bonds which has more than offset the favourable impact of rising long-term interest rates. During the period, the Group launched a Euro Commercial Paper ('ECP') programme to reduce the cost of short-term borrowing. At 30 September 2003 total outstandings under the ECP programme were £236.8m. It is our policy to maintain a level of undrawn committed bank facilities at least equal to, and with a maturity no shorter than, our ECP outstandings. International Financial Reporting Standards ('IFRS') All quoted companies in the United Kingdom will be required to adopt IFRS for accounting periods ending on or after 31 December 2005 as part of an international drive to harmonise financial reporting. We will continue to apply UK Accounting Standards up to and including our year ending 31 March 2005, but will adopt IFRS for the year to 31 March 2006. We will also restate information for the year to March 2005 to the new basis, to aid comparison. The International Accounting Standards Board intends to finalise the accounting standards that must be adopted from 2005 by next spring. If these new standards are substantially in line with the exposure drafts that are currently being discussed, they are likely to have a significant impact on our financial statements. We are following developments closely and have an active project to manage the transition. We will provide more information about the impact of the changes on our accounts as the deadline for transition approaches. Going concern After reviewing detailed cash flow projections and taking into account available bank facilities and making such further enquiries as they consider appropriate, the directors are satisfied that the Group has adequate resources to continue to operate for the foreseeable future. For this reason, we have continued to adopt the going concern basis when preparing these interim financial statements. Andrew Macfarlane Group Finance Director TOTAL INVESTMENT PORTFOLIO ANALYSIS P & L P & L P & L basis basis basis Gross Gross Gross Open Open Open Rental Rental Rental Market Market Market Valuation Valuation Income Income Income Annual Value Value Value Surplus Surplus 6 months 6 months 6 months Net (6) (6) (6) to to to rent(7) ------- ------- ------- ------- ------- ------- ------- ------- -------- 30-Sep 31-Mar 30-Sep 30-Sep 30-Sep 30-Sep 31-Mar 30-Sep 30-Sep -03 -03 -02 -03 -03 -03 -03 -02 -03 The like-for-like portfolio (1) £m £m £m £m % £m £m £m £m ------------------------------ London offices West end 1278.2 1267.3 1262.9 (0.8) (0.1)% 46.8 45.0 45.3 89.4 City 764.6 792.2 894.0 (27.7) (3.5)% 37.9 39.1 37.6 71.3 Midtown 323.7 320.8 349.6 2.9 0.9% 14.0 14.2 14.0 26.6 Inner London 133.6 126.0 184.8 (3.3) (2.4)% 3.7 6.9 4.2 7.0 ------- ------- ------- ------- ------- ------- ------- ------- -------- 2500.1 2506.3 2691.3 (28.9) (1.1)% 102.4 105.2 101.1 194.3 Regional offices 64.3 66.4 68.1 (2.6) (3.9)% 3.0 2.3 2.9 6.0 ------- ------- ------- ------- ------- ------- ------- ------- -------- 2564.4 2572.7 2759.4 (31.5) (1.2)% 105.4 107.5 104.0 200.3 ======= ======= ======= ======= ======= ======= ======= ======= ======== Shops and shopping centres Shopping centres 1229.2 1172.1 1102.0 54.9 4.7% 44.5 42.4 41.3 79.1 London shops 671.6 641.4 615.4 29.6 4.6% 21.3 21.2 20.3 42.1 Other in-town shops 585.4 554.7 536.9 28.0 5.0% 19.1 19.6 19.2 36.7 ------- ------- ------- ------- ------- ------- ------- ------- -------- 2486.2 2368.2 2254.3 112.5 4.7% 84.9 83.2 80.8 157.9 ======= ======= ======= ======= ======= ======= ======= ======= ======== Retail warehouses Retail parks 735.9 682.1 638.1 43.0 6.2% 18.0 18.1 17.0 37.3 Other 208.2 195.0 169.5 13.0 6.7% 7.3 6.7 6.4 14.9 ------- ------- ------- ------- ------- ------- ------- ------- -------- 944.1 877.1 807.6 56.0 6.3% 25.3 24.8 23.4 52.2 ======= ======= ======= ======= ======= ======= ======= ======= ======== Industrial South east 263.1 258.6 254.6 3.5 1.3% 9.4 10.1 8.9 18.8 Other 34.9 32.4 31.9 2.5 7.7% 1.5 1.4 1.3 3.1 ------- ------- ------- ------- ------- ------- ------- ------- -------- 298.0 291.0 286.5 6.0 2.1% 10.9 11.5 10.2 21.9 ======= ======= ======= ======= ======= ======= ======= ======= ======== Other 130.8 137.5 136.2 1.4 1.1% 4.1 4.4 4.3 7.9 ------- ------- ------- ------- ------- ------- ------- ------- -------- Like-for-like portfolio 6423.5 6246.5 6244.0 144.4 2.3% 230.6 231.4 222.7 440.2 Completed developments (2) 687.5 587.4 516.5 52.6 8.3% 13.1 12.7 8.9 25.2 ------- ------- ------- ------- ------- ------- ------- ------- -------- Total 7111.0 6833.9 6760.5 197.0 2.8% 243.7 244.1 231.6 465.4 Purchases (3) 124.8 65.5 9.2 (9.5) (7.1)% 3.2 0.4 0.0 9.4 Sales and restructured (4) 0.0 241.7 350.9 (0.2) (100.0)% 6.4 12.5 22.1 NA interests Ongoing developments (5) 760.3 702.9 622.5 (34.3) (4.3)% 3.9 4.2 4.8 NA (including Kent Thameside) ------- ------- ------- ------- ------- ------- ------- ------- -------- Total Portfolio 7996.1 7844.0 7743.1 153.0 2.0% 257.2 261.2 258.5 NA --------------------- Total investment portfolio analysis ------------------------------ London offices West end 1470.5 1481.8 1434.1 (14.3) (1.0)% 50.2 49.2 49.0 94.4 City 975.2 945.7 1031.9 (41.5) (4.1)% 38.5 39.3 41.6 74.9 Midtown 355.0 542.8 582.1 (8.4) (2.3)% 19.2 21.8 20.7 27.5 Inner London 268.2 264.3 294.4 (26.0) (8.8)% 5.4 7.1 4.0 10.8 ------- ------- ------- ------- ------- ------- ------- ------- -------- 3068.9 3234.6 3342.5 (90.2) (2.9)% 113.3 117.4 115.3 207.6 Regional offices 73.2 77.9 81.2 (3.0) (3.9)% 4.1 3.3 4.4 6.9 ------- ------- ------- ------- ------- ------- ------- ------- -------- 3142.1 3312.5 3423.7 (93.2) (2.9)% 117.4 120.7 119.7 214.5 ======= ======= ======= ======= ======= ======= ======= ======= ======== Shops and shopping centres Shopping centres 1594.7 1455.7 1366.9 77.3 5.1% 47.4 45.8 46.6 84.6 London shops 766.7 732.4 696.8 36.2 5.0% 23.3 23.3 23.1 44.1 Other in-town shops 601.1 589.1 576.3 30.2 5.3% 19.9 20.9 20.9 37.3 ------- ------- ------- ------- ------- ------- ------- ------- -------- 2962.5 2777.2 2640.0 143.7 5.1% 90.6 90.0 90.6 166.0 ======= ======= ======= ======= ======= ======= ======= ======= ======== Retail warehouses Retail parks 995.3 901.2 845.5 73.8 8.0% 24.3 24.1 21.9 51.3 Other 230.5 215.6 207.6 14.6 6.8% 7.3 7.2 6.9 14.9 ------- ------- ------- ------- ------- ------- ------- ------- -------- 1225.8 1116.8 1053.1 88.4 7.8% 31.6 31.3 28.8 66.2 ======= ======= ======= ======= ======= ======= ======= ======= ======== Industrial South east 367.0 350.2 339.0 6.6 1.8% 10.9 11.7 10.2 22.3 Other 38.4 35.7 46.8 2.7 7.6% 1.7 2.1 2.0 3.4 ------- ------- ------- ------- ------- ------- ------- ------- -------- 405.4 385.9 385.8 9.3 2.3% 12.6 13.8 12.2 25.7 ======= ======= ======= ======= ======= ======= ======= ======= ======== Other 260.3 251.6 240.5 4.8 1.9% 5.0 5.4 7.2 9.7 ------- ------- ------- ------- ------- ------- ------- ------- -------- Total portfolio 7996.1 7844.0 7743.1 153.0 2.0% 257.2 261.2 258.5 482.1 Annual Annual Annual Lease Lease Annual net Annual Gross Gross Gross Voids Length Length Estimated Yield on Estimated Estimated Estimated By As at As at Rental Present Rental Rental Rental ERV 30-Sep-03 30-Sep-03 Value (8) Income Value (9) Value (9) Value (9) (10) (11) (11) -------- -------- -------- -------- -------- --------- --------- --------- 30-Sep 30-Sep 30-Sep 31-Mar 30-Sep 30-Sep Mean Median -03 -03 -03 -03 -02 -03 Years Years The like-for-like portfolio (1) £m % £m £m £m % (i) (ii) ----------------------------- London offices West end 92.9 7.0% 94.4 102.1 109.3 1.2% 10.7 7.0 City 59.6 9.3% 60.7 67.0 77.0 6.6% 9.0 3.3 Midtown 26.4 8.2% 27.1 29.8 32.9 3.0% 6.2 5.8 Inner London 8.2 5.2% 8.5 9.1 15.6 - 6.5 10.0 -------- -------- -------- -------- -------- --------- --------- --------- 187.1 7.8% 190.7 208.0 234.8 3.1% 9.3 6.0 Regional offices 6.0 9.3% 6.1 6.0 6.4 19.7% 3.7 2.0 -------- -------- -------- -------- -------- --------- --------- --------- 193.1 7.8% 196.8 214.0 241.2 3.6% 9.2 5.8 ======== ======== ======== ======== ======== ======== ======== ======== Shops and shopping centres Shopping centres 86.6 6.4% 93.5 92.8 90.3 1.4% 10.7 9.8 London shops 47.9 6.3% 48.9 47.9 46.0 1.8% 8.9 7.8 Other in-town shops 40.5 6.3% 43.1 42.9 42.9 3.0% 9.8 8.0 -------- -------- -------- -------- -------- --------- --------- --------- 175.0 6.4% 185.5 183.6 179.2 1.9% 10.0 8.5 ======== ======== ======== ======== ======== ======== ======== ======== Retail warehouses Retail parks 42.6 5.1% 42.7 41.8 40.5 3.0% 14.7 16.8 Other 16.0 7.2% 16.0 15.6 14.3 - 14.5 16.5 -------- -------- -------- -------- -------- --------- --------- --------- 58.6 5.5% 58.7 57.4 54.8 2.2% 14.7 16.8 ======== ======== ======== ======== ======== ======== ======== ======== Industrial South east 21.3 7.1% 21.3 21.1 21.3 8.0% 6.9 7.3 Other 2.8 8.9% 2.8 2.8 2.7 - 11.3 9.0 -------- -------- -------- -------- -------- --------- --------- --------- 24.1 7.3% 24.1 23.9 24.0 7.1% 7.5 7.3 ======== ======== ======== ======== ======== ======== ======== ======== Other 8.2 6.0% 8.2 9.7 9.6 2.4% 27.0 11.8 -------- -------- -------- -------- -------- --------- --------- --------- Like-for-like portfolio 459.0 6.9% 473.3 488.6 508.8 2.9% 10.3 7.5 Completed developments (2) 43.9 3.7% 43.9 42.2 34.8 4.3% 13.9 14.3 -------- -------- -------- -------- -------- --------- --------- --------- Total 502.9 6.5% 517.2 530.8 543.6 3.0% 10.6 8.0 Purchases (3) 9.8 7.5% 10.3 2.6 0.2 12.6% 5.7 7.0 Sales and restructured (4) NA NA NA NA NA NA NA NA interests Ongoing developments (5) NA NA NA NA NA NA NA NA (including Kent Thameside) -------- -------- -------- -------- -------- --------- --------- --------- Total Portfolio NA NA NA NA NA NA NA NA --------------------- Total investment portfolio analysis ---------------------------------- London offices West end 132.8 6.4% 134.3 143.2 125.5 City 79.2 7.7% 80.8 84.5 77.1 Midtown 29.8 7.7% 30.6 45.9 46.2 Inner London 24.1 4.0% 24.3 20.5 15.6 -------- -------- -------- -------- -------- 265.9 6.8% 270.0 294.1 264.4 Regional offices 6.8 9.4% 6.9 7.0 7.5 -------- -------- -------- -------- -------- 272.7 6.8% 276.9 301.1 271.9 ======== ======== ======== ======== ======== Shops and shopping centres Shopping centres 112.9 5.3% 119.8 119.1 114.2 London shops 52.8 5.8% 53.8 52.6 55.2 Other in-town shops 42.6 6.2% 45.2 46.6 46.6 -------- -------- -------- -------- -------- 208.3 5.6% 218.8 218.3 216.0 ======== ======== ======== ======== ======== Retail warehouses Retail parks 62.5 5.2% 62.5 59.9 57.0 Other 16.0 6.5% 16.0 15.6 15.2 -------- -------- -------- -------- -------- 78.5 5.4% 78.5 75.5 72.2 ======== ======== ======== ======== ======== Industrial South east 30.7 6.1% 30.7 30.5 27.8 Other 3.1 8.9% 3.1 3.0 4.3 -------- -------- -------- -------- -------- 33.8 6.3% 33.8 33.5 32.1 ======== ======== ======== ======== ======== Other 11.8 3.7% 11.9 13.4 20.9 -------- -------- -------- -------- -------- Total portfolio 605.1 6.0% 619.9 641.8 613.1 ======== ======== ======== ======== ======== Notes (1) The like-for-like portfolio includes all properties which have been in the portfolio since 1 April 2002 but excluding those which were acquired, sold or included in the development programme at any time during that period. Capital expenditure on refurbishment, acquisition of head leases and similar capital expenditure has been allocated to the like-for-like portfolio in preparing this table. Changes in valuation from period to period reflect this capital expenditure as well as the disclosed valuation of surpluses. (2) Completed developments represent those properties, previously included in the development programme, which have been completed, let and removed from the development programme in the period since 1 April 2002. (3) Includes all properties acquired in the period since 1 April 2002. Approximately £50m of purchases over the 18 month period have been included in the like-for-like analysis as they consist of superior interest acquisitions or part acquisitions relating to existing holdings as explained in note (1). This also includes site assembly acquisitions for pre-development schemes. (4) Includes all properties sold (other than directly out of the development programme), or where the ownership interest has been restructured, in the period since 1 April 2002. (5) Ongoing developments are properties in the development programme and Kent Thameside. They exclude completed developments as defined in note (2) above. (6) The open market value figures include the group share of the various joint ventures and exclude properties owned by Land Securities Trillium and Telereal. (7) Annual net rent is annual rents in payment at 30 September 2003 after deduction of ground rents. It excludes the value of voids and current rent free periods. (8) Annual net estimated rental value includes vacant space, rent-frees and estimated future estimated rental values for properties in the development programme and is calculated after deducting expected ground rents. (9) Annual gross estimated rental value is calculated in the same way as net estimated rental value before the deduction of ground rents. (10) Voids represent all unlet space in the properties, including voids where refurbishment work is being carried out and voids in respect of pre-development properties. Voids are calculated based on their gross estimated rental value as defined in (9) above. (11) The definition for the figures in each column is: (i) Mean is rent-weighted average remaining term on leases subject to lease expiry/break clauses. (ii) Median is the number of years until half of income is subject to lease expiry/break clauses. (12) Differs from the value for total sales at book value as given in the financial statements at 30 September 2003 of £242.9 due to UITF 28 adjustments. (13) Differs from the value for total sales per the financial statements due to disposals made directly out of the development programme. Total investment portfolio analysis % Portfolio by value and number of properties at 30 September 2003 £m Value No of % properties 0 - 9.99 5.1% 96 10 - 24.99 10.7% 53 25 - 49.99 23.5% 54 Over 50 60.7% 45 Total 100.0% 248 Top 10 properties by value Total value £1.8 bn (22.8% of portfolio). Values in excess of £125m. 1 White Rose Centre, Leeds 2 The Bullring, Birmingham 3 St David's Centre, Cardiff 4 Queen Anne's Mansions, London SW1 5 Almondvale Centre and Designer Outlet, Livingston 6 30 Gresham Street, London EC2 7 The Bridges, Sunderland 8 Eland House,London SW1 9 New Change, London EC4 10 Team Valley, Gateshead Top 10 investment portfolio tenants Current rents % 1 Central Government 9.5 2 Allen & Overy 2.9 3 Dresdner Bank 2.3 4 Dixons Group 2.1 5 J Sainsbury 1.6 6 Metropolitan Police 1.4 7 Marks & Spencer 1.2 8 Homebase Limited 1.2 9 Institute of London Underwriters 1.0 10 Virgin Retail Limited 0.9 Total 24.1 Average Rents - excludes properties in the development programme and voids Average Average rent ERV £/sq m £/sq m Offices Central and inner London 340 317 Rest of UK 99 95 Retail Shopping centres n/a n/a Shops n/a n/a Retail warehouses (including supermarkets) 145 167 Industrial premises and warehouses London, south east and eastern 65 68 Rest of UK n/a n/a Hotels, leisure, residential and other n/a n/a Note: Average rents and estimated rental values (ERVs) have not been provided where it is considered that the figures would be potentially misleading (i.e. where there is a combination of analysis of rents on an overall and Zone A basis in the retail sector; or where there is a combination of uses; or small sample sizes). This is not a like-for-like analysis with the previous year. Like-for-like reversionary potential at 30.09.03 30.09.03 30.09.02 % of rent roll % of rent roll Reversionary potential (Ignoring additional income from the letting of voids) Gross reversions 9.7 13.3 Over-rented 7.5 2.9 Net reversionary potential 2.2 10.4 The reversion is calculated with reference to the gross secure rent roll and those properties which fall under the like-for-like definition as set out in note 1 in the Total Investment Portfolio Analysis above. Only 41.3% of the over-rented income is subject to a lease expiry or break clause in the next five years. Development pipeline schedule Central London Planning - OPR = outline planning received, PR = planning received; AS = application submitted; MG = minded to grant; PI = planning inquiry. Estimated/ Size Status actual Cost Sq m Status letting completion £m Property Description (Note 1) planning (Note 2) date (Note 3) Developments completed, let and removed from the development programme Portman House, W1 Offices 9,249 100% Oct 2001 44 Retail 2,521 Developments completed Empress State Building, SW6 Offices 41,291 Retail/Leisure 2,040 July 2003 102 7 Soho Square, W1 Offices 4,214 85% Mar 2003 9 Retail 1,095 190 High Holborn, WC1 Offices 8,560 100%* Sep 2002 41 Developments approved and in progress 30 Gresham Street, EC2 Offices 35,147 Retail 1,304 Dec 2003 208 Cardinal Place, SW1 Offices 50,750 Retail 9,250 Jun 2005 251 Proposed Developments Old scheme New Fetter Lane, EC4 Offices 58,389 PR Retail/Leisure 8,400 2007 New scheme New Street Square, EC4 Offices 62,526 (previously New Fetter Lane) Retail/Leisure 2,783 AS 2007 Bankside 123, SE1 Offices 75,326 PR Retail 8,080 2006 Leisure 1,957 *fully let since 30 September 2003 Shopping Centres and Retail Estimated/ Size Status actual Cost Sq m Status letting completion £m Property Description (Note 1) planning (Note 2) date (Note 3) Developments completed, let and removed from the development programme Bullring Birmingham Retail 111,484 97% Sep 2003 141 The Birmingham Alliance - a limited partnership with Hammerson plc and Henderson Global Investors Developments completed Sidwell Street, Exeter Retail 2,420 73% Mar 2003 3 Developments approved and in progress Whitefriars, Canterbury Retail 37,685 30% Apr 2005 103 + Residential 2,614 Caxtongate Phase III, Retail 2,238 100% Nov 2004 5 New Street, Birmingham Cheeke Street, Exeter Retail 5,359 55% Dec 2004 11 Rose Lane, Canterbury - Retail 1,638 76% Aug 2004 3 a limited partnership Proposed developments Broadmead, Bristol Retail 87,881 OPR 2007 The Bristol Alliance - a Leisure 3,953 limited partnership Offices 24,585 with Hammerson plc, and + Residential 18,196 Morley Fund Management Princesshay, Exeter Retail 37,512 PR 2007 + Residential 7,432 St Davids, Cardiff Retail 70,000 OPR 2008 St David's Partnership - a + Residential/ partnership with Leisure 39,750 Capital Shopping Centres Retail warehouses Estimated/ Size Status actual Cost Sq m Status letting completion £m Property Description (Note 1) planning (Note 2) date (Note 3) Developments completed, let and removed from the development programme Kingsway Retail Park, Retail 9,893 100% Jan 2003 29 Dundee, Phase I Warehousing Developments approved and in progress Bexhill Retail Park Retail 3,112 Sept 2004 11 Warehousing Kingsway Retail Park, Retail 8,649 43% May 2004 12 Dundee, Phase II Warehousing Proposed Developments Almondvale Retail Park, Retail 9,383 PR 2004/ Livingston, Phase II Warehousing 2005 Industrial Developments completed Juniper Phase I, Industrial 21,823 84% Nov 2001 18 Basildon Refurbishment Offices 3,660 100% Juniper Phase II, Industrial 11,148 26% April 2003 8 Basildon Horizon Point, Hemel Hempstead Phase I Industrial 10,384 Mar 2002 10 Zenith, Basildon Industrial 15,128 30% Jun 2002 12 Oxonian Park, Industrial 11,796 Sep 2003 9 Kidlington Cobbett Park, Guildford Industrial 11,440 41% Aug 2002 12 Developments approved and in progress Commerce Way, Croydon Industrial 12,617 Oct 2003 12 Concorde Way, Industrial 11,617 May 2004 9 Segensworth, Fareham Other Developments completed The Gate, Newcastle Leisure 18,556 79% Nov 2002 64 upon Tyne Note 1 The floor areas shown above represent the total areas of the developments. Our effective share of these areas are 33% for the Birmingham and Bristol Partnerships and 50% for the Cardiff and Rose Lane, Canterbury Partnerships. Note 2 Letting % is measured by ERV and shows letting status at 30 September 2003 Note 3 Cost (£m) shows Land Securities share of costs and refers to estimated capital expenditure including the cost of third party land acquisitions and excluding finance costs. Development pipeline - financial statistics Valuation Cumulative surplus/ valuation Net Book Capital Estimated Estimated (deficit) surplus / income/ value expenditure total capital total 6 mth to (deficit) to ERV at start to date expenditure cost 30.09.03 date (1) (1) (2) (3) Project £m £m £m £m £m £m £m ---------- ---------------- ---------------- ------------ ------------ ----------------- --------- Completed, let and transferred out of Development programme or sold during the year ended 30.9.03 86 181 210 315 19 79 24 Active development programme (schemes in progress, completed but not let, committed and authorised) 188 626 923 1195 (34) (166) 91 Proposed 147 19 921 1180 n/a n/a 96 schemes (4) Notes (1) Excludes capitalised interest. (2) Includes land costs / book value of land and capitalised interest, but excludes any allowances for rent free periods. Stated net of other receipts (eg sales of residential units). (3) Net headline annual rental payable on let units plus net estimated rental value (ERV) at 30 September 2003 on unlet units. (4) The book value of the proposed schemes is the value as at 31 March 2003 which reflects any value attributable to expenditure incurred prior to 31 March 2003. Therefore the capital expenditure shown in the to date column represents only that expenditure incurred in the period from 1 April 2003. This information is provided by RNS The company news service from the London Stock Exchange

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