Annual results for the year ended 31 March 2021

Forward-looking statements

These preliminary results, the latest Annual Report and Landsec's website may contain certain 'forward-looking statements' with respect to Land Securities Group PLC (the Company) and the Group's financial condition, results of its operations and business, and certain plans, strategies, objectives, goals and expectations with respect to these items and the economies and markets in which the Group operates.

Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as 'anticipates', 'aims', 'due', 'could', 'may', 'should', 'expects', 'believes', 'intends', 'plans', 'targets', 'goal' or 'estimates' or, in each case, their negative or other variations or comparable terminology. Forward-looking statements are not guarantees of future performance. By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Many of these assumptions, risks and uncertainties relate to factors that are beyond the Group's ability to control or estimate precisely. There are a number of such factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, changes in the political conditions, economies and markets in which the Group operates; changes in the legal, regulatory and competition frameworks in which the Group operates; changes in the markets from which the Group raises finance; the impact of legal or other proceedings against or which affect the Group; changes in accounting practices and interpretation of accounting standards under IFRS, and changes in interest and exchange rates.

Any forward-looking statements made in these preliminary results, the latest Annual Report or Landsec's website, or made subsequently, which are attributable to the Company or any other member of the Group, or persons acting on their behalf, are expressly qualified in their entirety by the factors referred to above. Each forward-looking statement speaks only as of the date it is made. Except as required by its legal or statutory obligations, the Company does not intend to update any forward-looking statements.

Nothing contained in these preliminary results, the latest Annual Report or Landsec's website should be construed as a profit forecast or an invitation to deal in the securities of the Company.

Annual results for the year ended 31 March 2021

18 May 2021

Poised for recovery with a strategy that positions Landsec for long-term growth

Chief Executive Mark Allan said:

"Our results for the year to March 2021 clearly reflect the challenges caused by both the pandemic and the associated restrictions. However, from the very outset of the first lockdown we have been focused on supporting our customers and ensuring that the business emerges from the pandemic in as strong a position as possible. The positive effects of this decisive action will become clearer in the years ahead.

"We are now entering the recovery phase. Government action to support the economy was swift and the speed of the ongoing vaccination programme impressive. As a result, there is the real prospect of a strong consumption led recovery across the remainder of 2021 and 2022. Like many people, I was encouraged to see the relish with which people returned to experience in-person shopping as the easing of lockdown measures began in April, and early indicators are that this excitement is driving a strong return to our retail assets. With this week marking the next milestone in the Government's roadmap out of lockdown we expect to see even more.

"As a result of our proactive approach to the challenges posed by the pandemic, Landsec is poised for the recovery with a strategy that positions the business for long-term growth."

Financial results

¾ Revenue profit(1)(2) down 39.4% to £251m

¾ Loss before tax for the year of £1,393m (2020: loss of £837m)

¾ Adjusted diluted earnings per share(1)(2) down 39.4% to 33.9p

¾ Full year dividend of 27.0p per share (2020: 23.2p)

¾ Combined Portfolio(1)(2) valued at £10.8bn, with a valuation deficit(1)(2) of £1,646m or 13.7%(3)

¾ EPRA net tangible assets per share(1) down 17.4% to 985p

¾ Ungeared total property return(4) of -9.6%

¾ Total business return(1) of -15.9%

¾ Like-for-like net rental income, down £165m or 30.4%

We remain in a strong financial position

¾ Resilient Central London portfolio consisting of high-quality assets with good liquidity

¾ Low leverage with a Group LTV ratio(1)(2) at 32.2% (31 March 2020: 30.7%)

¾ Adjusted net debt(1)(2) of £3.5bn (31 March 2020: £3.9bn)

¾ Weighted average cost of debt at 2.2% (31 March 2020: 1.8%)

¾ Weighted average maturity of debt at 11.5 years (31 March 2020: 9.6 years)

¾ Cash and available facilities(2) of £1.6bn

Landsec is poised for recovery with a strategy that positions the business for long-term growth

¾ We have a clear strategy focused on four priorities, to reshape the portfolio and reposition Landsec for growth

¾ The four priorities are:

¾ Optimise our Central London portfolio

¾ Reimagine retail by redefining how we do retail in a multi-channel world, driving successful outcomes for all

¾ Grow through Urban opportunities applying our proven skillset to deliver multi-phased, urban mixed-use schemes

¾ Realise capital from Subscale sectors

¾ Our strategy is grounded in an authentic purpose; built on sustainable competitive advantage; and supported by long-term macro trends

¾ Culture is as important as strategy; the launch of our first culture report in June will provide the business with a benchmark on which to build

¾ Alongside our annual Gender Pay Gap reporting, we have also published our first Ethnic Pay Gap. We've done this ahead of any statutory requirement because we are committed to building a diverse and inclusive culture, one which will help us live up to our purpose

Ensuring the business emerges from the pandemic in as strong a position as possible

¾ Supported our customers: £80m support fund for retail, leisure and hospitality customers impacted by the pandemic, alongside developing a practical solution to withdraw the moratorium on enforcement action and accrued arrears

¾ Supported our charity partners: £500,000 additional financial assistance to existing charity partners

¾ Supported our people: focused activity to support the mental health and wellbeing of our people during a period of uncertainty and significant change due to the pandemic

¾ Responded quickly: operational changes delivered quickly and efficiently to keep staff, customers and consumers safe across the portfolio, strengthening relationships with customers through collaboration

¾ Maintained optionality on our development activity: measured approach to existing development pipeline, progressing schemes with the best risk adjusted returns. During the year, we fully committed to Lucent, W1 and The Forge, SE1, in September 2020, and n2, SW1 in March 2021

London office market remains resilient and competitive - we continue to make disposals and invest

¾ Investor interest in the London office market remains high, offering opportunities to recycle capital, as evidenced by the sale of 7 Soho Square, W1 in September 2020, and 1 & 2 New Ludgate, EC4 in December, both ahead of the March 2020 valuation

¾ Bifurcation of demand as quality of space, wellbeing and sustainability credentials become significant factors for customers, driving interest in Landsec's core office product and meaning secondary, outdated stock in the market will be ripe for redevelopment

¾ Myo, our flexible office brand, launches its second location on 19 May at Dashwood, EC2 the newly refurbished boutique tower close to Liverpool Street station and the new Crossrail entrance

Potential for a strong consumer-led recovery

¾ Strong performance in England since restrictions on non-essential retail began to lift on 12 April. Shopping centre sales, excluding F&B, up 5% versus 2019, and outlets up 14% versus 2019

¾ Over 50 retail brands have agreed new leases or opened new stores during the year, demonstrating physical stores in the right locations remain a key element to brand partner strategies

¾ Innovative new concepts also forming part of the mix, with new leisure attractions opening in the coming months including Gravity at Southside, Wandsworth and Hangloose at Bluewater

We are committed to being a purpose-led, sustainable business

¾ Committed to become a net zero carbon business by 2030, with first net zero carbon building under way at The Forge, SE1

¾ Delivered a 55% reduction in carbon emissions compared with 2013/14 baseline, keeping us on track to achieve our science-based target aligned with a 1.5oC scenario to reduce emissions by 70% by 2030

¾ Delivered £11m of social value in our local communities since 2019 through our community and charitable activity focusing on education and employment

¾ Introduction of new employee performance related pay which includes a key measure of success against our ESG performance

¾ Our ESG leadership is also demonstrated through our performance in key ESG benchmarks:

¾ GRESB: Regional Listed Sector Leader for Europe within Diversified - Office/Retail for standing investments; Global Listed Development Sector Leader for Office developments

¾ CDP: A-list for the fourth consecutive year

Results summary

1. An alternative performance measure. The Group uses a number of financial measures to assess and explain its performance, some of which are considered to be alternative performance measures as they are not defined under IFRS. For further details, see the Financial review and table 15 in the Business analysis section.

2. Including our proportionate share of subsidiaries and joint ventures, as explained in the Financial review.

3. The % change for the valuation deficit represents the fall in value of the Combined Portfolio over the year, adjusted for net investment.

4. For further details, see the Business analysis section.

Chief Executive's statement

Overview

I joined Landsec as Chief Executive in April 2020, in the early days of the Covid-19 pandemic, and our results for the year to March 2021 clearly reflect the challenges of both the pandemic and the government's policy response. However, from the very outset of the first lockdown we have been focused on ensuring that the business emerges from the pandemic in as strong a position as possible. The positive effects of this decisive action will become clearer in the years ahead.

Lockdowns meant that the vast majority of our portfolio was either closed or substantially unoccupied for over half of the year. Social distancing and other restrictions meant that, even when open, capacity and utilisation across all assets was still heavily impacted. Our key priorities throughout were (i) ensuring the safety of our employees and visitors to our properties; (ii) working collaboratively with our customers to support their businesses as effectively as possible; and (iii) maintaining our financial strength and flexibility. Our success and progress against each of these objectives, in the face of heightened uncertainty and persistent challenges, has gone some way to offset the significant negative financial impact of the pandemic. We did not benefit from any Government sponsored financial assistance.

We are now entering the recovery phase. Government action to support the economy was swift and the speed of the ongoing vaccination programme impressive. As a result, there is the real prospect of a strong consumption led recovery across the remainder of 2021 and 2022, although this is not without risk. Businesses will fail, jobs will be lost and management of the public finances will require a deft hand. However, as a result of our proactive approach to the challenges posed by the pandemic, Landsec is poised for the recovery with a strategy that positions the business for long-term growth.

Results and dividend

EPRA NTA was 985p at 31 March, a fall of 17.4% over the year attributable primarily to the effect of the global Covid-19 pandemic on our property values. Adjusted net debt fell £437m to £3,489m as a result of proactive asset disposals more than offsetting capex on our development programme. As a result, despite the valuation weakness, our Group LTV only increased marginally to 32.2%. Our balance sheet remains in a strong position.

Revenue profit for the year was £251m, down 39.4% relative to the prior year. The decline was almost entirely attributable to Covid-19, either as a result of lower operating income (such as rent on turnover leases) or as a result of rent concessions granted and bad debt provisioning.

We are proposing a final dividend for the year of 9.0p per share which, together with interim dividends already paid, makes for total dividends of 27.0p per share for the full year.

Strategy, culture and people

We launched our new strategy in October 2020, confirming our intention to focus on creating long-term value for shareholders, as measured by total business return. We will achieve this by concentrating our activities and our capital on those sectors and opportunities where we believe we have sustainable or attainable competitive advantage. Importantly, it is a strategy grounded in a clear purpose - Sustainable Places. Connecting Communities. Realising Potential - which aims to create sustainable value for all our stakeholders.

This strategy is captured in four strategic priorities, set out below, and each is covered in more detail later in the Operating and portfolio review, together with a clear update on progress made to date and more detail on near-term objectives.

¾ Optimise Central London

¾ Reimagine retail

¾ Grow through Urban opportunities

¾ Realise capital from Subscale sectors

In line with our strategy, we intend to increase portfolio recycling in the near term to effect our desired reallocation of capital and are prepared to take, in a considered way, more operational risk to create value and drive returns, with financial leverage managed accordingly. We have earmarked approximately £4bn of assets for disposal over the next few years, focused initially on high quality but defensive prime central London assets and, in due course, assets in Subscale sectors where we have little or no competitive advantage (hotels, leisure and retail parks).

When reinvesting capital from this portfolio recycling programme, we have identified two main areas of focus - value add opportunities in central London and urban mixed-use regeneration projects. We also believe that opportunities could begin to emerge in the retail sector in the short to medium term following the very substantial downward correction in asset values in that sector over the past few years.

Culture is as important as strategy. Successful execution of our strategy will be built on a reinvigorated culture at Landsec to ensure that we make the most of the considerable capability and expertise of our people and look to augment it in a targeted way. Clarity of strategic direction, coupled with a properly aligned organisational design, will allow us to foster a culture of greater empowerment and accountability. As a result, we will be better placed to assess and manage risk, make decisions more quickly and drive better returns. Where we judge that new or additional skills are required, for example in elements of our retail business or in regeneration and placemaking, we are moving quickly to address those needs.

Bridging both strategy and culture for Landsec are five key performance drivers that will underpin our competitive advantage for the long term: customer centricity; data-driven decisions; ESG leadership; capital discipline and development expertise. Our level of existing capability in each area is varied - development expertise and ESG leadership are already key strengths on which we can build further. Our capital discipline - both in the sourcing and allocation of capital - can be sharper and customer centricity and data-driven decisions are both areas where significant progress is needed. But these are areas where the wider real estate sector itself is not particularly strong and so both still represent opportunities to establish competitive advantage if we move quickly.

The past twelve months have been challenging for everyone. Across Landsec, as with many organisations, our teams have had to adapt quickly to ever changing conditions and have had to work harder than ever to balance the pressures of their roles with other priorities. It is testament, therefore, to their skill and dedication that so much has been achieved, and so much value protected, despite these persistent challenges. I have been deeply impressed by both the performance and potential of my new colleagues.

Strategic priority - Optimise Central London

Our Central London business represents 68% of our portfolio by value and is characterised by the quality, resilience and liquidity of our London office assets. These assets are a clear example of the value creation capabilities inherent in the Landsec business, given that the majority have been developed or refurbished and leased by us in the past 15 years. However, a number of the assets now have limited further value creation potential and so we intend to increase asset disposals over the next few years and recycle our investment out of these high quality, more defensive assets and increase our exposure to assets that offer greater upside, for example either through redevelopment or repositioning. This strategy better aligns our capital and capability, leading to greater value creation opportunities in the medium to longer term. Our sale of 1 & 2 New Ludgate for £552m in December and the subsequent acquisition of 55 Old Broad Street for £87m demonstrate the progress we are already making.

Central London has been one of the areas hardest hit by the effects of the pandemic and social distancing restrictions, with physical office occupancy for the portfolio as a whole ranging from 1% to 21% at different times across the year and footfall across our Central London portfolio down by around 82%. We expect physical office occupancy to recover substantially across the second and third quarters of 2021. However, with tourism likely to be constrained, future office working patterns still unclear and residual concern about the safety of public transport likely to persist for a while yet, it will take longer for central London footfall to recover fully.

Given the pandemic related challenges, our Central London performance was remarkably resilient in valuation terms, falling only 6.5% to £7.3bn and reflecting a like-for-like equivalent yield of 4.6%. Investor demand for long let, prime London assets was strong and we expect it to remain so, reflecting both investors' willingness to look through near-term uncertainty and the relative value of London compared with other major cities around the world. Yields for prime assets appear well supported at current levels and we could even see some compression in the year ahead.

The nearer term prospects for office occupier markets are more difficult to judge. Vacancy rates are high but concentrated in second hand space. Hybrid working models are here to stay but the effect on occupiers' space requirements is far from clear and will not be uniform. And demand seems likely to be strongest for prime space, the recent and speculative supply of which has been muted. Overall we expect some weakness in rent levels but for this to be most significant for secondary space, of which we have very little.

Against this backdrop, there will be a clear opportunity for owners and occupiers to work together collaboratively to determine and deliver tailored requirements and this will offer potential for investors, developers and occupiers alike. Landsec's long track record and deep, strategic relationships with its customers should translate into clear competitive advantage. Besides our high quality development programme, it is also a particularly interesting time for us to be broadening the range of propositions we can offer to occupiers - our Myo, Customised and Blank Canvas offerings. Flexibility, adaptability and strong customer relationships are going to be critical attributes going forward.

From a development perspective, we worked hard during the year to preserve optionality on our speculative projects for as long as possible, allowing us time to assess and better understand the outlook for the occupier market. Taking all of our analysis into account, and having stress tested prospective returns, we have now committed to three of our five near-term office development opportunities and will be delivering them during 2022 and 2023. These three projects total 0.5 million sq ft and, including pre-let or pre-sold projects, take our total committed development programme to 1.1 million sq ft, of which 57% is either pre-let or pre-sold.

Strategic priority - Reimagine retail

The pandemic has materially accelerated structural trends that were already underway in retail and, for most of the retail sector, it is clear that online is now the primary growth channel and will remain so. This does not, however, signal the end for retail property. Instead, it means that its role must change in an omnichannel world to offer something sufficiently compelling - either to be complementary to online or to offer something that cannot be easily replicated online. It is this reality that underpins our 'Reimagine retail' vision and we are confident that, with effective execution, we have a retail business that can thrive longer term.

Our outlets portfolio (£0.7bn value) serves a real purpose, offering visitors the opportunity to enjoy a day out shopping a variety of brands, with a great value offer and experience that isn't easily replicated online. The outlet model is fundamentally based on collaborative partnerships with our brand partners, most obviously through turnover based leases. During the year, our outlets have been relatively resilient, but values fell 18.5% and like-for-like equivalent yields moved out to 6.8%. However, based on their strong relative performance after each lockdown, we expect outlets to perform strongly in the recovery.

The picture for shopping centres remains more complex. Over the year, the value of our regional shopping centres fell on average 38.2% to £1.0bn, taking the decline from the peak to approximately 60%. The realities remain that going forward there will be fewer physical retail stores, rents will be lower and, in order to remain relevant, shopping centres will need to offer a combination of attributes that are either complementary to online or not easily replicated online.

Much more of this is now reflected in valuations than was the case a year ago, largely as a result of the accelerating effect of the pandemic. The vast majority of our forecast 40% decline in rents from peak to achieve a sustainable level has now been recognised. It is of course currently difficult to assess rental values given the effects of the pandemic and the increasing prevalence of turnover components to leases, and it is possible that the downward correction in rents overshoots in the short term. However, we remain confident in our sustainable rent forecasts overall.

All of this means that retail property will continue to become more operational in nature and our priorities reflect this. To be successful in the long term we need to be able to combine strong, strategic relationships with brand partners, effectively tailored guest experiences and deep asset management expertise. Landsec has always had strong asset management credentials but brand partner management and more tailored guest experiences are areas where we are targeting rapid enhancements. We have made good early progress and our appointment in December last year of Bruce Findlay as Managing Director - Retail, bringing considerable international retail experience from a range of global brands, is an important example of how we are enhancing the 'retailer perspective' in our approach.

The near-term outlook for retail remains challenging, particularly for shopping centres. We are likely to see a sharp increase in insolvency processes (such as CVAs, business restructurings or administrations) amongst occupiers as the Government's pandemic related support tapers off and businesses that were struggling before the pandemic continue to do so afterwards. As this happens, it will accelerate the fall in passing rents towards our forecast sustainable rent levels, increasingly reflected in valuations already. It will also open up opportunities for new brands and different propositions, including digitally native ones, to take space instead and help improve longer-term prospects.

Our longer-term view of retail is more positive. With the downward correction in rents and values now happening much more quickly than would have been the case before Covid-19, it represents an opportunity for the sector to recalibrate. Landsec's combination of a strong retail platform, deep asset management and development expertise and a strong balance sheet marks us out as increasingly unique in the sector and well positioned to take advantage of any appropriate opportunities should they emerge.

Strategic priority - Grow through Urban opportunities

Our Urban opportunities portfolio currently consists of five suburban London shopping centres with significant repurposing potential in the medium to longer term. These assets offer the raw material for mixed-use, multi-phase developments that can offer a compelling blend of income, development and rental growth driven returns throughout their life. Well designed, mixed-use spaces can also cater for the increasing focus on the need for balanced communities and spaces that contribute positively to quality of life, both of which have been brought into sharper relief by the pandemic. With our existing development and asset management capabilities, we believe that Landsec is well placed to become a leading player in this sector, both through the realisation of existing opportunities within our own portfolio but also through targeted acquisitions.

The longer-term redevelopment potential of our Urban opportunities portfolio helped to support values during the year to some extent but they still saw a meaningful decline of 23.3% to £0.4bn as a result of their predominantly existing retail nature. Our focus in the year ahead is on progressing our redevelopment plans, with the submission of a planning application on our first project a key target. We are also actively evaluating potential new investment opportunities that can offer the right blend of income, development and rental growth driven returns, ideally in a way that can accelerate the return profile of this segment of the business.

Strategic priority - Realise capital from Subscale sectors

Subscale sectors describes those parts of the portfolio where we have relatively little capital invested and judge ourselves to have little or no competitive advantage - hotels, leisure assets and retail parks. Our objective remains to realise capital from these assets over time and to reinvest that capital into new value creation opportunities.

Of course, these types of assets have been amongst the hardest hit by the pandemic, particularly hotels and leisure, and over the past 12 months the aggregate value of our investment in Subscale sectors fell 16.4% to £1.3bn. We do, however, expect these assets to be well placed beneficiaries of a strong consumption led recovery in the months and years ahead and for values to grow meaningfully as a result. Our anticipated timescale for disposals reflects this, with hotels and leisure assets unlikely to be sold for at least a couple of years so that we can capture a sensible proportion of the expected valuation upside ahead. Retail parks, which were more resilient in the pandemic and where investment markets have staged a recovery, may offer sale opportunities sooner. In all cases, we will be working hard to maximise value creation opportunities across the portfolio in the meantime.

The year ahead

Performance in the coming year will be determined by the shape of economic recovery from Covid-19 and the early signs are positive. The 12 April re-opening of non-essential retail saw some very strong trading for retailers across our portfolio and highlighted the potential for a strong consumer-led recovery over the remainder of 2021 and 2022. Our retail, leisure and hotel assets are well placed to benefit from such a recovery and, after a period of material downward movements in retail valuations in particular, the outlook for this part of our portfolio now appears under significantly less pressure.

We expect activity in central London to recover more slowly, with office occupational markets remaining more subdued for the time being, which could translate into some rental weakness. The London investment market, conversely, seems likely to display continued resilience with a significant amount of capital seeking prime investment opportunities and this could go some way to offsetting any rental weakness from a valuation perspective.

Against this backdrop, we expect to make good progress in executing our strategy. We took advantage of strong investor demand for prime London office assets to make two disposals in the year, with combined proceeds of £0.6bn, and more disposals are likely over the course of the next financial year. With improving economic prospects, we can now pursue opportunities to reinvest this capital with confidence.

Our reinvestment agenda includes our committed Central London development programme, but we also have capacity to pursue new acquisition opportunities in a targeted way. Our main target areas for investment are value add opportunities in central London and mixed-use, multi-phase urban regeneration projects, both of which offer the potential for above average total returns for shareholders. In addition, we are carefully monitoring the retail sector to determine whether this could provide interesting opportunities at potentially compelling returns.

Of course, our strategy is about more than capital allocation. We also intend to continue the reinvigoration of our culture in line with the principles of empowerment and accountability and to enhance some of the more operational and customer-oriented foundations that we believe will be critical to our long-term success. These include the continued roll out of a wider range of propositions for our Central London office customers, further investment in strategic brand partnerships and guest experience capability in retail and proving our placemaking credentials in Urban opportunities.

The Landsec business is poised for recovery with a strategy that positions the business for long-term growth.

Mark Allan

Chief Executive

Financial review

Overview

We began and ended the financial year with the country in lockdown, many retail and leisure destinations closed and our offices, while open, largely deserted as most people followed Government guidance to work from home. While conditions are now improving and we look forward to a full re-opening of the UK economy, the effect of Covid-19 on our business and financial performance has been significant.

In early April, we were quick to acknowledge the effect of lockdown on our occupiers by setting up our £80m customer support fund for those most in need. At about the same time, the Government introduced a temporary rent collection moratorium which has severely impacted our ability to enforce rent collection. With the moratorium still in place, there has been little incentive for our retail and leisure occupiers to make payments or even agree and document rent concessions from our customer support fund when they are able to withhold rent payments without consequences. While much rent due from leisure and retail occupiers has been withheld, it would be a mistake not to acknowledge those occupiers who have paid their rent and service charge in full, despite being negatively impacted by the pandemic. Hopefully, as retailers and leisure operators can now see a way out of the pandemic towards full re-opening, we will see a return to timely rent payments and agreement on how outstanding amounts will be settled.

The impact on our results from unpaid rent and service charges has been significant. During the year we have made bad debt provisions of £127m on top of the £23m we provided in last year's results against quarterly rent due on 25 March 2020. This is an unprecedented level of provisions and is based on a cautious assessment of the impact of concessions, CVAs and business failures on how much rent we will collect. Time will tell whether we have been too cautious or optimistic in our assessment of these factors but it is our best estimate today based on our knowledge of each individual occupier. In total, we have provided for approximately 38% of the retail and leisure rent for the year. Covid-19 and lockdown has also led to a sharp decline in turnover related income from our hotels, car parks and outlets. The impact of reduced income and higher bad debt provisions is behind the decline in revenue profit to £251m (2020: £414m).

The decline in asset values we saw in our retail and leisure assets last year has continued while our London offices have been more resilient with a relatively small reduction in values. While our external valuer, CBRE, has removed the material uncertainty clause that they included at 31 March 2020 (except for our hotel portfolio), the valuation declines in regional shopping centres and outlets remain more driven by sentiment than transactional activity. This is not true of the London office investment market which continues to demonstrate liquidity, with good investment appetite and transactions completing.

Table 1: Highlights

1. Including our proportionate share of subsidiaries and joint ventures, as explained in the Presentation of financial information below.

Revenue profit for the year to 31 March 2021 was £251m, down 39.4% from £414m as a result of the impact of Covid-19 across the portfolio. Adjusted diluted earnings per share were also down 39.4% at 33.9p due to the reduction in revenue profit. Over the year, our assets declined in value by 13.7% or £1,646m (including our proportionate share of subsidiaries and joint ventures) compared with a £1,179m decline last year. This decline in the value of our assets is behind our loss before tax of £1,393m (2020: £837m loss) and the reduction in our EPRA net tangible assets per share in the year, down 17.4% to 985p.

Presentation of financial information

Our property portfolio is a combination of properties that are wholly owned by the Group, part owned through joint arrangements and those owned by the Group but where a third party holds a non-controlling interest. Internally, management reviews the results of the Group on a basis that adjusts for these forms of ownership to present a proportionate share. The Combined Portfolio, with assets totalling £10.8bn, is an example of this approach, reflecting the economic interest we have in our properties regardless of our ownership structure. We consider this presentation provides additional information to stakeholders on the activities and performance of the Group, as it aggregates the results of all the Group's property interests which under IFRS are required to be presented across a number of line items in the statutory financial statements.

The same approach is applied to many of the other measures we discuss and, accordingly, a number of our financial measures include the results of our joint ventures and subsidiaries on a proportionate basis. Measures that are described as being presented on a proportionate basis include the Group's share of joint ventures on a line-by-line basis but exclude the non-owned elements of our subsidiaries. This is in contrast to the Group's statutory financial statements, where the Group's interest in joint ventures is presented as one line on the income statement and balance sheet, and all subsidiaries are consolidated at 100% with any non-owned element being adjusted as a non-controlling interest or redemption liability, as appropriate. Our joint operations are presented on a proportionate basis in all financial measures.

Measures presented on a proportionate basis are alternative performance measures as they are not defined under IFRS. Where appropriate, the measures we use are based on best practice reporting recommendations published by EPRA. For further details see table 15 in the Business analysis section.

During the year, following the strategy review, we changed how we report financial information to better reflect the way we manage our assets. Assets have been reallocated by strategic priority into one of four new segments: Central London, Regional retail, Urban opportunities and Subscale sectors.

The sector breakdown within our Combined Portfolio Analysis disclosure has been re-ordered to reflect the new segments and the level of detail reported in the CPA for the office assets has been reduced to reflect the fact that all the London office assets are managed in a consistent manner irrespective of their location. The prior year has been restated in the new format and a reconciliation to the previous presentation has been provided on our website.

Income statement

Our income statement has two key components: the income we generate from leasing our investment properties net of associated costs (including finance expense), which we refer to as revenue profit, and items not directly related to the underlying rental business, principally valuation changes, profits or losses on the disposal of properties and finance charges related to bond repurchases, which we call Capital and other items.

We present two measures of earnings per share: the IFRS measure of basic earnings per share, which is derived from the total profit or loss for the year attributable to shareholders, and adjusted diluted earnings per share, which is based on tax-adjusted revenue profit, referred to as adjusted earnings.

Table 2: Income statement

Our loss before tax was £1,393m, compared with a loss of £837m in the prior year, due to a greater fall in the value of our assets this year (down £1,646m, compared with £1,179m last year) as well as a £163m reduction in revenue profit. The loss per share this year was 188.2p, compared with a loss per share of 112.4p in the prior year. Adjusted diluted earnings per share decreased by 39.4%, from 55.9p to 33.9p this year, as a result of the decrease in revenue profit from £414m to £251m. There is no difference between our adjusted diluted earnings per share and the EPRA measure.

The reasons behind the movements in revenue profit and Capital and other items are discussed in more detail below.

Revenue profit

Revenue profit is our measure of underlying pre-tax profit, presented on a proportionate basis. A full definition of revenue profit is given in the Glossary. Revenue profit decreased by £163m to £251m for the year ended 31 March 2021 (2020: £414m) as set out in the table below.

Table 3: Revenue profit

1. Includes finance lease interest, after rents payable.

The main driver behind the reduction in revenue profit was a £178m decrease in net rental income. This reduction and other changes compared with last year are explained in more detail below.

Net rental income

Table 4: Net rental income(1)

1. Including our proportionate share of subsidiaries and joint ventures, as explained in the Presentation of financial information above.

Like-for-like net rental income was down £165m, with increased bad and doubtful debts accounting for £94m of the decline. Further information on our rent collections and bad debt provisions is set out below. Like-for-like net rental income before bad debt provisions was down £71m largely due to a reduction in short-term and turnover related income of £56m and CVAs and administrations of £22m, partly offset by an £11m reduction in direct property expenditure. Income from our Accor hotel portfolio, which is all linked to turnover, was down £24m, while car park income reduced by £15m. Turnover related top-ups, principally in our outlet portfolio, declined by £11m and Piccadilly Lights, W1 saw a £6m reduction from short-term advertising campaigns.

Outside the like-for-like portfolio, there was a £9m reduction in net rental income from proposed developments, driven by Portland House, SW1, which reached vacant possession of the office space in March 2020. There was also a £9m reduction in net rental income following the disposal of 1 & 2 New Ludgate, EC4 and 7 Soho Square, W1 in the current year and Poole retail park in the prior year. The £2m increase in non-property related income largely reflects the release of a provision following an agreement which ended our obligations under one of our last remaining Landflex leases.

Net indirect expenses

Net indirect expenses represent the indirect costs of the Group including joint ventures. In total, net indirect expenses were £80m (2020: £74m). The £6m increase is partly due to higher uncapitalised development-related expenditure and professional and consultancy fees.

Net finance expense (included in revenue profit)

Table 5: Net finance expense(1)

1. Including our proportionate share of subsidiaries and joint ventures, as explained in the Presentation of financial information above.

Our net finance expense has decreased by £21m to £74m due to reductions in interest payable following debt management exercises carried out last year, lower base rates and an increase in interest capitalised on our developments in the year.

Recent rent collection and related provisions

In early April, soon after the start of the first national lockdown, we established a customer support fund of £80m for occupiers most in need of our assistance with a focus on our retail and leisure portfolios. During the year, we have worked with our occupiers to agree rent concessions out of the fund and the payment of any outstanding balances. We also agreed with some occupiers for rents to be paid on a monthly basis, or to be deferred to later quarters to assist with cash flow management.

£110m of rent was due on the 25 March 2021 quarter day, including the Group's share of joint venture debtors. While this rent almost entirely relates to the 2021/22 financial year, we are still required to assess its recoverability at 31 March 2021. The table below shows the amount and percentage of this rent collected to date after adjusting for the impact of customers having entered CVAs and administrations, concessions agreed out of the fund and agreed monthly and deferred payment terms. A similar analysis is shown for the rents which were due between 25 March 2020 and 24 March 2021.

Table 6: Rent collections

25 March 2021 quarter(1)(2)

1. Including our proportionate share of subsidiaries and joint ventures, as explained in the Presentation of financial information above.

2. All amounts are shown gross of VAT. Where an amount billed remains uncollected and is subsequently written off, the VAT component will be recovered by the Group.

For the year ended 24 March 2021(1)(2)

1. Including our proportionate share of subsidiaries and joint ventures, as explained in the Presentation of financial information above.

2. All amounts are shown gross of VAT. Where an amount billed remains uncollected and is subsequently written off, the VAT component will be recovered by the Group.

3. Due dates from 25 March 2020 to 24 March 2021. Does not include 25 March 2021 quarter day rents.

Of the £101m of net rent billed for the 25 March 2021 quarter, £19m remains outstanding with £89m outstanding from rents due between 25 March 2020 and 24 March 2021. Following legislation introduced as a result of the pandemic, the options available to landlords to recover outstanding amounts have been significantly reduced. As a result, there is limited incentive for those who can afford to pay rent to do so and for those who are in difficulty to agree and document concessions.

Given this situation, we have assessed the outstanding debtors for recoverability and provided £127m for bad debts in the year. The provision includes £42m for occupiers where we have agreed concessions out of our customer support fund and £13m against tenant lease incentive balances. More detail on the amounts provided, including the impact on revenue profit for the year, is included in the table below.

Table 7: Provisions for bad and doubtful debts(1)

1. Including our proportionate share of subsidiaries and joint ventures, as explained in the Presentation of financial information above.

As we work to agree and document rent concessions with individual retail and leisure occupiers, we expect this to result in the payment of the balance of their outstanding amounts. Nevertheless, we have taken what we believe to be a cautious view on provisions as we recognise the challenge of a gradual exit from lockdown, ongoing social distancing and the risk of further CVAs and administrations. Of the total amount of rent outstanding at 31 March 2021, around 60% was covered by a doubtful debt provision.

Capital and other items

Table 8: Capital and other items(1)

1. Including our proportionate share of subsidiaries and joint ventures, as explained in the Presentation of financial information above.

An explanation of the main Capital and other items is given below.

Valuation of investment properties

Our Combined Portfolio declined in value by 13.7% or £1,646m over the year compared with a decrease in the prior year of £1,179m. A description of market conditions and a breakdown of valuation movements by category are set out in the Operational and portfolio review (table 14).

Profit/(loss) on disposals

The net profit on disposals of £4m in the year (2020: £1m) relates to the sale of both investment and trading properties. We recognised a £2m profit on the disposal of 7 Soho Square, W1, in September 2020 and a £5m profit on the disposal of 1 & 2 New Ludgate, EC4 in December 2020. Partly offsetting this was our £2m share of the Nova joint venture's loss on disposal of Nova Place, SW1 and n2, SW1, which were acquired by the Group in the year, and a £1m loss on trading properties.

Net finance expense (included in Capital and other items)

In the year ended 31 March 2021, we incurred £3m of net finance expense that is excluded from revenue profit principally due to premiums paid on the redemption of medium term notes.

Table 9: Net finance expense(1)

1. Including our proportionate share of subsidiaries and joint ventures, as explained in the Presentation of financial information above.

Gain on settlement of liability

We recognised a £4m gain this year after settling the s106 liability at Nova, SW1 at a lower value than the previously anticipated cost of fulfilling the obligations.

Exceptional items

We incurred £4m (2020: £5m) of impairment charges during the year which have been classified as exceptional. As a result of a decline in the value of Bluewater, Kent, an impairment test of the intangible asset related to the management rights for the centre was carried out. This resulted in impairment charges of £4m in the year (2020: £4m) against the intangible asset we hold in the balance sheet and £nil (2020: £1m) against the related goodwill. At the year end, our intangible asset was £2m and the related goodwill was £1m.

Taxation

As a REIT, our income and capital gains from qualifying activities are exempt from corporation tax. 90% of this income must be distributed as a Property Income Distribution and is taxed at the shareholder level to give a similar tax position to direct property ownership. Non-qualifying activities, such as sales of trading properties, are subject to corporation tax. This year, there was no net tax charge (2020: credit of £5m).

The Group has met all the REIT requirements, including the payment by 31 March 2021 of the minimum Property Income Distribution (PID) for the year ended 31 March 2020. The forecast minimum PID for the year ended 31 March 2021 is £143m, which must be paid by 31 March 2022. The Group has already made PID dividends relating to 31 March 2021 of £49m, leaving £94m to be paid in the coming year.

Our latest tax strategy can be found on our corporate website. In the year, the total taxes we incurred and collected were £69m (2020: £171m), of which £25m (2020: £47m) was directly borne by the Group including environmental taxes, business rates and stamp duty land tax. The Group has a low tax risk rating from HMRC.

Balance sheet

Table 10: Balance sheet

1. EPRA net tangible assets per share is a diluted measure.

Our net assets principally comprise the Combined Portfolio less net debt. Both IFRS net assets and EPRA net tangible assets declined over the year ended 31 March 2021 primarily due to the reduction in the value of our investment properties.

At 31 March 2021, our net assets per share were 975p, a decrease of 207p or 17.5% from 31 March 2020. EPRA net tangible assets per share were 985p, a decrease of 207p or 17.4%.

Table 11 summarises the key components of the £1,534m decrease in our EPRA net tangible assets over the year.

Table 11: Movement in EPRA net tangible assets(1)

1. Including our proportionate share of subsidiaries and joint ventures, as explained in the Presentation of financial information above.

Net debt and gearing

Table 12: Net debt and gearing

1. Including our proportionate share of subsidiaries and joint ventures, as explained in the Presentation of financial information above.

Over the year, our net debt decreased by £433m to £3,509m. The main elements behind this decrease are set out in our statement of cash flows and note 14 to the financial statements.

Adjusted net debt was down £437m to £3,489m, with the main movements outlined in table 13 below. For a reconciliation of net debt to adjusted net debt, see note 13 to the financial statements.

Table 13: Movement in adjusted net debt(1)

1. Including our proportionate share of subsidiaries and joint ventures, as explained in the Presentation of financial information above.

Net cash inflow from operating activities was £249m. Capital expenditure on investment properties was £220m, largely related to our development programme, with a further £95m spent on acquiring investment properties, principally 55 Old Broad Street, EC2. Net cash flow from disposals totalled £634m, with £550m received from the sale of 1 & 2 New Ludgate, EC4, £78m from the sale of 7 Soho Square, W1 and £4m from trading properties.

The most widely used gearing measure in our industry is loan-to-value (LTV). We focus most on Group LTV, presented on a proportionate basis, which increased from 30.7% at 31 March 2020 to 32.2% at 31 March 2021, due to the decline in the value of our assets partly offset by the reduction in net debt. Our Security Group LTV also increased, from 32.5% to 32.7%, but to a lesser extent as we moved additional assets into the Security Group.

Financing

At 31 March 2021, our committed revolving facilities totalled £2,715m (31 March 2020: £2,715m). The pricing of our facilities which fall due in more than one year range from LIBOR +65 basis points to LIBOR +75 basis points. Borrowings under our commercial paper programme typically have a maturity of less than three months, currently carry a weighted average interest rate of LIBOR +11 basis points and are unsecured.

The total amount of drawn bank debt was £209m (31 March 2020: £1,944m) with £906m of commercial paper in issue (31 March 2020: £977m). At 31 March 2021, we did not have any cash on hand (31 March 2020: cash balances of £1,345m). During the year, the sterling bond and commercial paper markets normalised, having been effectively closed to new issuance at March 2020. As a result, during the early part of the year, we repaid the cash balances we were holding as a liquidity buffer at 31 March 2020. At 31 March 2021, we had £1.6bn of available undrawn facilities, net of our outstanding commercial paper.

The weighted average maturity of our debt has increased to 11.5 years following a reduction at 31 March 2020 to 9.6 years after we drew down on our facilities. The weighted average cost of our debt at 31 March 2021 was 2.2% (31 March 2020: 1.8%). The weighted average cost of our net debt at 31 March 2021, which recognises the minimal interest income on cash deposits, was also 2.2% (31 March 2020: 2.4%).

Dividend

During the year we reinstated quarterly dividends, having suspended them due to the pandemic. We did not declare a first quarterly dividend, but paid a second quarterly dividend of 12.0p per share which we viewed as a combined first and second quarterly dividend at a level of 6.0p per quarter. A third quarterly dividend of 6.0p per share was paid on 30 March 2021. We are now recommending a final dividend of 9.0p per share to be paid on 23 July 2021 to shareholders registered at the close of business on 18 June 2021. Together with the final dividend, our full year dividend is 27.0p or £200m, up 16.4%. The first quarterly dividend, payable in October 2021, will be announced nearer the time.

At 31 March 2021, the Company had distributable reserves of £2.7bn. We do not anticipate that the level of distributable reserves will limit distributions for the foreseeable future.

Martin Greenslade

Chief Financial Officer

Operating and portfolio review

At a glance

¾ Valuation deficit of 13.7%(1)

¾ Ungeared total property return of -9.6%

¾ £24m of investment lettings, with a further £12m in solicitors' hands

¾ Like-for-like voids: 4.4% (31 March 2020: 2.5%) and units in administration: 2.2% (31 March 2020: 0.8%)

¾ 1.0 million sq ft of developments now on site

Central London

¾ Valuation deficit of 6.5%(1)

¾ Ungeared total property return of -2.3%

¾ £9m of investment lettings with a further £1m in solicitors' hands

¾ Like-for-like voids: 3.3% (31 March 2020: 1.3%) and units in administration: 0.3% (31 March 2020: nil)

Regional retail

¾ Valuation deficit of 31.4%(1)

¾ Ungeared total property return of -28.4%

¾ £9m of investment lettings, with a further £7m in solicitors' hands

¾ Like-for-like voids: 7.5% (31 March 2020: 4.7%) and units in administration: 5.8% (31 March 2020: 2.1%)

¾ Footfall down 65.3% (ShopperTrak national benchmark down 58.2%)

¾ Same centre sales (excluding automotive), taking into account new lettings and occupier changes, down 59.4% (BRC national benchmark down 29.2%)

Urban opportunities

¾ Valuation deficit of 23.3%(1)

¾ Ungeared total property return of -21.4%

¾ £1m of investment lettings, with a further £1m in solicitors' hands

¾ Like-for-like voids: 5.0% (31 March 2020: 4.8%) and units in administration: 1.1% (31 March 2020: 0.4%)

Subscale sectors

¾ Valuation deficit of 16.4%(1)

¾ Ungeared total property return of -12.8%

¾ £5m of investment lettings, with a further £3m in solicitors' hands

¾ Like-for-like voids: 2.5% (31 March 2020: 2.0%) and units in administration: 2.9% (31 March 2020: 0.9%)

1. On a proportionate basis.

We have a £10.8bn Combined Portfolio which is comprised of office space in London, and retail, leisure and hotel assets across the UK. We focus on maximising financial, physical and social value through providing the spaces and environments to allow businesses and people to thrive. This approach has been particularly important during the challenging environment we have operated in during the pandemic. Our focus during the year has been on supporting our customers and positioning our business to emerge from the pandemic in as strong a position as possible.

The impact of Covid-19 and our response

Our entire financial year was impacted by the pandemic. Operationally, all areas of the business were affected but the impact varied across the portfolio. Our office portfolio remained open throughout the year; occupation was significantly below pre-Covid-19 levels but we saw progressively higher levels of occupancy during each successive lockdown. In retail, leisure and hotels, the impact was more severe - during periods of lockdown, only essential retail and services could trade, with other operators limited to servicing online customers or providing takeout services. The financial impact of Covid-19 was much more acute in the retail and hospitality segments of our business, where rent collection rates were significantly below pre-Covid-19 levels. Almost all of the rent due from our office occupiers was collected.

Our priorities throughout the year have been: (i) colleague and visitor safety; (ii) proactively supporting our customers; and (iii) preserving financial strength and flexibility. We tailored our support to the specific needs of each area of the business.

In offices, we provided some financial support to a very small number of occupiers whose businesses were particularly impacted by the pandemic, but the majority of our support related to ensuring the safety of our spaces and helping our customers to adapt their spaces to meet their specific needs.

In retail and hospitality, our focus was on providing financial support from our £80m customer support fund, ensuring our assets allowed safe and easy navigation for guests, and providing marketing and operational support for our customers.

For our people, we provided regular updates from our business resilience team, increased the mental health and wellbeing support available for those who needed it and we made sure there was regular contact between teams while working from home. None of our people have been furloughed.

We took advantage of resilient investment markets in London to maintain financial capacity and flexibility through targeted disposals, and minimised the disruption to our committed developments while preserving optionality on our longer-term pipeline.

As the year progressed, and the path out of the pandemic became clearer, we focused on ensuring our portfolio and strategy were positioned appropriately for a post-Covid-19 world. Covid-19 has accelerated many existing trends which would otherwise have taken a number of years to play out. The range of office products we offer will enable us to provide the space our customers need as they adapt to potentially different and more flexible ways of operating, combining office and home-based working. Our Regional retail portfolio is well placed to provide the right mix of exciting retail brands, leisure and entertainment which will be essential for successful centres. And our hotels and leisure assets are well placed to benefit from the consumer-led recovery we expect to see as we emerge from lockdown restrictions.

Valuation of investment properties

Our Combined Portfolio declined in value by 13.7% or £1,646m over the year compared with a decrease in the prior year of £1,179m. A breakdown of valuation movements by category is shown in table 14 below.

Table 14: Valuation analysis

1. Rental value change excludes units materially altered during the year.

The 13.7% decline in the value of our Combined Portfolio is mostly due to a fall in the value of our retail and leisure assets, driven by reductions in rental values and expanding equivalent yields. Within the like-for-like portfolio, regional shopping centres and shops saw the largest reduction in values, down 38.2% overall as rental values reduced by 21.5% and yields moved out 140bps. London retail reduced in value by 26.7% as rental values declined by 25.2% and yields moved out by 26bps. Our leisure assets declined in value by 22.9% with rental values 7.1% lower and yields expanding by 118bps, while hotels were down by 13.4% due to the impact of Covid-19 on our turnover rents and a 34bps expansion in yields. Our office assets saw a more modest decrease in value of 4.3% as rental values declined by 1.9% and yields moved out slightly. The values of our other central London assets, principally Piccadilly Lights, W1, were down marginally.

Outside the like-for-like portfolio, values in the development programme were broadly flat, with the value of 21 Moorfields, EC2 increasing as we approach completion of the development, offset by declines at Lucent, W1 and n2, SW1 where expected rents have been slightly reduced and development costs increased. The 12.4% decline in the value of our proposed developments is due to Portland House, SW1 and Timber Square, SE1 where expected rents have reduced and costs on Portland House have increased. Our acquisitions fell in value by 5.4%, driven by a decline in value of the X-Leisure portfolio, where we acquired the remaining 5% in December 2019.

Optimise our Central London portfolio

Our £7.3bn Central London portfolio comprises offices (85%), associated ground level retail (9%) and other assets (6%), the most significant of which is Piccadilly Lights, W1. The portfolio is characterised by its quality, resilience and liquidity and despite challenging market conditions, valuations were resilient with our office valuations declining by 4.1%. Our offices remain almost fully let and rent collection remained strong, with almost all of the rent due now collected, reflecting the strength of our occupier base.

The central London market has been significantly impacted by the pandemic but Landsec remains in a strong position with high levels of rent collection and a clear strategy to create value.

Covid-19 impacted the London office market in two ways: low levels of occupation and a significant reduction in demand for new space. This, in turn, affected the London retail and hospitality sectors which are dependent upon office workers and tourism for the majority of their custom. Retail footfall in central London was down 82% year on year, reflecting the challenging nature of this market.

Physical occupancy in our offices portfolio was, on average, 6.2% reflecting a combination of working from home and social distancing guidelines as employers imposed occupancy limits as part of maintaining a Covid-19 secure workplace. Central London office take-up in the 12 months to March 2021 was just 4.4million sq ft - the lowest annual take-up rate for over 30 years. Availability across the market increased to 25.3 million sq ft, compared with the 10-year average of 14.8 million sq ft, driven by second-hand space as leases expired and some occupiers looked to sub-let excess office capacity. As a result, vacancy rates rose to 8.9%, the majority of which is second-hand space. Despite this, there continues to be demand for high-quality office space, with 39% of total take-up being of new space. One of the trends accelerated by Covid-19 is demand for sustainable, healthy work environments. This is offered by the best space and is likely to continue the bifurcation of the occupier market.

Investment market volumes in the 12 months to March 2021 were below the long-term average with transactions totalling £7.2bn, reflecting the logistical challenges of viewing assets particularly by overseas investors, but there was continued demand for long income, high-quality assets. London remains a global financial centre and, with average prime yields of 3.75%, continues to offer relative value compared with other major cities.

Supporting our Central London customers

Supporting our customers and maintaining their safety has been a top priority this year. The vast majority of our office customers' businesses were resilient throughout the year, but we used our customer support fund to help three who were particularly challenged. As customers start to plan for their return to the office, we are liaising closely with them to understand their intentions and help them return smoothly and safely.

While some customers will review and potentially consolidate their requirements, there is ongoing demand for high quality office space, and we are seeing the benefit of working alongside our customers to understand their needs. For example, in Victoria, we are currently in active discussions with seven occupiers across 300,000 sq ft in five buildings. This ranges from a 40% upsize to a 20% downsize. The outcome will be stronger customer relationships, re-geared leases, a more diverse product mix and reduced vacancy across the estate. This is not simply a function of upcoming lease events, it is being driven by strategic partnerships with our occupiers and a proactive approach to delivering the right solutions for them.

While our office customers have remained resilient, the trading environment for central London retail and hospitality has been particularly challenged, and we expect this part of the market to take longer to recover. Through our customer support fund we have provided £6m of concessions, together with longer-term support through turnover related leases for some customers. In addition to financial support, we are helping customers with their reopening plans. Alongside targeted marketing, we have worked closely with local authorities to enable hospitality customers to extend their outside trading capacity, creating space for 680 additional covers.

We are seeing interest from occupiers in taking new space, but the market remains challenging. In Victoria, One Rebel expanded their footprint at Nova, we have good interest in the former Goldsmiths unit at Cardinal Place, and we are exploring upsize options for one of our existing brand partners. At One New Change, EC4, we completed the letting of the former Topshop unit to Zara as well as progressing renewal terms with a number of existing brand partners.

Disposals

In line with our strategy to recycle capital out of assets where there are limited opportunities for us to add further value, we completed two disposals during the year. In September 2020, we sold 7 Soho Square, W1 for £78m at a 4.0% yield and 4.3% above the March 2020 valuation, and in December, we sold 1 & 2 New Ludgate, EC4 for £552m at a 4.2% yield and 1.1% above the March 2020 valuation. Both assets attracted significant interest from bidders and demonstrate the continued demand for prime London office assets.

Developments and acquisitions

During the year, our focus has been on progressing our committed development schemes and preserving optionality on the others. We maintained flexibility in the pipeline while we assessed the long-term prospects of the London office market. Having completed our review in the first quarter of 2021, we increased our speculative developments to 451,000 sq ft by adding n2, SW1 to our existing schemes at Lucent, W1 and The Forge, SE1. Alongside our pre-let to Deutsche Bank at 21 Moorfields, EC2, this takes our committed activity to 1.1 million sq ft, with a further 1.0 million sq ft held for development.

At 21 Moorfields, the contractor Sir Robert McAlpine, doubled the facilities space for construction workers in order to accommodate more people on site in a Covid-secure way. Weekend working was also introduced to mitigate some of the delays resulting from lower on-site capacity. However, as a result of the lower on-site capacity we now expect practical completion to be delayed to July 2022.

At Lucent, The Forge and n2, we negotiated break options ahead of entering into the main construction contracts. This enabled us to progress with building to grade and construction of the cores while maintaining optionality before committing to further work and capex. With confidence in the long-term prospects of the London office market, we fully committed to Lucent and The Forge in September and n2 in March. Completion dates at The Forge, Lucent and n2 are June 2022, December 2022 and June 2023 respectively.

To date, the additional costs resulting from the impact of Covid-19 have been accommodated within the contingency allowances of the schemes' total development costs (TDCs), but further disruption may put modest upward pressure on TDCs as projects complete. We continue to focus on mitigating the cost impact of Covid-19 wherever possible.

Despite the current low levels of take-up in the market, we remain confident about the occupational markets we will deliver space into. Demand is expected to be strongest for prime, high-quality, sustainable space and our three speculative office schemes will meet this need in different locations in London, with phased completion dates.

We added to our development potential with two acquisitions during the year. In December, we purchased 55 Old Broad Street, EC2 for £87m. The acquisition offers significant marriage value as the site is adjacent to an existing Landsec asset, Dashwood. We also acquired the remaining undeveloped land on the Nova, SW1 island site from our joint venture for a consideration of £13m. We now own 100% of the final two phases at Nova (n2 and Nova Place) and we have recently satisfied all of the Nova P1 planning obligations, meaning Nova Place is now an unencumbered site.

Positioning our London business for a post-pandemic world

The long-term impact of the pandemic on central London is not yet clear but it won't be uniform. We are likely to see some bifurcation of demand as quality of space and sustainability credentials become significant factors for customers. Some sectors, such as banking and professional services, may reduce their floorspace. Others, such as tech, are not necessarily changing footprint size but are focused on quality of space and employee choice. We will work closely with our occupiers to understand and deliver their needs and the scale that is required.

It is clear that customers who are looking to consolidate want to occupy the best space. This plays to our strengths. Our portfolio and product range gives us the opportunity to tailor our customer conversations to meet upsize, downsize and servicing needs, which is leading to several positive re-gearing discussions. We are also working with some customers to consolidate into a smaller number of buildings, freeing up development opportunities in assets which otherwise would not have become vacant.

Building on the progress made to date, our Optimise strategy is based on four objectives:

Creating value through development

Our focus for the coming year will be on progressing our committed schemes while minimising the impact of Covid-19 on completion dates and costs. We are already seeing occupier interest in our three speculative schemes and we will continue to work towards securing pre-lets as activity in the occupational market increases.

At Portland House, SW1, strip out and design works continued through to the end of April. We are currently assessing the potential timing of the scheme and are likely to pause to manage development exposure.

At Timber Square, SE1, demolition of the existing building is due to commence by the end of May 2021 with a decision on development to be taken by the autumn. The earliest PC date is February 2024 and we will assess the expected demand levels and rental tone before committing to the scheme.

At 55 Old Broad Street, EC2, we will continue to work towards vacant possession in December 2024. In the meantime, we will be working up development plans while protecting short-term income.

Creating value through resilience

Our high rent collection throughout the year demonstrates the resilience of income from our office portfolio and, despite the challenges of the pandemic, we renewed £8m of leases during the year and secured £1m of new lettings. As we look to position our portfolio for future growth, we are using data and insight to focus our activities and capital on sectors, locations and products that we believe will be successful for the long term.

We have three office products which enable us to meet the space requirements of existing and potential customers, large or small, established companies or new businesses. At 123 Victoria Street, SW1, Myo occupancy averaged 85% over the year, and we extended five leases with existing customers. At 31 March 2021, occupancy dropped to 71% through lease expiries, but we are having positive discussions with new customers, as well as upsizing discussions with two existing customers. We are also trialling Covid-secure daily and weekly bookings at 123 Victoria Street.

The reduction in central London footfall significantly impacted the out-of-home advertising market in the year, with short-term bookings at Piccadilly Lights, W1 68% below 2019/20. However, we are starting to see evidence of the market recovering, with significant interest for summer bookings. We have demonstrated the long-term appeal of Piccadilly Lights, signing a new 10-year agreement with Samsung and we are in discussions with two other brands about longer-term agreements.

We will look to strengthen our resilience further through acquisitions. We have identified a number of potential acquisitions within London providing a range of opportunities for us to add value.

Creating value through relentless customer focus

We are progressing the roll-out of our office products and continue to invest in delivering great customer experiences across our office portfolio. We have invested significantly into Dashwood, EC2 where a range of Myo, Customised and Blank Canvas spaces have been delivered in a single building. Myo Liverpool Street at Dashwood, provides flexible office, meeting and amenity spaces on floors 6 to 8, with delivery of floor 9 to follow later this year. The Customised show floor is complete on level 2, with further Customised floors available to be delivered on demand. A visualisation tool has been created for customers to configure their space virtually to ensure it meets their specific needs before physical work starts.

Customised is also being delivered at 55 Old Broad Street, EC2 and 30 Eastbourne Terrace, W2, with further expansion of this product planned to meet customer demand across our portfolio. Landsec lounge spaces have been completed at One New Change, EC4 and 6 New Street Square, EC4 to enhance the arrival experience and provide informal drop-in work and meeting spaces.

With a focus on delivering healthy and sustainable spaces, we are progressing our WELL Building portfolio accreditation, aiming to achieve accreditation across the entire office portfolio.

Realising value through disciplined capital recycling

Disposals in the financial year totalled £0.6bn at an average yield of 4.1%.

We have indicated our intention to sell approximately £2.5bn of Central London assets with more limited asset management opportunities. We have made £0.6bn of disposals since March 2020 and therefore expect to sell a further £1.9bn over the next two to three years.

Reimagine our Regional retail portfolio

Our £1.8bn Regional retail portfolio comprises six regional shopping centres and five outlets.

Covid-19 has had a profound effect on the retail sector. In addition to the short-term impact resulting from three lockdowns and social distancing restrictions, the pandemic has significantly accelerated the structural trends which were already changing how people shop. Online is now the primary growth channel across most areas of retail. For retail property to be relevant and thrive in an omnichannel world, it needs to be compelling in its own right, complementary to online or offer something which cannot easily be replicated online.

Retailers recognise the importance of physical retail to their omnichannel strategy, but there is too much of it in the UK and a lot of it is poor quality. 17% of retail space across the UK is currently vacant and this is expected to rise to 25% in 2025, equivalent to 158 million sq ft of excess or obsolete retail space.

Outlets are one of the strongest retail formats as they offer a service and experience which cannot be replicated online. The higher quality regional shopping centres are generally well placed to support and complement online - brand mix needs to evolve, but rents are approaching sustainable levels which will support store level profitability.

Rent collection was significantly impacted by Covid-19 throughout the year. We have now collected 58% of the net rent due on 25 March 2021. For the four quarters to 25 March 2021, 71% of the net rent due has been collected. The rent moratorium, which remains in place, restricted our ability to enforce rent collections. With lockdown measures easing and operators re-opening, we hope to see a return to timely rent payments and settlement of arrears.

The scale and pace of retail and leisure CVAs and administrations has increased significantly during the year, and some high-profile names have disappeared from the retail landscape. During the year, £41m of annualised rental income was subject to CVA or administration, of which we lost £29m. This compares with £9m of annualised rental income in 2019/20. 360 units across 58 brand partners were impacted, with 48 units falling void as a result. Like-for-like voids across the portfolio were 7.5% (31 March 2020: 4.7%) and units in administration were 5.8% (31 March 2020: 2.1%).

We have engaged with a number of brand partners during the year on opportunities to reduce their overall store portfolio, with some customers also seeking consensual rent reductions to reduce their occupancy costs. We remain committed to working alongside our customers to ensure rents are affordable, and we welcome open and constructive dialogue. However, during the year we have also taken legal action where we believe insolvency processes have been used unfairly, or due legal process has not been followed.

Supporting our retail customers

The pandemic brought significant operational challenges for the portfolio and safety has always been our first priority. The first lockdown, starting on 23 March 2020, saw footfall at our regional shopping centres reduce significantly. Throughout each lockdown and reopening we have had a clear plan for each asset, and provided frequent communications to our brand partners and guests. We adapted our response as conditions allowed, with brand partners evolving the way they used their space to support online fulfilment through click & collect and food deliveries. Post lockdown, 24-hour trading at some Bluewater stores helped to spread capacity and drive sales.

In early April 2020, soon after the start of the first national lockdown, we established a customer support fund of £80m for occupiers who most needed our support. We have now granted £42m of agreed concessions from the fund to brand partners.

We continued to work closely with our brand partners, particularly in the lead up to the reopening of non-essential retail in England and Wales on 12 April and in Scotland on 26 April. Early evidence suggests there is pent-up demand from customers to return to physical retail and leisure. Shopping centre sales, excluding F&B, in England are up 5% versus the same period in 2019 and outlets up 14%, with footwear and outdoor particularly popular sectors.

Positioning our retail business for a post-pandemic world

There are increasingly clear trends which could offer an opportunity for us to reset the portfolio and provide a more sustainable future:

Looking forward, our Reimagine strategy is based on three priorities:

Creating value through tailored guest experiences

We are putting guest experiences at the heart of everything we do, so that our destinations continue to be relevant for the communities they serve and deliver shopping and leisure experiences that cannot be matched online. This will help ensure our destinations remain the location of choice for our brand partners to deliver their physical and digital propositions to meet specific needs of our guests. During the pandemic, we added activities services such as virtual shopping and click & collect, expanded our 'al fresco' dining options and introduced drive through collection points to help our brand partners to connect with their customers.

Creating value through deep brand partner relationships

We are developing deeper relationships with our brand partners to enable them to maximise the role of the physical retail environment. By understanding our brand partners and their aspirations for the physical environment, we can develop a range of leasing models to suit different situations. There will not be a one-size-fits-all solution on how we contract with our brand partners, but rather different models that enable all parties to share in the value of the physical store. We are currently developing a suite of four products to address evolving space needs. These will operate in a similar way to the three products we have developed within our office portfolio, enabling us to better serve our brand partners and attract and retain new ones across existing and emerging market segments.

Creating value through asset management expertise

The last few years have demonstrated that some of our retail destinations are over-sized, and we do not have the best occupier mix and usage of space at all our assets. We are underway designing a new approach to assessing and planning the right use and mix of space at our destinations. The approach is underpinned by data; catchment insight, economic forecasts and predictions of social trends all contribute to determining how our assets can be best placed to maximise future growth and de-risk returns.

Grow through Urban opportunities

Urban opportunities are essentially mixed-use, multi-phase regeneration projects rooted in a need to redevelop parts of the built environment that are no longer fit for purpose. Retail is the most prominent example, and our Urban opportunities portfolio comprises five suburban London projects with redevelopment potential over 1.6 million sq ft with the potential to extend to around 8.0 million sq ft of mixed-use space.

These urban development projects can offer a compelling blend of income, development upside and rental growth throughout their lives. And development can be phased, enabling risk and capital investment to be spread over the life of the projects.

At our most advanced scheme, Finchley Road, NW3, consultations have taken place with a further phase of consultation due in early summer as we progress our master planning and design. We remain on track to submit our planning application this coming financial year. Our other projects are all progressing through concept and design during the pre-development phase. Our large mixed-use schemes will embrace local communities and placemaking to deliver the most suitable and sustainable developments in line with our purpose to provide sustainable places and connect communities. We have engaged external agencies to help develop our overall vision for our Urban opportunities. And we have progressed discussions with a number of leisure operators to trade rent reductions for lease break points and flexibility as we progress towards vacant possession.

The redevelopment potential and more convenience-led nature of these assets has meant that valuations have been more resilient than shopping centres but were still down 23.3% to £0.4bn. Across our five schemes, 45% of retailers remained open throughout the third lockdown, significantly ahead of the rest of the retail assets in our portfolio. This reflects the local convenience nature of our five schemes and demonstrates that these assets already play an important role within their local communities.

The timeline for these projects is long but the right opportunities can start delivering balanced returns in the near future. We are also evaluating opportunities to add to our portfolio, ideally with projects that offer an accelerated returns horizon.

So, looking forward, our strategy will be to progress planning and delivery strategies for our existing portfolio of projects and to evaluate and ideally secure new complementary opportunities.

Realise capital from Subscale sectors

Our £1.3bn Subscale sectors portfolio comprises hotels, leisure parks and retail parks, which we intend to divest over the medium term.

The £0.4bn hotel portfolio has been impacted by the periods of lockdown during the pandemic with the majority of our hotels closed for 20 weeks on average over the year. The portfolio is let on turnover based leases and income has been significantly lower during the year, down 90%. As lockdown restrictions ease, we expect to see a recovery in the hotel sector and our portfolio of two and three-star hotels is well placed to benefit.

Our leisure portfolio comprises assets typically anchored by cinemas and leisure and F&B operators. Social distancing measures have impacted the performance at these assets. Cinemas were closed for 41 weeks of the year and the F&B industry has been particularly challenged. This was reflected in valuations which were down 23.0% to £0.5bn. These assets, like the hotels, are well placed to benefit from the expected consumer-led recovery. We continue to work on asset management initiatives across the portfolio to ensure it is well positioned for sale.

Our ten retail parks performed more strongly, benefiting from their open-air design and increased spending on home and leisure products. However, the portfolio was not immune from the challenges faced by the wider market and values declined by 10.1% to £0.4bn. The valuation declines in retail parks are less pronounced than other retail assets, and there has been increased investor demand for stronger retail parks in recent months.

The F&B segment of both portfolios has been challenged but we have responded quickly to replace operators. In response to Pizza Hut entering CVA, we replaced three units with Canadian fast food operator Tim Hortons on 15 year leases. In addition, Tim Hortons will convert these units into drive-thrus. We have also completed two deals with both KFC and Burger King. At six sites, we have replaced units previously occupied by Chiquito, Frankie and Benny's and Bella Italia with foodhall operator Gourmet4 - their concept reverses the classic restaurant model with a delivery business supported by a strong eat-in operation.

Principal risks and uncertainties

The Company has identified certain principal risks and uncertainties that could prevent the Group from achieving its strategic objectives and has assessed how these risks could best be mitigated through a combination of internal controls, risk management and the purchase of insurance cover. The Board undertakes an annual assessment of the principal risks, taking account of those that would threaten our business model, future performance, solvency or liquidity as well as the Group's strategic objectives.

A description of the principal risks and uncertainties faced by the Group, together with an assessment of their impact, is set out below. The Group's approach to the management and mitigation of these risks will be included in the 2021 Annual Report.

During the year the business responded to the Covid-19 pandemic through the establishment of a workstream structure to assess and mitigate the myriad of risks facing the business as a result of the pandemic. Our assessment and response processes have now been embedded into our operations.

The table below shows the change in the risk profile of our principal risks between 1 April 2020 and 31 March 2021. A key change includes the segmentation of Customer risk. Our Customer risk has been split into two segments, namely Customer - Retail and hospitality (including London retail) and Customer - London office. At the same time, we have absorbed key elements of the previous Disruption risk into these two new segmented risks and, accordingly, Disruption will no longer be reported as a standalone risk.

Statement of Directors' Responsibilities

The Annual Report 2021 will contain the following statements regarding responsibility for the financial statements and business reviews included therein.

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and the Company financial statements in accordance with the requirements of the Companies Act 2006. Under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules, group financial statements are required to be prepared in accordance with international financial reporting standards (IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit and loss of the Group and the Company for that period.

In preparing these financial statements, the Directors are required to:

¾ select suitable accounting policies in accordance with IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors' and then apply them consistently;

¾ make judgements and accounting estimates that are reasonable and prudent;

¾ present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

¾ in respect of the group financial statements, state whether international accounting standards in conformity with the requirements of the Companies Act 2006 (and IFRSs adopted pursuant to Regulation(EC) No 1606/2002 as it applies in the European Union) have been followed, subject to any material departures disclosed and explained in the financial statements;

¾ in respect of the Company financial statements, state whether international accounting standards in conformity with the requirements of the Companies Act 2006 have been followed, subject to any material departures disclosed and explained in the financial statements;

¾ provide additional disclosures when compliance with the specific requirements of IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's and Company's financial position and performance; and

¾ prepare the Group's and Company's financial statements on a going concern basis, unless it is inappropriate to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company, and to enable them to ensure that the Annual Report complies with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS regulation. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Directors' responsibility statement under the Disclosure and Transparency Rules

Each of the Directors, whose names and functions appear below, confirm to the best of their knowledge:

¾ the Group financial statements, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 (and IFRSs adopted pursuant to Regulation(EC) No 1606/2002 as it applies in the European Union) give a true and fair view of the assets, liabilities, financial position, performance and cash flows of the Company and Group as a whole; and

¾ the Strategic Report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Group and the Company, together with a description of the principal risks and uncertainties faced by the Group and Company.

Directors' statement under the UK Corporate Governance Code

Each of the Directors confirm that to the best of their knowledge the Annual Report taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's and Company's position, performance, business model and strategy.

A copy of the financial statements of the Group is placed on the Company's website. The Directors are responsible for the maintenance and integrity of statutory and audited information on the Company's website at landsec.com. Information published on the internet is accessible in many countries with different legal requirements. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors of Land Securities Group PLC as at the date of this announcement are as set out below:

¾ Cressida Hogg, Chairman*

¾ Mark Allan, Chief Executive

¾ Martin Greenslade, Chief Financial Officer

¾ Vanessa Simms, Chief Financial Officer Designate

¾ Colette O'Shea, Chief Operating Officer

¾ Edward Bonham Carter, Senior Independent Director*

¾ Nicholas Cadbury*

¾ Madeleine Cosgrave*

¾ Christophe Evain*

¾ Stacey Rauch*

¾ Manjiry Tamhane*

*Non-executive Directors

The Statement of Directors' Responsibilities was approved by the Board of Directors on 17 May 2021 and is signed on its behalf by:

Mark Allan Martin Greenslade

Chief Executive Chief Financial Officer

Financial statements

The financial statements on pages 37 to 58 were approved by the Board of Directors on 17 May 2021 and were signed on its behalf by:

Notes to the financial statements

Basis of preparation

These financial statements have been prepared on a going concern basis and in accordance with international accounting standards in conformity with the Companies Act 2006. The Group financial statements have been prepared in accordance with IFRSs and IFRICs adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The financial statements have been prepared in Pounds Sterling (rounded to the nearest one million), which is the presentation currency of the Group (Land Securities Group PLC and all its subsidiary undertakings), and under the historical cost convention as modified by the revaluation of investment property, financial assets at fair value through other comprehensive income (without recycling), derivative financial instruments and pension assets.

The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) 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 ultimately may differ from those estimates.

On 17 May 2021, the consolidated financial statements of the Group and this preliminary announcement were authorised for issue in accordance with a resolution of the Directors and will be delivered to the Registrar of Companies following the Group's Annual General Meeting. Statutory accounts for the year ended 31 March 2020 have been filed unqualified and do not contain any statement under Section 498(2) or Section 498(3) of the Companies Act 2006. The annual financial information presented in this preliminary announcement for the year ended 31 March 2021 is based on, and consistent with, the financial information in the Group's audited financial statements for the year ended 31 March 2020. The audit report on these financial statements is unqualified and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006. This preliminary announcement does not constitute statutory financial statements of the Group within the meaning of Section 435 of the Companies Act 2006. While the information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with IFRS.

A copy of the Group's Annual Report for the year ended 31 March 2020 can be found on the website at landsec.com/investors.

Going concern

As the impact of Covid-19 on the Group continues to be significant, particularly on our ability to collect rent and service charge from customers, the Directors have continued to place additional focus on the appropriateness of adopting the going concern assumption in preparing the financial statements for the year ended 31 March 2021. The Group's going concern assessment considers changes in the Group's principal risks (see pages 32-34) and is dependent on a number of factors, including our financial performance and continued access to borrowing facilities. Access to our borrowing facilities is dependent on our ability to continue to operate the Group's secured debt structure within its financial covenants, which are described in note 14.

In order to satisfy themselves that the Group has adequate resources to continue as a going concern for the foreseeable future, the Directors have reviewed a cash flow model which considers the impact of pessimistic assumptions on the Group's operating environment (the 'Viability scenario'). This model reflects unfavourable macro-economic conditions, a continuation of difficulties experienced collecting rent and service charge from our customers and removes uncommitted acquisitions, disposals and developments. We also assume that we are unable to raise any new finance over this period.

The Group's key metrics from the Viability scenario as at the end of the going concern assessment period, which covers the twelve months to 31 May 2022, are shown below alongside the actual position at 31 March 2021.

In our Viability scenario, the Group has sufficient cash reserves, with our Security Group LTV ratio remaining less than 65% and interest cover above 1.45x, for a period of at least 12 months from the date of authorisation of these financial statements. The value of our assets would need to fall from 31 March 2021 values by a further 50% for LTV to reach 65%. The Directors consider the likelihood of this occurring over the going concern assessment period to be remote.

The Security Group requires earnings of at least £71m in the year ending 31 March 2022 for interest cover to remain above 1.45x in the Viability scenario, which would ensure compliance through to the end of the going concern assessment period. Despite the challenging trading conditions experienced during the year ended 31 March 2021, Security Group earnings are well above the level required to meet the interest cover covenant. Therefore, the Directors do not anticipate a reduction in Security Group earnings over the period ending 31 May 2022 to a level that would result in a breach of the interest cover covenant, even if the trading conditions experienced in the year ended 31 March 2021 continue over this period.

The Directors have also considered a reverse stress-test scenario which assumes no further rent will be received, to determine when our available cash resources would be exhausted. Even under this extreme scenario, the Group continues to have sufficient cash reserves to continue in operation throughout the going concern assessment period.

Based on these considerations, together with available market information and the Directors' knowledge and experience of the Group's property portfolio and markets, the Directors have adopted the going concern basis in preparing these financial statements for the year ended 31 March 2021.

Basis of consolidation

The consolidated financial statements for the year ended 31 March 2021 incorporate the financial statements of the Company and all its subsidiary undertakings. Subsidiary undertakings are those entities controlled by the Company. Control exists where an entity is exposed to variable returns and has the ability to affect those returns through its power over the investee.

The results of subsidiaries and joint ventures acquired or disposed of during the year are included from the effective date of acquisition or to the effective date of disposal. Accounting policies of subsidiaries and joint ventures which differ from Group accounting policies are adjusted on consolidation.

Where instruments in a subsidiary held by third parties are redeemable at the option of the holder, these interests are classified as a financial liability, called the redemption liability. The liability is carried at fair value; the value is reassessed at the balance sheet date and movements are recognised in the income statement.

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.

Our property portfolio is a combination of properties that are wholly owned by the Group, part owned through joint arrangements and properties owned by the Group but where a third party holds a non-controlling interest. Internally, management review the results of the Group on a basis that adjusts for these different forms of ownership to present a proportionate share. The Combined Portfolio, with assets totalling £10.8bn, is an example of this approach, reflecting the economic interest we have in our properties regardless of our ownership structure. We consider this presentation provides further understanding to stakeholders of the activities and performance of the Group, as it aggregates the results of all of the Group's property interests which under IFRS are required to be presented across a number of line items in the statutory financial statements.

The same principle is applied to many of the other measures we discuss and, accordingly, a number of our financial measures include the results of our joint ventures and subsidiaries on a proportionate basis. Measures that are described as being presented on a proportionate basis include the Group's share of joint ventures on a line-by-line basis and are adjusted to exclude the non-owned elements of our subsidiaries. This is in contrast to the Group's statutory financial statements, where the Group's interest in joint ventures is presented as one line on the income statement and balance sheet, and all subsidiaries are consolidated at 100% with any non-owned element being adjusted as a non-controlling interest or redemption liability, as appropriate. Our joint operations are presented on a proportionate basis in all financial measures.

The accounting policies used in these financial statements are consistent with those applied in the last annual financial statements, as amended where relevant to reflect the adoption of new standards, amendments and interpretations which became effective in the year, none of which have had a significant impact on the Group or Company's income statement or balance sheet.

Amendments to IFRS

A number of new standards, amendments to standards and interpretations have been issued but are not yet effective for the Group. The application of these new standards, amendments and interpretations are not expected to have a significant impact on the Group's income statement or balance sheet.

The Group's operations are managed across four operating segments, being Central London, Regional retail, Urban opportunities and Subscale sectors.

The Central London segment includes all assets geographically located within central London. Regional retail includes all regional shopping centres and shops outside London and our outlets. The Urban opportunities segment includes those assets where we see the most potential for capital investment. Subscale sectors mainly includes assets that will not be a focus for capital investment and consists of leisure and hotel assets and retail parks.

In the year ended 31 March 2020, we merged our London Portfolio and Retail Portfolio and amended our reporting to the Executive Committee (ExecCom) to reflect the predominant use class of our assets, grouped into Office, Retail and Specialist. Subsequently, during the year ended 31 March 2021, we merged these three segments into four new reporting segments to support our new strategy and better reflect the way the business is now being managed. The comparative year has been presented in the new format and a reconciliation to the previous presentation has been provided on our website.

Management has determined the Group's operating segments based on the information reviewed by Senior Management to make strategic decisions. Until 8 December 2020, the chief operating decision maker was ExecCom, which comprised the Executive Directors, the Group General Counsel and Company Secretary and the Group HR Director. From 9 December 2020, ExecCom was replaced by the Executive Leadership Team (ELT), comprising the Executive Directors and the Managing Directors. The information presented to ELT includes reports from all functions of the business as well as strategy, financial planning, succession planning, organisational development and Group-wide policies.

The Group's primary measure of underlying profit before tax is revenue profit. However, Segment net rental income is the lowest level to which the profit arising from the ongoing operations of the Group is analysed between the four segments. The indirect costs, which are predominantly staff costs, are all treated as indirect expenses and are not allocated to individual segments.

The Group manages its financing structure, with the exception of joint ventures, on a pooled basis. Individual joint ventures may have specific financing arrangements in place. Debt facilities and finance expenses, including those of joint ventures, are managed centrally and are therefore not attributed to a particular segment. Unallocated income and expenses are items incurred centrally which are not directly attributable to one of the segments.

All items in the segmental information note are presented on a proportionate basis. A reconciliation from the Group income statement to the information presented in the segmental information note is included in table 30.

1. Included within rents payable is lease interest payable of £2m (2020: £3m) and £1m (2020: £1m) for the Central London and Subscale sectors segments respectively.

In the tables below, we present earnings per share and net assets per share calculated in accordance with IFRS, together with our own adjusted measure and certain measures defined by the European Public Real Estate Association (EPRA), which have been included to assist comparison between European property companies. Three of the Group's key financial performance measures are adjusted diluted earnings per share, EPRA net tangible assets per share and total business return.

Adjusted earnings, which is a tax adjusted measure of revenue profit, is the basis for the calculation of adjusted earnings per share. We believe adjusted earnings and adjusted earnings per share provide further insight into the results of the Group's operational performance to stakeholders as they focus on the rental income performance of the business and exclude Capital and other items which can vary significantly from year to year.

1. In the years ended 31 March 2021 and 31 March 2020, share options are excluded from the weighted average diluted number of shares when calculating IFRS diluted loss per share because they are not dilutive.

Total business return is calculated as the cash dividends per share paid in the year plus the change in EPRA NTA per share, divided by the opening EPRA NTA per share. We consider this to be a useful measure for shareholders as it gives an indication of the total return on equity over the year.

All revenue is classified within the 'Revenue profit' column of the income statement, with the exception of proceeds from the sale of trading properties, income from long-term development contracts and the non-owned element of the Group's subsidiaries which are presented in the 'Capital and other items' column.

The following table reconciles revenue per the income statement to the individual components of revenue presented in note 3.

1. This represents the interest in X-Leisure which we did not own, but which is consolidated in the Group numbers. In December 2019, the Group purchased this interest thereby settling the redemption liability.

All costs are classified within the 'Revenue profit' column of the income statement, with the exception of the cost of sale of trading properties, costs arising on long-term development contracts, amortisation and impairments of intangible assets arising on business combinations and the non-owned element of the Group's subsidiaries which are presented in the 'Capital and other items' column.

The following table reconciles costs per the income statement to the individual components of costs presented in note 3.

Lease interest payable of £3m (2020: £4m) is included within rents payable as detailed in note 3.

In light of extreme market uncertainty due to Covid-19, the Board took the decision not to pay a first interim dividend for the year ended 31 March 2021 (2020: 11.60p or £86m paid in total).

The Board has recommended a final dividend for the year ended 31 March 2021 of 9p per ordinary share (2020: £Nil) to be paid as a PID. This final dividend will result in a further estimated distribution of £67m (2020: £Nil). Subject to shareholders' approval at the Annual General Meeting, the final dividend will be paid on 23 July 2021 to shareholders registered at the close of business on 18 June 2021.

The total dividend paid and recommended in respect of the year ended 31 March 2021 is 27p per ordinary share (2020: 23.2p) resulting in a total estimated distribution of £200m (2020: £172m).

The first quarterly dividend for the year ending 31 March 2022 will be paid in October 2021 and will be announced in due course.

A Dividend Reinvestment Plan (DRIP) has been available in respect of all dividends paid during the year. The last day for DRIP elections for the final dividend is close of business on 2 July 2021.