Preliminary Results - Part 1

Land Securities PLC 24 May 2000 PART ONE Announcement of Preliminary Results 31 March 2000 Highlights Pre-tax profit up 11.7% to £327.7m Diluted net assets per share up 11.8% to 1090p 15% return on shareholders' equity Dividends per share for the year increased by 5.1% to 31.0p £307.0m of property sales £370.2m expenditure on properties £249.8m share buy-back Development programme now exceeds £1.65 billion (1999 £1.05 billion) Peter Walicknowski joins the Board 1 September 2000 Extract from the Chief Executive's Review: 'We have the balance sheet strength to take advantage of new opportunities and to meet the challenges of new technology. The active management of properties that satisfy customers' needs and the provision of high quality developments, designed to meet their future requirements, will provide attractive and increasing returns for shareholders.' For further information: Land Securities PLC Financial Dynamics Ian Henderson/Jim Murray Tony Knox/Emma Denne (020) 7413 9000 (020) 7831 3113 24 May 2000 Preliminary Announcement of the results for the year ended 31 March 2000 Financial Highlights 2000 1999 Change % Net rental income £457.2m £427.5m +6.9 * Revenue profit (pre-tax) £301.7m £292.7m +3.1 Pre-tax profit £327.7m £293.3m +11.7 Earnings per share 45.44p 39.21p +15.9 * Adjusted earnings per share 40.86p 39.11p +4.5 Dividends per share 31.00p 29.50p +5.1 Dividend cover (times) 1.52 1.31 * Adjusted dividend cover(times) 1.37 1.31 Diluted net assets per share 1090p 975p +11.8 Properties £7,453.7m £6,910.5m Borrowings £1,556.3m £1,569.3m Equity shareholders' funds £5,781.8m £5,470.4m Gearing 26.9% 28.7% @ Gearing (net) 24.5% 19.8% @ Interest cover (times) 3.11 3.03 @ Return on shareholders' equity 15.0% 10.4% * Excludes results of property sales. @ See glossary (page 39). PROPERTY ANALYSIS Rental Portfolio income Analysis of valuation for year to valuation at 31 March 2000 31 March 2000 surplus % increase £m % £m % on prior year Offices West End & 1,618.3 21.7 91.6 19.1 10.3 Victoria City & 1,301.2 17.5 93.5 19.5 4.1 Midtown Elsewhere 165.2 2.2 16.8 3.5 1.3 Retail Shopping 1,370.6 18.4 83.7 17.4 4.6 centres Shops: 623.7 8.4 36.3 7.6 7.7 Central London Other in- 771.9 10.3 60.1 12.5 4.9 town Retail warehouses and food 675.2 9.1 36.1 7.5 7.5 superstores Parks Other 227.8 3.0 15.0 3.1 7.8 Warehouses 424.0 5.7 31.4 6.6 6.9 and industrial Hotels, 275.8 3.7 15.4 3.2 6.9 leisure and residential TOTAL 7,453.7 100.0 479.9 100.0 6.5 The portfolio valuation figures include a one third apportionment of the valuation attributed to properties owned by the Birmingham Alliance limited partnerships. CHAIRMAN'S STATEMENT I am pleased to report a good all-round performance. Land Securities increased pre-tax profit by 11.7% to £327.7m, which includes £26.0m from property sales. Diluted net assets per share increased by 115p to 1090p per share following a valuation uplift of 6.5%. The Group invested £370.2m on developments and acquisitions, £249.8m on buying back shares and has sold £307.0m of property. After taking into account the current strength of the Company, the Board recommends a final dividend of 22.75p per share, an increase of 5.1% over that for the previous year, making a total distribution for the year of 31p, an increase of 5.1%. The dividends for the year, paid and proposed, will be covered 1.37 times after excluding the effect of property sales. When we reported at this time last year, the economy was beginning to recover from the problems that had affected international capital markets during the previous autumn. That recovery gathered pace and has resulted in a much stronger economic performance in the UK than most commentators had anticipated. The direct commercial property market benefited, with strong rental growth in several sectors, including West End offices, retail warehouses and some prime shopping locations. Prospects for economic growth in the UK this year are also good and well located, well specified property should continue to benefit from this underlying strength. Demand for central London offices remains strong and pre-lettings of our retail developments are encouraging. Easy accessibility to international pricing comparison is increasing competition and putting further pressure on retailers' margins; nonetheless consumer confidence remains strong and those retailers who are adapting to meet the requirements of customers continue to thrive and to seek additional space. New technology is providing not only huge challenges but also great opportunities; there will continue to be strong demand for property of the required quality and specification in the right location and we must ensure that we satisfy occupiers' future needs in this rapidly changing environment. Our development and sales programmes are designed to position the Group to take advantage of these new opportunities. The last year has seen dramatic outperformance by the new technology stocks at the cost of the so called 'old economy' sectors. Traditional methods of valuation, based on cash flow, earnings and underlying asset values, appear to have been largely ignored in assessing the growth potential of many businesses in the new technology sectors. Quoted property shares, along with many others, suffered as investors took cash out of the traditional sectors to reinvest in perceived growth stocks. The full impact of e-commerce is not yet known and this has created uncertainty and volatility. We have been examining closely the effect of e-commerce on property use and are positioning ourselves to meet the new challenges. We are accelerating the sales programme and focusing our substantial development programme on areas where we see the greatest opportunities for long term growth. The weakness in our share price presented us with the opportunity to buy back shares on an advantageous basis for continuing shareholders. During the year we have carried out a thorough review of our business, aimed at improving the creation of long term and sustainable shareholder value, and are proposing a number of significant changes which are outlined by Ian Henderson in his review. I am sad to report the death of Richard Caine, who, as many shareholders will recall, served the Group with great distinction as a non-executive director throughout its formative years; he was an exceptional man. Following John Hull's retirement at the Annual General Meeting last July, I could not let this opportunity pass without recording my thanks for his great contribution to the Group. He served the Group well over a period of more than 20 years and we wish John and his wife a long and happy retirement. I am delighted to welcome Sir Win Bischoff as a non-executive director. Sir Win is chairman of Citigroup Europe and brings wide and varied experience to the Board. I would also like to thank all of the staff for their dedication and commitment to the Group during the last year. Looking to the future, the share buy-back and sales programmes, which are designed to increase shareholder value, will have an immediate impact on profitability. Changing markets are presenting the Group with new opportunities to exploit its commercial and financial strengths. The prospects are encouraging and the Group is in good hands under Ian Henderson's leadership. OPERATING AND FINANCIAL REVIEW Chief Executive's Review In my review last year, I set out our strategy of creating value for shareholders through the development of quality assets, focusing particularly on the regeneration of town and city centres. In pursuing that strategy during the last twelve months we have - started on site in Canterbury and Birmingham and our major projects in Sunderland and Livingston are nearing completion. - submitted three major planning applications for schemes in the City, Midtown and Victoria areas of London and have several other significant schemes under review. - increased our development programme to £1.65bn. - spent £256.1m on our development activity during the year and £114.1m on property acquisitions, much of which has been purchased with development potential in mind. - sold £307.0m of property that no longer suits our portfolio requirements, reducing the number of properties in the portfolio to 379. As a result of the significant falls in property share prices, we were able to create additional value for shareholders by buying back our shares at a substantial discount to net asset value and on terms which benefited earnings. Between 18 January and the end of March we bought back almost 36 million shares at an average price of 689p, which, based on a diluted net asset value of 1090p at 31 March 2000, represented an immediate gain of 58p on each £1 invested, or 49p per £1 invested if fair value debt adjustments, net of taxation, are taken into account. This buy-back programme added 18p per share to diluted net assets per share at 31 March 2000. We have also received shareholder authority to buy back up to a further 14.9% of shares in issue which we shall only do if it is in the best interests of shareholders. We have the balance sheet strength to increase shareholder value by this route while retaining the flexibility to pursue attractive and longer term property initiatives. In taking the business forward, we continue to believe that the development process will add more value for shareholders than the purchase of completed investments which offer limited scope for adding value through active management. In central London our development proposals will create larger office buildings with the size of floor plates required by occupiers. The retail sector will continue to gravitate to dominant locations and, through our development programme, we seek to provide principal shopping centres in major towns and cities. The challenges presented by the Internet make it even more important to create accessible, lively and entertaining destinations for shoppers. We will review actual and projected performance and sell completed developments where this provides the best returns for shareholders. Where we consider it appropriate, we will work with partners, as we are doing currently in Birmingham and Livingston. Under existing arrangements, the Group's properties have been managed by teams structured on a geographical basis but, following our strategic review, we propose to restructure our activities into two clearly defined functions: asset management and development. Each asset or project will be subject to even more stringent analysis. Target returns will be based on our assessed weighted average cost of capital, adjusted for project-specific risk factors. To put this in context, compared with a weighted average cost of capital assessed at 9.2%, the total property return for the year was 13.6% and, over a three-year period, compared with a weighted average cost of capital of 10.4%, the average portfolio return has been 15.1%. As part of the implementation of the changes in the day-to-day running of the business, we are evaluating further benchmarks against which to compare performance. In a further move to update shareholders with the performance of the portfolio, we will be commissioning half-yearly valuations, starting this September. We are reviewing our capital structure to establish whether there are more efficient ways of holding and managing property which will boost shareholder returns while maintaining our financial and commercial flexibility. In order to help to implement the changes in the Group's structure and business approach, we have appointed, with effect from 1 September 2000, Peter Walicknowski, as Director with special responsibilities for strategy and business development, to work closely with me in allocating funds to the major business areas in which the Group should invest in future. He is currently Chief Executive of Lend Lease's European operations. We are also in the process of making a new senior executive appointment to head up the asset management function. We are undertaking extensive research into the effects of e-commerce in order to identify opportunities. In relation to retail property, many of the potential economic benefits from the exploitation of new technology depend on the successful solution of problems surrounding the distribution of products to the customer. We have formed a working party which is consulting with many of our key tenants to find ways of satisfying their future requirements. We are also evaluating propositions for the provision of the latest IT wiring facilities to help occupiers of our major multi-occupied offices and shopping centres to take greater advantage of the developing technology. The recent publication of the Accounting Standards Board's Discussion Paper on accounting for leases, proposing that leases should be recorded on lessees' balance sheets, is likely to result in a preference for shorter leases. In addition, we expect the pressures of new technology to make it increasingly difficult for customers to anticipate occupational requirements. We have for some time been offering tenants flexible lease terms and are evaluating the effects of providing an even wider choice. Meeting the needs of our customers will provide more opportunities for active management. A number of organisations are seeking ways to reduce their direct investment in property and we are having discussions with several parties to help address their future requirements. Among the propositions that we are considering are the London Underground Property Partnership project and the MoD repository proposal at Hayes, Middlesex, where, in both cases, we are members of consortia that have been short-listed. The Chairman referred to the current strength of the direct property market compared with the disappointing performance of the quoted sector. The tax disadvantages of a quoted property investment company in competition with direct property ownership have become increasingly apparent following the abolition of advance corporation tax. Also on the subject of taxation, the latest increase in stamp duty, the fourth in three years, has done further harm to property as an asset class in comparison with bonds and equities, and demonstrates a lack of awareness of the importance of a healthy commercial property sector to the UK economy. In a low inflationary environment, additional costs of property transactions adversely affect liquidity. We are hopeful that London will benefit from the policies of its new mayor. The capital city makes a huge contribution to the national economy and has continued to perform strongly outside the Economic & Monetary Union. London's success depends on improving its transport systems and maintaining an attractive environment for business, free from bureaucratic and costly regulation. In order to assist the property industry in providing suitable space for business, planning policies need to be applied consistently and the process to be free from undue delays. We have the balance sheet strength to take advantage of new opportunities and to meet the challenges of new technology. The active management of properties that satisfy customers' needs and the provision of high quality developments, designed to meet their future requirements, will provide attractive and increasing returns for shareholders. VALUATION The portfolio was valued by Knight Frank at almost £7.5bn at 31 March 2000. After adjusting for sales, acquisitions and other expenditure, the value increased by 6.5%. A detailed breakdown by sector, including comprehensive analyses of the Group's valuation and rental income, is shown below and on Page 9. The direct property market has continued to perform well, with a modest overall improvement in yields and evidence of rental growth in most sectors. Within the portfolio, significant rental growth, against a background of reducing supply, produced good results in the West End and Victoria areas, where there has been increased demand for space from e-commerce and media businesses as well as from traditional occupiers. The City and Midtown markets, although showing a lower rate of growth, have seen strengthening rental performance in the last few months of the period under review. Well located shopping centres have seen valuation increases ahead of inflation. However, pressure on trading margins is leading to restructuring by a number of major retailers and the valuation reflects a weaker performance in some high streets, smaller towns and secondary locations. Retail warehouses performed strongly for the third time in the last four years, with continuing rental growth and increased investor demand. The industrial and warehouse portfolio has benefited from a favourable shift in yields, with investors favouring multi-let estates, particularly in the South East. The further increase in stamp duty in the recent Budget is reflected in the valuation. After excluding those properties in the schedule of developments and refurbishments on page 11 which were producing less than half of their anticipated income at 31 March, together with other vacant pre-development holdings, the value of the portfolio at 31 March 2000 was almost £7bn. At the same date, the annual rent roll, net of ground rents and excluding the same properties, was £456.2m, 6.5% of this figure. % yield on 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 present income at 31 March 6.0 8.4 9.3 9.9 8.2 8.1 8.3 7.8 6.8 6.6 6.5 Yield on present income by sector at 31 March 2000 % Offices 6.7 Shops and shopping centres 6.4 Retail warehouses and food superstores 5.9 Warehouses and industrial 7.8 Hotels, leisure and residential 6.1 Portfolio valuation by location at 31 March 2000 £m % West End & Victoria 2,404.4 32.3 City & Midtown 1,348.0 18.1 Greater London & Home Counties 1,069.3 14.3 North, N.W., Yorkshire & Humberside 989.4 13.3 Scotland & N. Ireland 641.3 8.6 E. & W. Midlands & E. Anglia 553.4 7.4 Wales & South West 447.9 6.0 7,453.7 100.0 ===== ==== Rental Income and Portfolio valuation by type at 31 March 2000 Rental Income Valuation Total £479.9m Total £7,453.7m % % Offices 42.1 41.4 Shops and shopping centres 37.5 37.1 Retail warehouses and food 10.6 12.1 superstores Warehouses and industrial 6.6 5.7 Hotels, leisure and residential 3.2 3.7 100.0 100.0 ==== ==== % Portfolio by value and number of properties at 31 March 2000 £m Value % No. of properties 0 - 10 10.6 225 10 - 25 14.3 65 25 - 50 22.7 47 over 50 52.4 42 100.0 379 ===== === THE GROUP'S DEVELOPMENTS During the year under review we completed some 75,750 sq m (815,400 sq ft) of the development programme. The most significant projects were Lacon and Warner Houses, Theobalds Road WC1 which produced a development surplus of £44.9m over the development period and an income return of almost 9% on total development cost. Developments completed during the year produced a total surplus of £77.7m and developments currently in progress have so far shown a £29.7m surplus. Last year we reported a development programme with an estimated capital cost of £1,050m exclusive of interest and the book value of those properties in our portfolio prior to assembling the programme. This included £40m in respect of projects completed in the year ended 31 March 1999. After excluding those projects, the estimated capital cost of the programme set out in the schedule below is approximately £1.65bn of which £128m relates to the completed projects listed in the first section of the schedule and almost £350m to those in progress listed in the second section. The balance of £1,172m relates to expenditure on the proposed developments. The outstanding expenditure of some £1.3bn required to complete the programme will be spread over a number of years. Including our share of joint developments, the programme set out in the schedule below would provide approximately 640,500 sq m (6.89m sq ft) of which 134,770 sq m (1.45m sq ft) is in progress and 429,980 sq m (4.63m sq ft) is proposed. The most significant additional projects are 30 Gresham Street EC2 and New Fetter Lane EC4. If all of the wholly owned schemes on the schedule on Page 11 go ahead they would produce over 197,440 sq m (2,125,200 sq ft) of new shopping development 19,790 sq m (213,000 sq ft) of shopping centre refurbishment 186,090 sq m (2,003,100 sq ft) of central London offices 21,080 sq m (226,900 sq ft) of leisure 60,900 sq m (655,500 sq ft) of retail warehouses 60,320 sq m (649,300 sq ft) of warehouses and industrial In addition we have a one third interest in The Birmingham Alliance projects of 248,970 sq m (2.68m sq ft) and a half interest in the 23,780 sq m (256,000 sq ft) Designer Outlet Shopping and Leisure Centre in Livingston. Many of the schemes are at the feasibility stage and will only proceed when detailed design work and site assembly are complete, consents obtained and viability confirmed. The planned conversion of the 52,030sq m (560,000 sq ft) Empress State Building has been omitted from the programme as we are reviewing alternative options to maximise the potential returns to shareholders, including letting the property on a ground lease to a hotel operator who will carry out the conversion works. The proposed 17,990sq m (193,600sq ft) leisure-led mixed-use scheme at Hungate, York, due to be carried out in joint ownership with Evans of Leeds, has also been omitted as we are investigating the viability of alternative development opportunities. We are currently short-listed for several other potential schemes, the most significant of which are a mixed-use scheme at the Elephant & Castle SE1 and major shopping developments in Belfast and Bristol. COMPLETED DURING THE YEAR ENDED 31 March 2000 * 2 TEMPLE AVENUE EC4 ** CAXTONGATE PHASE II, 2,540 sq m (27,300 sq ft) air NEW STREET, BIRMINGHAM conditioned office refurbishment with 3,720 sq m (40,000 sq ft) retail and 920 sq m (9,900 sq ft) leisure. residential accommodation. Residential Completed July 1999. £9.5m element sold in July 1999. Phased completion to February 2000. £9.1m ** ST ALBANS HOUSE SW1 4,270 sq m (46,000 sq ft) air * ALMONDVALE CENTRE, LIVINGSTON PHASE 1 conditioned office refurbishment. 19,790 sq m (213,000 sq ft) shopping Completed February 2000. £5.7m centre refurbishment. Completed June 1999. £4.8m ** WARNER HOUSE WC1 (FORMERLY 1 THEOBALD'S COURT) 11,520 ** NUNEATON sq m (124,000 sq ft) air conditioned 1,210 sq m (13,000 sq ft) retail units. offices. Completed July 1999. £33.0m Completed October 1999. £1.7m ** LACON HOUSE WC1 * MIDDLETON ROAD, BANBURY PHASE IV (FORMERLY 2 THEOBALD'S COURT) 6,020 sq m (64,800 sq ft) industrial/ 18,910 sq m (203,500 sq ft) air distribution warehousing. Completed May conditioned offices with 930 sq m 1999. £3.9m (10,000 sq ft) leisure. Completed November 1999. £51.7m * 6/17 TOTTENHAM COURT ROAD W1 5,710 sq m (61,500 sq ft) retail, 210 sq m (2,300 sq ft) offices and nine residential units. Residential element sold April 1999. Phased completion to December 1999. £8.6m ** Fully let or agreed to be let * Part let or agreed to be let IN PROGRESS AT 31 MARCH 2000 GULF HOUSE W1 * ALMONDVALE CENTRE, LIVINGSTON - DESIGNER OUTLET CENTRE: 9,290 sq m (100,000 sq ft) air 16,720 sq m (180,000 sq ft) retail and conditioned offices and 1,860 sq m 7,060 sq m (76,000 sq ft) leisure, (20,000 sq ft) additional retail. including multiplex cinema (joint Completion due September 2001. £36.2m ownership with BAA McArthurGlen). Completion due October 2000. £40.3m THE BIRMINGHAM ALLIANCE (Partnership with Hammerson plc and Henderson * THE BRIDGES, SUNDERLAND PHASE II Investors):- 24,620 sq m (265,000 sq ft) retail. Completion due September 2000. £40.7m * MARTINEAU PLACE, BIRMINGHAM 16,720 sq m (180,000 sq ft) retail *@ SUNDERLAND - MARKET SQUARE development. Completion due October 1,460 sq m (15,700 sq ft) retail. 2001. £14.3m Completion due November 2000. £4.5m * BULL RING, BIRMINGHAM 111,480 sq m (1.2m sq ft) retail *@ NEPTUNE POINT, OCEAN WAY, CARDIFF development. Completion due September PHASE I 2003. £125.0m 5,760 sq m (62,000 sq ft) industrial/distribution warehousing. * WHITEFRIARS, CANTERBURY Completion due September 2000. £7.1m 37,160 sq m (400,000 sq ft) retail development with some residential accommodation. Phased completion to June 2006. £81.8m * Part let or agreed to be let @ Added or significantly changed during 1999/2000 PROPOSED FUTURE DEVELOPMENTS @ 30 GRESHAM STREET EC2 KINGSWAY RETAIL PARK, DUNDEE 34,370 sq m (370,000 sq ft) air conditioned offices and 1,670 sq m 20,440 sq m (220,000 sq ft) partial (18,000 sq ft) retail. redevelopment and extension to retail warehouse park. @ NEW FETTER LANE, EC4 58,060 sq m (625,000 sq ft) air @+AINTREE RACECOURSE RETAIL PARK, conditioned offices and 14,500 sq m LIVERPOOL (156,000 sq ft) retail/leisure. 9,660 sq m (104,000 sq ft) retail warehousing. @ ESSO HOUSE/GLEN HOUSE (INCLUDING 16 PALACE STREET) SW1 @ ALMONDVALE RETAIL PARK, LIVINGSTON 46,920 sq m (505,000 sq ft) air 17,650 sq m (190,000 sq ft) retail conditioned offices and 12,450 sq m warehousing. (134,000 sq ft) retail. +QUEENS ROAD RETAIL PARK, MANCHESTER CAXTONGATE PHASE III, NEW STREET, 8,830 sq m (95,000 sq ft) retail BIRMINGHAM warehousing. 6,500 sq m (70,000 sq ft) retail and mixed use. +LAKESIDE RETAIL PARK, THURROCK 4,320 sq m (46,500 sq ft) extension to THE BIRMINGHAM ALLIANCE (Partnership retail warehouse park. with Hammerson plc and Henderson Investors):- @+NEPTUNE POINT, OCEAN WAY, CARDIFF MARTINEAU GALLERIES, BIRMINGHAM PHASE II Up to 120,770 sq m (1.3m sq ft) retail 8,360 sq m (90,000 sq ft) and leisure development. industrial/distribution warehousing. @ OLYMPIA GATE, EAST KILBRIDE @+HEMEL HEMPSTEAD 18,580 sq m (200,000 sq ft) retail 23,230 sq m (250,000 sq ft) development. industrial/distribution warehousing. PRINCESSHAY, EXETER **@+WELWYN GARDEN CITY - SITE A 43,200 sq m (465,000 sq ft) retail 12,960 sq m (139,500 sq ft) development with some residential industrial/distribution warehousing. accommodation. @ WELWYN GARDEN CITY - SITE B 3,990 sq m (43,000 sq ft) @ COPPERGATE CENTRE, YORK PHASE II industrial/distribution warehousing. 26,800 sq m (288,500 sq ft) retail development with some residential accommodation. . +NEWGATE STREET, NEWCASTLE UPON TYNE 17,230 sq m (185,500 sq ft) leisure complex, including multiplex cinema. @ Added or significantly changed + Included in capital commitments during 1999/2000 ** Fully let or agreed to be let Offices Valuation at 31 March 2000 - £3,084.7m Rental income for year to 31 March 2000 - £201.9m 41.4% of Group valuation 42.1% of Group rental income 0.4% voids by rental income 4.3% reversionary Average unexpired lease term of 10 years Valuation Rental income % % West End & Victoria 52.4 45.4 City & Midtown 42.2 46.3 Elsewhere 5.4 8.3 100.0 100.0 ===== ===== By location at 31 March 2000 £m % West End & Victoria 1,618.3 52.4 City & Midtown 1,301.2 42.2 Greater London & Home Counties 116.3 3.8 Elsewhere in the U.K. 48.9 1.6 3,084.7 100.0 ======= ====== This portfolio, which is located principally in the City, Midtown, West End and Victoria areas of central London, was valued at almost £3.1bn at 31 March 2000. After allowing for sales and capital expenditure during the period the value increased by 7.1% . In the City and Midtown, rents remained virtually unchanged throughout 1999 but in the first quarter of 2000 there have been signs of growth coming through as demand for space has increased. There is a limited supply of large units in good locations. In the West End and Victoria, development activity has been insufficient to meet demand and rental growth has been strong in these areas. As part of our policy of concentrating on larger holdings we have sold nine properties in the City and Midtown for £73m and six buildings in the West End and Victoria for £52.7m and, assuming the strong market continues, further sales are planned. We acquired the IBM Building on the South Bank, London SE1 for £63.6m with the benefit of a 15 year lease back to IBM at an initial rent of £4.5m per annum with indexed uplifts at the 5th and 10th years. This is a well located building in an area undergoing major improvements and should provide capital growth and future development potential. We also purchased Elliott House, Bressenden Place and 124 Victoria Street SW1 which have potential for redevelopment on an important corner site adjacent to some of our key holdings in the area. The focus of our development activity since our interim announcement has been the preparation and submission of three major planning applications. In the City, at 30 Gresham Street EC2, we have applied for permission to build a 34,370 sq m (370,000 sq ft) office building with 1,670 sq m (18,000 sq ft) ancillary retail space. Site assembly is at an advanced stage and subject to receiving planning permission we propose to start work this autumn. At New Fetter Lane in Midtown we are seeking consent for a 58,060 sq m (625,000 sq ft) twenty storey office building with 14,500 sq m (156,000 sq ft) of retail and leisure at lower ground, ground and first floor levels. The land is owned by The Goldsmiths Company and, subject to re-gearing the long leasehold interests which we already have on a substantial part of the site, completing the site assembly and viability, we anticipate this development should commence in the autumn of 2003. In Victoria we have submitted an application for the second phase of the redevelopment of our Stag Estate. Our proposals provide for 46,920 sq m (505,000 sq ft) of office space in two blocks and 12,450 sq m (134,000 sq ft) of retail. We plan to start this development in the summer of 2001, subject to receiving planning permission, obtaining all other consents and viability. A planning application has also been made for a residential development to provide 85 apartments on the site of the existing Neville House office building in Page Street SW1, to create the maximum return from this site. The demolition of Gulf House in Oxford Street W1, down to second floor level, was completed on schedule and the creation of 1,860sq m (20,000 sq ft) of retail sales space at first floor level and the building of 9,290 sq m (100,000 sq ft) of air conditioned offices above is progressing satisfactorily with completion due in autumn 2001. The 4,270sq m (46,000 sq ft) refurbishment at St Albans House, Haymarket SW1 was completed on programme and the offices have been let to e Toys Limited, at an average rent of £463 per sq m (£43 per sq ft). The renovation and air conditioning of the listed building at 2 Temple Avenue EC4 has also been completed and the 2,540 sq m (27,300 sq ft) of offices let to a leading North American firm of lawyers. We continue to upgrade our investment properties as opportunities arise, to maintain the portfolio to a high standard and to respond to the requirements of our customers. During the year we have let or agreed to let some 13,020 sq m (140,100 sq ft) in the City and Midtown and 7,270 sq m (78,300 sq ft) in the West End and Victoria of newly refurbished space at enhanced rental levels. For example, in Portland House, Bressenden Place SW1 a rental of £495 per sq m (£46 per sq ft) has recently been achieved compared with £393 per sq m (£36.50 per sq ft) a year previously, an uplift of 26%. In the City and Midtown the indications are that with the number of new enquiries, together with the relatively limited supply available, there should be a satisfactory level of rental growth during the current year. Thereafter, there is likely to be a period of more subdued rental growth due to the combined effects of the potential supply of new developments, the competitive terms being offered in Docklands and the amount of space being released on the market as a result of companies relocating. With very little space available in the West End and Victoria and limited development activity, the prospects remain good for continued strong rental growth in these locations. Shops and Shopping Centres Valuation at 31 March 2000 - £2,766.2m Rental income for year to 31 March 2000 - £180.1m 37.1% of Group valuation 37.5% of Group rental income 1.3% voids by rental income 13.8% reversionary Average unexpired lease term of 12 years Valuation Rental income % % Shopping centres 49.5 46.5 Central London shops 22.5 20.2 Other in-town shops 28.0 33.3 100.0 100.0 ==== ==== By location at 31 March 2000 £m % West End & Victoria 584.1 21.1 City & Midtown 39.6 1.4 Greater London & Home Counties 309.1 11.2 E. & W. Midlands & E. Anglia 342.0 12.4 North, N.W., Yorkshire & Humberside 588.3 21.3 Wales & South West 362.0 13.1 Scotland & N. Ireland 541.1 19.5 2,766.2 100.0 ===== ==== This portfolio was valued at over £2.76bn at 31 March 2000. After allowing for sales and capital expenditure during the period the value increased by 5.4%. Retailers' results continue to impart mixed messages with a number reporting good trading figures while others are underperforming as the successful retailers focus either on leading brands or discounted merchandise. Good rental growth continues to be achieved in strong retail locations. Government planning policy continues to emphasise the importance of town and city centre regeneration. One of our main objectives is to work in partnership with local authorities and other parties to enhance the appeal of these locations as enjoyable places to live, work and shop by integrating mixed-use development within the established fabric of the city centre. A good example is demonstrated by our activities in Birmingham. Phase II of Caxtongate was completed in February and is fully let to a strong mix of retailers, namely French Connection, Hobbs, Jigsaw, Muji, Kensington Freak and Ted Baker, thereby consolidating our Caxtongate ownerships as a prime fashion destination in the city centre. The development also includes 24 apartments which were sold to Crosby Homes. The scheme complements Phase I within which The Orange Studio, a comprehensive technology based communication facility, featuring an internet cafe, has opened. The limited partnerships forming the Birmingham Alliance were legally completed last July and, working with our partners Hammerson plc and Henderson Investors, good progress has been made with both the new Bull Ring and Martineau Place. The new Bull Ring development began last summer with the construction of the new market hall, due for completion this autumn. The CPO inquiry for the new scheme was successfully concluded in February. Construction of the new shopping centre totalling 111,480 sq m (1.2m sq ft) is scheduled to start in spring 2001. The two anchor department stores have been pre-let to Debenhams and Selfridges. The redevelopment of Martineau Place started in April following a successful CPO inquiry, the agreement of a new head lease with the City Council and the completion of pre-lettings to secure 44% of the scheme's income. Phased completion is due in the spring and autumn of 2001. Works on the removal of the 'Bull Street hump' started in January which, in addition to benefiting Martineau Place, will also enhance the value of the Alliance's ownerships within the proposed Martineau Galleries site. At The Bridges in Sunderland we opened the new 760 space multi-storey car park last December and at the same time handed over the department store to Debenhams for fitting out. 30 shop units are being built and only one remains available. The extension is due to open in September and the enlarged centre will provide 109 shops totalling 47,840 sq m (515,000 sq ft). Demolition work has also started on our holding opposite The Bridges at 18/32 Market Square. The 1,460 sq m (15,700 sq ft) development will provide four shops due to be completed this November. It is proposed that the redevelopment of the remaining units in this parade will coincide with the completion of the new metro railway from Newcastle in the spring of 2002. At Livingston the 23,780 sq m (256,000 sq ft) Designer Outlet Shopping and Leisure Centre, which is being developed in association with BAA McAthurGlen, is scheduled to open in October. Some 52% of the anticipated rental income is secured subject to completion of lease documentation. We have completed the refurbishment of Phase I of the Almondvale Centre and agreed terms with Asda to permit the redevelopment of their store over which we will have purchase pre-emption rights. Historic cities continue to present investment opportunities with the strength of their local and regional economies boosted by tourism. However, the delivery and implementation of major shopping projects in such cities is challenging as we strive to balance the requirements for vibrant commercial centres with the need to maintain heritage and historic values. At Canterbury, following completion of the development agreement with the City Council and the successful CPO inquiry, work commenced on the 37,160 sq m (400,000 sq ft) Whitefriars development last December. As part of the total scheme, terms have been agreed with Fenwick for them to construct their new department store of 10,780 sq m (116,000 sq ft) and with Boots for pre-letting a 3,720 sq m (40,000 sq ft) store. In order to preserve continuity of trade for Fenwick, and to allow time for a major archaeological investigation, the construction is being phased with final completion in the summer of 2006. In October we purchased the Marlowe Arcade, which includes a variety store and 13 shops adjacent to Whitefriars, as we believe this property will benefit from our new development. Last October, Exeter City Council confirmed that they were minded to grant planning permission for our 43,200 sq m (465,000 sq ft) Princesshay development. The planning application has been called in and we are reviewing our proposals for this project. At York we have revised and enlarged our proposed scheme and submitted a new planning application for a 26,800 sq m (288,500 sq ft) extension to our Coppergate Centre. We are hopeful of obtaining a detailed planning permission later this year with a view to starting on site in the autumn of 2001. In central London we completed the 5,920 sq m (63,800 sq ft) development at 6/17 Tottenham Court Road W1 where all of the 5,710 sq m (61,500 sq ft) of space has been let and the residential content sold. The valuation uplift for this property together with the settlement of some good rent reviews were important factors in the good overall return from shops in central London. We are progressing plans for a 18,580 sq m (200,000 sq ft) retail development in East Kilbride to be known as Olympia Gate which will link our existing Olympia and Princes Mall ownerships to create an integrated shopping centre totalling 65,040 sq m (700,000 sq ft). The proposals incorporate a new bus station, highway improvements and additional car parking. We have appealed against the deemed refusal of our planning application and a public inquiry is due to take place this June. Active asset management throughout the year has created opportunities to raise income through the agreement of 320 rent reviews and lease renewals. In addition 37 surrender and relettings were agreed with particularly good rental growth in Livingston, York and Birmingham. Some 24 of these relettings were for terms of 15 years or more. In working the portfolio, at the Rivergate Centre Irvine we agreed to take back the existing Tesco supermarket following which we created eight new shops of which seven are let subject to completion of legal documentation. At Ballymena in Northern Ireland, following refurbishment of the Tower Centre, we negotiated a surrender of one of the large stores and have created a new mall and shops. Lettings have been concluded in respect of nine of the ten new units, strengthening the merchandising mix and improving rental levels by 45% over previous rents. The core retail portfolio consists of dominant shopping centres or prime holdings in large regional cities and towns. This is where we believe that consumer demand will be greatest as shoppers are increasingly seeking an enjoyable experience through the additional leisure, catering and cultural activities which urban centres provide. We are continuing to rationalise the portfolio in accordance with our strategy of concentrating on larger holdings. During the year we sold two small shopping centres and 85 properties for £166.0m and we have identified some £175.0m of high street shops which no longer fulfil our investment criteria. In looking to the future, the technological changes that are taking place will have an impact on the type and amount of space that retailers require. The increasing application of e-commerce is providing new challenges but it will also create opportunities. In particular, where decisions on fashion and lifestyle purchases are concerned, we believe there will still be the need for a physical centre to provide consumers with an appealing shopping and leisure experience. The link between physical centres and the Internet will reinforce the success of dominant centres. However, further research will have to be undertaken on the potential impact on rent paid under turnover leases. The business revolution that is taking place reaffirms our belief that the best long term performance will be achieved in dominant city and regional centres which will attract the bulk of consumer expenditure. As a result we are concentrating our future investment and development in these locations. Hotels, Leisure and Residential At Newcastle upon Tyne we have completed land assembly and demolition in preparation for our proposed 17,230 sq m (185,500 sq ft) city centre leisure development. We have secured 11 provisional Justices licences and pre-let the multiplex cinema to Odeon Cinemas. Discussions with other potential occupiers are taking place to secure our required pre-letting threshold. At Hungate, York a new master plan is being prepared for this riverside development incorporating a significantly larger residential content with associated leisure uses. At Empress State Building, London SW6 we are reviewing alternative development options, including leasing to a hotel operator. Retail Warehouses and Food Superstores Valuation at 31 March 2000 - £903.0m Rental income for year to 31 March 2000 - £51.1m 12.1% of Group valuation 10.6% of Group rental income 0.4% voids by rental income 11.5% reversionary Average unexpired lease term of 21 years Valuation Rental income % % Parks 74.8 70.7 Other 25.2 29.3 100.0 100.0 ==== ==== By location at 31 March 2000 £m % Greater London & Home 291.2 32.2 Counties E. & W. Midlands & E. Anglia 133.6 14.8 Scotland & N. Ireland 64.5 7.2 North, N.W., Yorkshire & 337.7 37.4 Humberside Wales & South West 76.0 8.4 903.0 100.0 ==== ==== This portfolio was valued at £903.0m at 31 March 2000. After allowing for sales and capital expenditure during the year the valuation increased by 7.6%. Total returns from this sector have been good due to both the hardening of investment yields and continued rental growth. The market has been strengthened by increased demand from the traditional bulky goods retailers, together with high street operators wishing to expand out of town. Currys, Comet, B & Q and Homebase are some of the major operators seeking substantially larger units whereas other occupiers such as MFI and Allied Carpets are seeking to rationalise into less space. We are working with retailers to provide their preferred size of store and by reconfiguring our parks to meet their requirements we are achieving improved rental and capital values. Examples include the rearrangement of our park at Aintree, where we have agreed terms with B & Q to double the size of their store to 9,660 sq m (104,000 sq ft). We have also extended the J Sainsbury foodstore at Keighley to 6,910 sq m (74,400 sq ft) at a new rent of £166.80 per sq m (£15.50 per sq ft). At Gateshead we are relocating a number of retailers and providing The Link with their first purpose built out of town unit. We have extended our park at Chadwell Heath and acquired additional land at Bexhill-on-Sea, Chesterfield, Gloucester and Wolverhampton for extensions subject to obtaining planning permission. Major upgrading works will be starting at our Ravenside Retail Park, Erdington in the summer and we are evaluating refurbishment plans for other parks. At Dundee we anticipate obtaining detailed planning permission to enlarge our existing holding to create a regional park of 29,730 sq m (320,000 sq ft) and plan to start on site in September. Over 47% of the new space is pre-let, subject to completion of lease documentation, at higher than anticipated rental levels. We have agreed a ground lease with Tesco on the adjoining site to enable them to build a 10,220 sq m (110,000 sq ft) 'Extra' store. At Livingston we have pre-let a 9,290 sq m (100,000 sq ft) store to Homebase subject to receiving planning permission. This will form the first phase of a proposed 17,650 sq m (190,000 sq ft) retail park. We have obtained open A1 non-food planning permission to redevelop Lakerise Industrial Estate at West Thurrock to enlarge our Lakeside Retail Park to 33,190 sq m (357,200 sq ft). Our activities are creating market evidence which is enabling us to achieve strong rental growth. Improved rents on review and reletting include the doubling of rent at White City, Manchester and increases of between 60% and 95% at Slough, West Thurrock, Blackpool and Liverpool. 75% of our portfolio by value is in retail parks of which 56% have open A1 non-food planning permission. The impact of e-commerce will affect some retailers but most retail warehouses should continue to attract shoppers who require immediate use of purchases and those who prefer to test and try large ticket items. In addition it is possible that the location, accessibility and ease of parking could also make retail parks suitable customer collection points for goods ordered on the Internet. We anticipate strong future income and capital growth from this portfolio as a result of increasing occupier demand, restrictive planning policies and intensive asset management. Warehouses and Industrial Valuation at 31 March 2000 - £424.0m Rental income for year to 31 March 2000 - £31.4m 5.7% of Group valuation 6.6% of Group rental income 2.6% voids by rental income 1.5% reversionary Average unexpired lease term of 10 years By location at 31 March 2000 £m % Greater London & Home Counties 319.2 75.3 E. & W. Midlands & E. Anglia 59.2 14.0 North, N.W., Yorkshire & Humberside 35.3 8.3 Elsewhere in the U.K. 10.3 2.4 424.0 100.0 ==== ==== This portfolio was valued at £424.0m at 31 March 2000. After allowing for sales and capital expenditure during the year the valuation increased by 6.9%. Total returns from this sector have been good, mainly due to the hardening of investment yields. In areas of restricted land supply, buoyant demand has produced strong rental growth but elsewhere rental performance has been modest. We continue to rationalise the portfolio with the objective of increasing the average lot size and focusing mainly on the South East where we anticipate the best returns. Last year we sold 9,060 sq m (97,500 sq ft) of older, smaller properties. During the year we let 13,170 sq m (141,800 sq ft) at Tamworth and 17,110 sq m (184,200 sq ft) at Banbury where we have a further 11,130 sq m (119,800 sq ft) available for letting. Our combined holdings at these locations comprise 61,860 sq m (665,900 sq ft) of high bay warehousing. The portfolio will be enlarged by our development programme of 54,300 sq m (584,500 sq ft) which is either under construction or planned. In February we began a phased development of a 9 acre site at Cardiff, within the Bay Regeneration Area, to provide 14,120 sq m (152,000 sq ft) of industrial and warehousing space. Since the year end work has started on a 12,960 sq m (139,500 sq ft) high bay warehouse at Welwyn Garden City, pre-let to WT Foods, where we have a further 2.5 acres of land at the front of the site still to be developed. Contracts were exchanged with Kodak in September for the purchase of 13.5 acres at Hemel Hempstead and outline planning permission has been obtained for the development of 23,230 sq m (250,000 sq ft) of industrial warehouse units due to commence later this year. We anticipate future development opportunities where we have secured options over several parcels of land and are seeking planning permissions for commercial development. These include two sites totalling 20 acres close to Heathrow and 300 acres in a joint venture with Gazeley Properties adjacent to the M1 at Milton Keynes. We believe that our portfolio, which is predominantly located in the South East, will benefit from the continuing strong demand from the service sector and restrained supply resulting from land shortages. It is difficult to predict the effects of e-commerce but it is likely that the importance of fulfilling customer delivery expectations will create new demand for depots to service highly populated urban areas. MORE TO FOLLOW FR SEEFUDSSSEEI

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