14th Nov 2007 07:01
Highlights
- Strong performance in growing net assets
‚ Basic NAV at 2356p up 52p
‚ Adjusted diluted NAV up 55p to 2236p, an increase of 2.5%
‚ Out-performance vs IPD Quarterly Universe benchmark by 2.3%
- Valuation surplus of ‚£130.8m or 0.9% on the investment portfolio
‚ Valuation uplifts from London offices of 4.2%, and Central London shops of0.7%, with valuation deficits of 1.5% for shopping centres and 3.9% for retailwarehouses
- Excellent progress on the development programme
‚ Valuation surplus on development of ‚£174.2m
‚ Development lettings totalling 78,900m2
- Investment portfolio property sales of ‚£929m at 7.8% above March 2007 valuations (before disposal costs)
- Investment portfolio valuation of ‚£15.0bn
- Pre-tax profit of ‚£375.2m (2006: ‚£1,178.2m), down as a result of smaller valuation surplus
- Revenue profit down 10.5% at ‚£172.8m
- Earnings per share
‚ Basic EPS at 78.57p down 57.1%
‚ Adjusted diluted EPS up by 11.0% at 36.46p
- First two quarterly dividends for 2007/08 of 16.0p each, as announced
Retail Portfolio
- Princesshay shopping centre development in Exeter opened, now 92% let
- ‚£0.6bn assets sold in H1, 4.1% above valuation (pre-disposal costs)
- Joint venture entered into with J Sainsbury on three supermarket assets since period end
London Portfolio
- 97,700m2 of developments completed in H1 and now 95% let
- Record rents for Mid-town in the range of ‚£71psf - ‚£76psf achieved in the tower building at New Street Square
- The entire office element of 34,600m2 at Bankside 2&3 let to Royal Bank of Scotland
- ‚£0.3bn assets sold in H1, 15.3% above valuation (pre-disposal costs)
Property Partnerships
- Land Securities Trillium new business - ‚£65m invested and ‚£209m committed in acquiring PFI contracts
- Disposals of ‚£83.0m generating a profit of ‚£25.1m
- Good progress on establishing the PFI fund: ‚£568m of debt raised since period end
Chief Executive's Statement
In our first full reporting period since becoming a Real Estate InvestmentTrust (REIT), we have delivered a set of results which belie the currentnegative sentiment towards the UK commercial property market. Our success hasbeen founded upon our ability to judge the timing of both our developmentprogramme and our execution of a programme of property sales. During theperiod, our Board has also demonstrated its commitment to long-term valuecreation for shareholders by undertaking a comprehensive review of our currentbusiness structure.Our achievements have resulted in a 2.5% increase in adjusted diluted netassets per share over the six months, founded on a 0.9% valuation surplus fromour ‚£15.0bn investment portfolio. Pre-tax profit was ‚£375.2m, down 68.2% onthe comparable period as a result of a smaller valuation surplus than in theprior period. As expected, revenue profit, our measure of underlying pre-taxprofit, was down by 10.5% to ‚£172.8m due to the accounting treatment whichrequires us to recognise the interest cost of the loan associated withacquiring Secondary Market Infrastructure Fund (SMIF) but not the income fromthe underlying contracts. However, our adjusted diluted earnings per sharewere up by 11.0% to 36.46 pence per share, largely as a result of no longerpaying tax on the majority of our activities following conversion to REITstatus on 1 January. For the current financial year commencing 1 April 2007,we have moved to quarterly dividend payments and, as previously announced, thesecond quarterly dividend will be 16.00 pence per share payable on 7 January2008.Over a 12 month period we benchmark our performance against three keyindicators, providing shareholders with a clear indication of the value we arecreating. Over a six month period, however, the most relevant indicator of ourperformance is a comparison to the Investment Property Databank (IPD), theindustry standard for commercial property performance in the UK. During theperiod under review, our ungeared investment portfolio total return was 3.6%as compared to 1.3% for the IPD Quarterly benchmark. Our outperformance islargely attributable to the timing and execution of our development programme;this has delivered substantial valuation surpluses, which accounted for morethan the whole of our overall revaluation surplus. Our financial performancealso benefited from the timing of our sales of ‚£929.1m of investmentproperties, where the sale prices were on average 7.8% above valuation(pre-disposal costs).The defensive income characteristics of our investment portfolio havestrengthened over the period. As a result of major development lettings, theaverage unexpired duration of leases has increased by half a year toapproximately 10 years; and the net reversionary potential of the portfolio(the extent to which today's rental values exceed rents currently payable) hasincreased from 10.6% to 14.6%.
Performance Highlights
We have achieved notable success over the half year in the areas of leasing up our developments, securing planning consents for the future, selling investment properties and progressing the establishment of a fund for investment in Private Finance Initiatives (PFI) contracts.
In our London Portfolio, our development projects delivered a valuationsurplus of 7.5% with the strongest contributions being from New Street Square,EC4 and Bankside 2&3, SE1, at both of which we achieved significant lettings.At New Street Square we achieved record rents for Mid-town in the range of‚£71.00psf - ‚£76.00psf in the tower building as compared to ‚£42.50psf on ourinitial pre-letting within the scheme two and a half years ago. At Bankside2&3, we were delighted to conclude a letting of the whole of the officeelement totalling 34,600m2 to Royal Bank of Scotland. Within the RetailPortfolio, we opened our Princesshay shopping centre development in Exeterwith the scheme 90% let on the date of opening. The scheme makes a strongcivic contribution to Exeter, and this has been widely recognised in the presswith accolades such as the headline `A Jewel in the Crown'.We have sold ‚£333.3m of property from our London Portfolio at an average of15.3% above the 31 March 2007 valuation figures (pre-disposal costs). Thepremium pricing reflected, in a number of instances, specific actions we tookto create additional value. An example was at Blackfriars Road in Southwark,SE1 where we established the likelihood of getting planning consent for a newbuilding over 2.5 times the size of the existing buildings. Sales from ourRetail Portfolio totalled ‚£589.1m and, despite negative sentiment towardsretail investment property over the whole period, averaged 4.1% above Marchvaluation figures (pre-disposal costs).Whilst 2007 represents the high point in terms of the level of our developmentcompletions, we continue to create future opportunities for development in themedium-term. We obtained planning consent following a Public Inquiry for a55,700m2 tower building at 20 Fenchurch Street in the City of London; and wereceived a resolution to grant outline planning consent for Eastern Quarry,the largest of our landholdings at Ebbsfleet Valley in Kent.Our Property Partnerships division, Land Securities Trillium (Trillium), hassuccessfully widened the base for its new business opportunities by movinginto the PFI sector. We made our principal acquisition in this area, SMIF, inearly 2007 and we stated at the time that we would establish a fund for thePFI contracts acquired and introduce third party co-investors. We have madegood progress in establishing the fund: we have successfully raised ‚£568m ofdebt for the fund; and we are at an advanced stage of discussions with anumber of prospective investors. We expect to move to a first closing for thefund before the end of this calendar year.Whilst delivering financial returns for our shareholders continues to be ourfirst priority, it is increasingly important to us to meet the expectations ofour customers and other stakeholders on environmental issues. We weretherefore delighted to be placed within SustainableBusiness.com's `Top 20Sustainable Stocks in the World'. We were both the only UK company and theonly property company within this list. We have also been adjudged the GlobalSector Leader in the Financial Services sector in the 2007 Dow JonesSustainability Index.
Outlook
We had anticipated a weakening in the pricing of property investments and soaccelerated our programme of property sales in the first half of the calendaryear. We expect the current weak trend in property investment pricing tocontinue, but we believe that the greatest impact will be experienced onsecondary properties where, in recent years, yield pricing has not fullyreflected the risks associated with lower quality properties. We thereforeexpect our shareholders to benefit, in relative terms, as a result of the highquality of our portfolio.Our London development programme completions are concentrated in the currentfinancial year ending 31 March 2008 reflecting our decision to start asubstantial development programme early in the cycle. We will be completing148,600m2 of developments in London in the current financial year, and theseprojects are now 93% let. Over the next two financial years, when employmentgrowth in the financial services sector may be weaker, we will be completingjust 25,400m2 of office developments in London.The leasing environment for our Retail Portfolio has been broadly consistentover the last 18 months. Our Princesshay project in Exeter once againdemonstrated that high quality schemes which enhance the shopping experiencefor consumers will continue to be attractive to retailers. We expect to beable to sustain the good progress we have made in leasing up our other retaildevelopment projects.New business acquisitions for Trillium continue to be one of our priorities.Since 1 April 2007 we have agreed terms to acquire over ‚£274m of additionalPFI contracts, and we are encouraged by recent comments from Government whichreaffirm its commitment to future PFI projects.
Review of Business Structure
The Land Securities Board has completed its review of the structure of the business and has concluded that, over the long-term, the Group's component businesses, and shareholders, will benefit from separation, and proposes to demerge the Group into three specialist separately quoted entities.
This change will represent a continued evolution of the Land Securitiesbusiness model. In 2004, the Group demonstrated its preference for a focused,sector-based approach by exiting industrial property and moving the groupstructure to one built around the Retail, London and Outsourcing sectorsrather than the functions of asset management, development and outsourcing.Since this time, the Group has developed three specialised business divisions,which have enjoyed strong growth and each of which has considerable scale andleadership positions within their respective peer groups.
These three divisions have performed well under the current diversified structure, but the business models are distinctive and have different financial characteristics:
- RETAIL: The Retail division seeks to create and enhance long-term dominant assets through development and active management. It focuses on creating attractive, retail environments to generate sustainable earnings growth.
- LONDON: The London Portfolio has a greater emphasis on development activityand capital recycling to manage effectively the cyclical nature of its officemarket. The portfolio also offers a broader investment in London as one of theworld's major financial centres. It has material retail assets and also majorretail and residential elements in its development programme. In addition, itoffers shareholders significant value creation potential from its KentThameside development, which will be material relative to the size of thisbusiness.- PROPERTY OUTSOURCING: The historic value creation from Trillium, with areturn on capital since acquisition of 28%, has been outstanding. It now hasmarket leading positions in both property outsourcing and PFI. However, withthe growing role of PFI and PPP contracts, Trillium's business and operationshave increasingly different characteristics from property investment, and assuch the key valuation metrics are also different.
Trillium has grown by 57% in the last year in terms of floorspace under management, and it now manages more floor space than the London and Retail divisions combined. Land Securities' brand and balance sheet have been important to the development of Trillium to date. However, Trillium now has the size and track record to operate independently of Land Securities. Having regard to the different characteristics of Trillium's business and its valuation metrics, the Board considers that the creation of long-term shareholder value is best achieved by demerger.
For the Retail and London divisions, the Board also believes that, over the longer term, the development of each business and the needs of investors will be better served by a separation of the two. Specifically,
- They operate in market segments with different characteristics and they willbe able to adopt a capital structure best suited to their respective sectors'outlook;- They will, in future, each have an acquisition currency that should bevalued in line with the assets or businesses they may wish to acquire at anypoint in their respective cycles. As a combined group, the market rating ofLondon and Retail will tend to reflect an average of the less favoured sectorand the more favoured sector, reducing its effectiveness as a potentialacquisition currency; and
- The full benefit of successful investment decisions will be more visible and have greater financial impact in separate focused entities.
As separate companies:
- The management teams of London and Retail will have a clear investment mandate and be able to allocate capital without competing demands driven by the cyclical dynamics of a different property segment;
- Shareholders will be given the choice of making sector allocations in line with their individual investment preferences. Shareholders benefit from greater liquidity and lower transaction costs in dealing through shares to change sector allocations, than can be achieved by a diversified property company transacting in property assets; and
- The businesses will be better placed to take advantage of significant inflows of capital into global real estate funds which typically favour investment in specialist companies. Over time, the ability to access this expanding pool of capital is expected to help drive the valuation of specialised property groups.
Both businesses will retain:
- The strength of their customer relationships through an unchanged presence in their customers' markets; and
- Stability of cash flows and stable income growth, which result from the five year, upward only rent review structure in the UK.
Extensive and detailed work needs to take place before the company is in a position to seek shareholder approval and effect the demergers. The demergers will be executed when the preparatory work has been completed and only when market conditions are favourable.
Business Unit Review - Retail Portfolio
Our retail business represents 44.7% of the combined portfolio by value, andincludes 28 shopping centres and 29 retail parks. With over 1,600 occupiersand 1.7 million m2 of retail accommodation, the Retail Portfolio has a 5.1%share of the UK's retail commercial property market. Many of our retailproperties form the central shopping districts of major cities and townsacross the UK and we are investing some ‚£1.2bn to create the next generationof retail schemes through a 380,000m2 development pipeline.
National sales data has shown that retail conditions have remained broadly similar over the past 12 months and our experience of leasing conditions on new and existing shopping centres and retail parks is consistent with this, demonstrating continuing demand for our retail development pipeline.
Across our like-for-like portfolio, we saw rental income growth of 4.7%,primarily driven by rent review settlements. These rent review settlementsreflect increases in rental value over the last five years. In the last sixmonths, rental values have continued to increase, but at much more modestlevels, namely 0.8% for the half year. In line with the wider investmentmarket, valuation yields have increased, particularly for secondary assets andretail warehouses and this depressed capital values. However, we havebenefited from strong performance from completed developments and also thegreater resilience to adverse yield change of some of our high qualityshopping centres. As a result, we have seen only a small decline in the valueof the Retail Portfolio of 2.2%. The reversionary potential of the portfolioremains strong at 12.0% and void levels are below market average at 4.0%.
Sales, acquisitions and asset management
We have continued with an active sales programme. We sold ‚£589.1m of retailassets, the largest of which were the Whitefriars shopping centre inCanterbury and our 50% stake in the East Kilbride Shopping Centre in Scotland.Our sales also included ‚£121.9m of retail warehouse assets. On average thesales were at prices 4.1% above March 2007 values (before disposal costs).Retail investment acquisitions were not our priority during this period, butwe have agreed to acquire a major development opportunity by establishing apartnership with Caddick Developments regarding its ‚£80m Trinity ShoppingCentre in Leeds. This centre which will be integrated with our Leeds ShoppingPlaza, an asset we acquired in 2005 as part of our corporate acquisition ofTops Estates plc. This scheme is planned for completion in 2010. The combineddevelopment incorporating our refurbished Leeds Shopping Plaza will provide atotal of 83,640m2 of retail floorspace in a prime location in the centre ofLeeds.
We have secured some ‚£10.3m p.a. of rent in new lettings within the portfolio, all of which have either driven rental growth or improved tenant mix.
Our void levels have increased slightly on a like-for-like basis and are nowat 4.0% of ERV. 26% of these are currently in solicitors' hands and a further17% are being held vacant pending redevelopment or refurbishment work.We continue to create additional revenue opportunities from within our RetailPortfolio. As an example of this, 14 of our shopping centres have entered intoan advertising partnership with Sky which will generate some ‚£3.5m over thenext five years.Development
We made excellent progress on our retail development programme, completing 59,710m2 of retail floor space with an annual rent roll of ‚£16.7m and letting some 18,000m2 across our major schemes.
We successfully launched our 44,600m2 mixed use regeneration scheme atPrincesshay, in Exeter city centre in September 2007. Introducing 35 newretailers to the region and providing retail accommodation for 14 independenttraders, the scheme demonstrated that the right retail product attracts strongdemand from retailers. Christs Lane, Cambridge and the first phase of Corby'sregeneration also achieved significant retail pre-lets ahead of theiropenings.The 140,000m2 Cabot Circus scheme is set to transform the heart of Bristolupon its launch in September 2008. Together with our development partner,Hammerson, we have secured 59,000m2 of lettings bringing it to 79% pre-let orin solicitors' hands by floor area or 68% by income, 12 months ahead ofopening. The retail led mixed use scheme will establish Bristol as one of theleading fashion and leisure destinations outside London.In Cardiff we are progressing the St David's 2 development with CapitalShopping Centres to regenerate the city centre with 106,400m2 of retail,leisure and residential accommodation. The first phase of the catering unitsis fully let. The scheme will bring the first John Lewis department store toWales and is on schedule for an autumn 2009 opening.Construction is underway on The Elements, Livingston, where we are extendingthe existing shopping centre to provide an additional 32,000m2 of retailspace, 5,670m2 of leisure, residential accommodation and new public spaces.Debenhams and Marks & Spencer will anchor the scheme which is on schedule foran autumn 2008 completion.In our retail warehouse portfolio we completed 22,350m2 of new space includingthe 13,380m2 Peterborough Retail Park, which was 91% pre-let to B&Q andMatalan, with one remaining unit under offer. At Thanet we completed a 8,970m2leisure park, which is 100% pre-let, and is adjacent to our Westwood Crossfashion park improving the mix of uses and the overall car parking provision.In April we submitted a joint planning application with Henderson GlobalInvestors for the 65,000m2 expansion of Buchanan Galleries, Glasgow, and aresolution to grant outline planning consent was passed in early November. Thenew scheme will create further retail space in the UK's second ranked shoppingdestination, and will also provide residential accommodation and upgradedtransport facilities for the city centre.
Business Unit Review - London Portfolio
During the last six months we have continued to implement the strategy we setseveral years ago. We have executed our programme of sales of mature,potentially ex-growth assets. We have also continued to deliver strongperformance from our development properties with some market-leading leasingtransactions.Our London Portfolio represents 54.9% of our overall investment portfolio byvalue. This 1.1 million m2 London portfolio represents a 5.1% share ofLondon's total office accommodation. We continue to invest in our mixed usedevelopment clusters across the capital, creating innovative buildings inimproving areas. We currently have over 600 occupiers in our London Portfolioaccommodating more than 50,000 people.The London Portfolio delivered a strong performance with a valuation surplusof 3.6%. This was driven by a 7.5% surplus on our developments. The valuationincrease for the like-for-like assets was 2.7%. We saw growth in rental valuesof 9.5%, and the portfolio is now 19.1% reversionary. Void levels havedeclined from 4.8% in March to 4.4% in September on a like-for-like basis.
Sales, acquisitions and asset management
During the first half of the year we have sold ‚£333.3m of London property,including Greater London House, NW1 and 20 Blackfriars Road, SE1. Ourproperties sales were, on average, at 15.3% above March 2007 values. Wepurchased ‚£537.1m of investment properties with a focus on the areas to theeast of the City, which we had already identified as providing future growthpotential, namely Harbour Exchange, E13 and Thomas More Square, E1. Thislatter complex provides over 52,000m2 on a 4.2 acre site and is let at lowrents averaging ‚£28psf. We also completed the purchase of a further 50.5%interest in Times Square, EC4, in Queen Victoria Street in the City, takingour holding to 95%.With the recent disposal (after 30 September) of our Lime Street Estate inEC3, we have largely completed the sale of assets identified for disposal 18months ago. We believe the balance of the portfolio provides a strong blend ofinvestment assets and buildings offering medium-term developmentopportunities.In terms of asset management, we have focused on two key areas: firstly,maximising income, in the short-term on assets targeted for redevelopment inthe next cycle; and, secondly, improving the performance of our Central Londonretail assets with a particular focus on customer relationship management.
Development
We have delivered excellent performance from our developments. We initiatedour development programme early in the cycle, anticipating improving marketconditions. We have been rewarded for this early commitment to development bythe levels of development surpluses and the fact that we have already let 93%of our schemes which are due for completion in the current financial year.The London Portfolio has secured strong development lettings totalling60,800m2 over the six month period. These include the letting of Bankside 2&3,SE1 to Royal Bank of Scotland, 35% of the office space at One New Change, EC4to K&L Gates, and further lettings at New Street Square, EC4. The office spaceat New Street Square is now 87% let and has set record rents for the Mid-townmarket, establishing the location as a leading destination for the legal andprofessional community. The offices at Cardinal Place, SW1 are now fully letto occupiers including 3i and Microsoft; and One Wood Street, EC2 has beenhanded over to the occupier, Eversheds, for fitting out.
With the good progress of lettings on the latest phase of developments, we have moved on to focus on the new generation of schemes to be delivered beyond 2010.
At 20 Fenchurch Street, EC3 we received notification that the Secretary of State has confirmed the grant of planning consent for our proposed tower building. Demolition works are already underway and will complete in March 2009. At that time we will review how we will take the project forward.
We submitted outline planning applications for some 92,900m2 of space atLudgate Hill, EC4 and Fleetbank House, in Salisbury Square, EC4. In August wealso submitted a joint planning application with Transport for London for the`Victoria Transport Interchange', a 180,000m2 regeneration of the area to thenorth of Victoria station, to include office, retail, leisure and residentialaccommodation. The application also sets out our proposals to improve thepublic realm and address the capacity constraints of the local transportnetwork to create a world class transport interchange.
Business Unit Review - Urban Community Development
Kent Thameside
Our focus here has continued to move towards delivery of development as the planning phase draws to a conclusion.
At Eastern Quarry, Dartford Borough Council resolved to grant Outline PlanningPermission in July 2007 and it is anticipated that the Section 106 Agreementwill be signed in November. This will allow the development of up to 6,250homes and 232,000m2 of office, retail, leisure and community space. It isanticipated that infrastructure works will commence in 2008 with constructionof the first dwellings beginning in late 2009.
At Ebbsfleet, the new international train station opens on 19 November 2007 for Eurostar services providing a total of 12 trains a day to Brussels and Paris.
At Springhead, good progress is being made with our joint venture partners,Countryside Properties, on the delivery of the first 383 new homes of the 600planned. The primary infrastructure and first homes are now under constructionwith first occupations targeted for autumn 2008.Sales continue at our residential scheme at Waterstone Park with an agreementhaving been reached with Countryside Properties to deliver the final phase
ofthe project.Milton KeynesWith our joint venture partner Gazeley Limited, we completed the developmentof the 60,400m2 distribution centre which had been pre-let to John Lewis andwhich we have now sold. Our share in the project generated some ‚£35.0m of saleproceeds and a profit of ‚£8.1m.
Business Unit Review - Property Partnerships
Trillium provides Property Partnership services in the outsourcing and PublicPrivate Partnership (PPP) markets. In the six months under review it generated19.9% of the Group's underlying operating profit, some ‚£57.8m. This businessnow has 4.8 million m2 of floor space under ownership or management. It isinvolved in 123 long-term partnerships, providing accommodation services tomore than 455,000 people.
Trillium delivered strong results for the six months under review and made excellent progress on its new business pipeline with ‚£65m invested in seven new PPP acquisitions and a further ‚£209m invested since the period end. In addition to the underlying operating profit of ‚£57.8m, the business also generated ‚£25.1m of profits on disposal.
The outlook for Trillium is positive in terms of new business prospects. In its Pre Budget Report, the Government reiterated that ‚£22.2bn worth of PFI projects (which are part of Trillium's PPP market) are expected to reach financial close before April 2011, and that PFI should continue to form a significant part of the Government's strategy for delivering high quality public services. As a leader in the education and health markets, we believe Trillium is well placed to take advantage of these opportunities.
In addition, the Government restated its objective of selling public sector assets totalling ‚£30bn by 2011. This sales programme will include a significant amount of property assets and the Trillium partnership approach can offer long-term operating efficiencies as well as capital realisation, a potentially more attractive solution.
Trillium Financial Results
The results for the period are set out in the table below:
Table 1: Trillium financial results
Six months Six months ended ended 30 30 Year ended September September 31 March 2007 2006 2007 ‚£m ‚£m ‚£mContract level operating profit‚ DWP 45.2 42.8 81.0‚ Norwich Union 4.8 3.9 9.2‚ Barclays 0.9 1.2 3.3‚ DVLA 1.8 0.7 1.7‚ Telereal II 7.6 7.0 16.1‚ Accor 11.6 - 1.5‚ Royal Mail 2.1 - -‚ BBC - - 2.8Bid costs (3.1) (1.4) (2.8)Central costs (15.4) (5.7) (14.0)Other 2.3 3.3 -Underlying operating profit 57.8
51.8 98.8 Net (deficit) / surplus on revaluation of investment properties
(8.8) 0.3 (13.6)Profit on disposal of properties 15.1 8.5 7.5Profit on disposal of a PPP project (Meterfit) 10.0 - -Segment profit 74.1
60.6 92.7
Share of profit / (loss) from Investors in theCommunity (IIC) (joint venture) 0.1 (1.1) (3.0)Capital employed 2,135.2 663.7 2,032.5Existing contracts
On the Department for Work and Pensions (DWP) contract, we disposed of 35,380m2 of surplus leasehold space and 33,500m2 surplus freehold accommodation. The proceeds from the freehold disposals were ‚£46.9m, which showed a net profit on book value of ‚£14.1m after gain share.
DWP issued vacation notices during the period on 67,026m2 (63% leasehold and37% freehold) and actual vacations during the period were in line withexpectations. The negative impact of vacations on our profitability was offsetby a one off payment for backdated services, and income growth due toindexation.We have completed a programme of 13 refurbishment projects on the Royal Mailportfolio and let or disposed of 10,200m2 of surplus space, which is ahead ofour expectations at the time we won this contract.
On the DVLA contract, we have been awarded three scope extensions to provide an additional 7,000m2 of accommodation with capital investment of approximately ‚£26m over the next 18 months.
The turnover on the Accor hotels portfolio increased by 5.6% over the period. However, as a result of yield re-pricing in the property investment market, there was only a small underlying increase in investment value (excluding purchase costs) during the period.
The increase in central costs primarily reflects the inclusion of the SMIF and IIC businesses.
New businessIn July, Trillium announced the purchase of AMEC's Project Investmentsbusiness for ‚£163.5m which included AMEC's interests in nine signed PFIprojects in healthcare, transport and education, one preferred bidder project,and the PFI/PPP bidding and asset management team. Some of the projects werein joint ownership and were subject to pre-emption clauses in favour of thejoint owners. As a result of the exercise of pre-emption clauses on two smallprojects our acquisition now relates to seven signed projects and one atpreferred bidder stage for a total net consideration of ‚£152.4m. The purchasewas completed after the period end. Since the period end, we have alsocompleted on the purchase of nine new PPP health assets from United MedicalEnterprises for a total consideration of ‚£56.6m.
For the Northern Ireland Civil Service, the new Assembly Government has confirmed its support for the outsourcing proposal, and we now await the outcome of a legal challenge to the shortlist selection process. We are one of two shortlisted parties who will be invited to submit best and final offers once this has been resolved.
On the Defence Training Review (DTR) outsourcing contract, our Metrix consortium with Qinetiq remains as preferred bidder on Package 1. Good progress has been made and the Ministry of Defence (MoD) anticipates committing to the final developmental phase in spring 2008, with a view to financial close a year later. Metrix also remains as provisional preferred bidder for Package 2. However, having concluded that there are insufficient efficiencies to move forward with a "Whole Programme Solution" for DTR, the MoD continues to consider a range of options for Package 2, from adaptations of the Metrix proposal through to conventional procurement.
We are shortlisted for the Building Schools for the Future (BSF) projects inBirmingham and Kent where the initial phases involve in excess of ‚£200m of PPPcapital expenditure. It is anticipated that the preferred bidders will beannounced this financial year.
PPP market update
Following the integration of the of SMIF and IIC businesses last year, the acquisition of AMEC's Project Investments business has further strengthened our position at the forefront of the UK PPP market. We now have an unrivalled team engaged in the development and acquisition of new business opportunities.
Our portfolio and our underlying asset and capital management activities havemade significant progress. We are in the process of establishing our own debtaggregation vehicle, which will reduce over the long-term the cost of capitalin our underlying investments. The completion of a major school refinancing,together with a 29% reduction in insurance premia through our consolidatedbuying programme, were also notable achievements.In April, we commenced the establishment of a new joint venture fund, aimed atbringing in third party investors alongside our own long-term investment inthe venture. Once established, this will be the largest venture of its kind inthe marketplace. UBS have been appointed as our advisers on this initiative,which is intended to release in excess of ‚£750m of capital and provide us witha further ongoing source of capital that will support our new businessplatform. Notwithstanding the turmoil prevailing within the credit markets, wehave made good progress and expect to achieve a first closing this year with afinal closing before our financial year end.
During the period we completed the disposal of Meterfit, one of the non-core utility businesses we acquired as part of the SMIF transaction generating a profit on sale of ‚£10.0m.
Financial resultsHeadline resultsProfit before tax was ‚£375.2m for the six months to 30 September 2007, downfrom ‚£1,178.2m for the comparable period. `Profit before tax' includes therevaluation surplus on our investment properties, and the reduction in profitbefore tax for the period was almost entirely due to the lower, but stillpositive, revaluation surplus on our investment properties. Earnings per shareat 78.57p were similarly impacted (six months to 30 September 2006: 183.25p).Revenue profit, our measure of underlying profit before tax, decreased from‚£193.1m to ‚£172.8m for the reasons explained below under `Revenue profit'.Adjusted diluted earnings per share showed an 11.0% increase on the priorperiod to 36.46p (six months to 30 September 2006: 32.84p), the increase beinglargely attributable to the majority of our activities no longer being subjectto tax since we became a REIT on 1 January 2007.The combined portfolio rose in value from ‚£14,752.5m to ‚£15,043.2m. Thisincluded a valuation surplus of ‚£130.8m or 0.9%. Net assets per share rose by2.3% to 2356p from 2304p, with adjusted diluted net assets per share rising by2.5% to 2236p (31 March 2007: 2181p).
Profit before tax
The main drivers of our profit before tax performance are the change in valueof our investment portfolio (including any profits or losses on disposal ofproperties), our net rental income, the performance of Trillium, and theamount of net interest we paid. The degree to which movements on these andother items led to the reduction against the comparable period in our profitbefore tax to ‚£375.2m (six months to 30 September 2006: ‚£1,178.2m) isexplained in Table 2 below:
Table 2: Principal changes in profit before tax and revenue profit
Profit Revenue before tax profit ‚£m ‚£mSix months ended 30 September 2006 1,178.2 193.1Valuation surplus (840.4) -Profit on disposal of non-current properties 38.1 -Profit on disposal of PPP projects 10.0 -Profit on sale of trading properties (0.6) -Increase in capitalised interest (1) 20.9 20.9Amortisation of bond de-recognition (2) 6.3 -Long-term development contract profits (3) (8.4) -Property Partnerships profit (4) 7.2 7.2Net rental and service charge income (5) (3.2) (3.2)Indirect costs 0.2 0.2Interest on SMIF acquisition loan (27.1) (27.1)Other interest (6) (18.3) (18.3)Debt restructuring charges 5.3 -Other 7.0 -Six months ended 30 September 2007 375.2 172.8
Notes:
1. Increased development activity, with several developments commencing since 1 October 2006 (One New Change, St David's 2, Cardiff and The Elements, Livingston).
2. The debt instruments issued as part of the refinancing in November 2004 donot meet the de-recognition requirements of IAS39 as they are not deemed to besubstantially different from the debt they replaced. As a result, the bookvalue of the new instruments is reduced to the book value of the debt itreplaced and the difference is amortised over the life of the new instruments.The decrease in amortisation over the comparable period is a reflection of thematurity profile of debt replaced.
3. Lower levels of activity on the development contract at Broadcasting House.
4. Profits from Accor, Royal Mail and one-off income from DWP, offset by increased central costs.
5. Decrease in net rental and service charge income is largely driven by disposals made in the year ended 31 March 2007.
6. Other interest, includes interest on the REIT conversion charge paid in July 2007 (‚£316.2m), which amounted to ‚£3.6m.
Revenue profit
Revenue profit is our measure of the underlying pre-tax profit of the Group,which we use internally to assess our performance. It includes the pre-taxresults of our joint ventures but excludes capital and other one-off itemssuch as the valuation surplus, gains on disposals, trading profits and profitson long-term development contracts.
Revenue profit for the six months fell by 10.5% from ‚£193.1m to ‚£172.8m, for the reasons set out in Table 2.
While Trillium's operating profit is at a similar level to last year, at therevenue profit level there has been a decline of ‚£34.5m, largely attributableto interest on the SMIF assets acquired in February 2007. SMIF owns andprovides management services to PPP projects. Since it remains our intentionto divest the PPP investments by transferring them to a fund and bringing inoutside investors while maintaining a minority interest, we have treated theseassets as a disposal group. The accounting implications of this are that we donot consolidate the individual assets and liabilities of the PPP investments.Instead, they are held in the balance sheet at fair value less costs to selland we do not recognise our share of the underlying net income of the PPPprojects. However, we do include the interest cost of the loan associated withacquiring SMIF in Group revenue profit as well as the cost of the SMIFmanagement team. For the six months to 30 September 2007, the interest costassociated with the acquired SMIF business amounted to ‚£27.1m.
A reconciliation between profit before tax and revenue profit is shown in Table 3 below:
Table 3: Reconciliation of profit before tax to revenue profit
Six months Six months ended ended 30 30 September September 2007 2006 ‚£m ‚£mProfit before tax 375.2 1,178.2
Valuation (surplus) / deficit - Group (145.5)
(896.7)
Valuation (surplus) / deficit - joint ventures 23.5
(65.7)
(Profits) / losses on non-current property disposals - Group (79.0)
(33.6)
Non-current property disposa ls - joint ventures 7.3
-
Profit on disposal of PPP projects (Meterfit) (10.0)
-
Mark-to-market adjustment on interest rate swaps 4.2
(6.2)
Eliminate effect of bond exchange de-recognition 2.3
8.6Debt restructuring charges 1.0 6.3Joint venture tax adjustment 3.0 20.4
Profit on sale of trading properties - Group -
(8.8)
Profit on sale of trading properties - joint ventures (8.2)
-
Long-term development contract profits (1.0)
(9.4)Revenue profit 172.8 193.1Earnings per share
Basic earnings per share decreased by 57.1% to 78.57p (six months to 30 September 2006: 183.25p), the decrease predominantly relating to the lower revaluation surplus.
In the same way that we adjust profit before tax to remove capital and one-offitems to give revenue profit, we also report an adjusted earnings per sharefigure, for which the calculation is set out in note 7 to the financialstatements. Adjusted diluted earnings per share increased from 32.84p pershare for the six months ended 30 September 2006 to 36.46p per share in 2007,an 11.0% increase. The increase in adjusted earnings per share is largelyattributable to a significantly lower tax rate following REIT conversionpartially offset by the interest costs associated with the SMIF acquisition.
Dividends
As announced at our preliminary results in May 2007, we have commenced payingdividends on a quarterly basis. We will be paying a second quarterly dividendof 16.0p per share on 7 January 2008 to shareholders on the register on 7December 2007. Taken together with the first quarterly dividend of 16.0p, paidon 26 October 2007, this makes a first half dividend of 32.0p per share (2006:19.0p), which represents a 68.4% increase. Part of this substantial increasearises because quarterly dividends result in the total dividend being moreequally spread between the first and second half of the year than was the caselast year. Nevertheless, on an annualised basis our quarterly dividends implyan increase in the total dividend for the year of over 20%. The thirdquarterly dividend will be paid on 25 April 2008.Both quarterly dividends comprise 80% Property Income Distribution (PID) fromthe REIT qualifying activities. The PID element is subject to 22% withholdingtax for relevant shareholders. The Company offers shareholders the option toparticipate in a Dividend Reinvestment Plan (DRIP). For further details pleaserefer to the Shareholder centre, within the Investor section of our corporatewebsite www.landsecurities.com
Balance of business tests
REIT legislation specifies conditions in relation to the type ofbusiness a REIT may conduct, which the Group is required to meet in order toretain its REIT status. In summary, at least 75% of the Group's profits mustbe derived from REIT qualifying activities (the 75% profits test) and 75% ofthe Group's assets must be employed in REIT qualifying activities (the 75%assets test). Qualifying activities means our property rental business. Theresult of these tests for the Group for the six months ended 30 September 2007and at the balance sheet date is as follows:
Table 4: REIT balance of business tests
For the six months ended / at 30 September 2007
Tax-exempt Residual Adjusted business business results
Adjusted profit before tax (‚£m) 186.5 (12.0)
174.5
Balance of business - 75% profits test 106.9% (6.9%) Adjusted total assets (‚£m) 16,189.5 2,308.1
18,497.6
Balance of business - 75% assets test 87.5% 12.5%
If the ‚£27.1m interest cost of the SMIF acquisition loan is eliminated from the above figures, the profits of the tax-exempt business comprise 92.5% of total adjusted profits.
Net assets
At 30 September 2007, net assets per share were 2356p, an increase of 52p over the six months since 31 March 2007.
In common with other property companies, we calculate an adjusted measure ofnet assets which we believe better reflects the underlying net assetsattributable to shareholders. In previous years, the main adjustment to netassets has been to remove the deferred tax on revaluations. Since we no longerprovide for deferred tax on revaluations due to our REIT status, thisadjustment is no longer required. As a result, our adjusted net assets are nowlower than our reported net assets primarily due to the debt adjustment wecontinue to make. Under IFRS, we do not show our debt at its nominal value,although we believe it would be more appropriate to do so and we thereforeadjust our net assets accordingly. At 30 September 2007, adjusted diluted netassets per share were 2236p per share, an increase of 2.5% from 31 March 2007.
Table 5 summarises the main differences between net assets and our adjusted measure together with the key movements over the periods.
Table 5: Net assets Six months Six months ended ended 30 30 Year ended September September 31 March 2007 2006 2007 ‚£m ‚£m ‚£mNet assets at the beginning of the period 10,791.3 7,493.9 7,493.9Adjusted earnings 170.8 154.7 330.0Revaluation surpluses on ongoing and completed development properties * 174.2 188.1 331.4Revaluation (deficits) / surpluses on investmentproperties (excluding Trillium) * (43.4) 485.3 710.1Revaluation (deficits) / surpluses on Trillium investment properties * (8.8) 0.2 (10.1)Profits on non-current asset disposal * 81.7 47.7 105.2Interest charges not included in adjusted earnings * (7.5) (6.1) (13.0)Tax (charge) / credits not included in adjusted earnings - (10.1) 2,074.7Profit after tax 367.0 859.8 3,528.3Dividends paid (159.5) (133.8) (223.0)Other reserve movements (75.8) (28.2) (7.9)Net assets at the end of the period 10,923.0 8,191.7 10,791.3Deferred tax on investment properties - 151.5 -Deferred tax on net revaluation surpluses - 2,007.7 -Mark-to-market on interest rate hedges (14.5) 1.1 (23.6)Debt adjusted to nominal value (516.8) (369.3) (519.1)Adjusted net assets at the end of the period 10,391.7
9,982.7 10,248.6
* These amounts are post-tax
Drivers of performance
A key driver of the increase in our net assets is the underlying performanceof our investment portfolio, which includes our share of joint ventures (seeTable 6).The positive valuation surplus on our investment portfolio was whollyattributable to the success of our development programme in that the valuationsurplus on the development programme of ‚£174.2m exceeded the surplus on ouroverall investment portfolio at ‚£130.8m.On the like-for-like portfolio which excludes developments and acquisitionsand so allows for performance comparison of income growth and yield changeover time, there was a small valuation deficit for the six months of ‚£37.8m or0.4%. As expected there has been a re-pricing of property investments whichhas seen yields rise and capital values fall. This re-pricing would in itselfhave decreased capital values on our like-for-like portfolio by some 4.6%, butit was largely offset by continuing rental value growth of 4.6% over the sixmonth period.As stated, our development programme, including our share of joint venturesand those properties completed and let in the six months, produced a valuationsurplus of 5.9% or ‚£174.2m. We have an estimated further spend of ‚£851m on theprojects currently underway which, when complete and fully let, will produce‚£160m of annual income (at today's estimated rental value). Capitalexpenditure on proposed developments could total a further ‚£882m if we proceedwith these schemes, which are held as part of the investment portfolio andhave a current carrying value of ‚£555m. The figures given for capitalexpenditure represent the Group's actual or forecast cash outlays ondevelopments, excluding land values and capitalised interest. The totaldevelopment cost for the full development pipeline is ‚£3.7bn, of which ‚£2.3bnrelates to our current development programme.The net reversionary potential of the like-for-like portfolio at the half yearend was 14.6% compared to 10.6% six months ago. Void levels on ourlike-for-like Retail Portfolio have increased over the six months from 3.9% to4.0%, but still stand well below the UK average void level for retailproperties as measured on the IPD Quarterly Index of 5.9% (September 2007). Onour like-for-like London Portfolio, void levels have decreased from 4.8% to4.4%.
Table 6: Valuation and rental income summary
Rental income for the Rental six Rental Open Open Open income months income market market market for the ended for the value at value at value at six 31 six Valuation months March months 30 31 March 30 surplus / ended 30 ended 30 September September (deficit) September 2007 September 2007 2007 2006 (1) 2007 (1) (1) 2006 (1) ‚£m ‚£m ‚£m % ‚£m ‚£m ‚£mShopping centres and shops 3,120.4 3,173.9 3,138.8 (2.1) 92.0 90.7 87.9Retail warehouses 1,963.5 2,033.1 2,023.8 (4.2) 43.5 42.5 41.6London retail 1,024.1 1,005.8 964.8 1.3 21.6 23.3 22.7London offices 3,860.9 3,702.6 3,449.1 2.9 94.6 95.4 95.5Other 733.3 727.7 696.2 (1.2) 13.5 13.7 12.8Like-for-like investmentportfolio (2) 10,702.2 10,643.1 10,272.7 (0.4) 265.2 265.6 260.5Completed developments 1,307.5 1,166.1 963.9 4.5 17.6 17.3 9.2Acquisitions 1,149.9 631.7 463.4 (0.5) 20.5 15.1 5.5Disposals andrestructured interests - 869.3 1,679.7 - 15.2 32.6 42.7Development programme (3) 1,883.6 1,442.3 1,060.1 6.9 10.3 11.9 18.4Combined portfolio 15,043.2 14,752.5 14,439.8 0.9 328.8 342.5 336.3Adjustment for financeleases (5.8) (6.3) (6.3)Combined portfolio 323.0 336.2 330.0Notes:
1. The valuation surplus / (deficit) and rental income are stated after adjusting for the effect of spreading rents and rent free periods over the duration of leases in accordance with IFRS but before restating for finance leases.
2. Properties that have been in the combined portfolio for the whole of the current and previous financial periods.
3. Development programme comprising projects which are completed but less than95% let, developments on site, committed developments (approved projects withthe building contract let), and authorised developments (projects approved bythe Board, but for which the contract has not yet been let).Table 7 details the top six performing properties over ‚£50m in each sector byrevaluation surplus together with an explanation of the key drivers of theirperformance, which primarily relate to development activity in LondonPortfolio and rental value growth for the Retail Portfolio.
Table 7: Top six performing properties over ‚£50m for Retail and London Portfolio
Valuation Valuation surplus surplusRetail Portfolio % Description London Portfolio % DescriptionCorby Town Centre 4.6 Rental value New Street growth Square, EC4 19.8 DevelopmentPrincesshay, 4.0 Development Bankside 2&3,Exeter SE1 15.8 DevelopmentGunwharf Quays, 2.3 Rental income 140 Aldersgate,Portsmouth growth EC1 9.3 Rental value growthBuchanan 1.1 Rental income Selborne House, PotentialGalleries, growth SW1 developmentGlasgow 9.2 opportunityWestwood Cross, 1.0 Rental value 70/88 OxfordThanet growth Street, W1 6.8 Rental value growthThe Mall, 1.0 Rental value Dashwood House,Stratford growth EC2 6.4 Development
Cash flow, net debt and gearing
During the period, our cash expenditure exceeded cash receipts by ‚£776.5m, andas a result net debt increased to ‚£5,864.4m (31 March 2007: ‚£5,087.9m). Duringthe six months we paid the REIT conversion charge of ‚£316.2m, and in total weinvested ‚£1,126.7m in our properties and PPP assets including ‚£552.7m oninvestment property acquisitions and ‚£246.2m on development. The developmentexpenditure, which includes land acquisitions but excludes our share of jointventures and capitalised interest, was spent principally on New Street Square,EC4, Queen Anne's Gate, SW1, in London and shopping centre developments inExeter and Livingston. In Trillium, we spent ‚£153.0m on property acquisitions(primarily Accor hotels), ‚£35.8m on Norwich Union and DVLA buildings andcontributed ‚£61.0m to the disposal group for further PPP acquisitions.Cash receipts during the six months totalled ‚£799.4m from investment portfolioproperty disposals, which included Whitefriars, Canterbury, Greater LondonHouse, NW1 and New London House, EC3. This excludes the ‚£193.4m received onthe disposal of East Kilbride Shopping Centre, where the majority of theproceeds were used to repay debt in the Scottish Retail Property jointventure. A further ‚£30.6m was received from the sale of operating properties.We advanced a net ‚£29.8m to our joint ventures, including ‚£71.7m invested inshopping centre developments in Bristol and Cardiff, which was largely offsetby ‚£43.1m received on disposals, the largest of which was East KilbrideShopping Centre.
The factors contributing to the increase in net debt of ‚£776.5m are shown in Table 8 below:
Table 8: Cash flow and net debt
Six months Six months ended ended 30 30 Year ended September September 31 March 2007 2006 2007 ‚£m ‚£m ‚£mOperating cash inflow after interest and tax (excluding REIT conversion charge) 86.0 174.1 361.5REIT conversion charge (316.2) - -Dividends paid (159.5) (133.8) (223.0)Investment property acquisitions (552.7) (473.4) (523.7)Property Partnerships property acquisitions (153.0) (12.4) (416.5)Development and refurbishment capital expenditure (318.9) (206.6) (532.6)Investment in finance lease receivables (Norwich Union and DVLA) (35.8) (18.9) (43.3)Investment in properties (1,060.4) (711.3) (1,516.1)Acquisition of SMIF and IIC - - (919.0)
(Investment in) / receipts from the disposal group (61.0)
- 25.0Other capital expenditure (5.3) (9.1) (18.8)Total capital expenditure (1,126.7) (720.4) (2,428.9)Disposals 855.3 334.2 869.8Joint ventures (29.8) (38.4) 50.0Purchase of share capital (81.1) (35.7) (36.2)Other movements (4.5) 5.1 4.8Increase in net debt (776.5) (414.9) (1,402.0)Opening net debt (5,087.9) (3,685.9) (3,685.9)Closing net debt (5,864.4) (4,100.8) (5,087.9)As a result of the increase in net debt, gearing has increased from 47.1% to53.7%. Details of the Group's gearing are set out in Table 9, which also showsthe impact of joint venture debt, although the lenders to our joint ventureshave no recourse to the Group for repayment.Table 9: Gearing 30 31 March September 2007 2007‚£m % %Gearing - on book value of balance sheet debt 53.7 47.1Adjusted gearing * 61.4 54.7Adjusted gearing * - as above plus notional share of joint venture debt
63.6 58.8
* Book value of balance sheet debt increased to recognise nominal value of debt on refinancing in 2004 divided by adjusted net asset value.
Our interest cover ratio, excluding our share of joint ventures, has fallenfrom 2.43 times for the year ended 31 March 2007 to 1.82 times for the sixmonths ended 30 September 2007. This reduction arises because we do notrecognise our share of the underlying net income of the PPP projects withinSMIF, but we do include the interest cost of the loan associated with itsacquisition. If the interest on the SMIF acquisition loan is excluded from thecalculation, interest cover is then 2.20 times. Under the rules of the REITregime, we need to maintain an interest cover ratio in the exempt business ofat least 1.25 times to avoid paying tax. As calculated under the REITregulations, our interest cover ratio for the exempt business for the sixmonths to 30 September 2007 was approximately 2.6 times.
During the course of the six months, we arranged ‚£650.0m of committed bilateral bank facilities. The facilities are for 364 days with an option to extend by a further year.
HedgingWe use derivative products to manage our interest rate exposure, and have ahedging policy which requires at least 80% of our existing debt plus our netcommitted capital expenditure to be at fixed interest rates for the comingfive years. Specific hedges are also used in geared joint ventures to fix theinterest exposure on limited recourse debt. At 30 September 2007 we had‚£1,055.1m of active interest rate hedges in place, and our debt was 84% fixed.Consequently, based on debt levels at 30 September 2007, a 1% rise in interestrates would increase full year interest charges by approximately ‚£10m.
Taxation
As a consequence of the Group's conversion to REIT status, income and capital gains from our qualifying property rental business are now exempt from UK corporation tax. Accordingly, the tax charge for the period has fallen to ‚£8.2m (six months ended 30 September 2006: ‚£318.4m including ‚£269.0m of deferred tax on revaluation gains), representing tax payable on `residual' trading and other taxable activities, the majority of which arose in Trillium.
Risks and uncertainties
The operational risks facing the Group for the remaining six months of thefinancial year are consistent with those outlined in the Annual Report for theyear ended 31 March 2007. The outlook for the property market and the economyis weaker than in March 2007, but the risk mitigants listed in the 2007 AnnualReport are still appropriate. Our development letting risk exposure hasreduced materially since March 2007 as a result of the progress we have madeon development lettings over the half year.
Related party transactions
Transactions with related parties during the six months ended 30 September 2007 are disclosed in note 27. These transactions have not had a material impact on the financial position or the results of the Group.
Business Analysis
Investment Portfolio
The investment properties in our Retail Portfolio and London Portfoliobusiness units make up the majority of our Investment Portfolio. TheInvestment Portfolio includes a pro-rata share of our property joint ventures,but excludes investment properties within our property outsourcing business,Trillium.
The market value of the investment property interests in the Investment Portfolio totalled ‚£15,043.2m at 30 September 2007 (31 March 2007: ‚£14,752.5m). Detailed breakdowns by sector, including comprehensive analyses of the Group's valuation, rental income and yield profiles follow in the Investment Portfolio analysis. The aggregate of the market values of those investment properties held by the Group, excluding joint ventures and Trillium, as at 30 September 2007 was ‚£13,550.1m (31 March 2007: ‚£13,114.8m).
The valuation of the freehold and leasehold investment properties in theInvestment Portfolio at 30 September 2007 was undertaken by Knight Frank LLPas External Valuer. The valuations were in accordance with the RoyalInstitution of Chartered Surveyors Appraisal and Valuation Standards and theInternational Valuation Standards. The valuation of each property was on thebasis of market value, subject to the assumptions that investment propertieswould be sold subject to any existing leases and that properties held fordevelopment would be sold with vacant possession in existing condition. TheExternal Valuer's opinion of market value was primarily derived using recentcomparable market transactions on arm's length terms.
There follows a number of tables which give further detail of the underlying performance of the combined portfolio:
Table 10: Top 12 property holdings
Total value ‚£4.5bn(30.1% of combined portfolio) Values in excess of ‚£250.0mCardinal Place, SW1New Street Square, EC450 Queen Anne's Gate, SW1White Rose Centre, LeedsBullring, BirminghamBankside 2&3, SE1Gunwharf Quays, PortsmouthPrincesshay, ExeterTimes Square, EC4Arundel Great Court and Howard Hotel, WC2Portland House, SW1Thomas More Square Estate, E1
Table 11: Income statement - rental income reconciliation
Six Six months Six Other months Other ended Other months Retail London investment ended 30 Retail London investment
31 Retail London investment ended 30
Port Port port September Port Port port
March Port Port port September
-folio -folio -folio 2007 -folio -folio -folio
2007 -folio -folio -folio 2006
‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mCombinedportfolio 183.1 131.8 13.9 328.8 195.5 131.9 15.1
342.5 193.1 129.4 13.8 336.3CentralLondon shops(excludingMetroShopping
Fund LP) (23.6) 23.6 - - (26.1) 26.1 - - (25.6) 25.6 - -Inner Londonoffices inMetroShoppingFund LP 0.4 (0.4) - - 0.4 (0.4) -
- 0.4 (0.4) - -Rest of UKoffices 0.8 - (0.8) - 0.9 - (0.9) - 1.1 - (1.1) -Allocationof other 3.0 5.3 (8.3) - 6.3 4.1 (10.4) - 4.3 3.5 (7.8) -Less:financeleaseadjustment (1.7) (4.1) - (5.8) (2.2) (4.1) - (6.3) (2.2) (4.1) - (6.3)Segmentalanalysis 162.0 156.2 4.8 323.0 174.8 157.6 3.8 336.2 171.1 154.0 4.9 330.0
Table 12: Open market value reconciliation
Other Other Other invest 30 invest invest 30 Retail London -ment September Retail London -ment Retail London -ment September Port Port port 2007 Port Port port
31 March Port Port port 2006
-folio -folio -folio -folio -folio -folio
2007 -folio -folio -folio
‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mCombinedportfolio 7,591.2 6,859.3 592.7 15,043.2 8,060.7 6,102.9 588.9
14,752.5 8,061.3 5,750.9 627.6 14,439.8CentralLondon shops(excludingMetroShopping
Fund LP) (1,213.9) 1,213.9 - - (1,182.6) 1,182.6 - - (1,121.2) 1,121.2 - -Inner Londonoffices inMetroShoppingFund LP 19.5 (19.5) - - 21.0 (21.0) - - 19.0 (19.0) - -Rest of UKoffices 83.2 - (83.2) - 90.1 - (90.1) - 90.8 - (90.8) -Allocationof other 246.7 206.4 (453.1) - 235.5 198.3 (433.8) - 287.6 186.7 (474.3) -Segmentalanalysis 6,726.7 8,260.1 56.4 15,043.2 7,224.7 7,462.8 65.0 14,752.5 7,337.5 7,039.8 62.5 14,439.8
Table 13: Gross estimated rental value reconciliation
Other 30 Other 31 Other 30 Retail London investment September Retail London investment
March Retail London investment September
Port Port port 2007 Port Port port
2007 Port Port port 2006
-folio -folio -folio -folio -folio -folio
-folio -folio -folio
‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mCombinedportfolio 478.1 434.2 27.2 939.5 512.4 394.3 28.1 934.8 479.7 374.0 28.7 882.4CentralLondon shops(excludingMetroShoppingFund LP) (71.3) 71.3 - - (70.7) 70.7 - - (58.3) 58.3 - -Inner Londonoffices inMetroShoppingFund LP 1.0 (1.0) - - 1.0 (1.0) - - 0.9 (0.9) - -Rest of UKoffices 3.2 - (3.2) - 4.7 - (4.7) - 5.2 - (5.2) -Allocationof other 9.5 10.8 (20.3) - 8.5 10.7 (19.2) - 12.5 5.5 (18.0) -Segmentalanalysis 420.5 515.3 3.7 939.5 455.9 474.7 4.2 934.8 440.0 436.9 5.5 882.4Table 14: Top 12 occupiers Current gross rent roll %Central Government 10.2Deloitte 4.0Metropolitan Police Authority 3.0Taveta Limited (Arcadia Group) 1.7DSG International PLC 1.6J Sainsbury PLC 1.5The Boots Company PLC 1.5H&M 1.3Eversheds Properties Limited 1.3M&S Group PLC 1.3Taylor Wessing (European law firm) 1.2The Home Retail Group PLC (Argos and Homebase) 1.2Total 29.8
Includes share of joint venture properties
Table 15: % Portfolio by value and number of property holdings at 30 September 2007 Value Number of‚£m % properties0 - 9.99 1.5 6810 - 24.99 2.3 2225 - 49.99 9.0 3550 - 99.99 18.2 39100 - 149.99 18.2 22150 - 199.99 8.7 7200 + 42.1 20Total 100.0 213
Includes share of joint venture properties
Table 16: Combined portfolio value by location
Shopping centres and Retail shops warehouses Offices Other Total % % % % %
Central inner and outer London 8.5 0.7 48.2 0.6
58.0South East and Eastern 4.5 3.4 - 0.6 8.5Midlands 3.4 1.7 - - 5.1Wales and South West 3.8 1.3 0.1 - 5.2North, North West, Yorkshire andHumberside 7.9 5.5 0.3 0.2 13.9Scotland and Northern Ireland 2.9 1.5 - 0.4 4.8No region (i.e. indirects) 4.5 - - - 4.5Total 35.5 14.1 48.6 1.8 100.0
% figures calculated by reference to the combined portfolio value of ‚£15.0bn.
Table 17: Average rents as at 30 September 2007
Average rent Average ERV ‚£/m2 ‚£/m2Retail
Shopping centres and shops N/A N/ARetail warehouses (including supermarkets) 187 207
Offices
Central and inner London 332 382Average rent and estimated rental value have not been provided where it isconsidered that the figures would be potentially misleading (i.e. where thereis a combination of analysis on rents on an overall and Zone A basis in theretail sector or where there is a combination of uses, or small sample sizes).This is not a like-for-like analysis with the previous year. Excludesproperties in the development programme and voids.
Table 18: Like-for-like reversionary potential as at 30 September 2007
30 September 31 March 2007 2007 % of rent % of rentReversionary potential roll rollGross reversions 15.8 12.1Over-rented (1.2) (1.5)Net reversionary potential 14.6 10.6The reversion is calculated with reference to the gross secure rent roll afterthe expiry of rent free periods on those properties which fall under thelike-for-like definition as set out in the notes to the combined portfolioanalysis. Reversionary potential excludes additional income from the lettingof voids. Of the over-rented income, 59.6% is subject to a lease expiry orbreak clause in the next five years.
Trillium
Table 19: Trillium contract analysis
Six months ended 30September 2007 Barclays Telereal Accor Royal OtherContract DWP NorwichUnion DVLA (1) II (2) Mail (3) (4) Total Contract length term (years) 20.0 25.0 20.0 20.0 4.5 84.0 15.0 Mar Jun Mar Mar Mar Mar MarExpiry date 2018 2029 2025 2024 2010 2091 2022 Income statement ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mUnitary charge 268.2 6.1 4.4 0.1 - 12.2 2.1 3.1 296.2Third party (sublet) income 5.7 0.4 - 0.8 -
- 0.8 0.5 8.2Capital projects 37.2 0.1 3.1 - - - - 0.8 41.2Other revenue 5.7 0.2 0.6 - 21.9 - - 2.1 30.5
Finance lease income - 3.3 1.2 - - - - - 4.5Gross property income 316.8 10.1 9.3 0.9 21.9 12.2 2.9 6.5 380.6Rents payable (81.0) (1.8) (1.0) - - - - - (83.8)Service partners(maintenance, facilities,etc) (83.3) (1.7) (2.0) - - - - (0.5) (87.5)Life cycle maintenance costs (10.6) (0.6) (0.2) - - (0.2) - - (11.6)Capital projects (36.3) (0.1) (2.8) - - - - - (39.2)Other costs, includingoverheads (44.9) (0.7) (1.5) - (14.3) (0.4) (0.8) (18.0) (80.6)Bid costs - - - - - - - (3.1) (3.1)Depreciation (15.5) (0.4) - - - - - (1.1) (17.0)Underlying operating profit/ (loss) 45.2 4.8 1.8 0.9 7.6 11.6 2.1 (16.2) 57.8Profit on sale ofnon-current assets 14.1 - - - - - - 11.0 25.1Net (deficit) / surplus onrevaluation of investmentproperties - - - (2.9) - (5.9) (0.6) 0.6 (8.8)Segment profit / (loss) 59.3 4.8 1.8 (2.0) 7.6 5.7 1.5 (4.6) 74.1 Capital expenditureLife cycle maintenance costscapitalised 5.5 0.8 - - - 3.1 - - 9.4Estates costs capitalised 3.0 - - - -
- - - 3.0
Book value of assets at 30September 2007Investment in associate - - - - - - - 5.2 5.2Investment properties - - - 25.0 - 440.4 97.2 9.6 572.2Operating properties 490.5 43.9 - - -
- - - 534.4Notes:
1. Barclays sale and leaseback terms include a tenant break clause in December 2014, with annual breaks until expiry
2. Accor sale and leaseback terms include a tenant break clause every 12 years with the first in 2019
3. Royal Mail sale and leaseback terms include 12 tenants who have a break clause in March 2012 and 164 tenants with a break clause in March 2017
4. Other includes new business and corporate overheads, SPV's, management income and profit on the disposal of Meterfit (‚£10.0m) which was previously classified as an asset held for sale.
Table 20: Trillium contract analysis at 30 September 2007
Norwich Telereal RoyalFloor space (000m2) DWP Union DVLA Barclays II Accor Mail Other TotalClient occupied 1,944.4 107.0 16.2 11.4 - 229.5 92.7 14.2 2,415.4Third party (sublet) 95.0 5.3 - 17.5 - - 91.8 - 209.6Vacant 208.6 1.6 - 8.1 - - 64.8 - 283.1Total 2,248.0 113.9 16.2 37.0 - 229.5 249.3 14.2 2,908.1 Freeholds / valuableleaseholds 808.1 38.9 - 11.4 - 229.5 128.5 14.2 1,230.6Leaseholds 1,439.9 75.0 16.2 25.6 - - 120.8 - 1,677.5Total 2,248.0 113.9 16.2 37.0 - 229.5 249.3 14.2 2,908.1Estate managed but nottransferred 73.9 8.7 86.6 - 150.0 - - - 319.2
Table 21: Trillium vacation allowance and portfolio activity - DWP
Floor space (000m2) 30 31 March September 2007 Acquisitions Vacations* Lettings Disposals 2007Client occupied 1,996.0 14.4 (57.1) - (8.9) 1,944.4Third party (sublet) 81.0 - (1.4) 21.1 (5.7) 95.0Vacant 244.2 - 58.5 (21.1) (73.0) 208.6Total 2,321.2 14.4 - - (87.6) 2,248.0 Freeholds / valuableleaseholds 840.0 1.6 - - (33.5) 808.1Leaseholds 1,481.2 12.8 - - (54.1) 1,439.9Total 2,321.2 14.4 - - (87.6) 2,248.0Estate managed but nottransferred 78.7 - (4.8) - - 73.9* Includes core vacations 30 31 March September 2007 2007Vacation allowance usedto date 392.7 439.3Available allowance 130.5 117.5Future allowance * 164.4 164.4
* The future allowance relates to the period commencing 1 April 2008
Table 22: Trillium portfolio activity - Barclays
Floor space (000m2) 30 31 March September 2007 Acquisitions Vacations* Lettings Disposals 2007Client occupied 11.4 - - - - 11.4Third party (sublet) 18.1 - (1.2) 0.6 - 17.5Vacant 7.5 - 1.2 (0.6) - 8.1Total 37.0 - - - - 37.0 Freeholds / valuableleaseholds 11.3 - - - - 11.3Leaseholds 25.7 - - - - 25.7Total 37.0 - - - - 37.0
* Includes lease surrenders, lease expiries and disposals
Table 23: Trillium portfolio activity - Royal Mail
Floor space (000m2) 30 31 March September 2007 Acquisitions Vacations Lettings Disposals 2007Client occupied 92.7 - - - - 92.7Third party (sublet) 94.1 - (6.5) 4.2 - 91.8Vacant 68.5 - 6.5 (4.2) (6.0) 64.8Total 255.3 - - - (6.0) 249.3 Freeholds / valuableleaseholds 128.5 - - - - 128.5Leaseholds 126.8 - - - (6.0) 120.8Total 255.3 - - - (6.0) 249.3
Table 24: Trillium number of people by occupation
As at 30 September 2007 TotalAsset management 92Call centre 69Capital projects 142Quality assurance 28Facilities management 387Human resources / Finance 116Business development and commercial 84Total 918
Directors' statement of responsibilities
The Directors confirm that this condensed set of financial statements has beenprepared in accordance with IAS 34 Interim Financial Reporting, as adopted bythe European Union, and that the Interim Announcement herein includes a fairreview of the information as required by 4.2.7 and 4.2.8 of the Disclosure andTransparency Rules.
The Directors of Land Securities Group PLC are stated in the Group's Annual Report for the year ended 31 March 2007.
By the order of the BoardP M DudgeonSecretary14 November 2007
Independent review report to Land Securities Group PLC
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half yearly financial report for the six months ended 30 September 2007, which comprises the consolidated income statement, consolidated interim balance sheet, statement of recognised income and expense, cash flow statement and related notes. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The half yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in Note 1, the annual financial statements of the Group areprepared in accordance with IFRSs as adopted by the European Union. Thecondensed set of financial statements included in this half yearly financialreport has been prepared in accordance with International Accounting Standard34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensedset of financial statements in the half yearly financial report based on ourreview. This report, including the conclusion, has been prepared for and onlyfor the Company's members as a body for the purpose of the Disclosure andTransparency Rules of the Financial Services Authority and for no otherpurpose. We do not, in producing this report, accept or assume responsibilityfor any other purpose or to any other person to whom this report is shown orinto whose hands it may come save where expressly agreed by our prior consentin writing.Scope of review
We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, `Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity' issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly,we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us tobelieve that the condensed set of financial statements in the half yearlyfinancial report for the six months ended 30 September 2007 is not prepared,in all material respects, in accordance with International Accounting Standard34 as adopted by the European Union and the Disclosure and Transparency Rulesof the United Kingdom's Financial Services Authority.PricewaterhouseCoopers LLPChartered Accountants14 November 2007Notes:
1. The maintenance and integrity of the Land Securities Group PLC web site isthe responsibility of the Directors; the work carried out by the auditors doesnot involve consideration of these matters and, accordingly, the auditorsaccept no responsibility for any changes that may have occurred to the interimreport since it was initially presented on the web site
2. Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.
Financial StatementsUnaudited consolidated income statement for the six months ended 30 September2007 Six Six months months Year Six months Six months ended Six months Six months ended Year ended Year ended ended 31 ended 30 ended 30 30 Sept ended 30 ended
30 30 Sept 31 March 31 March March
Sept 2007 Sept 2007 2007 Sept 2006 Sept 2006 2006 2007 2007 2007 Before Before Before exceptional Exceptional exceptional Exceptional exceptional Exceptional items items Total items items Total items items Total Notes ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mIncome: Group andshare of jointventures 807.6 - 807.6 853.9 - 853.9 1,722.7 - 1,722.7Less: share ofjoint ventures'income 13 (72.9) - (72.9) (39.5) - (39.5) (81.6) - (81.6)Group revenue 2 734.7 - 734.7 814.4 - 814.4 1,641.1 - 1,641.1Costs 2 (450.4) - (450.4) (515.1)
- (515.1) (1,046.2) - (1,046.2) 284.3 - 284.3 299.3 - 299.3 594.9 - 594.9Profit ondisposal ofnon-currentproperties 2 79.0 - 79.0 33.6 - 33.6 118.2 - 118.2Profit ondisposal of a PPPproject 2 10.0 - 10.0 - - - - - -Net surplus onrevaluation ofinvestmentproperties 2 145.5 - 145.5 896.7 - 896.7 1,307.6 - 1,307.6Operating profit 518.8 - 518.8 1,229.6 - 1,229.6 2,020.7 - 2,020.7
Interest expense 3 (142.3) - (142.3) (114.7)
- (114.7) (233.3) - (233.3)Interest income 3 8.5 - 8.5 4.2 - 4.2 12.4 - 12.4 385.0 - 385.0 1,119.1 - 1,119.1 1,799.8 - 1,799.8Share of the(losses) /profits of jointventures(post-tax) 13 (9.8) - (9.8) 59.1 - 59.1 81.3 98.0 179.3Profit before tax 2 375.2 - 375.2 1,178.2 - 1,178.2 1,881.1 98.0 1,979.1Income tax(expense) /credit 5 (8.2) - (8.2) (318.4) - (318.4) (445.0) 1,994.2 1,549.2Profit for thefinancial periodattributable toequityshareholders 25 367.0 - 367.0 859.8
- 859.8 1,436.1 2,092.2 3,528.3
Earnings per share *Basic earnings per 78.57pshare 7 183.25p 753.59pDiluted earnings per 78.35pshare 7 182.51p 750.54p
* adjusted earnings per share are given in note 7
Unaudited consolidated statement of recognised income and expense for the six months ended 30 September 2007
Six Six Year months months ended ended 30 ended 30 31 September September March 2007 2006 2007 ‚£m ‚£m ‚£mActuarial losses on defined benefit pension schemes
(1.1) (3.5) (1.3) Deferred tax on actuarial losses on defined benefit pension schemes
- 1.0 1.0Fair value movement on cash flow hedges taken to equity - Group 0.2 2.6 6.7Fair value movement on cash flow hedges taken to equity - jointventures
2.4 1.9 11.8 Deferred tax on fair value movement on cash flow hedges taken to equity - Group
- (0.7) (1.6) Deferred tax on fair value movement on cash flow hedges taken to equity - joint ventures
- (0.6) (2.3)Net gains recognised directly in equity 1.5 0.7 14.3Profit for the financial period
367.0 859.8 3,528.3 Total recognised income and expense attributable to equity shareholders
368.5 860.5 3,542.6
Unaudited consolidated balance sheet at 30 September 2007
30 30 September September 31 March 2007 2006 2007 Notes ‚£m ‚£m ‚£m Non-current assetsInvestment properties 9 13,308.8 12,852.6 12,891.7Property, plant and equipmentProperty Partnerships properties 9 1,106.6 573.9 979.1Other property, plant and equipment 9 75.0
75.4 78.2
9 14,490.4 13,501.9 13,949.0Net investment in finance leases 10 296.2 247.0 262.4Goodwill 11 129.6 34.3 129.6Investments in Public Private Partnership contracts 12 21.0 - -Investments in joint ventures 13 1,361.2 928.3 1,338.8Total non-current assets 16,298.4 14,711.5 15,679.8Current assetsTrading properties and long-term development contracts 14 175.2
156.9 148.3Trade and other receivables 15 635.7 577.9 641.8Cash and short-term deposits 16 31.4
25.2 52.7 Total current assets (excluding non-current assets classified as held for sale)
842.3 760.0 842.8Non-current assets classified as held for sale 17 2,568.9
- 2,420.3Total current assets 3,411.2 760.0 3,263.1Total assets 19,709.6 15,471.5 18,942.9Current liabilities
Short-term borrowings and overdrafts 18 (1,258.7)
(437.0) (1,683.2)Trade and other payables 19 (956.1) (630.6) (783.9)Current tax liabilities (187.4)
(229.0) (535.8) Total non-current liabilities (excluding liabilities directly associated with non-current assets classified as held for sale)
(2,402.2) (1,296.6) (3,002.9)Liabilities directly associated with non-current assetsclassified as held for sale 17 (1,655.9) - (1,601.0)Total current liabilities (4,058.1) (1,296.6) (4,603.9)Non-current liabilitiesProvisions 20 (80.9) (57.3) (80.7)Borrowings 21 (4,637.1) (3,689.0) (3,457.4)
Net pension benefit obligations 22 (6.2)
(9.5) (5.6)Deferred tax liabilities 23 (4.3) (2,227.4) (4.0)Total non-current liabilities (4,728.5) (5,983.2) (3,547.7)Total liabilities (8,786.6) (7,279.8) (8,151.6)Net assets 10,923.0 8,191.7 10,791.3EquityOrdinary shares 25 47.1 47.0 47.0Own shares 25 (22.0) (18.6) (14.5)Share-based payments 25 8.3 8.9 7.9Share premium 25 52.9 47.9 51.5Capital redemption reserve 25 30.5 30.5 30.5Retained earnings 25 10,806.2 8,076.0 10,668.9Total shareholders' equity 10,923.0 8,191.7 10,791.3
The financial statements on pages 35 to 60 were approved by the Board of Directors on 14 November 2007 and were signed on its behalf by:
F W Salway M F GreensladeDirectorsUnaudited consolidated cash flow statement for the six months ended 30September 2007 30 30 30 30 September September September September 31 March 31 March 2007 2007 2006 2006 2007 2007 Notes ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mNet cash generated from operationsCash generated from operations 26 282.6
335.3 682.4Interest paid (163.9) (121.4) (237.5)Interest received 8.5 3.8 12.4
Funding pension scheme deficit (1.1) (1.6) (3.9)Taxation (includes REIT conversioncharge) (356.3) (42.0) (91.9)Net cash (outflow) / inflow fromoperations (230.2) 174.1 361.5Cash flows from investing activitiesInvestment property developmentexpenditure (246.2) (158.2) (429.4)Acquisition of investment properties (552.7) (473.4) (523.7)Other investment property relatedexpenditure (63.2) (35.9) (77.2)Acquisition of properties by PropertyPartnerships (153.0) (12.4) (416.5)Capital expenditure by PropertyPartnerships (9.5) (12.5) (26.0)Capital expenditure on properties (1,024.6) (692.4)
(1,472.8)
Disposal of non-current investmentproperties 799.4 319.5 841.0Disposal of non-current operatingproperties 30.6 14.7 28.8Net expenditure on properties (194.6) (358.2) (603.0)Disposal of a PPP project 25.3 - -Net expenditure on non-property relatednon-current assets (5.3) (9.1) (18.8)Net cash outflow from capitalexpenditure (174.6) (367.3) (621.8)
Receivable finance leases acquired (35.8) (18.9) (43.3)Receipts in respect of receivablefinance leases 1.4 1.5 3.8Net loans (to) / from joint venturesand cash contributed (83.0) (45.3) 10.8Distributions from joint ventures 53.2 6.9 39.2Net cash advanced to disposal group (61.0) - (372.6)Acquisitions of Group undertakings (netof cash acquired) - - (521.4)Net cash used in investing activities (299.8) (423.1) (1,505.3) Cash flows from financing activitiesIssue of shares 1.5 4.8 8.4Purchase of own share capital (81.1) (35.7) (36.2)Increase in debt 693.5 424.5 1,433.9
Decrease in finance leases payable (1.0) (1.2) (2.2)Dividends paid to ordinary shareholders (159.5) (133.8) (223.0)Net cash inflow from financingactivities 453.4 258.6 1,180.9(Decrease) / increase in cash and cashequivalents for the period (76.6) 9.6 37.1
Notes to the Financial Statements
1. Basis of preparation
The interim financial information comprises the consolidated balance sheets as at 30 September 2007, 30 September 2006 and 31 March 2007 and related consolidated statements of income, cash flow, and recognised income and expense and the related notes for periods then ended.
The interim financial information contained in this report is unaudited anddoes not constitute statutory accounts within the meaning of Section 240 ofthe Companies Act 1985. The Annual Report and Accounts for the year ended 31March 2007, which were prepared under International Financial ReportingStandards (IFRS) as adopted by the European Union, received an unqualifiedauditors' report and did not contain a statement under Section 237(2) or (3)of the Companies Act 1985 and have been filed with the Registrar of Companies.The unaudited interim financial information has been prepared in accordancewith Disclosure and Transparency Rules of the Financial Services Authority andwith IAS34 Interim Financial Reporting, as adopted by the EU, and on the basisof the accounting policies set out in the Group's Annual Report and Accountsfor the year ended 31 March 2007. The Group's Annual Report and Accountsrefers to new Standards, Amendments to Standards and Interpretations, none ofwhich have had a material impact on these financial statements.2. Segmental information Six Six Six Six Six months Six months months Six Six Six months Six months months months months ended 30 ended 30 ended months months ended 30 ended 30 ended ended 30 ended 30 Sept 2007 Sept 2007 30 Sept ended
30 ended 30 Sept 2006 Sept 2006 30 Sept
Sept 2007 Sept 2007 2007 Sept 2006 Sept 2006 2006 Other Other Retail London investment Property Retail London investment Property Portfolio Portfolio portfolio Partnerships Total Portfolio Portfolio portfolio Partnerships TotalIncomestatements ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mRental income 129.9 156.2 4.8 - 290.9 139.2 154.0 4.9 - 298.1Service chargeincome 22.3 22.3 0.2 - 44.8 24.2 21.8 0.4 - 46.4Propertyservices income - - - 380.6 380.6 - - - 395.5 395.5Trading propertysale proceeds - - - - - - 12.7 27.6 - 40.3Long-termdevelopmentcontract income - - 13.9 - 13.9 - - 29.5 - 29.5Finance leaseinterest 1.6 2.9 - - 4.5 1.7 2.9 - - 4.6Revenue 153.8 181.4 18.9 380.6 734.7 165.1 191.4 62.4 395.5 814.4Rents payable (6.0) (2.6) - (83.8) (92.4) (5.6) (2.7) - (88.3) (96.6)Other directproperty orcontractexpenditure (30.4) (29.9) (0.5) (210.7) (271.5) (34.3) (31.1) (0.7) (233.9) (300.0)Indirectproperty orcontractexpenditure (17.7) (14.9) (2.7) (8.2) (43.5) (17.6) (16.0) (2.4) (6.3) (42.3)Long-termdevelopmentcontractexpenditure - - (12.9) - (12.9) - - (20.1) - (20.1)Bid costs - - - (3.1) (3.1) - - - (1.4) (1.4)Cost of sales oftradingproperties - - - - - - (10.7) (20.8) - (31.5)Depreciation (1.2) (2.4) (0.2) (17.0) (20.8) (0.8) (2.5) (0.2) (13.8) (17.3)Underlyingoperating profit 98.5 131.6 2.6 57.8 290.5 106.8 128.4 18.2 51.8 305.2Profit ondisposal ofnon-currentproperties 25.0 38.6 0.3 15.1 79.0 4.1 20.9 0.1 8.5 33.6Profit ondisposal of aPPP project - - - 10.0 10.0 - - - - -Net (deficit) /surplus onrevaluation ofinvestmentproperties (126.9) 283.2 (2.0) (8.8) 145.5 283.9 611.3 1.2 0.3 896.7Segment result (3.4) 453.4 0.9 74.1 525.0 394.8 760.6 19.5 60.6 1,235.5Unallocatedexpenses (6.2) (5.9)Operating profit 518.8 1,229.6Net financecosts (133.8) (110.5) 385.0 1,119.1Share of the(losses) /profits of jointventures(post-tax) (9.8) 59.1Profit beforetax fromcontinuingactivities 375.2 1,178.2Included within rents payable is finance lease interest payable of ‚£0.9m (30September 2006: ‚£1.0m; 31 March 2007: ‚£1.9m) and ‚£1.5m (30 September 2006:‚£1.6m; 31 March 2007: ‚£3.1m) respectively for Retail Portfolio and LondonPortfolio.Of the share of the results of joint ventures (post-tax) a loss of ‚£15.9m (30September 2006: profit ‚£58.2m; 31 March 2007: profit ‚£182.5m) is attributableto Retail Portfolio, profit of ‚£6.0m (30 September 2006: ‚£0.9m; 31 March 2007:‚£nil) is attributable to Other investment portfolio, and a profit of ‚£0.1m (30September 2006: ‚£nil; 31 March 2007: loss ‚£3.2m) is attributable to PropertyPartnerships.
All the Group's operations are in the UK and are organised into four main business segments against which the Group reports its primary segment information. These are Retail Portfolio, London Portfolio, Other investment portfolio and Property Partnerships.
Year ended 31 March 2007 Retail Other London investment Property Portfolio Portfolio portfolio Partnerships TotalIncome statements ‚£m ‚£m ‚£m ‚£m ‚£m Rental income 279.2 311.6 8.7 - 599.5Service charge income 46.8 48.6 0.3 - 95.7Property services income - - - 785.9 785.9
Trading property sale proceeds - 33.1 29.0 1.7 63.8Long-term development contract income - 28.9
51.8 - 80.7Finance lease interest 3.5 5.9 - 6.1 15.5Revenue 329.5 428.1 89.8 793.7 1,641.1Rents payable (11.3) (4.9) - (179.9) (196.1)
Other direct property or contract expenditure (67.7) (62.1) (0.8) (469.0) (599.6)Indirect property or contract expenditure (31.6) (30.9) (5.8) (16.3) (84.6)Long-term development contract expenditure - (26.1) (40.3) - (66.4)Bid costs - - - (2.8) (2.8)Cost of sales of trading properties (0.1) (28.7)
(20.9) (0.5) (50.2)Depreciation (1.5) (4.9) (0.1) (26.4) (32.9)Underlying operating profit 217.3 270.5 21.9 98.8 608.5
Profit on disposal of non-current properties 28.5 81.7 0.5 7.5 118.2Net surplus / (deficit) on revaluation of investmentproperties 293.6 1,022.0 5.6 (13.6) 1,307.6Segment result 539.4 1,374.2 28.0 92.7 2,034.3Unallocated expenses (13.6)Operating profit 2,020.7Net finance costs (220.9) 1,799.8
Share of the profit of joint ventures (post-tax) 179.3Profit before tax from continuing activities 1,979.1
3. Net finance costs
Six Six Year months months ended
ended 30 ended 30 31
September September March
2007 2006 2007
‚£m ‚£m ‚£mInterest expenseBond and debenture debt (97.9) (80.8) (173.1)Bank borrowings (65.0) (39.9) (89.6)Other interest payable (0.5) (2.1) (1.2)
Fair value (losses) / profits on interest rate swaps (4.2) 4.2 15.4Provision discounting (note 20) (0.8) - (1.0)Amortisation of bond exchange de-recognition (note 21) (2.3) (8.6) (17.1)Expected return on pension scheme assets 4.3 4.4 8.6Interest on pension scheme liabilities (3.9) (3.8) (7.6)Net financing income on pension scheme
0.4 0.6 1.0
(170.3) (126.6) (265.6)Interest capitalised in relation to properties under development
28.0 11.9 32.3Total interest expense (142.3) (114.7) (233.3)Interest incomeShort-term deposits 1.1 0.4 1.5Other interest receivable 0.8 2.0 2.4
Interest receivable from joint ventures
6.6 1.8 8.5Total interest income 8.5 4.2 12.4Net finance costs (133.8) (110.5) (220.9)
Included within rents payable (note 2) is finance lease interest payable of ‚£2.4m (30 September 2006: ‚£2.6m; 31 March 2007: ‚£5.0m).
4. Exceptional items Six Six Year months months ended ended 30 ended 30 31 September September March 2007 2006 2007
‚£m ‚£m ‚£m Deferred taxation released within joint ventures on conversion to a Real Estate Investment Trust
- - 98.0Exceptional items before tax
- - 98.0 Deferred taxation released on conversion to a Real Estate Investment Trust
- - 2,309.2Real Estate Investment Trust conversion charge
- - (315.0)
- - 2,092.2
On entering the REIT regime an entry charge equal to 2% of the aggregatemarket value of the properties associated with the qualifying rental businesswas payable. Deferred tax accrued at the date of conversion in respect of theassets and liabilities of the qualifying rental business was released to theincome statement in the year ended 31 March 2007, as the relevant temporarydifferences would no longer be taxable on reversal. An equivalent release ofdeferred taxation was also made by the joint ventures, of which the Groupshare was ‚£98.0m.5. Income tax expense Six Six months months Year ended 30 ended 30 ended 31 September September March 2007 2006 2007 ‚£m ‚£m ‚£m Current taxCorporation tax expense for the period 6.7 48.5 68.8Adjustment in respect of prior periods 1.2 - (0.6)Corporation tax in respect of property disposals - 10.3 32.0Real Estate Investment Trust conversion charge - - 315.0Total current tax expense 7.9 58.8 415.2Deferred taxOrigination and reversal of timing differences 0.3 15.0 32.9Released in respect of property disposals - (24.4) (18.8)On valuation surplus - 269.0 330.7Released on conversion to a Real Estate Investment Trust - - (2,309.2)Total deferred tax expense / (credit) 0.3 259.6 (1,964.4)Total income tax expense / (credit) in the income statement 8.2 318.4 (1,549.2)The tax for the period is lower than the standard rate ofcorporation tax in the UK (30%).The differences are explained below:Profit on activities before taxation
375.2 1,178.2 1,979.1 Profit on activities multiplied by rate of corporation tax in the UK of 30%
112.6 353.5 593.7Effects of:Deferred tax released in respect of property disposals - (24.4) (18.8)Corporation tax on disposal of non-current assets - - 6.0Joint venture accounting adjustments 7.1 (14.3) (44.2)Prior period corporation tax adjustments 1.2 - (0.6)Prior period deferred tax adjustments - - 1.1Non-allowable expenses and non-taxable items 9.6 3.6 7.9Real Estate Investment Trust conversion charge
- - 315.0 Deferred tax released on conversion to a Real Estate Investment Trust
- - (2,309.2) Exempt property rental profits in the six months ended 30 September 2007
(99.6) - -Exempt property gains in the six months ended 30 September 2007 (22.7) - -Exempt property rental profits in the three months ended 31 March2007 - - (89.8)Exempt property gains in the three months ended 31 March 2007
- - (10.3) Total income tax expense / (credit) in the income statement (as above)
8.2 318.4 (1,549.2)
Land Securities Group PLC elected for group Real Estate Investment Trust (REIT) status with effect from 1 January 2007. As a result the Group no longer pays UK corporation tax on the profits and gains from qualifying rental business in the UK provided it meets certain conditions. Non-qualifying profits and gains of the Group continue to be subject to corporation tax as normal.
The calculation of the Group's tax expense and liability necessarily involvesa degree of estimation and judgement in respect of certain items whose taxtreatment cannot be finally determined until a formal resolution has beenreached with the relevant tax authorities. If all such issues are resolved inthe Group's favour, provisions established in previous periods of up to‚£225.0m could be released in the future.6. Dividends Six Six Year months months ended ended 30 ended 30 31
September September March
2007 2006 2007 ‚£m ‚£m ‚£mOrdinary dividends paidFinal dividend for the year ended 31 March 2007 (34.00p per share) 159.5 - -Final dividend for the year ended 31 March 2006 (28.55p per share) - 133.8 133.8Interim dividend for the year ended 31 March 2007 (19.00p pershare) - - 89.2 159.5 133.8 223.0The Board has proposed a second quarterly dividend of 16.00p per share inaddition to the first quarterly dividend of 16.00p paid on 26 October 2007(interim dividend for the year ended 31 March 2007: 19.00p). It will be paidon 7 January 2008 to shareholders who are on the Register of Members on 7December 2007.7. Earnings per share Six Six months months Year ended 30 ended 30 ended 31 SeptemberSeptember March 2007 2006 2007 ‚£m ‚£m ‚£m
Profit for the financial period 367.0 859.8 3,528.3Revaluation (surpluses) / deficits net of deferred taxation -Group (145.5) (627.7) (976.9)
Revaluation (surpluses) / deficits net of deferred taxation - joint ventures
23.5 (45.9) (54.5)
(Profits) / losses on non-current property disposals after current and deferred tax - Group
(79.0) (47.7) (105.2)
Profit on non-current property disposals after current and deferred ta x - joint ventures
7.3 - -Profit on disposal of PPP projects (10.0) - -Mark-to-market adjustment on interest rate swaps (net of deferredtax) 4.2 (4.3) (13.7)Deferred tax arising from capital allowances on investmentproperties - 6.7 11.7Deferred tax arising from capitalised interest on investmentproperties - 3.4 5.8Real Estate Investment Trust conversion charge - - 315.0
Deferred tax released on conversion to a Real Estate Investment Trust - Group
- - (2,309.2)
Deferred tax released on conversion to a Real Estate Investment Trust - joint ventures
- - (98.0)EPRA adjusted earnings 167.5 144.3 303.3Eliminate effect of debt restructuring charges (net of taxation) 1.0 4.4 13.4Eliminate effect of bond exchange de-recognition (net of deferredtax) 2.3 6.0 13.3Adjusted earnings 170.8 154.7 330.0 No. m No. m No. mWeighted average number of ordinary shares 470.4 469.5 469.8Effect of own shares and treasury shares (3.3) (0.3) (1.6)Weighted average number of ordinary shares after adjusting forown shares 467.1 469.2 468.2Effect of dilutive share options 1.3 1.9 1.9Weighted average number of ordinary shares adjusted for dilutiveinstruments 468.4 471.1 470.1 pence pence penceBasic earnings per share 78.57 183.25 753.59
Diluted earnings per share 78.35 182.51 750.54Adjusted earnings per share 36.57 32.97 70.48Adjusted diluted earnings per share 36.46 32.84 70.20 EPRA adjusted diluted earnings per share 35.76 30.63 64.52 Management have chosen to disclose adjusted earnings per share in order toprovide an indication of the Group's underlying business performance.Accordingly, it excludes the effect of all exceptional items, debtrestructuring charges and other items of a capital nature (excluding tradingproperties and long-term contract profits) as indicated above. In addition,the corporation tax charge arising from the conversion to a REIT, and thedeferred tax released following the conversion to a REIT, have also beenexcluded due to their size and incidence. Further, prior to the conversion toa REIT, the deferred tax arising on capital allowances in respect ofinvestment properties was eliminated as experience had shown that theseallowances are not in practice repayable, and deferred tax on capitalisedinterest was also added back as this was effectively a permanent difference.An EPRA measure has been included to assist comparison between Europeanproperty companies. Management believe our measure of adjusted dilutedearnings per share is more indicative of underlying performance.8. Net assets per share 30 30 September September 31 March 2007 2006 2007 ‚£m ‚£m ‚£mNet assets attributable to equity shareholders
10,923.0 8,191.7 10,791.3 Cumulative mark-to-market adjustment on interest rate swaps (net of deferred tax) - Group
(10.4) 0.6 (14.4) Cumulative mark-to-market adjustment on interest rate swaps (net of deferred tax) - joint ventures
(4.1) 0.5 (9.2)Deferred tax arising on revaluation surpluses
- 2,007.7 - Deferred tax arising from capital allowances on investment properties
- 119.9 - Deferred tax arising from capitalised interest on investment properties
- 31.6 -EPRA adjusted net assets
10,908.5 10,352.0 10,767.7 Reverse bond exchange de-recognition adjustment (net of deferred tax)
(516.8) (369.3) (519.1)Adjusted net assets attributable to equity shareholders
10,391.7 9,982.7 10,248.6 Reinstate bond exchange de-recognition adjustment (net of deferred tax)
516.8 369.3 519.1 Cumulative mark-to-market adjustment on interest rate swaps (net of deferred tax) - Group
10.4 (0.6) 14.4 Cumulative mark-to-market adjustment on interest rate swaps (net of deferred tax) - joint ventures
4.1 (0.5) 9.2Fair value of debt (341.4) (656.2) (511.5)EPRA triple net assets value 10,581.6 9,694.7 10,279.8 No. m No. m No. mNumber of ordinary shares 470.5 469.9 470.4Effect of own shares and treasury shares (6.9) (1.0) (2.1)Number of ordinary shares after adjusting for own shares 463.6 468.9 468.3Effect of dilutive share options 1.1 1.8 1.6Number of ordinary shares adjusted for dilutive instruments 464.7 470.7 469.9 pence pence penceNet assets per share 2356 1747 2304Diluted net assets per share 2351 1740 2297Adjusted net assets per share 2242 2129 2188Adjusted diluted net assets per share
2236 2121 2181
EPRA measure - adjusted diluted net assets per share 2347 2199 2291EPRA measure - diluted triple net assets per share
2277 2060 2188
Adjusted net assets per share excludes the deferred tax arising on revaluationsurpluses, mark-to-market adjustments on financial instruments used forhedging purposes and the bond exchange de-recognition adjustment as managementconsider that this better represents the expected future cash flows of theGroup. Prior to REIT entry, the deferred tax arising on capital allowances inrespect of investment properties was excluded as experience had shown thatthese allowances do not in practice crystallise. Deferred tax on capitalisedinterest was also added back as this was effectively a permanent difference.This is no longer the case since the Group became a REIT on 1 January 2007.EPRA measures have been included to assist comparison between Europeanproperty companies. We believe our measure of adjusted net assets attributableto equity shareholders is more indicative of underlying performance.9. Non-current assets Property Property Property Property investment investment
investment Partnerships Other
Operating Other Total and property, Portfolio Development investment investment plant and management programme properties properties equipment Total ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mNet book value at 31 March 2006 10,211.2 1,229.3 11,440.5 563.2 73.6 12,077.3Properties transferred from portfoliomanagement into the development programmeduring the period (at 1 April 2006 valuation) (6.4) 6.4 - - - -Developments completed, let and transferredfrom the development programme into portfoliomanagement during the period 32.5 (32.5)
- - - -Property acquisitions 461.1 12.3 473.4 - - 473.4Capital expenditure 35.9 148.8 184.7 24.9 9.1 218.7Capitalised interest - 10.9 10.9 - - 10.9Disposals (145.3) (5.3) (150.6) (6.2) - (156.8)Surrender premiums received (1.0) - (1.0) - - (1.0)Depreciation (1.7) - (1.7) (8.3) (7.3) (17.3)Surplus on revaluation 648.8 247.6 896.4 0.3 - 896.7Net book value at 30 September 2006 11,235.1 1,617.5 12,852.6 573.9 75.4 13,501.9Properties transferred from portfoliomanagement into the development programmeduring the period (at 1 April 2006 valuation) (212.6) 212.6 - - - -Developments completed, let and transferredfrom the development programme into portfoliomanagement during the period 28.3 (28.3) - - - -Property acquisitions 48.9 1.4 50.3 440.7 - 491.0Capital expenditure 41.3 273.3 314.6 2.3 9.9 326.8Capitalised interest - 18.9 18.9 - - 18.9Disposals (498.2) (0.3) (498.5) (16.8) (0.2) (515.5)Transfer to joint ventures (266.5) - (266.5) - - (266.5)Surrender premiums received (2.9) - (2.9) - - (2.9)Depreciation (1.6) - (1.6) (7.1) (6.9) (15.6)Surplus / (deficit) on revaluation 235.6 189.2 424.8 (13.9) - 410.9Net book value at 31 March 2007 10,607.4 2,284.3 12,891.7 979.1 78.2 13,949.0Properties transferred from portfoliomanagement into the development programmeduring the period (at 1 April 2007 valuation) (21.9) 21.9 - - - -Developments completed, let and transferredfrom the development programme into portfoliomanagement during the period 1,230.5 (1,230.5)
- - - -Property acquisitions 546.2 - 546.2 153.0 - 699.2Capital expenditure 62.7 301.7 364.4 12.4 5.3 382.1Capitalised interest - 26.6 26.6 - - 26.6Disposals (652.2) - (652.2) (17.5) - (669.7)Surrender premiums received (3.3) - (3.3) - - (3.3)Depreciation (1.5) - (1.5) (10.8) (8.5) (20.8)Transferred to trading properties - (17.4) (17.4) (0.8) - (18.2)(Deficit) / surplus on revaluation (23.0) 177.3 154.3 (8.8) - 145.5Net book value at 30 September 2007 11,744.9 1,563.9
13,308.8 1,106.6 75.0 14,490.4
The following table reconciles the net book value of the investment properties excluding those within Property Partnerships to their market value. The components of the reconciliation are included within their relevant balance sheet headings.
Property investment Total Portfolio Development investment management programme properties ‚£m ‚£m ‚£m Net book value at 30 September 2006 11,235.1 1,617.5 12,852.6Plus: amount included in prepayments in respect of lease incentives 87.5 24.6 112.1Less: head leases capitalised (note 24) (64.4) (8.4) (72.8)Plus: properties treated as finance leases 178.1 - 178.1Market value at 30 September 2006 - Group
11,436.3 1,633.7 13,070.0 Market value at 30 September 2006 - plus: share of joint ventures (note 13)
1,369.8Market value at 30 September 2006 - Group and share of joint ventures 14,439.8Net book value at 31 March 2007 10,607.4 2,284.3 12,891.7Plus: amount included in prepayments in respect of lease incentives 93.6 37.4 131.0Less: head leases capitalised (note 24) (61.6) (9.4) (71.0)Plus: properties treated as finance leases 163.1 - 163.1Market value at 31 March 2007 - Group 10,802.5 2,312.3 13,114.8value at 31 March 2006 - plus: share of joint ventures (note 13) 1,637.7Market value at 31 March 2007 - Group and share of joint ventures 14,752.5Net book value at 30 September 2007
11,744.9 1,563.9 13,308.8 Plus: amount included in prepayments in respect of lease incentives
144.8 15.0 159.8Less: head leases capitalised (note 24) (66.8) (3.3) (70.1)Plus: properties treated as finance leases 151.6 - 151.6Market value at 30 September 2007 - Group
11,974.5 1,575.6 13,550.1 Market value at 30 September 2007 - plus: share of joint ventures (note 13)
1,493.1Market value at 30 September 2007 - Group and share ofjoint ventures 15,043.2 30 30 September September 31 2007 2006 March 2007 ‚£m ‚£m ‚£mCapital commitments 229.7 312.2 726.6
10. Net investment in finance leases
30 30 September September 31 March 2007 2006 2007 ‚£m ‚£m ‚£m Non-current
Finance leases - gross receivables 621.4 582.0
603.9Unearned finance income (351.7) (364.4) (368.0)Unguaranteed residual value 26.5 29.4 26.5 296.2 247.0 262.4Current
Finance leases - gross receivables 16.6 14.7
14.6Unearned finance income (12.3) (10.8) (10.9) 4.3 3.9 3.7
Total net investment in finance leases 300.5 250.9
266.1
Gross receivables from finance leases:Not later than one year 16.6 14.7
14.6
Later than one year but not more than five years 127.1 109.8 116.7More than five years 494.3 472.2 487.2 638.0 596.7 618.5Unearned future finance income (364.0) (375.2)
(378.9)
Unguaranteed residual value 26.5 29.4
26.5
Net investment in finance leases 300.5 250.9
266.1
The Group has leased out a number of investment properties under financeleases ranging between 15 and 100 years in duration. These are accounted foras finance lease receivables rather than investment properties. The fair valueof the Group's finance lease receivables approximates to the carrying amount.11. Goodwill 30 30 September September 31 March 2007 2006 2007 ‚£m ‚£m ‚£m
At the beginning of the period 129.6 34.3
34.3
Arising on acquisitions during the period - -
83.2
Transferred on acquisition of a joint venture (note 13) - -
12.1
At the end of the period 129.6 34.3
129.6
Represented by:Gross goodwill recognised 214.5 119.2
214.5
Total accumulated impairment losses (84.9) (84.9)
(84.9)
129.6 34.3
129.6
12. Investments in Public Private Partnership contracts
30 30 September September 31 March 2007 2006 2007 ‚£m ‚£m ‚£m
At the beginning of the period - -
-
Investments during the period 21.0 -
-
At the end of the period 21.0 -
-
During the six months ended 30 September 2007 a number of PPP contracts were acquired independent from the disposal group. These PPP contracts relate to assets currently under construction.
13. Investments in joint ventures
Six months ended 30 September 2007 and at 30 September 2007
Scottish TheSummary Retail Martineau The Bullfinancial Property Metro St David's Galleries Ring Fen Farminformation of Limited Shopping Buchanan Limited Limited Limited Bristol Developm'ts OtherGroup's share of Partnership Fund LP Partnership Partnership Partnership Partnership Alliance Limited (1) Totaljoint ventures ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m Income statementRental income 7.6 6.8 4.8 2.5 0.8 7.4 1.7 - 0.8 32.4Service chargeincome 1.6 1.5 0.3 0.4 0.2 1.3 - - 0.1 5.4Propertyservices income - - - - - - - - 0.1 0.1Trading propertysale proceeds - - - - - - - 35.0 - 35.0Revenue 9.2 8.3 5.1 2.9 1.0 8.7 1.7 35.0 1.0 72.9Rents payable (0.1) - - - - - - - - (0.1)Other directpropertyexpenditure (3.0) (1.8) (0.7) (0.6) (0.4) (2.2) (0.1) (0.1) (0.2) (9.1)Indirectpropertyexpenditure (0.6) (0.5) - - - - - - - (1.1)Cost of sales oftradingproperties - - - - - - - (26.8) - (26.8) 5.5 6.0 4.4 2.3 0.6 6.5 1.6 8.1 0.8 35.8(Loss) / profiton disposal ofnon-currentproperties (7.7) - - - 0.4 - - - - (7.3)Net (deficit) /surplus onrevaluation ofinvestmentproperties (10.9) (5.1) 2.0 - (0.1) (5.1) (2.9) - (1.4) (23.5)Operating (loss)/ profit (13.1) 0.9 6.4 2.3 0.9 1.4 (1.3) 8.1 (0.6) 5.0Net finance(costs) / income (4.2) (6.4) (1.7) 0.3 - - - 0.3 (0.1) (11.8)(Loss) / profitbefore tax (17.3) (5.5) 4.7 2.6 0.9 1.4 (1.3) 8.4 (0.7) (6.8)Income taxexpense - (0.6) - - - - - (2.4) - (3.0)(Loss) / profitafter tax (17.3) (6.1) 4.7 2.6 0.9 1.4 (1.3) 6.0 (0.7) (9.8)Balance sheetInvestmentproperties (2) 143.8 298.3 187.8 239.7 31.4 314.9 236.9 - 31.7 1,484.5Current assets 15.6 9.0 7.0 127.1 2.4 10.6 15.1 18.4 32.8 238.0 159.4 307.3 194.8 366.8 33.8 325.5 252.0 18.4 64.5 1,722.5Currentliabilities (3.5) (7.2) (4.6) (20.9) (0.6) (9.6) (15.6) (5.1) (6.2) (73.3)Non-currentliabilities (61.8) (210.1) - (0.2) (0.6) - (2.4) (12.9) - (288.0) (65.3) (217.3) (4.6) (21.1) (1.2) (9.6) (18.0) (18.0) (6.2) (361.3)Net assets 94.1 90.0 190.2 345.7 32.6 315.9 234.0 0.4 58.3 1,361.2Capitalcommitments 0.2 1.0 1.4 50.5 0.7 53.0 7.4 0.2 - 114.4Market value ofinvestmentproperties (2) 142.6 296.5 192.0 239.8 30.8 320.0 239.8 - 31.6 1,493.1Net investmentAt 1 April 2007 145.8 95.3 188.6 308.1 27.4 321.1 198.6 - 53.9 1,338.8Cash contributed - 1.5 0.3 - 4.3 - - - 5.2 11.3Share ofpost-tax results (17.3) (6.1) 4.7 2.6 0.9 1.4 (1.3) 6.0 (0.7) (9.8)Distributions (37.5) - (3.4) - - - - (5.6) (0.1) (46.6)Fair valuemovement on cashflow hedgestaken to equity 3.1 (0.7) - - - - - - - 2.4Loan advances - - - 35.0 - - 38.4 - - 73.4Loan repayments - - - - - (6.6) (1.7) - - (8.3)At 30 September2007 94.1 90.0 190.2 345.7 32.6 315.9 234.0 0.4 58.3 1,361.2Notes:
1. Other principally includes the Martineau Limited Partnership, the Ebbsfleet Limited Partnership, the A2 Limited Partnership, Parc Tawe and Investors in the Community (IIC).
2. The difference between the book value and the market value is the amount included in prepayments in respect of lease incentives, head leases capitalised and properties treated as finance leases.
3. The proportion of ownership of the joint ventures are as stated in the Annual Report for the year ended 31 March 2007, which is available from www.landsecurities.com
Six months ended 30 September 2006 and at 30 September 2006
Summaryfinancial Scottish Theinformation Retail St David's Martineau The Bullof Group's Property Metro Limited Galleries Ring Fen Farm
share of Limited Shopping Buchanan Partnership Limited Limited Bristol Developm'ts joint Partnership Fund LP Partnership
Partnership Partnership Alliance Limited Other(1) Totalventures ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m Income statementRental income 10.8 6.5 4.6 - 0.8 7.4 1.7 - 0.9 32.7Servicecharge income 2.0 1.5 0.8 - 0.1 1.1 - - 0.2 5.7Propertyservicesincome - - - - - - - - 1.1 1.1Revenue 12.8 8.0 5.4 - 0.9 8.5 1.7 - 2.2 39.5Rents payable (0.1) - - - - - - - - (0.1)Other directpropertyexpenditure (4.2) (2.0) (1.3) - (0.5) (2.0) (0.1) - (2.0) (12.1)Indirectpropertyexpenditure (1.0) (0.1) - - - (0.1) (0.1) - (0.4) (1.7) 7.5 5.9 4.1 - 0.4 6.4 1.5 - (0.2) 25.6Net surplusonrevaluationof investmentproperties 10.2 18.4 10.8 - 2.5 18.7 4.4 - 0.7 65.7Operatingprofit /(loss) 17.7 24.3 14.9 - 2.9 25.1 5.9 - 0.5 91.3Net finance(costs) /income (5.8) (4.3) (1.8) - - 0.1 0.1 - (0.1) (11.8)Profit beforetax 11.9 20.0 13.1 - 2.9 25.2 6.0 - 0.4 79.5Income taxexpense (3.1) (6.1) (3.2) - (0.8) (5.6) (1.3) - (0.3) (20.4)Profit aftertax 8.8 13.9 9.9 - 2.1 19.6 4.7 - 0.1 59.1Balance sheetInvestmentproperties(2) 356.0 294.7 184.7 - 25.4 314.4 155.6 - 33.3 1,364.1Currentassets 12.8 6.3 4.4 30.9 2.5 11.9 12.2 - 39.9 120.9 368.8 301.0 189.1 30.9 27.9 326.3 167.8 - 73.2 1,485.0Currentliabilities (14.1) (5.7) (2.1) (8.6) (0.6) (5.3) (6.5) - (5.7) (48.6)Non-currentliabilities (221.5) (184.3) - - - - (2.4) - (0.3) (408.5)Deferred tax (17.2) (16.0) (6.5) - (2.1) (49.2) (8.2) - (0.4) (99.6) (252.8) (206.0) (8.6) (8.6) (2.7) (54.5) (17.1) - (6.4) (556.7)Net assets 116.0 95.0 180.5 22.3 25.2 271.8 150.7 - 66.8 928.3Capitalcommitments 0.5 0.2 0.4 - 0.1 0.9 110.0 - 0.2 112.3Market valueof investmentproperties(2) 349.8 292.9 188.5 - 26.6 320.0 158.7 - 33.3 1,369.8NetinvestmentAt 1 April2006 105.2 81.0 173.0 0.8 23.1 259.3 118.5 - 68.6 829.5Cashcontributed - 0.8 - 21.5 - - - - - 22.3Share ofpost-taxresults 8.8 13.9 9.9 - 2.1 19.6 4.7 - 0.1 59.1Distributions - - (2.4) - - - - - (4.5) (6.9)Fair valuemovement oncash flowhedges takento equity 2.0 (0.7) - - - - - - - 1.3Loan advances - - - - - - 29.8 - 2.6 32.4Loanrepayments - - - - - (7.1) (2.3) - - (9.4)At 30September2006 116.0 95.0 180.5 22.3 25.2 271.8 150.7 - 66.8 928.3Notes:
1. Other principally includes the Martineau Limited Partnership, the Ebbsfleet Limited Partnership, the A2 Limited Partnership, Parc Tawe and Investors in the Community (IIC).
2. The difference between the book value and the market value is the amount included in prepayments in respect of lease incentives, head leases capitalised and properties treated as finance leases.
3. The proportion of ownership of the joint ventures are as stated in the Annual Report for the year ended 31 March 2007, which is available from www.landsecurities.com.
Year ended 31 March 2007 and at 31 March 2007
Summary Scottish Thefinancial Retail Martineau The Bullinformation of Property Metro St David's Galleries Ring Fen FarmGroup's share Limited Shopping Buchanan Limited Limited Limited Bristol Developm'ts Otherof joint Partnership Fund LP Partnership Partnership Partnership Partnership Alliance Limited (1) Totalventures ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m Income statementRental income 20.6 13.3 10.2 2.0 1.4 15.1 3.3 - 1.7 67.6Service chargeincome 4.5 3.2 1.4 0.2 0.3 2.6 - - 0.2 12.4Propertyservices income - - - - - - - - 1.6 1.6Revenue 25.1 16.5 11.6 2.2 1.7 17.7 3.3 - 3.5 81.6Rents payable (0.2) - - - (0.1) - - - - (0.3)Other directpropertyexpenditure (8.4) (4.3) (2.4) (0.4) (0.8) (4.5) (0.2) - (3.8) (24.8)Indirectpropertyexpenditure (1.4) (1.0) (0.1) - - (0.2) (0.1) - (0.9) (3.7)Depreciation - - - - - - - - (0.1) (0.1) 15.1 11.2 9.1 1.8 0.8 13.0 3.0 - (1.3) 52.7Profit ondisposal ofnon-currentproperties - - - - - - - - 0.2 0.2Net surplus onrevaluation ofinvestmentproperties 6.3 23.0 10.2 2.6 2.0 23.8 6.9 - 0.3 75.1Operatingprofit / (loss) 21.4 34.2 19.3 4.4 2.8 36.8 9.9 - (0.8) 128.0Net finance(costs) /income (11.7) (10.9) (3.4) 0.2 0.2 0.1 0.4 - (0.4) (25.5)Profit / (loss)before tax 9.7 23.3 15.9 4.6 3.0 36.9 10.3 - (1.2) 102.5Income tax(expense) /credit- ordinary (2.7) (6.2) (3.5) (1.2) (0.6) (5.6) (1.1) - (0.3) (21.2)- exceptional 17.7 16.9 6.9 1.2 1.9 44.9 8.1 - 0.4 98.0Profit / (loss)after tax 24.7 34.0 19.3 4.6 4.3 76.2 17.3 - (1.1) 179.3Balance sheetInvestmentproperties (2) 357.2 301.0 185.1 213.2 25.0 319.6 197.3 - 32.9 1,631.3Current assets 15.2 9.8 7.5 116.3 3.0 10.7 15.5 - 27.1 205.1 372.4 310.8 192.6 329.5 28.0 330.3 212.8 - 60.0 1,836.4Currentliabilities (4.5) (5.2) (4.0) (21.2) (0.6) (9.2) (11.8) - (5.3) (61.8)Non-currentliabilities (222.1) (210.3) - (0.2) - - (2.4) - (0.8) (435.8) (226.6) (215.5) (4.0) (21.4) (0.6) (9.2) (14.2) - (6.1) (497.6)Net assets 145.8 95.3 188.6 308.1 27.4 321.1 198.6 - 53.9 1,338.8Capitalcommitments 0.6 1.1 1.3 1.9 - - 129.3 - - 134.2Market value ofinvestmentproperties (2) 351.4 299.3 189.3 213.3 26.2 325.0 200.5 - 32.7 1,637.7Net investmentAt 1 April 2006 105.2 81.0 173.0 0.8 23.1 259.3 118.5 - 68.6 829.5Propertiescontributed - - - 267.6 - - - - - 267.6Cashcontributed 9.5 6.8 1.4 35.1 - 0.3 - - 2.5 55.6Cost ofacquisition - - - - - - - - 0.5 0.5Share ofpost-taxresults 24.7 34.0 19.3 4.6 4.3 76.2 17.3 - (1.1) 179.3Distributions - (29.6) (5.1) - - - - - (4.5) (39.2)Fair valuemovement oncash flowhedges taken toequity 6.4 3.1 - - - - - - - 9.5Transferred togoodwill - - - - - - - - (12.1) (12.1)Loan advances - - - - - - 67.0 - - 67.0Loan repayments - - - - - (14.7) (4.2) - - (18.9)At 31 March2007 145.8 95.3 188.6 308.1 27.4 321.1 198.6 - 53.9 1,338.8Notes:
1. Other principally includes the Martineau Limited Partnership, the Ebbsfleet Limited Partnership, the A2 Limited Partnership, Parc Tawe and Investors in the Community (IIC).
2. The difference between the book value and the market value is the amount included in prepayments in respect of lease incentives, head leases capitalised and properties treated as finance leases.
3. The proportion of ownership of the joint ventures are as stated in the Annual Report for the year ended 31 March 2007, which is available from www.landsecurities.com
14. Trading properties and long-term development contracts
30 30 September September 31 March 2007 2006 2007 ‚£m ‚£m ‚£mTrading properties
175.2 140.0 148.3 Amount recoverable under long-term development contracts less payments on account
- 16.9 -
175.2 156.9 148.3The amounts for contracts in progress at the balance sheet dateare as follows:Contract revenue recognised as revenue in the period 13.9 29.5 80.7Contract costs incurred and recognised profits (less recognisedlosses) to date 239.7 448.1 494.8Advances received (249.8) (440.9) (504.1)
(10.1) 7.2 (9.3) Plus: gross amount due to customers for contract work (included in accruals and deferred income)
10.1 9.7 9.3Gross amount due from customers for contract work
- 16.9 -
15. Trade and other receivables
30 30 September September 31 March 2007 2006 2007 ‚£m ‚£m ‚£m
Trade receivables - Property investment 57.4 60.2
26.4
Trade receivables - Property Partnerships 78.0 94.4
96.2Property sales receivables 17.0 6.4 78.6Other receivables 113.2 93.2 100.5
Prepayments and accrued income 365.8 319.8
336.4
Finance leases receivable within one year (note 10) 4.3 3.9
3.7
635.7 577.9
641.8
Trade receivables are net of provisions for doubtful debts of ‚£21.6m (30 September 2006: ‚£17.3m; 31 March 2007: ‚£26.6m).
16. Cash and short-term deposits 30 30 September September 31 March 2007 2006 2007 ‚£m ‚£m ‚£mCash at bank and in hand 28.9 15.5 32.4Short-term deposits 2.5 9.7 20.3 31.4 25.2 52.7
For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise the following:
Cash at bank and in hand 28.9 15.5 32.4Short-term deposits 2.5 9.7 20.3Bank overdraft (note 18) (55.3) - - (23.9) 25.2 52.7
The effective interest rate on short-term deposits was 5.6% (30 September 2006: 4.4%; 31 March 2007: 8.0%) and the deposits have an average maturity of 3 days (30 September 2006: 3 days; 31 March 2007: 30 days).
17. Non-current assets classified as held for sale
30 30
September September 31 March
2007 2006 2007 ‚£m ‚£m ‚£mNon-current assets classified as held for sale 2,568.9 - 2,420.3Liabilities directly associated with non-current assets classifiedas held for sale (1,655.9) - (1,601.0) 913.0 - 819.3SMIF was acquired on 5 February 2007 for ‚£517.0m. SMIF includes a number ofPPP contracts which the Group acquired exclusively with a view to being resoldto third-party investors, while maintaining a minority share. The Groupannounced at the time of the acquisition that these PPP contracts would besold, and an Investment Bank has been appointed to execute the disposalstrategy. The PPP contracts are available for immediate sale in their presentcondition, although a new fund or similar vehicle will be created for thepurposes of the disposal. The divestment is expected to complete prior to 31March 2008. Accordingly, these PPP contracts have been designated as adisposal group. The net carrying value of the disposal group is based on itsfair value less costs to sell at the date of acquisition, as adjusted toreflect cash advanced to the disposal group to enable it to repay externaldebt (‚£397.6m) and net cash invested in the disposal group (‚£118.7m). Thedisposal group represents a discontinued operation, and the Group has notrecognised any profits or losses in respect of this discontinued operation forthe period from acquisition to 30 September 2007. SMIF is held in the PropertyPartnerships segment.
18. Short-term borrowings and overdrafts
30 30
September September 31 March
2007 2006 2007 ‚£m ‚£m ‚£mBank overdraft (note 21) 55.3 - -Borrowings falling due within one year (note 21)
1,212.5 447.4 1,687.4 Bond exchange de-recognition adjustment falling due within one year (note 21)
(11.2) (12.5) (6.3)Amounts payable under finance leases falling due within one year(notes 21 and 24) 2.1 2.1 2.1 1,258.7 437.0 1,683.2
19. Trade and other payables
30 30 September September 31 March 2007 2006 2007 ‚£m ‚£m ‚£mTrade payables 38.8 29.8 26.7Capital payables 131.4 75.8 77.9Other payables 49.1 68.9 37.7
Accruals and deferred income 621.8 456.1
526.6Loans from joint venture 115.0 - 115.0 956.1 630.6 783.9Capital payables represent amounts due under contracts to purchase properties,which were unconditionally exchanged at the period end, and for work completedon investment properties but not paid for at the financial period end.Deferred income principally relates to rents received in advance.20. Provisions Onerous Dilapidations leases Other TotalAt 1 April 2006 23.1 19.8 15.3 58.2
Charged to income statement for the period 0.1
0.5 5.9 6.5Utilised in the period (5.0) (2.4) - (7.4)At 30 September 2006 18.2 17.9 21.2 57.3
Charged / (credited) to income statement for the period 5.8 (1.0) 1.2 6.0Release of discount charged to net finance costs (note 3) - 1.0 - 1.0Utilised in the period (3.1) (2.3) (2.4) (7.8)On acquisition of Royal Mail property portfolio - 24.2 - 24.2At 31 March 2007 20.9 39.8 20.0 80.7Charged to income statement for the period 0.3 - 4.3 4.6Release of discount charged to net finance costs (note 3) -
0.8 - 0.8Utilised in the period - (5.2) - (5.2)At 30 September 2007 21.2 35.4 24.3 80.9DilapidationsProvision for dilapidations is made in respect of certain leasehold propertieswhere the Group anticipates incurring future expenditure at the end of thelease. The provision is calculated on those leases that expire within the nextfive years or where the lease has already expired and the liability has notyet been settled. The amounts provided are based on the current estimate ofthe future costs determined on the basis of the present condition of therelevant properties. Settlement of the amounts provided occurs once agreementis reached with the parties to the lease.
Onerous leases
An onerous lease provision is established in respect of leasehold propertiesthat are unoccupied or the expected future rental income is not expected tomeet the Group's rental obligations. The provisions are based on assumptionsabout expected future rentals and voids. This provision will be settled as thenet rental obligations develop. The provision may vary based on reassessmentof the relevant assumptions as circumstances change and new obligations areestablished.
Other
Other provisions include liabilities arising from the contractual arrangements with clients that include specific performance measurement targets and life cycle capital expenditure requirements. Settlement of the amounts provided follows agreement with the clients. It is expected that most of the other provisions will be utilised within the next three years.
21. BorrowingsAt 30 September 2007 Weighted average Excess time for of fair Book which value Nominal value Book Total Effective interest Fair over value of value of book Fixed / interest rate is value book (7) Secured Unsecured value floating rate fixed (10) value ‚£m ‚£m ‚£m ‚£m (9) % Years ‚£m ‚£mSterling4.625 per cent Notes due2013 (1) 300.0 299.7 - 299.7 Fixed 4.6 5.4 287.1 (12.6)5.292 per cent Notes due2015 (1) 391.5 390.8 - 390.8 Fixed 5.3 8.2 378.8 (12.0)4.875 per cent Notes due2019 (1) 400.0 395.9 - 395.9 Fixed 4.9 12.1 366.4 (29.5)5.425 per cent Notes due2022 (1) 255.3 254.5 - 254.5 Fixed 5.4 14.5 245.6 (8.9)4.875 per cent Notes due2025 (1) 300.0 297.0 - 297.0 Fixed 4.9 17.5 271.4 (25.6)5.391 per cent Notes due2026 (1) 210.7 209.8 - 209.8 Fixed 5.4 18.4 200.9 (8.9)5.391 per cent Notes due2027 (1) 611.3 608.4 - 608.4 Fixed 5.4 19.5 582.2 (26.2)5.376 per cent Notes due2029 (1) 317.9 316.3 - 316.3 Fixed 5.4 22.0 303.5 (12.8)5.396 per cent Notes due2032 (1) 322.9 321.0 - 321.0 Fixed 5.4 24.9 307.2 (13.8)5.125 per cent Notes due2036 (1) 500.0 498.5 - 498.5 Fixed 5.1 28.4 464.3 (34.2)Bank facility due 2010 15.5 15.5 - 15.5 Floating 6.5 0.1 15.5 -Euro Commercial Paper(2) 29.7 - 29.7 29.7 Floating 6.1 0.5 29.7 -DWP term loan (3) 134.1 134.1 - 134.1 Floating 6.1 0.5 134.1 -Syndicated bank debt (4) 1,380.0 1,380.0 - 1,380.0 Floating 6.2 0.1 1,380.0 -Bilateral facility (5) 855.6 855.6 - 855.6 Floating 6.3 - 855.6 -Acquisition loan notes(6) 112.7 - 112.7 112.7 Floating 4.6 - 112.7 -Bank overdraft 55.3 - 55.3 55.3 Floating - - 55.3 -Money market borrowings 89.2 89.2 - 89.2 Floating 6.2 0.2 89.2 - 6,281.7 6,066.3 197.7 6,264.0 6,079.5 (184.5)EuroSyndicated bank debt 27.4 27.4 - 27.4 Floating 4.4 0.3 27.4 -Bilateral facility 27.9 27.9 - 27.9 Floating 4.5 - 27.9 -Euro Commercial Paper 29.3 - 29.3 29.3 Floating 6.6 0.1 29.3 -(2) 84.6 55.3 29.3 84.6 84.6 -US DollarsEuro Commercial Paper(2) 5.4 - 5.4 5.4 Floating 6.0 - 5.4 - Amounts payable underfinance leases 70.1 70.1 - 70.1 Fixed 5.5 87.8 79.2 9.1 6,441.8 6,191.7 232.4 6,424.1 6,248.7 (175.4)Fair value of derivativeinstrumentsInterest rate swapsQualifying hedges 168.2 - (2.6) (2.6) 5.1 5.9 (2.6) -Non-qualifying hedges 1,565.0 - (7.8) (7.8) 5.1 3.1 (7.8) -Foreign currency swaps -qualifying hedges 34.7 - (1.1) (1.1) 6.5 0.1 (1.1) - 1,767.9 - (11.5) (11.5) (11.5) -Bond exchangede-recognition (516.8) - (516.8) - 516.8Total borrowings 5,674.9 220.9 5,895.8 6,237.2 341.4Less: bank overdraft(note 18) (55.3)Less: borrowings fallingdue within one year (4)(note 18) (1,212.5)Plus: bond exchangede-recognition fallingdue within one year(note 18) 11.2Less: amounts payableunder finance leasesfalling due within oneyear (notes 18 and 24) (2.1)Non-current borrowings 4,637.1
During the six months ended 30 September 2007 the Group issued ‚£22,952.0m and repaid ‚£22,076.7m of debt securities.
At 30 September 2006 Weighted Excess average of time for fair which value Nominal Book Book Total Effective interest Fair over value value of value of book Fixed / interest rate is value book (7) Secured Unsecured value floating rate fixed (10) value ‚£m ‚£m ‚£m ‚£m (9) % Years ‚£m ‚£mSterling5.016 per cent Notes due2007 (1) 181.7 181.7 - 181.7 Fixed 5.0 0.6 181.5 (0.2)4.625 per cent Notes due2013 (1) 300.0 299.5 - 299.5 Fixed 4.6 6.4 293.6 (5.9)5.292 per cent Notes due2015 (1) 391.5 390.6 - 390.6 Fixed 5.3 9.2 395.6 5.04.875 per cent Notes due2019 (1) 400.0 395.5 - 395.5 Fixed 4.9 13.1 393.5 (2.0)5.425 per cent Notes due2022 (1) 255.3 254.4 - 254.4 Fixed 5.4 15.5 266.1 11.74.875 per cent Notes due2025 (1) 300.0 296.8 - 296.8 Fixed 4.9 18.5 296.8 -5.391 per cent Notes due2026 (1) 210.7 209.7 - 209.7 Fixed 5.4 19.4 223.4 13.75.391 per cent Notes due2027 (1) 611.3 608.3 - 608.3 Fixed 5.4 20.5 649.7 41.45.376 per cent Notes due2029 (1) 317.9 316.2 - 316.2 Fixed 5.4 23.0 341.3 25.15.396 per cent Notes due2032 (1) 322.9 320.9 - 320.9 Fixed 5.4 25.9 350.2 29.3Bank facility due 2010 15.5 15.4 - 15.4 Floating 5.4 0.1 15.4 -DWP term loan (3) 245.4 235.0 - 235.0 Floating 5.2 0.5 245.4 10.4Syndicated bank debt (4) 800.0 800.0 - 800.0 Floating 5.1 - 800.0 -Acquisition loan notes(5) 120.7 - 120.7 120.7 Floating 4.1 - 120.7 -Money market borrowings 135.2 - 135.2 135.2 Floating 5.0 - 135.2 - 4,608.1 4,324.0 255.9 4,579.9 4,708.4 128.5Amounts payable underfinance leases 72.8 72.8 - 72.8 Fixed
5.5 86.2 90.6 17.8
4,680.9 4,396.8 255.9 4,652.7 4,799.0 146.3Fair value of derivativeinstrumentsInterest rate swapsQualifying hedges 243.2 - 1.7 1.7 5.1 7.1 1.7 -Non-qualifying hedges 805.0 - (0.8) (0.8) 4.9 2.9 (0.8) - 1,048.2 - 0.9 0.9 0.9 -Bond exchangede-recognition (527.6) - (527.6) - 527.6Total borrowings 3,869.2 256.8 4,126.0 4,799.9 673.9Less: borrowings fallingdue within one year (4)(note 18) (447.4)Plus: bond exchangede-recognition fallingdue within one year(note 18) 12.5Less: amounts payableunder finance leasesfalling due within oneyear (notes 18 and 24) (2.1)Non-current borrowings 3,689.0At 31 March 2007 Weighted Excess average of time for fair Book which value Nominal value Book Effective interest Fair over value of value of
Fixed / interest rate is value book
(7) Secured Unsecured Total book value floating rate fixed (10) value ‚£m ‚£m ‚£m ‚£m (9) % Years ‚£m ‚£mSterling5.016 per cent Notes due2007 (1) 181.7 181.7 - 181.7 Fixed 5.0 0.1 181.6 (0.1)4.625 per cent Notes due2013 (1) 300.0 299.6 - 299.6 Fixed 4.6 5.9 288.5 (11.1)5.292 per cent Notes due2015 (1) 391.5 390.7 - 390.7 Fixed 5.3 8.7 384.3 (6.4)4.875 per cent Notes due2019 (1) 400.0 395.7 - 395.7 Fixed 4.9 12.6 379.1 (16.6)5.425 per cent Notes due2022 (1) 255.3 254.4 - 254.4 Fixed 5.4 15.0 255.4 1.04.875 per cent Notes due2025 (1) 300.0 296.9 - 296.9 Fixed 4.9 18.0 286.2 (10.7)5.391 per cent Notes due2026 (1) 210.7 209.8 - 209.8 Fixed 5.4 18.9 213.2 3.45.391 per cent Notes due2027 (1) 611.3 608.3 - 608.3 Fixed 5.4 20.0 614.8 6.55.376 per cent Notes due2029 (1) 317.9 316.2 - 316.2 Fixed 5.4 22.5 324.5 8.35.396 per cent Notes due2032 (1) 322.9 321.0 - 321.0 Fixed 5.4 25.4 331.3 10.35.125 per cent Notes due2036 (1) 500.0 498.4 - 498.4 Fixed 5.1 28.9 498.0 (0.4)Bank facility due 2010 15.5 15.5 - 15.5 Floating 5.7 0.1 15.5 -Euro Commercial Paper(2) 139.2 - 139.2 139.2 Floating 5.4 - 139.2 -DWP term loan (3) 173.1 173.1 - 173.1 Floating 5.7 0.5 173.1 -Syndicated bank debt (4) 183.0 183.0 - 183.0 Floating 5.5 - 183.0 -Bilateral facility (5) 885.6 885.6 - 885.6 Floating 5.9 0.4 885.6 -Acquisition loan notes(6) 114.4 - 114.4 114.4 Floating 4.4 0.5 114.4 -Money market borrowings 192.0 - 192.0 192.0 Floating 5.5 0.1 192.0 - 5,494.1 5,029.9 445.6 5,475.5 5,459.7 (15.8)EuroBilateral facility 26.9 26.9 - 26.9 Floating 4.0 0.2 26.9 -Euro Commercial Paper 41.1 - 41.1 41.1 Floating 5.6 0.3 41.1 -(2) 68.0 26.9 41.1 68.0 68.0 -Swiss FrancsEuro Commercial Paper(2) 21.0 - 21.0 21.0 Floating 5.5 - 21.0 -YenEuro Commercial Paper(2) 38.8 - 38.8 38.8 Floating 5.4 - 38.8 -Amounts payable underfinance leases 71.0 71.0 - 71.0
Fixed 5.5 86.9 79.2 8.2
5,692.9 5,127.8 546.5 5,674.3 5,666.7 (7.6)Fair value of derivativeinstrumentsInterest rate swapsQualifying hedges 195.6 - (2.4) (2.4) 4.9 3.2 (2.4) -Non-qualifying hedges 1,205.0 - (12.0) (12.0) 5.1 10.1 (12.0) -Foreign currency swaps -qualifying hedges 100.9 - (0.2) (0.2) 5.8 0.3 (0.2) - 1,501.5 - (14.6) (14.6) (14.6) -Bond exchangede-recognition (519.1) - (519.1) - 519.1Total borrowings 4,608.7 531.9 5,140.6 5,652.1 511.5
Less: borrowings fallingdue within one year (4)(note 18) (1,687.4)Plus: bond exchangede-recognition fallingdue within one year(note 18) 6.3Less: amounts payableunder finance leasesfalling due within oneyear (notes 18 and 24) (2.1)Non-current borrowings 3,457.4 1. The Notes and the committed bank facilities are secured on a fixed andfloating pool of assets (the Security Group). This grants the Group'sinvestors security over a pool of investment properties valued at ‚£12.4bn at30 September 2007 (30 September 2006: ‚£10.9bn; 31 March 2007: ‚£11.6bn). Theamount borrowed against these assets was ‚£5,964.2m (30 September 2006:‚£4,396.8m; 31 March 2007: ‚£5,126.9m). The secured debt structure has a tieredcovenant regime which gives the Group substantial operational flexibility whenthe loan to value and interest rate cover in the Security Group are less than65% and more than 1.45 times respectively. If these limits are exceeded,operational restrictions increase significantly and could act as an incentiveto reduce gearing.2. Euro Commercial Paper is unsecured. However, the amount drawn is requiredto be supported by an unutilised committed bank facility, which is a securedfacility.
3. The DWP term loan was refinanced in December 2006 and expires in December 2017. It is secured on the freehold and long leasehold properties acquired from the Department of Work and Pensions. The carrying amount of the properties concerned was ‚£363.4m at 30 September 2007 (30 September 2006: ‚£391.8m; 31 March 2007: ‚£380.4m).
4. At 30 September 2007, the Group had a ‚£1.5bn syndicated bank facility. InAugust 2006, the Group refinanced its syndicated bank facility with the effectof extending its maturity to August 2013. The facility is committed andsecured on the assets of the Security Group. The maturity profile iscalculated on the basis that it is the Group's intention to retain theexisting loans or that the existing loans will be refinanced or rescheduledwith the same financial institutions under the terms of the facility.
5. In December 2006 the Group entered into a ‚£1.0bn bilateral facility relating to the acquisition of SMIF, which is due to mature in December 2007, although the Group has an option to extend it by a further year.
6. The acquisition loan notes were issued by Retail Property Holdings TrustLimited, a subsidiary of the Group, as partial consideration for the purchaseof Tops Estates PLC and the LxB portfolio. The notes are unsecured, however,they have the benefit of a commercial bank guarantee. Interest is calculatedwith reference to six month LIBOR. The notes are due to be redeemed in 2015,although the holders of the notes can request redemption in full at the nextinterest payment date with at least 30 days notice. Accordingly, the noteshave been classified as current liabilities.
7. For foreign currency amounts, the nominal/notional value is the Sterling equivalent of the principal amount at the period end dates.
8. On 3 November 2004, a debt refinancing was completed resulting in the Groupexchanging all of its outstanding bond and debenture debt for new Notes. Thenew Notes do not meet the IAS 39 requirement to be substantially differentfrom the debt that it replaced. Consequently the book value of the new Notesis reduced to the book value of the original debt (`the bond exchangede-recognition adjustment'). The adjustment will be amortised to zero over thelife of the new Notes.
9. Before the effect of derivative instruments.
10. The Group's Notes are listed on the Irish Stock Exchange and their fairvalues are based on their respective market prices. The fair value of interestrate swaps is based on the market price of comparable instruments at thebalance sheet date. The fair values of short-term deposits, loans andoverdrafts are assumed to approximate to their book values, as are the valuesof longer-term, floating rate bank loans.The interest rate and currency profiles of the Group's borrowings, aftertaking into account the effect of the foreign currency swaps and interest rateswaps, are set out below: 31 30 Sept 30 Sept 30 Sept March 31 30 Sept 30 Sept 30 Sept 2006 2006 2006
2007 31 March March
2007 ‚£m 2007 ‚£m 2007 ‚£m ‚£m ‚£m
‚£m ‚£m 2007 ‚£m 2007 ‚£m
Fixed Floating Fixed Floating Fixed Floating rate rate Total rate rate Total rate rate Total ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mSterling 5,395.2 973.6 6,368.8 4,204.4 448.3 4,652.7 5,439.8 207.6 5,647.4Euro - 55.3 55.3 - - -
- 26.9 26.9
5,395.2 1,028.9 6,424.1 4,204.4 448.3 4,652.7
5,439.8 234.5 5,674.3
The maturity profiles of the Group's borrowings are as follows:
31 30 Sept 30 Sept 30 Sept March 31 30 Sept 30 Sept 30 Sept 2006 2006 2006 2007 31 March March 2007 ‚£m 2007 ‚£m 2007 ‚£m ‚£m ‚£m ‚£m ‚£m 2007 ‚£m 2007 ‚£m Fixed Floating Fixed Floating Fixed Floating rate rate Total rate rate Total rate rate Total ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mOne year or less, or ondemand 243.0 1,028.9 1,271.9 193.4 255.9 449.3 1,457.2 234.5 1,691.7More than one year butno more than two years 2.2 - 2.2 15.8 - 15.8 2.3 - 2.3More than two years butno more than five years 22.0 - 22.0 65.8 - 65.8 22.0 - 22.0More than five years 5,128.0 - 5,128.0 3,929.4 192.4 4,121.8 3,958.3 - 3,958.3 5,395.2 1,028.9 6,424.1 4,204.4 448.3
4,652.7 5,439.8 234.5 5,674.3
The expiry periods of the Group's undrawn committed borrowing facilities are: 30 30 September September 31 March 2007 2006 2007 ‚£m ‚£m ‚£m
More than two years but no more than five years 2.1 702.0
2.0More than five years 743.0 - 1,317.0 745.1 702.0 1,319.0
The maturity profiles of the Group's derivative instruments are as follows:
30 Sept 30 Sept 30 Sept 31 March 31 30 Sept 30 Sept 30 Sept 2006 2006
2006 2007 31 March March
2007 ‚£m 2007 ‚£m 2007 ‚£m ‚£m ‚£m ‚£m ‚£m 2007 ‚£m 2007 ‚£m Interest Foreign Interest Foreign Interest Foreign rate currency rate currency rate currency swaps swaps Total swaps swaps
Total swaps swaps Total
‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mOne year or less, or ondemand 299.4 34.7 334.1 29.5 - 29.5 274.9 100.9 375.8More than one year butno more than two years 171.6 - 171.6 283.0 - 283.0 178.9 - 178.9More than two years butno more than five years 1,183.5 - 1,183.5 610.8 - 610.8 867.3 - 867.3More than five years 78.7 - 78.7 124.9 - 124.9 79.5 - 79.5 1,733.2 34.7 1,767.9 1,048.2 - 1,048.2 1,400.6 100.9 1,501.5Financial risk managementFinancial risk factorsThe Group's operations and debt financing expose it to a variety of financialrisks that include the effects of changes in debt market prices, credit risks,liquidity and interest rates.
Interest rate risk
The Group uses interest rate swaps and similar instruments (forward rate agreements, forward starting swaps, and gilt locks) to manage its interest rate exposure. With property and interest rate cycles typically of four to seven years duration, the Group's target is to have a minimum of 80% of anticipated debt at fixed rates of interest and 20% floating over this timeframe. Due to a combination of factors, principally the high level of certainty required under IAS 39 `Financial Instruments: Recognition and Measurement', hedging instruments used in this context often do not qualify for hedge accounting.
Credit risk
The Group's principal financial assets are bank balances and cash, trade andother receivables, finance lease receivables and short-term investments. TheGroup's credit risk is primarily attributable to its trade and finance leasereceivables. The amounts presented in the balance sheet are net of allowancesfor doubtful receivables. An allowance for impairment is made where there isobjective evidence that the Group will not be able to collect all amounts dueaccording to the original terms of the receivables concerned. The credit riskon liquid funds and derivative financial instruments is limited due to theGroup's policy of monitoring counterparty exposures. The Group has nosignificant concentration of credit risk, with exposure spread over a largenumber of counterparties.
Liquidity risk
The Group actively maintains a mixture of long-term and short-term committedfacilities that are designed to ensure that the Group has sufficient availablefunds for operations and planned future investments.
22. Net pension benefit obligations
30 30 September September 31 March 2007 2006 2007 ‚£m ‚£m ‚£m
Analysis of the movement in the balance sheet deficit At the beginning of the period
5.6 6.5
6.5
Charge to operating profit 1.0 1.7
2.7
Expected return on plan assets (4.3) (4.4)
(8.6)
Interest on schemes' liabilities 3.9 3.8
7.6Employer contributions (1.1) (1.6) (3.9)Actuarial losses 1.1 3.5 1.3At the end of the period 6.2 9.5 5.623. Deferred taxation Accelerated tax Capitalised Revaluation depreciation
interest surplus Other Total
‚£m ‚£m ‚£m ‚£m ‚£mDeferred tax liabilitiesAt 1 April 2006 (147.9) (26.5) (1,664.2) (154.7) (1,993.3)Net (charge) / credit to income statement for theperiod (9.2)
(3.6) (269.0) 3.1 (278.7) Released in respect of property disposals during the period
3.6 - 20.8 - 24.4Deferred tax on acquisition of a company - - - (0.3) (0.3)At 30 September 2006 (153.5) (30.1) (1,912.4) (151.9) (2,247.9)Net charge to income statement for the period (8.5) (2.5) (61.7) (2.3) (75.0)(Charged) / released in respect of propertydisposals during the period (2.5)
- 11.7 - 9.2 Released on conversion to a Real Estate Investment Trust
160.1 31.7 1,962.4 155.1 2,309.3At 31 March 2007 (4.4) (0.9) - 0.9 (4.4)Net charge to income statement for the period (0.3) - - - (0.3)At 30 September 2007 (4.7) (0.9) - 0.9 (4.7) Pension Tax losses Hedges deficit Other Total ‚£m ‚£m ‚£m ‚£m ‚£mDeferred tax assetsAt 1 April 2006 12.2 2.3 2.0 9.0 25.5Net charge to income statement for the period (3.6) (1.3) (0.4) - (5.3)(Credited) / charged to equity - (0.7) 1.0 - 0.3At 30 September 2006 8.6 0.3 2.6 9.0 20.5Net charge to income statement for the period (2.8) (1.8) - - (4.6)Released in respect of property disposals during theperiod (5.8) - - (9.0) (14.8)
Released on conversion to a Real Estate Investment Trust
- 2.4 (2.2) - 0.2Credited to equity - (0.9) - - (0.9)At 31 March 2007 and at 30 September 2007 -
- 0.4 - 0.4 30 30
September September 31 March
2007 2006 2007
‚£m ‚£m ‚£mDeferred tax is provided as follows:Excess of capital allowances over depreciation - investment properties - 119.9 -Excess of capital allowances over depreciation - operating properties 4.7 33.6 4.4Capitalised interest - investment properties - 27.3 -Capitalised interest - operating properties 0.9 2.8 0.9Revaluation surpluses - own - 1,829.1 -Revaluation surpluses - acquired - 83.3 -Tax losses - (8.6) -Other temporary differences
(1.3) 140.0 (1.3)Total deferred tax 4.3 2,227.4 4.0
24. Obligations under finance leases
30 30
September September 31 March
2007 2006 2007
‚£m ‚£m ‚£m The minimum lease payments under finance leases fall due as follows: Not later than one year
6.9 7.0 6.9Later than one year but not more than five years 26.4 27.2 26.7More than five years 423.5 432.6 425.9 456.8 466.8 459.5Future finance charges on finance leases (386.7) (394.0) (388.5)Present value of finance lease liabilities (notes 9 and 21)
70.1 72.8 71.0
The present value of finance lease liabilities is as follows: Not later than one year (notes 18 and 21)
2.1 2.1 2.1Later than one year but not more than five years 8.7 8.8 8.8More than five years 59.3 61.9 60.1 70.1 72.8 71.0
The fair value of the Group's lease obligations, using a discount rate of 5.5%, is ‚£79.2m (30 September 2006: ‚£90.6m; 31 March 2007: ‚£79.2m).
25. Total shareholders' equity
Share- Capital Retained Ordinary Own based Share redemption earnings shares shares payments premium reserve * Total ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mAt 1 April 2006 46.9 (3.4) 6.3 43.2 30.5 7,370.4 7,493.9Exercise of options 0.1 - - 4.7 - - 4.8
Fair value movement on cash flow - - - -
-
hedges - Group 1.9 1.9Fair value movement on cash flow - - - -
-
hedges - joint ventures 1.3 1.3Fair value of share-based payments - - 2.6 - - - 2.6Own shares acquired - (15.2) - - - (21.1) (36.3)Actuarial losses on defined benefit - - - -
-pension schemes (2.5) (2.5)Dividend paid (note 6) - - - - - (133.8) (133.8)
Profit for the financial period - - - -
- 859.8 859.8At 30 September 2006 47.0 (18.6) 8.9 47.9 30.5 8,076.0 8,191.7Exercise of options - - - 3.6 - - 3.6Fair value movement on cash flowhedges - Group - - - - - 3.2 3.2Fair value movement on cash flowhedges - joint ventures - - - - - 8.2 8.2Fair value of share-based payments - - 3.0 - - - 3.0Own shares acquired - 0.1 - - - - 0.1Cost of shares awarded to employees - 4.0 (4.0) - - - -Actuarial gains on defined benefitpension schemes - - - - - 2.2 2.2Dividend paid (note 6) - - - - - (89.2) (89.2)Profit for the financial period - - - -
- 2,668.5 2,668.5At 31 March 2007 47.0 (14.5) 7.9 51.5 30.5 10,668.9 10,791.3Exercise of options 0.1 - - 1.4 - - 1.5Fair value movement on cash flowhedges - Group - - - - - 0.2 0.2Fair value movement on cash flowhedges - joint ventures - - - - - 2.4 2.4Fair value of share-based payments - - 2.3 - - - 2.3Own shares acquired - (9.4) - - - (71.7) (81.1)Cost of shares awarded to employees - 1.9 (1.9) - - - -Actuarial losses on defined benefitpension schemes - - - - - (1.1) (1.1)Dividend paid (note 6) - - - - - (159.5) (159.5)Profit for the financial period - - - - - 367.0 367.0At 30 September 2007 47.1 (22.0) 8.3 52.9
30.5 10,806.2 10,923.0
* Included within retained earnings is ‚£17.2m (30 September 2006: ‚£0.3m loss; 31 March 2007: ‚£14.6m gain) of gains in respect of cash flow hedges.
Own shares represent the cost of shares purchased in Land Securities Group PLCby the Employee Share Ownership Plan (ESOP) which is operated by the Group inrespect of its commitment to the Deferred Bonus Shares Scheme. The number ofshares held by the ESOP at 30 September 2007 was 1,320,086 (30 September 2006:961,057; 31 March 2007: 895,771).In July 2006 and 2007 the shareholders at the Annual General Meetingauthorised the acquisition of shares issued by the Company representing up to10% of its share capital to be held as treasury shares. At 30 September 2007the Group owned 5,446,000 (30 September 2006: 1,225,000; 31 March 2007:1,225,000) shares with a market value of ‚£91.7m (30 September 2006: ‚£24.1m; 31March 2007: ‚£25.9m).
26. Cash flow from operating activities
Reconciliation of operating profit to net cash inflow from operating activities: 30 30
September September 31 March
2007 2006 2007
‚£m ‚£m ‚£mCash generated from operationsProfit for the financial period 367.0 859.8 3,528.3Income tax expense / (credit) 8.2 318.4 (1,549.2)Profit before tax 375.2 1,178.2 1,979.1Share of losses / ( profits) of joint ventures (post-tax) 9.8 (59.1) (179.3) 385.0 1,119.1 1,799.8Interest income (8.5) (4.2) (12.4)Interest expense 142.3 114.7 233.3Operating profit 518.8 1,229.6 2,020.7 Adjustments for:Depreciation 20.8 17.3 32.9Profit on disposal of non-current properties (79.0) (33.6) (118.2)Profit on disposal of a PPP project (10.0) - -Net surplus on revaluation of investment properties (145.5) (896.7) (1,307.6)Pension scheme charge 1.0 1.7 2.7
Changes in working capital: (Increase) / decrease in trading properties and long-term development contracts
(7.3) 100.0 110.1Increase in receivables (52.6) (135.7) (121.6)Increase in payables and provisions 36.4 52.7 63.4Net cash generated from operations
282.6 335.3 682.4
27. Related party transactions
Subsidiaries
In accordance with IAS 27 `Consolidated and Separate Financial Statements', transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note.
Joint ventures
As disclosed in note 13, the Group has investments in a number of joint ventures. Details of transactions and balances between the Group and its joint ventures are disclosed as follows:
30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 2007 2007 2007 2007 2006 2006 2006 2006 Net Amounts Amounts Net Amounts Amounts investments owed by owed to investments owed by owed to into joint joint joint into joint joint joint Revenues ventures ventures ventures Revenues ventures ventures ventures ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mScottish Retail PropertyLimited Partnership 0.4 (37.5) - (3.5) 0.9 - 0.3 (3.8)Metro Shopping Fund LP 0.1 1.5 - (2.6) 0.1 0.8 - (1.8)
Buchanan Galleries Partnership 1.8 (3.1) 0.1 - 1.8 (2.4) 0.2 -St David's Limited Partnership 2.4 35.0 - (126.6)
0.4 21.5 16.5 -Martineau Galleries LimitedPartnership 0.1 4.3 0.1 - 0.1 - 0.3 -The Bull Ring LimitedPartnership - (6.6) - - - (7.1) - -Bristol Alliance 3.9 36.7 - (1.4) 1.6 27.5 - (1.9)Martineau Limited Partnership - - - - - (0.5) - -A2 Limited Partnership - (0.1) - - - - - -Parc Tawe - - - - - (4.0) - -Hungate - 1.8 - - - - - -Countryside - 3.4 - - - - - -Investors in the Community - - - - - 2.6 - -Ebbsfleet Limited Partnership - - 0.2 - - - - -Fen Farm Developments Limited - (5.6) 15.4 - - - - - 8.7 29.8 15.8 (134.1) 4.9 38.4 17.3 (7.5) 31 March 31 March 31 March 31 March 2007 2007 2007 2007 Net Amounts Amounts investments owed by owed to into joint joint joint Revenues ventures ventures ventures ‚£m ‚£m ‚£m ‚£mScottish Retail Property Limited Partnership 1.5 9.5 0.2 (7.6)Metro Shopping Fund LP 0.5 (22.8) - (0.1)Buchanan Galleries Partnership 3.6 (3.7) 0.3 -St David's Limited Partnership 1.9 302.7 20.6 (115.5)Martineau Galleries Limited Partnership 0.2 - 0.1 -The Bull Ring Limited Partnership - (14.5)
- -Bristol Alliance 5.1 62.8 4.3 (1.9)Martineau Limited Partnership - (0.5) - -A2 Limited Partnership - - - -Parc Tawe - (4.0) - -Hungate - 1.6 - -Countryside - 0.9 - -Investors in the Community - (4.7) - -Ebbsfleet Limited Partnership - - - -Fen Farm Developments Limited - - - - 12.8 327.3 25.5 (125.1)
Further detail of the above transactions and balances can be seen in note 13.
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the applicable categories specified in IAS 24 `Related Party Disclosures':
30 30 31 September September March 2007 2006 2007 ‚£m ‚£m ‚£mShort-term employee benefits 1.4 1.5 6.1Post-employment benefits 0.3 0.3 0.9Share-based payments 1.1 1.3 2.4
Compensation for loss of office - -
0.7
2.8 3.1
10.1
The amount shown as compensation for loss of office represents the maximum potential amount assuming no mitigation.
28. Events after the balance sheet date
Subsequent to 30 September 2007, the Group completed the acquisition of a number of PPP contracts from AMEC following the expiry of joint venture partners pre-emption rights for ‚£89.4m.
Glossary
Adjusted earnings per share (EPS)
Earnings per share based on revenue profit plus profits on trading properties and long-term development contracts all after tax.
Adjusted net asset value (NAV) per share
NAV per share adjusted to add back deferred tax associated with investmentproperties and capitalised interest, the adjustment arising from thede-recognition of the bond exchange, together with cumulative mark-to-marketadjustment arising on interest swaps and similar instruments used for hedgingpurposes. After REIT conversion, the adding back of deferred tax is no longerrelevant.Book value
The amount at which assets and liabilities are reported in the financial statements.
Combined portfolio
The combined portfolio is our wholly-owned investment property portfoliocombined with our share of the value of properties held in joint ventures, butexcludes any investment properties owned by Land Securities Trillium. Unlessstated these are the pro-forma numbers we use when discussing the investmentproperty business.Development pipeline
The Group's development programme together with any proposed schemes that are not yet included in the development programme but which are more likely to proceed than not.
Development programme
The Group's development programme comprises projects which are completed butless than 95% let; developments on site; committed developments (beingprojects which are approved and the building contract let); and authoriseddevelopments (those projects approved by the Board for which the buildingcontract has not yet been let). For reporting purposes we retain properties inthe programme until they are 95% let.
Development surplus
Excess of latest valuation over the total development cost (TDC).
Diluted figures
Reported amount adjusted to include the effects of potential shares issuable under employee share schemes.
Earnings per share (EPS)
Profit after taxation attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the year.
EPRA
European Public Real Estate Association.
Equivalent yield
The internal rate of return from an investment property, based on the grossoutlays for the purchase of a property (including purchase costs), reflectingreversions to current market rent, and such items as voids and expendituresbut disregarding potential changes in market rents and reflecting the actualcash flow rents.Estimated rental value (ERV)
The estimated market rental value of lettable space as determined biannually by the Group's valuers. This will normally be different to the rent being paid.
Exceptional item
An item of income or expense that is deemed to be sufficiently material, either by its size or nature, to require separate disclosure.
Finance lease
A lease that transfers substantially all the risks and rewards of ownership from the lessor to the lessee.
Gearing (net)
Total borrowings, including bank overdrafts, less short-term deposits, corporate bonds and cash, at book value, plus non-equity shareholders' funds as a percentage of equity shareholders' funds.
Gross income yield
The annual net rent on investment properties expressed as a percentage of the valuation ignoring costs of purchase or sale.
Head lease
A lease under which the Group holds an investment property.
Initial yield
Annualised net rents on investment properties expressed as a percentage of the acquisition cost.
Interest rate swap
A financial instrument where two parties agree to exchange an interest rate obligation for a predetermined amount of time. These are used by the Group to convert floating rate debt to fixed rates.
Investment portfolio
The investment portfolio comprises the Group's wholly-owned investment properties together with the properties held for development but excludes Trillium properties.
Joint venture
An entity in which the Group holds an interest on a long-term basis and isjointly controlled by the Group and one or more venturers under a contractualarrangement whereby decisions on financial and operating policies essential tothe operation, performance and financial position of the venture require eachventurer's consent.Lease incentives
Any incentive offered to occupiers to enter into a lease. Typically the incentive will be an initial rent-free period, or a cash contribution to fit-out or similar costs. For accounting purposes, under IFRS, the value of the rent-free period is spread over the non-cancellable life of the lease.
LIBOR
The London Interbank Offered Rate, the interest rate charged by one bank to another for lending money.
Like-for-like portfolio
Properties that have been in the investment or combined portfolio for the whole of the current and previous financial year.
London Portfolio
This business includes all London offices and Central London retail, but excludes those assets held in the Metro Shopping Fund LP.
Mark-to-market adjustment
An accounting adjustment to change the book value of an asset or liability to its market value.
Net asset value (NAV) per share
Total equity divided by the number of ordinary shares in issue at the period end.
Open market valueOpen market value is an opinion of the best price at which the sale of aninterest in the property would complete unconditionally for cash considerationon the date of valuation (as determined by the Group's external valuers). Inaccordance with usual practice, the Group's external valuers report valuationsnet, after the deduction of the prospective purchaser's costs, including stampduty, agent and legal fees.Operating properties
Properties acquired and managed by Land Securities Trillium as part of its property outsourcing contracts with third parties and which do not meet the accounting definition of investment property.
Other investment portfolio
This comprises all other investment properties not included in Retail or London Portfolio.
Outline planning consent
This gives consent in principle for a development, and covers matters such asuse and building mass. Full details of the development scheme must be providedin an application for full planning consent, including detailed design,external appearance and landscaping before a project can proceed. An outlineplanning permission will lapse if full planning permission is not grantedwithin three years.
Private Finance Initiative (PFI)
A particular form of PPP, that is a government or public authority initiative to acquire private financing for public sector infrastructure.
Property income distribution (PID)
A PID is a distribution by a REIT to its shareholders paid out of qualifying profits. A REIT is required to distribute at least 90% of its qualifying profits as a PID to its shareholders.
Public Private Partnership (PPP)
A partnership that brings together, for mutual benefit, a public body and a private company in a long-term joint venture for the purpose of delivering public projects or services.
Qualifying activities/Qualifying assets
The ownership (activity) of property (assets) which is held to earn rental income and qualifies for tax-exempt treatment (income and capital gains) under UK REIT legislation.
Real Estate Investment Trust (REIT)
A REIT must be a publicly quoted company with at least three quarters of itsprofits and assets derived from a qualifying property rental business. Incomeand capital gains from the property rental business are exempt from tax butthe REIT is required to distribute at least 90% of those profits toshareholders. Corporation tax is payable on non-qualifying activities in thenormal way.Retail Portfolio
This business includes our shopping centres, shops, retail warehouse properties and assets held in retail joint ventures but not Central London retail.
Return on average capital employed
Group profit before interest, plus joint venture profit before tax, divided by the average capital employed (defined as shareholders' funds plus net debt).
Return on average equity
Group profit before tax plus joint venture tax divided by the average equity shareholders' funds.
Revenue profit
Profit before tax, excluding profits on the sale of non-current asset and trading properties, profits on long-term development contracts, revaluation surpluses, mark-to-market adjustments on interest rate swaps and similar instruments used for hedging purposes, the adjustment to interest payable resulting from the amortisation of the bond exchange de-recognition, debt restructuring charges and any exceptional items.
Reversionary or under-rented
Space where the passing rent is below the ERV.
Reversionary yield
The anticipated yield to which the initial yield will rise once the rent reaches the ERV.
Total business return
Dividend per share, plus the increase in adjusted diluted net asset value per share, divided by the adjusted diluted net asset value per share at the beginning of the period.
Total development cost (TDC)
All capital expenditure on a project including the opening book value of theproperty on commencement of development, together with all finance costs lessresidential proceeds.Total property return
Valuation surplus, profit / (loss) on property sales and net rental income inrespect of investment properties expressed as a percentage of opening bookvalue, together with the time weighted value for capital expenditure incurredduring the current period, on the investment property portfolio.
Total shareholder return
The growth in value of a shareholding over a specified period, assuming that dividends are reinvested to purchase additional units of the stock.
Trading properties
Properties held for trading purposes and shown as current assets in the balance sheet.
Turnover rent
Rental income which is related to an occupier's turnover.
Underlying operating profit
Operating profit before profit on disposal of non-current properties, revaluation of investment properties, and exceptional items stated within operating profit.
Unitary charge
The basic payment received by Land Securities Trillium under a property outsourcing contract.
Voids
The area in a property or portfolio, excluding developments, which are currently available for letting.
Weighted average cost of capital (WACC)
Weighted average cost of debt and notional cost of equity, used as a benchmark to assess investment returns.
Yield shift
A movement (negative or positive) in the equivalent yield of a property asset.
Zone A
A means of analysing and comparing the rental value of retail space by dividing it into zones parallel with the main frontage. The most valuable zone, Zone A, is at the front of the unit. Each successive zone is valued at half the rate of the zone in front of it.
END
LAND SECURITIES GROUP PLCRelated Shares:
Land Securities