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Francis Salway
Chief Executive

Welcome to the Land Securities online Annual Report.

In it you will see that as a business we have had an energetic twelve months and have generated a strong momentum across the Group.

This Annual Report shows that the clear plan we put in place as the sector emerged from the downturn is now delivering results in the form of both higher earnings and significant valuation gains on developments.

It has been a year where we have continued to push ahead with development projects in London and we have made an early start on construction in retail, once key lettings were in place. We sold assets well, acquired new properties with great potential and continued to achieve lettings across the portfolio.

With the benefit of all this activity we have out performed key industry benchmarks and we have delivered tangible returns for shareholders.

We remain confident in our plans and we are well positioned to take on new opportunities. Our strong balance sheet, excellent relationships with occupiers and our own property expertise provide us with enormous scope to create further value – and value going beyond general market movements.

I hope you get a lot out of exploring this online report.


“With the commercial property market continuing to recover, we are benefiting from having been the first to restart major development activity. Our decisive action has already delivered tangible returns for shareholders.”




This was a year of continued recovery in our market and strong progress by Land Securities. We led the industry in restarting development activity and maintained a disciplined approach to acquisitions and disposals. Our asset management initiatives gained significant pace as the year progressed.

At the end of an energetic 12 months, I can report that the Group has built strong momentum behind its plans for growth. While our two core markets are developing at different speeds, we are well placed to address the opportunities we see ahead in both areas. In London, we are developing schemes to meet an anticipated under-supply of new office floor space. In Retail, our focus covers both a small number of development projects that are grounded on pre-lettings, and the recycling of capital through purchases and sales to ensure that our portfolio is well matched to emerging patterns of demand from retailers.

To set the context for our performance, the sharp bounce back in property values we saw in the 2009/10 financial year evolved into a more moderate pace of growth for the market as a whole in 2010/11. In line with my outlook in last year’s results, we may continue to see ripples in prices, but we remain confident that our markets are in recovery mode and we see particularly strong growth prospects in London over the next few years. We benefit from the fact that geographically we have 43% of assets in central London offices and 61% in Greater London as a whole.

Allied to the improving market conditions, we created significant additional value from our asset management and development activities. As a result, our portfolio increased in value by 9.7% and, within this overall figure, developments delivered a valuation surplus of 19.4%. These valuation increases, together with balance sheet gearing, generated growth in adjusted diluted NAV per share of 19.5%.

Pre-tax profit for the year, which includes the valuation surplus, was up 14.8% at £1,227.3m (2010: £1,069.3m). Revenue profit – our measure of recurring income profit – was up 9.1% at £274.7m (2010: £251.8m). With this increase in underlying earnings, we are recommending an increase in the fourth quarter’s dividend from 7.0p to 7.2p per share, and we anticipate this increased level of dividend being maintained in the first three quarters of the 2011/12 financial year. Our portfolio also outperformed the IPD Quarterly Universe by a wide margin, delivering an ungeared total property return of 16.8% compared to 11.3% on the IPD benchmark.

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London development

It is fair to say our industry is still changing gear, from the development standstill we saw in the depths of the downturn to the significant construction work now required to meet future demand for new accommodation. While the change in outlook has been swift, we were quick to respond, with our assessment of future dynamics in London and attractive construction costs giving us the confidence to be first to start on major development in January 2010. This early mover advantage has already generated material benefits, enabling us to realise anticipated profits from our mixed-use scheme at Park House in Oxford Street, W1 through an early sale. This recycling of capital has enabled us to bring forward other development projects more quickly.

During the year we further demonstrated our sector leading skills in mixed-use development with the successful opening of One New Change, EC4. The centre offers the most ambitious mix of retail and offices of any recent project undertaken in London and has attracted significant occupier interest. It is now over 80% let.

Levels of take-up across the London office market as a whole have been slightly ahead of our expectations. This has reinforced our view that there will be an acute shortage of new buildings in London from the middle of 2012. In response to this opportunity, we have brought forward a number of projects including refurbishments at 123 Victoria Street, SW1 and 110 Cannon Street, EC4, for delivery in 2012.

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Retail development

As with London offices, major retail development activity came to a standstill through the downturn. For this reason, 2012 is expected to be the first year in 40 years that sees no major new shopping centre development being completed in the UK. The first major development due for completion after 2012 is our 75,900m2 Trinity Leeds scheme, which we chose to restart in summer 2010. It represents the single largest retail development commitment in the UK by a REIT since the financial downturn.

We secured pre-lettings of over 40% before restarting construction on Trinity Leeds, so that we were effectively investing in Leeds shoulder to shoulder with a number of key retailers. Confidence in Leeds as a trading location, together with our excellent relationships with retailers, means we have now let or agreed terms for 58% of the retail space by income.

During the year we also committed to start a small retail development in Buchanan Street, Glasgow. We acquired the site in December 2009 from an administrator and, again, succeeded in securing significant pre-lettings before starting construction. We have now let 69% of the retail space by income.

Our major retail developments have also been supplemented by a range of smaller projects at existing shopping centres and retail parks, which have both improved the retail mix for shoppers and boosted the value of the assets.

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Acquisitions and disposals

Early in 2010 we identified that good development opportunities in the best locations were likely to generate higher returns than acquisitions, so our priority has been to bring forward large development projects. Nevertheless, we did find certain attractive investment opportunities during the year, notably the shopping centres at the O2 Centre, NW3; Westgate Centre, Oxford (50%); and Overgate, Dundee. We invested £294.3m in these three assets. We are in no rush to buy and will be selective about the assets we acquire over the next 12 months.

In addition to the sale of Park House in London, major disposals during the year included Christ’s Lane, a prime high street asset recently developed by us in Cambridge, and the Stratford shopping centre in London. In these cases, we saw limited opportunity for further growth and so crystallised the added value our development and asset management expertise had already delivered.

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Actions to drive earnings growth

In the aftermath of the economic downturn, rents payable under leases remain, in broad terms, above the level of today’s market rental values. This means that we cannot look to the rent review process to be a major driver of earnings in the immediate future. Instead, it is our own activities and actions that will drive growth in earnings. To achieve this, we have been focusing on four key activities.

First, we are aiming to deliver new development projects at a rental income yield materially ahead of our cost of finance. Here, we are able to use our balance sheet strength to finance higher yielding development projects at a time when project specific development finance is generally not available.

Second, we are making sites productive that were left dormant during the downturn, as demonstrated by the very successful sale of Park House.

Third, we are continuing to reduce vacancy levels across the portfolio. Voids on our like-for-like London offices were at 3.7% at the year end, down from 4.9% in March 2010. Like-for-like retail voids were at 4.9% at the year end, down from 6.1% in March 2010.

Fourth, we made acquisitions that have a higher income yield than the assets we sell. In the last year we bought £407m of assets at a yield of 5.2% and we sold £687m of property at a yield of 3.0%.

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Sustainability and community

We continue to work closely with customers and communities in the area of sustainability. Our development activity at One New Change, EC4 demonstrates the level of commitment in this area, with our engineering teams setting new standards for the way our industry designs buildings. Underneath the property we have installed Europe’s largest ground sourced heating and cooling system. 60km of pipework warms and cools the building in a highly environmentally friendly way. We believe this system will reduce carbon emissions by at least 10% and could save £300,000 on energy bills a year.

We hold a strong belief that our assets should be a part of, not apart from, the local community, and this year we continued to encourage our people to contribute to local community activities. Their engagement in this is evidence of the strong culture within the Company. Our annual employee survey underlines that morale is high, with 2010 seeing the highest employee satisfaction scores since we started the survey in 2005.

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We are heartened that many large corporate occupiers who strengthened their balance sheets materially during the financial downturn are now looking to where they can invest and where they can grow their businesses over the next two to four years. Ultimately, this focus on investment and growth will convert into requirements for accommodation.

It is now also evident that the availability of newly developed floorspace, in both the London office and retail markets, is likely to be at extremely low levels by mid 2012. We are therefore confident that our development projects initiated in 2010 and to be delivered from mid 2012 will meet with considerable success.

Consistent with our view last year, we expect the strongest rental value growth to occur for London offices and we continue to believe that the best way to capture this is by undertaking speculative development projects in the best locations in London. This will play to our strengths, and we will continue to enhance returns from our development activity in London with residential development where appropriate. Our portfolio will remain weighted towards the capital for some time, as we focus on addressing the low point in the supply of new offices expected from 2012.

In retail, the pressures on disposable income for consumers are well documented. However, while vacancy rates in high streets and smaller towns across the country have remained at high levels, vacancy rates in good quality shopping malls that are dominant in their region have come down and are moving closer to normal levels. This widening differentiation between shopping locations is likely to continue, and so we will continue to refine the composition of our Retail Portfolio through new development, where we can achieve significant pre-lettings, and through selective purchases and sales.

In terms of the property investment market, we have seen some disposals of assets by banks and we expect this to gather momentum. To date, disposals have been met with strong levels of investor interest and values have continued to move up at a modest but positive rate. We are encouraged by the volumes of capital available for investment in UK property at the present time.

We go into a new financial year confident in our plans and well positioned to address growth opportunities. Our strong balance sheet, access to capital, excellent occupier relationships and property skills equip us to create value in this market. By restarting development first we have signalled our ambition to stand apart in the industry. Now we are focused on turning this early mover advantage into strong and tangible returns for shareholders.

Francis Salway

  • Francis Salway
  • Chief Executive

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