Re. IFRS

Land Securities Group Plc
23 June 2005




23 June 2005



LAND SECURITIES GROUP PLC ('Land Securities')



Land Securities Group PLC ('Land Securities' / 'the Group')
Adoption of International Financial Reporting Standards (IFRS)
2004/05 Income statement and balance sheet


Introduction



Land Securities has today released information showing the effect of adopting
IFRS on its income statement and balance sheet for the year ended 31 March 2005
in preparation for the adoption of IFRS.



Overview



•         The introduction of IFRS affects accounting only.  There is no impact
on the underlying business or cash flows.



•         The main IFRS adjustments impacting the Group's financial statements
are:



•         to recognise revaluation surpluses and deficits in the income
statement (IAS 40)

•         to provide in full for deferred tax on revaluations and to charge
movements on this provision through the income statement (IAS 12)

•         to restate the financial effects of the November 2004 debt
refinancing (IAS 39)

•         to show the Group's share of the profit after tax and net assets of
all its joint ventures and joint arrangements (JANEs) as single lines in the
income statement and balance sheet respectively  (IAS 31)

•         to recognise the final dividend only after its approval at the
Group's Annual General Meeting.



•         Financial effect 2004/05



                                                                UK GAAP
£m                                                        (as reported)                IFRS
                                                           ------------        ------------
Gross property income                                           1,865.7             1,617.0
(Loss)/profit before tax                                        (155.8)             1,331.4
(Loss)/profit after tax                                          (35.8)             1,121.2
Net asset value                                                 6,636.6             6,082.3
                                                           ------------        ------------



Notes



'UK GAAP' means generally accepted accounting principles in the United Kingdom.
References to 'IFRS' throughout this document refer to the application of
International Financial Reporting Standards, including International Accounting
Standards ('IAS') and interpretations of those standards issued by the
International Accounting Standards Board ('IASB') and its Committees.



For further information, please contact:



Land Securities

Andrew Macfarlane/David Holt/Emma Denne

Tel: [phone]





Adoption of International Financial Reporting Standards (IFRS)

Pro-forma 2004/05 Income Statement and Balance Sheet



CONTENTS

1.0      Introduction
2.0      Transition to International Financial Reporting Standards
2.1      Main changes in accounting under IFRS
         2.1.1  IAS 40 - Investment property
         2.1.2  IAS 12 - Income taxes
         2.1.3  IAS 39 - Financial instruments: recognition and measurement
             (a)  Impact on debt refinancing
             (b)  Interest rate hedges
         2.1.4  IAS 31 - Interests in joint ventures
         2.1.5  IAS 10 - Events after the balance sheet date
2.2      Other areas of changes
         2.2.1  IAS 17 - Leases
         2.2.2  SIC-15 Operating leases - incentives
         2.2.3  IFRS 3 - Business combinations
         2.2.4  IAS 19 - Employee benefits
         2.2.5  IFRS 2 - Share-based payment
2.3      Presentation of the financial statements under IFRS
2.4      Other first time adoption considerations
3.0      Financial Statements
4.0      IFRS accounting policies
4.1      Basis of preparation
4.2      Basis of consolidation
4.3      Details of accounting policies
         (a)  Goodwill
         (b)  Derivative financial instruments ('derivatives')
         (c)  Investment properties
         (d)  Property, plant and equipment
         (e)  Leases
         (f)  Trading properties
         (g)  Long-term construction contracts
         (h)  Trade and other receivables
         (i)  Cash and cash equivalents
         (j)  Impairment
         (k)  Share capital
         (l)  Borrowings
         (m) Pensions
         (n)  Provisions
         (o)  Trade and other payables
         (p)  Revenue
         (q)  Expenses
         (r)   Income tax





1.0       Introduction



The purpose of this document is to



•         Set out the principal accounting policy differences between UK GAAP
and IFRS as they affect Land Securities;

•         Indicate the effect of the adoption of IFRS on the income statement
and balance sheet for the year ended on 31 March 2005;

•         State the Group's principal accounting policies under IFRS.



Although the IASB adopted a 'stable platform' in 2004, IFRS has continued, and
will continue, to evolve through the development and adoption of new Standards
and Interpretations as well as through the practical experience gained from the
application of IFRS by reporting entities and their auditors.  As a result, the
financial information contained in this release may be amended before it is
presented as comparative figures in the IFRS accounts to be issued by the Group
for the six months ending 30 September 2005 as well as for the year ending 31
March 2006.  Furthermore, the financial information contained in this release
does not constitute a complete set of financial statements (including
comparative figures and all relevant and required notes) and therefore does not
purport to show a true and fair view of the Group's financial position and
results of operations in accordance with IFRS for the year to 31 March 2005.



2.0       Transition to International Financial Reporting Standards



Under European legislation, companies listed on Exchanges within the European
Union are required to adopt IFRS for accounting periods beginning on or after 1
January 2005.  As a result, IFRS applies to Land Securities from 1 April 2005
and the Group will present its consolidated interim and full year financial
results for the year ending 31 March 2006 in accordance with IFRS, together with
IFRS comparatives and reconciliations of certain key figures to UK GAAP.



The transition date for the adoption of IFRS by Land Securities is 1 April 2004,
which has been determined in accordance with IFRS 1, 'First-time adoption of
International Financial Reporting Standards'.



For the past 18 months, Land Securities has been working towards the
implementation of IFRS.  This project has involved:



•         the analysis of each Standard to identify the differences between the
Group's existing accounting policies under UK GAAP and those which it will adopt
under IFRS

•         the collection of additional data required to restate the Group's
results in accordance with IFRS with effect from the transition date

•         the on-going modification of the Group's reporting and consolidation
systems to meet IFRS requirements.



The results of the IFRS project have been reported on regularly to the Group's
Audit Committee.



The Group's current assessment of the impact of the transition to IFRS is based
on all International Financial Reporting Standards, including International
Accounting Standards and interpretations issued by the IASB and its Committees,
published by 31 March 2005.  These are subject to on-going review and amendment
by the IASB and subsequent endorsement by the European Commission, and may
therefore change.  Further standards and interpretations may also be issued that
will become applicable for the Group's financial year ending 31 March 2006.  The
IFRS in force at the time when the Group prepares its first IFRS financial
statements may, therefore, require different accounting policies from those
applied in preparing the financial information set out in this Announcement.  In
particular, the Group has assumed that the European Commission will endorse the
recent amendment to IAS 19 (Employee Benefits - actuarial gains and losses,
group plans and disclosures) which allows actuarial gains or losses to be taken
directly to reserves as permitted under UK GAAP by FRS 17, 'Retirement benefits
'.



2.1              Main changes in accounting under IFRS



The differences between UK GAAP and IFRS that have the most significant effect
on the Group's reported results and their presentation are summarised below.



2.1.1        IAS 40 - Investment property



IAS 40 requires that revaluation gains and losses on investment properties
should be recognised in the income statement rather than taken to reserves as is
the case under UK GAAP.  As a result, the revaluation reserve is no longer
reported as a separate component of equity in the balance sheet and accumulated
revaluation surpluses as at the transition date have been reallocated to
retained earnings.  This treatment does not, however, have any impact on the
distributable profits of Land Securities Group PLC (the company) nor of its
individual subsidiaries, as these will continue to be determined by the
application of UK GAAP and the Companies Act 1985.



2.1.2        IAS 12 - Income taxes



IAS 12 requires that full provision is made for the deferred tax liability
associated with the revaluation of investment properties.  UK GAAP explicitly
prohibited the recognition of such a deferred tax liability.  This means that
the movement in deferred tax associated with the revaluation in the year will
now be charged (or credited) to the income statement as a component of the tax
charge.



Under IAS 12, there is also a requirement that the provision established for
deferred tax should have regard to the manner in which the revaluation surplus
will be realised.  There is as yet no consensus on how this requirement should
be applied in practice in the real estate sector.  Land Securities' approach,
which is acceptable to its auditors in the absence of a consensus view, is
outlined below.   Due to the lack of consensus, as well as differences in
individual circumstances, other companies in the sector may well take different
approaches.   The Group also understands that the IASB may, at some time in the
future, re-visit these provisions of IAS 12.   This area will remain under
review and the Group may change its accounting treatment if a consensus emerges
which it believes is consistent with the Standard.



There appear to be three approaches available:



•         to provide on the basis of the latent tax on capital gains that would
be payable had the whole investment portfolio been sold for its carrying value
at 31 March 2005, or

•         to provide on the basis of the notional corporation tax that would be
payable on the revaluation surplus on the assumption that it represents future
net rents, or

•         to apply a mixture of the two methods.



On a strict interpretation of the Standard, and applying it to the business
circumstances of the Group, it is our opinion that it would only be permissible
to apply the latent tax approach if it was expected that the whole portfolio
would be turned over in the short to medium term. This is not the Group's
strategy. Further, the mixed approach has been rejected as being impractical and
too subjective as it would require forecasts to be made of the eventual date of
sale of every asset in the Group's portfolio. We are of the opinion that value
will more typically be realised from future rents, as opposed to sales. We have
therefore concluded that, by default, and in the absence of definitive guidance,
that the approach that more closely complies with the Standard, in the Group's
case, is to provide on the basis of the notional corporation tax that would be
payable on the revaluation surplus. That is, to provide deferred tax at 30% on
the full amount of the surplus.



The latent tax on capital gains, assuming the sale of individual assets with no
mitigation, would have been £626.0m, whereas the notional corporation tax
payable on the revaluation surplus amounts to £1,107.7m.



As an exception to this general principle, where investment properties are
classified as 'held for sale' under IFRS 5, 'Non-current assets held for sale
and discontinued operations', deferred tax is provided on a capital gains basis.
  The carrying value of such assets at 31 March 2005 was £274.2m.



2.1.3    IAS 39 - Financial Instruments: recognition and measurement



IAS 39 has two principal effects on the Group.  The first of these, the impact
on the manner in which the debt refinancing (which was effective as from
November 2004) is reported, is the more significant.  The Group has chosen not
to take the exemption permitted under IFRS 1 from applying IAS 32 and 39 in the
year ended 31 March 2005.



(a)        Impact on debt refinancing



In November 2004, the Group replaced existing bonds and debentures with a
nominal amount outstanding of £1.8bn and an average coupon rate of 8.5% with new
structured debt with a nominal amount outstanding of £2.3bn and an average
interest rate of 5.35%.  Although the former debt has legally been fully
discharged by the issue of new debt, the terms of the new debt are not deemed to
be 'substantially different' for accounting purposes from those of the old debt
and so, under IAS 39, the old debt cannot be de-recognised in the financial
statements.  As a result, under IFRS the Group is required to treat the
transaction as a rollover of  the old debt in its balance sheet (although it has
been repaid) and amortise its book value up to the new, higher, maturity amount
of the new debt over the life of each series of bonds.  The amortisation will be
effected by charging additional, notional, interest through the income
statement.



This means that the Group's IFRS balance sheet at 31 March 2005 (and subsequent
period ends) will not reflect the actual financial liabilities of the Group and
the interest charge reported in the income statement will significantly exceed
the actual cash interest paid by the Group.



The amortisation amount charged to the income statement will increase year on
year as it will be calculated so as to give a constant effective interest rate
on the carrying value of the bonds as the difference between the book and
redemption amounts of the debt amortises.



The restatement of the Group's accounts under IFRS will not change the tax
treatment of the debt exchange.  This continues to be driven by UK GAAP.
Therefore, while the debt exchange has extinguished the Group's current tax
liability for the year to 31 March 2005 and generated Corporation Tax losses to
be carried forward, an equivalent exceptional loss is not being recognised in
the IFRS financial statements.  Differences are dealt with through deferred tax
and a liability of £169.3m has been set up on the difference between the balance
sheet value of the debt and its value for tax purposes.



(b)               Interest rate hedges



The second difference in treatment under IAS 39 concerns the Group's interest
rate hedges.  The general interest rate hedge portfolio does not meet the
criteria set out in the standard for hedge accounting.  Although the Group is
satisfied that, economically, all of the Group's interest rate hedges do indeed
offset interest rate exposures, the practical difficulty in forecasting
accurately the amount and timing of cash receipts and payments associated with
investment portfolio transactions means that the IAS 39 tests on hedge
effectiveness may not be met.  In addition, in many cases, the length of the
hedge could exceed the remaining term of the Group's committed bank facilities.



Although it is very likely that committed bank facilities will always form a
core part of the Group's funding strategy, the intention to renew maturing bank
facilities in the future is not sufficient to permit application of the hedge
accounting rules to all of the interest rate derivative portfolio.  The Group
has decided, therefore, in the interests of consistency, to mark all its general
interest rate derivatives to market and report changes in the value of the
portfolio as a component of net interest in the income statement.  Under UK
GAAP, the Group's interest rate hedges were treated as effective and the annual
net payment or receipt under the hedges was taken in the profit and loss account
as incurred.



An exception to this general rule will be in respect of interest rate swaps
linked to specific floating rate project finance or bank facilities.  In
particular, the swaps relating to the DWP project finance loan (£210m nominal at
31 March 2005) will meet the hedge recognition criteria from 1 April 2005.



2.1.4        IAS 31 - Interests in joint ventures



Under UK GAAP, the Group was required to maintain a distinction between 'joint
ventures' and 'joint arrangements that are not entities' ('JANEs') and follow
different accounting treatments for these investments.  UK GAAP required the
Group to recognise its share of the profit and loss account of joint ventures,
with disclosure of the amounts so accounted for on the face of the profit and
loss account.  The Group's aggregate share of the gross assets and gross
liabilities of the joint ventures were shown separately on the balance sheet.
In the case of JANEs, the Group was required to consolidate its proportion of
the income, expenditure, assets and liabilities of each JANE, line by line, in
its profit and loss account and balance sheet, without separate disclosure.
Under IFRS, there is no equivalent distinction between joint ventures and JANEs
and all such jointly controlled investments are treated in the same way.



IAS 31 permits companies to make a one-time choice as to whether joint ventures
will be accounted under the equity method or proportionally consolidated.  Under
the equity method, the Group's share of its joint ventures' profit after tax is
shown as a single line in the income statement and its share of the net assets
as a single line in the balance sheet.  Many of the Group's partnerships are
financed with stand-alone, secured, non-recourse debt and, as a result, the
Group has no direct access to the assets or cash flows of the joint ventures.
For this reason, the Group has elected to account for all joint ventures under
the equity method, although additional disclosures will be made of the
underlying income, expenditure, assets and liabilities for the joint ventures,
together with supplemental notes.  On adoption of IFRS, therefore, the
disclosure of the Group's interests in joint ventures (including those
previously treated as JANEs) in the income statement and balance sheet has been
modified in line with the requirements of IAS 31.



Under IAS 31, an investing entity must cease consolidating its share of a joint
venture's results if the venture's net assets fall below zero, even if the joint
venture remains solvent and profitable.  This is the case with Telereal, which
will now be carried at nil value in the Group balance sheet with distributions
received, rather than the Group's share of profits earned, passed through the
income statement.  Consolidation would resume if Telereal were to have positive
net assets at some point in the future.



2.1.5        IAS 10 - Events after the balance sheet date



IAS 10 states that only liabilities actually existing at the balance sheet date
are to be provided for.  Final dividends payable do not meet this definition as
they are subject to approval at the Annual General Meeting.  As a result the
2005 proposed final dividend of £153.7m is excluded from the IFRS balance sheet
and written back to retained earnings.



2.2       Other areas of change



2.2.1        IAS 17 - Leases



Under UK GAAP, leases to occupational tenants were almost invariably treated as
operating leases, because the risk and reward in the underlying freehold were
usually assessed as remaining with the landlord.  However, while IAS 17 is based
on a similar principle, it lists a number of situations that individually or in
combination would require a lease to be classified as a finance lease and, in
particular, it requires an entity to consider land and buildings separately,
even if the occupational lease is of the property as a whole and does not make
such a distinction.  This means that it is more likely that a lease term could
be viewed as being for the major part of the economic life of an asset,
resulting in finance lease classification of the building element.  The Group
has carefully reviewed each of its leases and has concluded that, at 31 March
2005, only 21 leases (out of some 3,500 leases) with current passing rent of
£14.2m should be classified as finance leases under IAS 17.



The determination of whether a lease is an operating or finance lease is made at
the inception of the lease, and is not re-assessed over the life of the lease
unless the lease terms are significantly varied.  IAS 17 also indicates that,
because land will typically have an indefinite economic life, a lease of land
(as opposed to buildings) would typically be an operating lease.  On adoption of
IAS 17, therefore, the Group is required to make an allocation of the carrying
value of properties between land and buildings and, where the deemed lease of
the building falls to be treated as a finance lease, the Group has established a
finance lease debtor in relation to the lease of the building, while continuing
to carry the land as an investment property asset.  The consequences of this
are:



•         To establish the capital value of the finance leases as a long-term
receivable (£151.1m at 31 March 2005) and derecognise the value of the buildings
element (£138.9m).  The initial passing rent will be allocated each year between
notional interest on the finance lease receivable and an amount treated as a
repayment of the deemed long-term loan to the tenant.  (For 2005, rental income
has been reduced by £10.8m and interest income increased by £8.6m);

•         To treat increases in rent as a result of rent reviews since the start
of the leases as rent in the income statement as under UK GAAP;

•         To treat the land element as an investment property in the normal way
and to revalue   it through the income statement as required by IAS 40.



Since the carrying value of the finance lease is not reassessed at each
reporting date, the open market value of the building may differ significantly
from the value of the finance lease receivable at that date.



Where an investment property is itself held subject to a head or groundlease,
that headlease must be treated as if it was a finance lease and accounted for
accordingly.  In addition, certain of the Group's operating properties are held
under finance leases. In total, some 50 properties are affected, leading to the
recognition of a finance lease liability of £116.1m at 31 March 2005 and an
increase in the carrying value of the Group's properties by £106.2m, the
difference being attributable to additional amortisation charged on the
capitalised leases.



2.2.2        SIC-15 - Operating leases - incentives



Under SIC-15, the cost of incentives given by landlords to tenants under
operating leases must be spread over the term of the lease rather than, as under
UK GAAP, to the first review to market rents.  Further, there are no
transitional provisions so that incentives granted before the UK standard came
into effect have now been brought back into account.  For the investment
property business, the changes amount to a minor reclassification between rent
and revaluation surpluses in the income statement and, in the balance sheet,
between investment properties and receivables.  There is a small net impact on
the property outsourcing business, where properties are carried at depreciated
cost, reflecting the spreading of lease incentives received.  The minor changes
in the income statement will also affect adjusted earnings per share.



2.2.3        IFRS 3 - Business combinations



Under IFRS 3, goodwill on acquisition is not amortised, but is subject to review
for impairment at each reporting date.  The goodwill arising on the acquisition
of Trillium has therefore been frozen at its 31 March 2004 value of £34.3m and
the amortisation in the year of £2.4m written back.



Under IFRS, the acquisition of net assets in the exchange of properties with
Slough Estates plc has been treated as, in substance, an acquisition of assets
rather than of a business. Adjustments have therefore been made to remove the
negative goodwill and deferred tax created under UK GAAP.



2.2.4        IAS 19 - Employee benefits



This standard requires the Group to adopt a method of accounting for defined
benefit pension schemes that is very similar to that required under the UK
standard, FRS 17.  The Group has been making the required disclosures under FRS
17 for the last three years.  The net effect for the year ended 31 March 2005 is
to increase profit before tax by £2.7m.  In addition, the prepayment recognised
under UK GAAP in respect of additional contributions (£14.5m at 31 March 2005)
is not recognised under IAS 19, while the net actuarial deficit of £10.9m is
recognised in full.  Service costs, the expected return on pension scheme assets
and interest on pension scheme liabilities will be charged in arriving at profit
before tax, while experience gains and losses will flow through the Statement of
Recognised Income and Expense, broadly equivalent to UK GAAP's Statement of
Recognised Gains and Losses.



2.2.5        IFRS 2 - Share-based payment



The main effect of this standard is to require the Group to recognise the cost
of granting share options and other share-based remuneration to employees and
directors through the income statement.  The Group has used the Black-Scholes
option valuation model and the resulting value will be amortised through the
income statement over the vesting period of the options.  This results in an
additional charge to the income statement in the year of £0.9m, which is net of
provisions previously made by the Group in respect of the cost of certain of the
share-based compensation arrangements.



2.3       Presentation of the financial statements under IFRS



With effect from 1 April 2005, the Group will prepare its financial statements
in accordance with IAS 1, 'Presentation of financial statements'.  Where IAS 1
does not provide definitive guidance on presentation, for example in relation to
aspects of the Income Statement, the Group proposes to adopt a format
consistent, where possible, with UK GAAP requirements.



The presentation of the balance sheet under IFRS differs from the requirements
under UK GAAP in a number of respects.  These include requirements to analyse
all assets and liabilities, including provisions, between current and
non-current items, and present deferred tax assets separately from deferred tax
liabilities, rather than as a single net amount. The summary balance sheet,
which does not contain all the line items required under IFRS, reflects these
changed requirements to the extent necessary.



2.4       Other first time adoption considerations



The Group has elected to adopt IFRS 5, 'Non-current assets held for sale and
discontinued operations' with effect from 1 April 2004 and is also adopting IAS
39 from the same date.  The Group will, however, take advantage of the optional
exemption under IFRS 1 in relation to employee benefits in that the approach to
accounting for actuarial gains and losses on the Group's pension schemes under
IFRS will be consistent with UK GAAP (FRS 17).  The corridor approach will not
be applied and gains and losses will be recognised in full through the Statement
of Recognised Income and Expenses.



3.0       Financial Statements



Land Securities Group PLC - Reconciliation of Profit


        Previously     IAS 40     IAS 39    IAS 31  IAS 17     SIC-15       IFRS 3   IAS 19  IFRS 2
         reported                           Interests          Operating                        Share-          Restated
        under UK   Investment   Financial  in joint           leases -     Business Employee   based            under
For the 
year
ended       GAAP   property  instruments  ventures  Leases incentives  combinations  benefits  payment  Other     IFRS
31 
March 
2005         £m         £m          £m        £m      £m         £m           £m       £m      £m      £m        £m
         _______    _______     _______   _______ _______    _______      _______  _______ _______ _______   _______


Gross 
property 
income    1,865.7                         (249.1)  (10.8)       11.2                                         1,617.0
Interest 
income from
finance
leases         -                                      8.6                                                        8.6
   
         _______    _______     _______   _______ _______    _______      _______  _______ _______ _______   _______

Revenue  1,865.7          -           -   (249.1)   (2.2)       11.2            -        -       -       -   1,625.6

Costs   (1,217.3)                             92.5     2.6      (4.5)          2.4      3.0   (1.3)         (1,122.6)
         _______    _______     _______   _______ _______    _______      _______  _______ _______ _______   _______
Operating 
profit
 before 
net profit
on
investment 648.4          -           -   (156.6)     0.4        6.7          2.4      3.0   (1.3)       -     503.0
properties
          _______    _______     _______   _______ _______    _______      _______  _______ _______ _______   _______
Profit on 
disposal of
investment
properties 125.2                           (10.5)     0.5      (3.2)                                           112.0
Net gain 
on valuation
of
investment      -      800.3                     -    29.9      (7.7)         12.7                              835.2
properties
           _______    _______     _______   _______ _______    _______      _______  _______ _______ _______   _______
Net profit
 on          125.2      800.3           -    (10.5)    30.4     (10.9)         12.7        -       -       -     947.2
investment 
properties
          _______    _______     _______   _______ _______    _______      _______  _______ _______ _______   _______
Net operating 
profit      773.6      800.3           -   (167.1)    30.8      (4.2)         15.1      3.0   (1.3)       -   1,450.2
Net financing 
costs      (247.3)                 (11.2)      70.7   (6.9)                            (0.3)           (0.1)   (195.1)
Net 
financing 
costs -    (682.1)                  616.7                                                                       (65.4)
exceptional
Share of 
the profits
of associates 
and joint 
ventures       -          -                 141.7                                                              141.7
         _______    _______     _______   _______ _______    _______      _______  _______ _______ _______   _______
(Loss) 
profit 
before     (155.8)      800.3       605.5      45.3    23.9      (4.2)         15.1      2.7   (1.3)   (0.1)   1,331.4
income 
tax
Income 
tax credit/ 120.0    (162.3)     (181.7)      26.5   (7.2)        1.3        (6.4)    (0.8)     0.4           (210.2)
(expense)
          _______    _______     _______   _______ _______    _______      _______  _______ _______ _______   _______
(Loss) 
profit 
for the     (35.8)      638.0       423.8      71.8    16.7      (2.9)          8.7      1.9   (0.9)   (0.1)   1,121.2
financial 
year
          ======      =====       =====     =====   =====      =====        =====    =====   =====   =====     =====



Notes



IFRS 3 - Cessation of goodwill amortisation

IAS 31 - Equity accounting for all joint ventures

IAS 17 - Finance lease accounting for certain tenant lease and all investment
property headleases

SIC-15 - Lease incentives amortised over term of lease

IAS 40 - Investment property revaluations and tax thereon taken through income
statement

IAS 39 - Bonds reinstated at historical amounts and hedges marked to market

IAS 19 - Pensions accounted on different basis

IFRS 2 - Cost of share-based payments taken through income statement





Land Securities Group PLC - Reconciliation of Equity



                                                         IAS40        IAS 12         IAS 39        IAS 31        IAS 10
                                                                                                                 Events
                                                                                                                  after
                                                                                                                    the
                                                                                                Interests       balance
                                                    Investment        Income      Financial      in joint         sheet
At 31 March 2005                            GAAP      property         taxes    instruments      Ventures          date
                                        ________      ________      ________       ________      ________      ________
ASSETS
Non-current assets
Investment property                      8,737.1                                                  (402.0)
Property, plant and equipment
   Operating properties                    546.3
   Other property, plant and                57.9
equipment
                                        ________      ________      ________       ________      ________      ________
                                         9,341.3             -             -              -       (402.0)             -
                                        ________      ________      ________       ________      ________      ________
Goodwill                                    31.9
Negative goodwill                          (6.3)
Net investment in finance leases               -
Pre-paid operating lease payments              -
Investments in joint ventures              437.5                                                    429.3
Assets held for disposal                       -
                                        ________      ________      ________       ________      ________      ________
                                         9,804.4             -             -              -          27.3             -
                                        ________      ________      ________       ________      ________      ________
Current assets
Inventories                                150.9
Trade and other receivables                529.6                                                   (10.3)
Short term investments                       2.8                                                    (2.8)
Cash and cash equivalents                    8.3                                                    (3.3)
                                        ________      ________      ________       ________      ________      ________
                                           691.6             -             -              -        (16.4)             -
                                        ________      ________      ________       ________      ________      ________
TOTAL ASSETS                            10,496.0             -             -              -          10.9             -
                                          ======        ======        ======         ======        ======        ======
LIABILITIES
Current liabilities
Short term borrowings and                 (77.3)                                      (3.3)
overdrafts
Trade and other payables                 (744.8)                                                      7.8         153.7
Provisions                                     -
                                        ________      ________      ________       ________      ________      ________
                                         (822.1)             -             -          (3.3)           7.8         153.7
Non-current liabilities
Borrowings including finance           (2,856.9)                                      564.3
leases
Employee benefits                              -
Trade and other payables                  (46.8)
Deferred tax liabilities                 (115.9)                   (1,107.7)        (168.4)
Provisions                                (17.7)
                                        ________      ________      ________       ________      ________      ________
                                       (3,037.3)             -     (1,107.7)          395.9             -             -
                                        ________      ________      ________       ________      ________      ________
TOTAL LIABILITIES                      (3,859.4)             -     (1,107.7)          392.6           7.8         153.7
                                          ======        ======        ======         ======        ======        ======
NET ASSETS                               6,636.6             -     (1,107.7)          392.6          18.7         153.7
                                          ======        ======        ======         ======        ======        ======







Land Securities Group PLC - Reconciliation of Equity (continued)...



                                       IAS 17      SIC-15          IFRS 3     IAS 19      IFRS2     IFRS5



                                                Operating                                 Share    Assets    Restated
                                                  leases-       Business-   Employee      based  held for       under
At 31 March 2005                       Leases  Incentives    combinations   Benefits    payment  Disposal        IFRS
                                     ________    ________        ________   ________   ________   _______     _______
ASSETS
Non-current assets
Investment property                    (69.0)      (38.7)                                         (274.2)     7,953.2
Property, plant and equipment
   Operating properties                  36.3                                                       (0.8)       581.8
   Other property, plant and                                                                                     57.9
equipment
                                     ________    ________        ________   ________   ________   _______     _______
                                       (32.7)      (38.7)                          -          - (275.0)       8,592.9
                                     ________    ________        ________   ________   ________   _______     _______
Goodwill                                                              2.4                                        34.3
Negative goodwill                                                     6.3                                           -
Net investment in finance leases        151.1                                                                   151.1
Pre-paid operating lease payments                                                                                   -
Investments in joint ventures                                                                                   866.8
Assets held for disposal                                                                           275.0        275.0
                                     ________    ________        ________   ________   ________   _______     _______
                                        118.4      (38.7)             8.7          -          -         -     9,920.1
                                     ________    ________        ________   ________   ________   _______     _______
Current assets
Inventories                                                                                                     150.9
Trade and other receivables                          39.6                     (14.5)                            544.4
Short term investments                                                                                              -
Cash and cash equivalents                                                                                         5.0
                                     ________    ________        ________   ________   ________   _______     _______
                                            -        39.6               -     (14.5)          -         -       700.3
                                     ________    ________        ________   ________   ________   _______     _______
TOTAL ASSETS                            118.4         0.9             8.7     (14.5)          -         -    10,620.4
                                       ======      ======         =======    =======     ======    ======      ======
LIABILITIES
Current liabilities
Short term borrowings and                                                                                      (80.6)
overdrafts
Trade and other payables                           (11.2)                                 (0.9)               (595.4)
Provisions                                                                                                          -
                                     ________    ________        ________   ________   ________   _______     _______
                                            -      (11.2)               -          -      (0.9)         -     (676.0)
                                     ________    ________        ________   ________   ________   _______     _______
Non-current liabilities
Borrowings including finance          (116.1)                                                               (2,408.7)
leases
Employee benefits                                                             (10.9)                           (10.9)
Trade and other payables                                                                    2.9                (43.9)
Deferred tax liabilities                (0.7)         3.1                        7.7        1.0             (1,380.9)
Provisions                                                                                                     (17.7)
                                     ________    ________        ________   ________   ________   _______     _______
                                      (116.8)         3.1               -      (3.2)        3.9         -   (3,862.1)
                                     ________    ________        ________   ________   ________   _______     _______
TOTAL LIABILITIES                     (116.8)       (8.1)               -      (3.2)        3.0         -   (4,538.1)
                                       ======      ======          ======     ======     ======    ======      ======
NET ASSETS                                1.6       (7.2)             8.7     (17.7)        3.0         -     6,082.3
                                       ======      ======          ======     ======     ======    ======      ======







4.0       IFRS accounting policies



The principal accounting policies that it is anticipated that Land Securities
will adopt, under IFRS, for its accounts for the year to 31 March 2006 are set
out below.   These policies have been applied in preparing:



•         The opening IFRS balance sheet as at 1 April 2004, the date of
transition to IFRS, and

•         The summary IFRS balance sheet as at 31 March 2005 and income
statement for the year then ended attached to this announcement and which will
be presented as comparative information in the Group's first IFRS Financial
Statements.



It has been assumed that the European Commission will endorse the recent
amendment to IAS 19 (Employee Benefits - actuarial gains and losses, group plans
and disclosures) which allows actuarial gains or losses to be taken directly to
reserves as permitted under UK GAAP by FRS 17, 'Retirement benefits'.



4.1       Basis of preparation



The summary income statement and balance sheet have been prepared, in so far as
applicable in the summary format, as to measurement and presentation in
accordance with International Accounting Standards (IAS) and International
Financial Reporting Standards (IFRS) issued by the International Accounting
Standards Board (IASB) and on the basis that all such standards will be endorsed
by the European Union ('the EU').  These standards are also collectively
referred to as IFRS.



At this stage in its development, matters such as the interpretation and
application of IFRS are continuing to evolve. In addition, standards currently
in issue and endorsed by the EU are subject to interpretation by the
International Financial Reporting Interpretations Committee ('IFRIC') and
further standards may be issued and endorsed by the EU before 31 March 2006.
These uncertainties could result in the need to change the basis of accounting
or presentation of certain financial information from that applied in the
preparation of this document.



As a general rule, the Group is required to establish its IFRS accounting
policies for the year ended 31 March 2006 and apply these retrospectively to
determine its opening IFRS balance sheet at the transition date of 1 April 2004
and the comparative information for the year ended 31 March 2005. However,
advantage has been taken of certain exemptions afforded by IFRS 1, 'First-time
adoption of IFRS' as follows:





•         Business combinations prior to 1 April 2004 and, in particular, the
acquisition of Trillium have not been restated to comply with IFRS 3, 'Business
Combinations'.

•         The Group has applied IFRS 2, 'Share-based payment', retrospectively
only to awards made after 7 November 2002 that had not vested at 1 January 2005.



The preparation of financial statements in conformity with IFRS requires the use
of estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.  Although these estimates are
based on management's best knowledge of the amount, event or actions, actual
results may ultimately differ from those estimates.



4.2       Basis of consolidation



The consolidated financial statements of the Group include the financial
statements of Land Securities Group PLC  ('the Company') and its subsidiaries
made up to 31 March 2005.  Subsidiaries are those entities controlled by the
Company.  Control exists when the Company has the power, directly or indirectly,
to govern the financial and operating policies of an entity so as to obtain
benefits from its activities.  The financial statements of subsidiaries are
included in the consolidated financial statements from the date that control
commences until the date control ceases.



Joint ventures are those entities over whose activities the Group has joint
control, established by contractual agreement.  Interests in joint ventures are
accounted for using the equity method of accounting as permitted by IAS 31 '
Interests in joint ventures' and following the procedures for this method set
out in IAS 28 'Investments in associates'.  The equity method requires the
Group's share of the joint venture's profit or loss for the period to be
presented separately in the income statement and the Group's share of the joint
venture's net assets to be presented separately in the balance sheet.

Joint ventures with net liabilities are carried at zero value in the balance
sheet and any distributions received are included in the consolidated profit for
the year.



Intra-group balances and any unrealised gains and losses arising from
intra-group transactions are eliminated in preparing the consolidated financial
statements.  Unrealised gains arising from transactions with joint ventures are
eliminated to the extent of the Group's interest in the joint venture concerned.
  Unrealised losses are eliminated in the same way, but only to the extent that
there is no evidence of impairment.



4.3       Details of Accounting Policies



(a)        Goodwill



At the date of the Group's transition to IFRS, 1 April 2004, the goodwill in the
Group balance sheet represented that arising on the acquisition of Trillium less
amortisation to that date.  In accordance with IFRS 1 'First-time adoption of
IFRS', this amount has been adopted as the carrying amount of the goodwill for
IFRS accounting purposes and the goodwill was reviewed for impairment at both 31
March 2004 and 31 March 2005.  In accordance with IFRS 3 'Business combinations
', the goodwill is not amortised but is reviewed for impairment at each
reporting date.  The Group's policy on impairment is set out in (j) below.



(b)       Derivative financial instruments ('derivatives')



The Group uses derivatives, particularly interest rate swaps, to help manage its
interest rate risk.  In accordance with its treasury policy, the Group does not
hold or issue derivatives for trading purposes.



Derivatives are recognised initially at cost.  Subsequent to initial
recognition, derivatives are stated at fair value.  The gain or loss on
re-measurement to fair value is recognised immediately in profit or loss unless
the derivatives qualify for hedge accounting, in which case recognition depends
on the nature of the item being hedged.



Where a derivative is designated as a hedge of the variability of a highly
probable forecasted transaction, ie an interest payment, the element of the gain
or loss on the derivative that is an effective hedge is recognised directly in
equity.  When the hedge of a forecasted transaction subsequently results in the
recognition of a financial asset or a financial liability, the associated gains
or losses that were recognised directly in equity are reclassified into profit
or loss in the same period or periods during which the asset acquired or
liability assumed affects profit or loss, ie when interest income or expense is
recognised.  The ineffective part of any gain or loss is recognised in the
income statement immediately.



(c)        Investment properties



Investment properties are those properties, either owned by the Group or where
the Group is a lessee under a finance lease, that are held either to earn rental
income or for capital appreciation or both.  In addition, properties held under
operating leases are accounted for as investment properties when the rest of the
definition of an investment property is met.  In such cases, the operating
leases concerned are accounted for as if they were finance leases.



Investment properties are measured initially at cost, including related
transaction costs.  After initial recognition at cost, investment properties are
carried at their fair values based on a professional valuation made as of each
reporting date.  Properties are treated as acquired at the point when the Group
assumes the significant risks and returns of ownership and as disposed when
these are transferred to the buyer.  Investment property is measured on initial
recognition at cost, including related transaction costs.  Additions to
investment properties consist of costs of a capital nature and, in the case of
investment properties under development, capitalised interest.  Certain internal
staff and associated costs directly attributable to the management of major
schemes during the construction phase are also capitalised.



The difference between the fair value of an investment property at the reporting
date and its carrying amount prior to re-measurement is included in the income
statement as a valuation gain or loss.



When the Group begins to redevelop an existing investment property for continued
future use as an investment property, the property remains an investment
property and is accounted for as such.

When the Group begins to redevelop an existing investment property with a view
to sale, the property is transferred to trading properties and held as a current
asset.  The property is re-measured to fair value as at the date of the transfer
with any gain or loss being taken to profit or loss.  The re-measured amount
becomes the deemed cost at which the property is then carried in trading
properties.



Property that is being constructed or developed for future use as an investment
property, but which has not previously been classified as such, is classified as
investment property under development within property, plant and equipment.
This is recognised initially at cost but is subsequently re-measured to fair
value at each reporting date.  Any gain or loss on re-measurement is taken
direct to equity unless the loss in the period exceeds the net cumulative gain
previously recognised in equity.  In the latter case, the amount by which the
loss in the period exceeds the net cumulative gain previously recognised is
taken to profit or loss.  On completion, the property is transferred to
investment property with any final difference on re-measurement accounted for in
accordance with the foregoing policy.



Gross borrowing costs associated with direct expenditure on properties under
development or undergoing major refurbishment are capitalised.  The interest
capitalised is calculated using the Group's weighted average cost of borrowings
after adjusting for borrowings associated with specific developments.  Where
borrowings are associated with specific developments, the amount capitalised is
the gross interest incurred on those borrowings less any investment income
arising on their temporary investment.  Interest is capitalised as from the
commencement of the development work until the date of practical completion.
The capitalisation of finance costs is suspended if there are prolonged periods
when development activity is interrupted.  Interest is also capitalised on the
purchase cost of a site or property acquired specifically for redevelopment in
the short term but only where activities necessary to prepare the asset for
redevelopment are in progress.



(d)       Property, plant and equipment



Operating properties

These are properties owned and managed by Land Securities Trillium, the Group's
property outsourcing business, and which do not satisfy the definition of an
investment property.  Operating properties are stated at cost less accumulated
depreciation.  Depreciation is charged to the income statement on a
straight-line basis over the estimated useful lives of the properties concerned.




The estimated useful lives are as follows:


Freehold land               -      Not depreciated
Freehold buildings          -      Up to 50 years
Leasehold properties        -      Shorter of the unexpired lease term and 50 years



Other property, plant and expenditure

This category comprises computers, motor vehicles, furniture, fixtures and
fittings, and improvements to Group offices.  These assets are stated at cost
less accumulated depreciation and are depreciated on a straight-line basis over
their estimated useful lives of between two and five years.



The residual values and useful lives of all property, plant and equipment are
reviewed, and adjusted if appropriate, at least at each financial year-end.



(e)       Leases



A group company is the lessee

i) Operating lease - leases in which substantially all risks and rewards of
ownership are retained by another party, the lessor, are classified as operating
leases. Payments, including prepayments, made under operating leases (net of any
incentives received from the lessor) are charged to the income statement on a
straight-line basis over the period of the lease.

ii) Finance lease - leases of assets where the Group has substantially all the
risks and rewards of ownership are classified as finance leases. Finance leases
are capitalised at the lease's commencement at the lower of the fair value of
the property and the present value of the minimum lease payments. Each lease
payment is allocated between the liability and finance charges so as to achieve
a constant rate on the finance balance outstanding. The corresponding rental
obligations, net of finance charges, are included in current and non-current
borrowings. The finance charges are charged to the income statement over the
lease period so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. The investment properties
acquired under finance leases are carried at their fair value.



A group company is the lessor

i) Operating lease - properties leased out to tenants under operating leases are
included in investment properties in the balance sheet.

ii) Finance lease - when assets are leased out under a finance lease, the
present value of the minimum lease payments is recognised as a receivable. The
difference between the gross receivable and the present value of the receivable
is recognised as unearned finance income. Lease income is recognised over the
term of the lease using the net investment method before tax, which reflects a
constant periodic rate of return. Where only the buildings element of a property
lease is classified as a finance lease, the land element is shown within
operating leases.



(f)        Trading properties



Trading properties are those properties held as inventory and are shown at the
lower of cost and net realisable value.



(g)       Long-term construction contracts



Revenue on long-term contracts is recognised according to the stage reached in
the contract by reference to the value of work completed using the percentage of
completion method.  An appropriate estimate of the profit attributable to work
completed is recognised once the outcome of the contract can be estimated
reliably.  The gross amount due from customers for contract work is shown as a
receivable.  The gross amount due comprises costs incurred plus recognised
profits less the sum of recognised losses and progress billings.  Where the sum
of recognised losses and progress billings exceeds costs incurred plus
recognised profits, the amount is shown as a liability.



(h)       Trade and other receivables



Trade and other receivables are recognised initially at fair value. A provision
for impairment of trade receivables is established where there is objective
evidence that the Group will not be able to collect all amounts due according to
the original terms of the receivables concerned.



(i)         Cash and cash equivalents



Cash and cash equivalents comprises cash balances, deposits held at call with
banks and other short-term highly liquid investments with original maturities of
three months or less.  Bank overdrafts that are repayable on demand and form an
integral part of the Group's cash management are included as a component of cash
and cash equivalents for the purpose of the statement of cash flows.



(j)         Impairment



The carrying amounts of the Group's non-financial assets, other than investment
property (see (c) above), are reviewed at each reporting date to determine
whether there is any indication of impairment.  If any such indication exists,
the asset's recoverable amount is estimated (see below).  An impairment loss is
recognised in profit or loss whenever the carrying amount of an asset exceeds
its recoverable amount.  For the purposes of assessing impairment, assets are
grouped together at the lowest levels for which there are separately
identifiable cash flows.



The recoverable amount of an asset is the greater of its net selling price and
its value in use.  The value in use is determined as the net present value of
the future cash flows expected to be derived from the asset, discounted using a
pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset.



An impairment loss is reversed if there has been a change in the estimates used
to determine the recoverable amount.  An impairment loss is reversed only to the
extent that the asset's carrying amount after the reversal does not exceed the
amount that would have been determined, net of applicable depreciation, if no
impairment loss had been recognised.



(k)        Share capital



Ordinary shares are classed as equity.  External costs directly attributable to
the issue of new shares are shown in equity as a deduction, net of tax, from the
proceeds.



(l)         Borrowings



Borrowings other than bank overdrafts are recognised initially at fair value
less attributable transaction costs.  Subsequent to initial recognition,
borrowings are stated at amortised cost with any difference between the amount
initially recognised and redemption value being recognised in the income
statement over the period of the borrowings, using the effective interest
method.



Where existing borrowings are exchanged for new borrowings and the terms of the
existing and new borrowings are not substantially different (as defined by IAS
39), the new borrowings are recognised initially at the carrying amount of the
existing borrowings.  The difference between the amount initially recognised and
the redemption value of the new borrowings is recognised in the income statement
over the period of the new borrowings, using the effective interest method.



(m)       Pensions



The Group accounts for pensions under IAS 19 'Employee benefits'.  In respect of
defined benefit pension schemes, obligations are measured at discounted present
value while scheme assets are measured at their fair value.  The operating and
financing costs of such plans are recognised separately in the income statement;
service costs are spread systematically over the working lives of the employees
concerned and financing costs are recognised in the periods in which they arise.
  Actuarial gains and losses arising from either experience differing from
previous actuarial assumptions or changes to those assumptions are recognised
immediately in the statement of recognised income and expense.



Contributions to defined contribution schemes are expensed as incurred.



(n)       Provisions



A provision is recognised in the balance sheet when the Group has a constructive
or legal obligation as a result of a past event and it is probable that an
outflow of economic benefits will be required to settle the obligation.  If the
effect is material, provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and, where appropriate, the risks specific to the liability.



A provision for onerous contracts is recognised when the expected benefits to be
derived by the Group from a contract are lower than the unavoidable cost of
meeting its obligations under the contract.



Provision is made for dilapidations that will crystallise in the future where,
on the basis of the present condition of the property, an obligation exists at
the reporting date and can be reliably measured.  The estimate is revised over
the remaining period of the lease to reflect changes in the condition of the
building or other changes in circumstances.   The estimate of the obligation
takes account of relevant external advice.



(o)       Trade and other payables



Trade and other payables are stated at cost.



(p)       Revenue



Revenue comprises rental income, service charges and other recoveries from
tenants of the Group's investment and trading properties, property services
income earned by its property outsourcing business, proceeds of sales of its
trading properties and income arising on long-term contracts.  Rental income
includes the net income from managed operations such as car parks, food courts,
serviced offices and flats.  Service charges and other recoveries include income
in relation to services charges and directly recoverable expenditure together
with any chargeable management fees.  Property services income represents
unitary charges and the recovery of other direct property or contract
expenditure reimbursable by customers.  Where revenue is obtained from the
rendering of services, it is recognised by reference to the stage of completion
of the relevant transactions at the reporting date.



Rental income from investment property leased out under operating lease is
recognised in the income statement on a straight-line basis over the term of the
lease.  Lease incentives granted are recognised as an integral part of the net
consideration for the use of the property and are therefore also recognised on
the same, straight-line basis.



When property is let out under a finance lease, the Group recognises a
receivable at an amount equal to the net investment in the lease at inception of
the lease.  Rentals received are accounted for as repayments of principal and
finance income as appropriate.

Minimum lease payments receivable on finance leases are apportioned between
finance income and reduction of the outstanding receivable.  Finance income is
allocated to each period during the lease term so as to produce a constant
periodic rate of interest on the remaining net investment in the finance lease.
Contingent rents, being those lease payments that are not fixed at the inception
of a lease, for example increases arising on rent reviews, are recorded as
income in the periods in which they are earned.



Where revenue is obtained by the sale of assets, it is recognised when the
significant risks and returns have been transferred to the buyer.  In the case
of sales of properties, this is generally on unconditional exchange except where
payment or completion is expected to occur significantly after exchange.  For
conditional exchanges, sales are recognised as the conditions are satisfied.
Sales of investment and other fixed asset properties, which are not included in
revenue, are recognised on the same basis.



(q)       Expenses



Property and contract expenditure, including bid costs incurred prior to the
exchange of a contract, is expensed as incurred with the exception of
expenditure on long-term contracts (see (g) above).



Rental payments made under operating lease are recognised in the income
statement on a straight-line basis over the term of the lease.  Lease incentives
received are recognised as an integral part of the net consideration for the use
of the property and also recognised on a straight-line basis.



Minimum lease payments payable on finance leases and operating leases accounted
for as finance leases under IAS 40 are apportioned between finance expense and
reduction of the outstanding liability.  Finance expense is allocated to each
period during the lease term so as to produce a constant periodic rate of
interest on the remaining liability.  Contingent rents (as defined in (p) above)
are charged as expense in the periods in which they are incurred.



(r)        Income tax



Income tax on the profit for the year comprises current and deferred tax.
Current tax is the tax payable on the taxable income for the year and any
adjustment in respect of previous years.  Deferred tax is provided in full using
the balance sheet liability method on temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes.



No provision is made for temporary differences (i) arising on the initial
recognition of assets or liabilities that affect neither accounting nor taxable
profit and (ii) relating to investments in subsidiaries to the extent that they
will not reverse in the foreseeable future.



In particular, deferred tax is provided on the full difference between the
original cost of investment properties and their carrying amounts at the
reporting date without taking into account deductions and allowances which would
only apply if the properties concerned were to be sold, except where such
properties are classified as held for sale.


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