Land Securities : Half-yearly results 2015

Forward-looking statements

These half-yearly results, our annual results, the Annual Report and the Land Securities' website may contain certain 'forward-looking statements' with respect to Land Securities Group PLC and the Group's financial condition, results of operations and business, and certain of Land Securities Group PLC and the Group's plans, strategy, objectives, goals and expectations with respect to these items and the economies and markets in which the Group operates.

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

Any written or verbal forward-looking statements, made in these half-yearly results, our annual results, the Annual Report or the Land Securities' website or made subsequently, which are attributable to Land Securities Group PLC or any other member of the Group or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. Each forward-looking statement speaks only as of the date of these half-yearly results, our annual results, the Annual Report or on the date on which the forward-looking statement is made. Except as required by any legal or statutory obligation, Land Securities Group PLC does not intend to update any forward-looking statements.

Nothing contained in these half-yearly results, the Annual Report or the Land Securities website should be construed as a profit forecast or an invitation to deal in the securities of Land Securities Group PLC.

Half-yearly results for the six months ended 30 September 2015

10 November 2015

'Land Securities continues to deliver the right space at the right time, and it's paying off. Our Retail Portfolio is performing well and leasing levels in our London developments remain strong,' said Chief Executive Robert Noel.

'In Retail, our portfolio is focused around our core themes of dominance, experience and convenience. Since the start of the financial year, we have sold selectively, recycling capital into the redevelopment of Westgate, Oxford, and other development opportunities. Operationally we are strong, with retailer sales and footfall up in our shopping centres and voids down.

'In London, we continue to benefit from our well-timed development programme delivering schemes into today's supply constrained market. So far this financial year, a further 500,000 sq ft has been let or is in solicitors' hands. We're focused on completing and letting up the remainder of our committed projects while progressing a future pipeline.

'Our strategy is working and we are well positioned for the future. We have better assets, with higher quality income, and our balance sheet is stronger than ever. We are delivering for our customers, our communities and our shareholders and look forward to the second half of the year with confidence.'

Results summary

1. Including our proportionate share of subsidiaries and joint ventures, as explained in the notes to the financial statements included within the half-yearly results.

2. The % change for the valuation surplus represents the increase in value of the Combined Portfolio over the six month period, adjusted for net investment.

3. Our key valuation measure.

Activity

·£17.2m of development lettings

·£17.0m of investment lettings

·Acquisitions, development and refurbishment expenditure (including trading properties) of £317.3m

·Disposals (including trading properties) of £406.5m

·Supported 85 disadvantaged people into sustainable jobs in the communities where we operate through our Community Employment Programme

Results

·Ungeared total property return 5.9%, underperforming the IPD Quarterly Universe at 6.8%

·Total business return (dividends and adjusted diluted NAV growth) of 7.0%

·Combined Portfolio valued at £14.6bn, with a valuation surplus of 3.8%

·Valuation surplus of properties in the development programme of 6.8%

·Revenue profit £184.2m, up 8.4%

·Voids in the like-for-like portfolio remain low at 2.8% (31 March 2015: 3.2%)

Financials

·Group LTV ratio at 26.5%, based on adjusted net debt of £4.0bn

·Weighted average maturity of debt at 8.3 years

·Weighted average cost of debt at 4.6%

·Cash and available facilities of £1.4bn

·First half dividend of 16.3p, up 3.2%

Development

·1.4m sq ft being delivered in London over the next 12 months

·0.8m sq ft Westgate, Oxford, due to open in October 2017

·1.4m sq ft of retail development and extension opportunities including Ealing Filmworks, Selly Oak, Birmingham, Buchanan Galleries, Glasgow, and White Rose, Leeds

·1.2m sq ft future London pipeline including 21 Moorfields, EC2, Nova East, SW1, 1 Sherwood Street, W1 and Portland House, SW1

Recognition

·Winner of the Business in the Community Work Inclusion Award

·Maintained EPRA gold status for sustainability reporting and membership of FTSE4Good and the Dow Jones Sustainability Index

·Achieved ISO 50001 certification for energy management

·Re-certification of ISO 14001 for environmental management

All measures above are presented on a proportionate basis, as explained in the notes to the financial statements included within the half-yearly results

Chief Executive's statement

We have continued to execute our strategy, achieving good progress on lettings in London, enhancing our Retail Portfolio and strengthening the balance sheet.

Once again, we funded high levels of activity by recycling capital rather than increasing debt. This approach is providing us with better assets, higher quality income and lower financial gearing as we move through the cycle. Over the six months, we invested £317.3m in acquisitions, development and refurbishment and completed disposals of £406.5m.

Our actions during the half-year enabled us to build on last year's exceptionally strong performance. We increased revenue profit by 8.4% compared to the same period last year. Adjusted diluted NAV per share was up 74p at 1,367p - an increase of 5.7%. The second quarterly dividend is 8.15p, making the first half dividend 16.3p - up 3.2% on the comparative period. Total business return for the six months was 7.0%.

In Retail, we have continued to shape the portfolio to suit changing customer expectations, pursuing our strategic themes of dominance, experience and convenience. In the first half we started construction of our development at Westgate, Oxford. This 800,000 sq ft shopping centre, being built in joint venture with The Crown Estate, will open in October 2017. We made progress on potential developments at Ealing Filmworks and Selly Oak, Birmingham. We completed £43.6m of disposals in the period and, since 1 October, we have exchanged contracts to sell a further £273.6m of non-core assets.

In London, we have continued to deliver exceptional work environments into a supply-constrained market. At the beginning of the financial year, we had 1.1m sq ft of space to let in our development schemes. 500,000 sq ft of that space is now let or in solicitors' hands and the remainder is well matched to customer demand. We made one acquisition, purchasing the 50% interest we did not already own at 6-17 Tottenham Court Road, W1, and £362.9m of disposals including Times Square, EC4. We also exchanged contracts to sell Haymarket House, SW1, for £155.2m and this sale will complete in the second half. We continue to progress a pipeline of future development opportunities in the capital.

Operationally, it is a busy time for the business, with over 3,000 people working on our construction sites. I am pleased to report that our highly acclaimed Community Employment Programme has so far enabled 668 of London's most disadvantaged people to train for a trade on and around our sites, and subsequently enter the construction industry. In July, this was recognised with the 2015 Business in the Community award for 'Work Inclusion'. We are now replicating the programme at Westgate, Oxford.

In the second half, we expect rental value growth to remain positive for our assets. We continue to track and assess new development opportunities --both inside and outside our current portfolios but, as we have previously indicated, we will not commit to further developments without substantial pre-lets. We are likely to be net disinvestors in the second half of the year as a result of some £565m of disposals we have agreed but not yet completed. For these reasons, both operational gearing as measured by the amount of speculative space we have to let, and financial gearing as measured by loan-to-value, are likely to be lower in March 2016.

Robert Noel

Chief Executive

Financial review

Overview and headline results

Over the six months ended 30 September 2015, we delivered a profit before tax of £707.9m, compared with £1,031.1m for the same period last year, primarily due to a reduction in the valuation surplus from £880.2m to £519.3m (including our proportionate share of subsidiaries and joint ventures). Basic earnings per share were 89.7p compared with 130.6p. Underlying earnings were up; revenue profit was £184.2m compared with £170.0m in the comparative period and adjusted diluted earnings per share increased to 23.2p from 21.4p.

Our Combined Portfolio increased in value from £14.0bn at 31 March 2015 to £14.6bn principally as a result of our valuation surplus of £519.3m. Net assets per share increased by 5.4% to 1,416p at 30 September 2015. Adjusted diluted net assets per share were up by 5.7% over the six months, increasing from 1,293p to 1,367p. This 74p increase in adjusted diluted net assets per share together with the dividends paid in the period represents a 7.0% total business return.

Presentation of financial information

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

Revenue profit

Revenue profit is our measure of underlying pre-tax profit, which is used internally to assess the Group's income performance. It excludes all items of a capital nature, such as valuation movements and profits and losses on the disposal of investment properties, as well as one-off items. A full definition of revenue profit is given in the glossary. The main components of revenue profit are presented on a proportionate basis in the table below and a more detailed reconciliation of revenue profit to our IFRS profit before tax is included in note 3 to the financial statements.

Table 1 shows the composition of our revenue profit including the contributions from London and Retail.

Table 1: Revenue profit

1. Includes finance lease interest, after rents payable.

Revenue profit increased by £14.2m from £170.0m in the comparative period to £184.2m in the six months ended 30 September 2015. The 8.4% increase was mainly due to lower net interest expense and higher net rental income. Our net interest expense has decreased by £11.9m to £81.2m, largely due to the repayment of joint venture debt in the prior year and utilisation of cheaper Group facilities. The increase in net rental income is primarily due to the impact of acquisitions made in the prior year, including Bluewater, Kent, together with development completions largely offset by the loss of income from properties sold last year. Approximately £4.5m of the net rental income in the period is from non-recurring items, including surrender receipts. Further information on the net rental income performance of the London and Retail portfolios is given in the respective business reviews.

The indirect costs of London and Retail and net unallocated expenses need to be considered together as, collectively, they represent the net indirect expenses of the Group including joint ventures. In total, net indirect expenses were £39.4m compared with £39.3m in the comparative period.

Change of valuer

In line with best practice, we conducted a tender exercise earlier this year, as a result of which we appointed CBRE to replace Knight Frank as our principal valuer. CBRE performed the valuation at 30 September 2015.

Valuation surplus and disposal profits

The movement in the values of our investment properties and any profits or losses on disposals are key components of our pre-tax profit. Over the period, the valuation surplus on our Combined Portfolio was £519.3m, or 3.8%. We made a profit on the disposal of investment properties of £9.8m (on a proportionate basis), down from £38.2m in the same period last year. A breakdown of the valuation surplus by category is shown in table 2 below.

Table 2: Valuation analysis

1. Rental value change excludes units materially altered during the period and Queen Anne's Gate, SW1.

Over the six months to 30 September 2015, we have seen values rise in almost every category of our Combined Portfolio. Overall, values were up by 3.8%, with the like-for-like portfolio up by 3.0% largely due to rental value growth.

There is a slight difference in approach between CBRE and Knight Frank on how they look at the rental value and equivalent yield components of a valuation. The changes in rental values and equivalent yields over the period reflect both this difference in approach and market movements. As a result, there are some rental value and equivalent yield movements in the period which look counter-intuitive.

Our shopping centres increased in value by 2.6% predominantly due to rental value growth. The value of our retail warehouse and food store portfolio was broadly unchanged with a small reduction in rental values offset by yield movements. Leisure and hotels reported a 2.8% valuation surplus as a result of rental value growth and yield reduction.

London offices saw values rise by 3.0% with rental values up by 6.6% and yields moving outwards by 10 basis points. These movements are impacted by the change in approach between valuers (see above). This has led to a higher reported growth in rental values than we were expecting, coupled with a modest outward yield movement when market yields have generally tightened slightly.

Outside the like-for-like portfolio, completed developments increased in value by 10.7% due to a 19 basis points reduction in yields and rental values up by 6.7%. Within acquisitions, the value of the additional 50% interest in Thomas More Square, EC3, was up strongly on the back of rental growth and letting success. The development programme valuation surplus was up 6.8% due to continued construction and pre-letting progress on our major schemes.

Earnings per share

Basic earnings per share were 89.7p, compared with 130.6p for the same period last year, primarily due to the lower valuation surplus.

Similar to the adjustments we make to profit before tax, which remove capital and one-off items to give revenue profit, we also report adjusted earnings per share figures. Adjusted diluted earnings per share increased by 8.4% from 21.4p in the comparative period to 23.2p per share as a result of the increase in revenue profit.

Dividend

We will be paying a second quarterly dividend of 8.15p per share on 7 January 2016 to shareholders registered at the close of business on 4 December 2015, all of which will be paid as an ordinary dividend. Taken together with the first quarterly dividend of 8.15p (100% Property Income Distribution) paid on 9 October 2015, our first half dividend will be 16.3p per share (six months ended 30 September 2014: 15.8p), or £128.8m (six months ended 30 September 2014: £124.8m).

Net assets

At 30 September 2015, our net assets per share were 1,416p, an increase of 73p or 5.4% from 31 March 2015. The increase in our net assets was primarily driven by the increase in value of our investment properties, profits on disposal of investment properties and our adjusted earnings, partly offset by the dividends we paid.

In common with other property companies, we calculate an adjusted measure of net assets which we believe better reflects the underlying net assets attributable to shareholders. Our adjusted net assets are lower than our reported net assets primarily due to an adjustment to increase our debt to its nominal value. At 30 September 2015, adjusted diluted net assets per share were 1,367p per share, an increase of 74p or 5.7% from 31 March 2015.

Table 3 summarises the differences between net assets and our adjusted measure of net assets together with the key movements in the period.

Table 3: Net assets

To the extent tax is payable, all items are shown post-tax.

Net debt and gearing

Over the period, our net debt decreased by £165.7m to £3,634.8m. The main elements behind this decrease are set out in our statement of cash flows.

Operating cash inflow after interest and tax was £155.5m, higher than the £109.8m received in the same period last year largely due to higher receipts from trading property sales. Capital expenditure was £123.6m, largely relating to our wholly owned developments in Victoria, and we contributed a net £27.7m to our joint ventures, principally Nova, Victoria, SW1 and Westgate, Oxford. We spent £94.8m on investment property acquisitions, including 6-17 Tottenham Court Road, W1. Offsetting these investments in our portfolio were sales proceeds of £344.3m, primarily from Times Square, EC4, and we paid cash dividends of £124.2m in the period to 30 September 2015.

Adjusted net debt, which is presented on a proportionate basis and includes the nominal value of our debt but excludes the mark-to-market on our swaps, was down £163.4m to £4,008.3m (31 March 2015: £4,171.7m). A reconciliation between net debt and adjusted net debt is given in note 14 to the financial statements.

Table 4 below sets out various measures of our gearing.

Table 4: Gearing

1. Adjusted net debt divided by adjusted net asset value.

All of our gearing measures have decreased since 31 March 2015 as there has been an increase in the value of our assets coupled with a decrease in our adjusted net debt. The measure most widely used in our industry is loan-to-value (LTV). We focus most on Group LTV, presented on a proportionate basis. This LTV measure decreased from 28.5% at 31 March 2015 to 26.5% at 30 September 2015. This is consistent with our strategy at this stage in the property cycle of allowing gearing to decline as property values rise.

Our Security Group LTV decreased to 28.6% (31 March 2015: 31.5%) largely as a result of the disposal of a number of secured assets and capital growth in the secured asset pool.

Financing

The total capital of the Group consists of shareholders' equity and adjusted net debt. Under IFRS, a large part of our net debt is carried at below its final redemption amount and is increased over its life to its full nominal value. We view our capital structure as if the debt were carried at its full redemption amount. For further details see notes 14 and 15 to the financial statements.

During the period, we increased our syndicated revolving credit facility by £125.0m to £1,380.0m. This takes our total revolving credit facilities to £2,365.0m. The pricing of our facilities which fall due in more than one year ranges from LIBOR +75 basis points to LIBOR +120 basis points. Borrowings under our commercial paper programme typically have a maturity of less than three months, carry an interest rate of approximately LIBOR +25 basis points and are unsecured. Overall the amounts drawn under the bilateral facilities, syndicated bank debt and commercial paper in issue totalled £797.8m, a £153.3m decrease since 31 March 2015, primarily due to property disposals exceeding capital investment.

The Group's debt (on a proportionate basis) has a weighted average maturity of 8.3 years, a weighted average cost of 4.6% and 91.8% is at fixed interest rates. At 30 September 2015, we had £1.4bn of cash and available facilities. This gives the business considerable flexibility to deploy capital quickly should an acquisition opportunity arise.

Taxation

As a consequence of the Group's REIT status, income and capital gains from our qualifying property rental business are exempt from UK corporation tax. There was a tax credit of £0.2m in the period, relating to deferred tax arising on the acquisition of Bluewater, Kent (six months ended 30 September 2014: £0.1m credit).

Martin Greenslade

Chief Financial Officer

Retail Portfolio

Highlights

·Valuation surplus of 1.6%

·Ungeared total property return of4.1%

·The portfolio underperformed its IPD Quarterly Universe sector benchmark at 4.3%

·£9.9m investment lettings

·£0.6m development lettings

·Like-for-like voids were 2.1% (31 March 2015: 2.4%)

·Units in administration were 0.3% (31 March 2015: 0.9%)

Key indicators

·Footfall in our shopping centres was up 4.1% (national benchmark down 1.1%)

·Same store sales were up 3.8% (national benchmark up 2.6%)

·Same centre sales, taking into account new lettings and occupier changes, were up 5.2%

·Measured retailers' rent to sales ratio was 9.9%

·Total occupancy costs (including rent, rates, service charges and insurance) represented 17.0% of sales

We have reshaped our portfolio over the past few years to ensure it meets the evolving requirements of our customers and consumers. Our retail park portfolio is focused on meeting consumers' convenience shopping needs, and our leisure properties and shopping centres are all vibrant destinations that provide consumers with a great experience.

Buy

We purchased three assets in the period for £33.4m, all of which are adjacent to existing properties and were acquired to unlock potential future development opportunities.

Develop

During the first half we started construction at Westgate in Oxford city centre. This 800,000 sq ft scheme, owned in joint venture with The Crown Estate, is due to open in October 2017. We have substantial retailer commitment to this exciting new retail and leisure destination, with 33% pre-lets secured. Retailers include John Lewis, Primark, Next, River Island, H&M, Schuh, Superdry, Ted Baker and Michael Kors. The leisure and catering line-up includes a state-of-the-art Curzon cinema and a broad food and beverage offer in a stunning rooftop environment.

At Worcester Woods, our planning application for a 240,000 sq ft development is due to be determined before the year end. This proposed retail park development is 67% pre-let with lettings to Sainsbury's, Next, M&S and John Lewis.

At Selly Oak, Birmingham, in joint venture with Sainsbury's, we have plans to develop 200,000 sq ft of open A1 retail space and 160,000 sq ft of student housing. The proposed retail scheme is 62% pre-let or in solicitors' hands, and we aim to start construction in the next financial year.

During the period we allowed the development agreement with Guildford Borough Council to lapse as the scheme was not financially viable. We have also deferred our plans to extend Buchanan Galleries in Glasgow while the Edinburgh Glasgow Improvement Programme is delivered by Network Rail, and will continue to review how we improve the retail, leisure and catering environment at the centre.

At White Rose, Leeds, we have detailed planning permission for a 65,000 sq ft leisure extension. We aim to start on site early next year with completion due in 2017. The extension is anchored by an 11 screen Cineworld cinema, including new IMAX technology, and six new restaurants, four of which are already in solicitors' hands.

In October, we received approval for a compulsory purchase order enabling us to progress our detailed plans at Filmworks in Ealing. This 219,000 sq ft mixed-use retail, leisure and residential development opportunity is adjacent to the new Crossrail station.

Manage

Every asset has a plan, and we work hard to ensure we are providing the right space for our customers.

A number of key retailers need more space to better showcase their brands within our shopping centres. Since the beginning of the financial year, we have delivered a significantly upsized unit for Polo Ralph Lauren at Gunwharf Quays, Portsmouth, and are currently creating new flagship units for retailers including Next at Bluewater, Kent and H&M at St David's, Cardiff. These upsizes demonstrate the importance of the best trading locations to retailers and their commitment to our high quality shopping centres.

With our strong customer relationships, we have also agreed a number of deals within our retail park and leisure portfolio. At Blackpool Retail Park, we decreased the size of one retailer's unit to give them the right amount of space for their needs, while simultaneously letting their surplus space and increasing rents. At Fountain Park, Edinburgh, we agreed a surrender from two large leisure occupiers and secured planning consent to refurbish and convert the space into four restaurants and a leisure unit. This initiative will benefit us by increasing net rental income while meeting the requirements of our consumers for more restaurants and family-focused leisure.

Leisure expenditure continues to increase in the UK. Throughout our portfolio, we have put our expertise in the leisure and catering sector to good use, increasing the breadth of food, beverage and entertainment on offer. This adds vibrancy to the consumer experience within our properties and encourages consumers to stay longer and spend more. Since 1 April, we have introduced numerous new brands to our centres, with almost 50 leisure and restaurant lettings completed or in solicitors' hands.

Sell

We have continued to fine-tune our portfolio by selling assets that do not fit with our key themes of dominance, experience and convenience. During the period we sold £43.6m of assets, and since the half year we have exchanged contracts to sell three mature retail park assets at Dundee, Derby and Gateshead for £273.6m. These disposals are in line with our strategy to focus on convenience parks with strong catchments, flexible planning consents and resilient property fundamentals.

Net rental income

Table 5: Net rental income(1)

1. On a proportionate basis.

Net rental income reduced by £4.4m from £172.0m to £167.6m. This was largely due to our disposals since April 2014. These include The Bridges, Sunderland, sold in the first half of last year, as well as our 50% shares of Cabot Circus, Bristol and Princesshay, Exeter, both sold in the second half of last year. The £22.6m reduction due to disposals is partly offset by our acquisitions, predominantly Bluewater, which contributed an additional £7.9m, and our like-for-like portfolio which contributed an additional £6.0m of income. The increase in our like-for-like portfolio is largely due to new lettings, rent reviews and an increase in turnover rents from the Accor hotels. Approximately £2.0m of the net rental income in the period is from non-recurring items, including surrender receipts. The £1.1m increase in net rental income from completed developments relates to The Bishop Centre, Taplow, which completed in July 2014 and is fully let.

Outlook

We continue to see change across the fast-paced retail environment. Only high quality assets which offer exceptional customer service and choice in a great environment will be able to adapt to these changing consumer trends. This is why our focus on dominance, experience and convenience ensures that our portfolio continues to perform and is well placed for the future.

London Portfolio

Highlights

·Valuation surplus of 5.6%

·Ungeared total property return of 7.3%

·The portfolio underperformed its IPD Quarterly Universe sector benchmark at 10.4%

·£7.1m investment lettings

·£16.6m development lettings

·Like-for-like voids were 3.6% (March 2015: 4.3%)

As we deliver the remainder of our large speculative development programme in London, we have continued to see strong demand for the workspace we are creating.

Buy

We made one acquisition in the period, acquiring our partner's 50% interest at 6-17 Tottenham Court Road, W1 for £59.5m. This retail property is located next to the new Tottenham Court Road Crossrail station, with good rental growth prospects and future redevelopment potential.

Develop

Our London development programme remains exceptionally busy. In the City, following completion last year, 20 Fenchurch Street, EC3 is now 98% let. During the first half we reached practical completion at 1 & 2 New Ludgate, EC4 and this 382,000 sq ft retail and office scheme is now 92% let. The 275,000 sq ft development at 1 New Street Square, EC4 is due for completion in July 2016 and is pre-let in its entirety to Deloitte.

In Victoria, SW1, we have made good progress. 62 Buckingham Gate is now 96% let with the remainder in solicitors' hands. The Zig Zag Building is now 37% let with a further 51% in solicitors' hands. Jamie's Italian, Mango and Iberica are all open. Kings Gate, our residential scheme, completed in October. 85 of the 100 apartments were pre-sold and these sales will complete in the second half. At Nova, 12% of the 480,000 sq ft office space is pre-let to Advent and Egon Zehnder. 135 of the 170 apartments have been pre-sold and London's newest food quarter is 66% pre-let or in solicitors' hands to a vibrant mix of operators.

Elsewhere in the West End, we will be completing 93,000 sq ft at 20 Eastbourne Terrace, W2 in April 2016. The 6,000 sq ft floor plates would typically be let post completion, but 62% of the space is already in solicitors' hands.

We have an exciting future pipeline. At 21 Moorfields, EC2, we have a resolution to grant planning consent for 515,000 sq ft of offices and retail and are finalising the section 106 agreement. We have also submitted planning applications for 194,000 sq ft of space at Nova, SW1 and 142,000 sq ft of space at 1 Sherwood Street, W1, behind Piccadilly Lights. Portland House, SW1, remains an opportunity for conversion to residential use in 2020.

Manage

Our refurbishment at Thomas More Square, E1 was completed in September and Holborn Gate, WC1 is progressing well; letting progress for both is ahead of expectations in terms of rental levels and timing. We have decided to retain Portland House, SW1, as an office building with some light touch refurbishment for the time being, rather than commit to a residential development.

Sell

During the first half we made disposals totalling £362.9m including the sale of Times Square, EC4 which completed in July 2015. We also exchanged contracts to sell Haymarket House, W1 for £155.2m and the sale will complete in the second half of the year.

Net rental income

Table 6: Net rental income(1)

1. On a proportionate basis.

2. Includes Non-current assets held for sale

Net rental income increased by £6.8m from £130.4m to £137.2m, with the loss of net rental income from properties sold last year more than offset by the contribution from developments. Approximately £2.5m of the net rental income in the period is from non-recurring items, including surrender receipts.

The sale of Times Square, EC4, 47 Mark Lane, EC3, 130 Wood Street, EC2, and our 50% interest in 12/24 Oxford Street, W1, are behind the £8.3m reduction in net rental income from disposals. However, this was offset by £8.1m of increased income from the development programme, principally at 1 & 2 New Ludgate, EC4, and £1.3m of increased income from our completed developments. Our like-for-like portfolio contributed an additional £3.2m largely due to surrender income, the settlement of a number of rent reviews and lower direct property expenditure.

Acquisitions reflect net rental income since the purchase of our partners' respective interests in Thomas More Square, E1 and 6-17 Tottenham Court Road, W1. A reduction in development management fee income from 20 Fenchurch Street, EC3 and the loss of asset management fee income from sold properties has led to a decrease in non-property related income.

Outlook

Looking ahead, there remains a relative shortage of prime office space to let and we expect rental values to continue to rise in the near term. With the number of development starts picking up at a faster rate than we expected, our focus remains on letting the 767,000 sq ft left in our committed development programme, where the final building is due to complete in September 2016.

Principal risks and uncertainties

The principal risks of the business are set out on pages 34-36 of the 2015 Annual Report alongside their potential impact and related mitigations. These risks fall into eight categories: customers; market cyclicality; acquisitions; liability structure; development; people; environment; and health and safety.

The Board has reviewed the principal risks in the context of the second half of the current financial year and believes there has been no material change to the risks outlined in the Annual Report, and that the existing mitigation measures within the business remain relevant for the risks highlighted.

Statement of Directors' Responsibilities

Each of the Directors, whose names and functions appear below, confirm to the best of their knowledge that the condensed consolidated interim financial statements have been prepared in accordance with IAS 34, 'Interim Financial Reporting', as issued by the IASB and adopted by the European Union and that the interim management report herein includes a fair review of the information required by the Disclosure and Transparency Rules (DTR), namely:

·DTR 4.2.7 (R): an indication of important events that have occurred during the six month period ended 30 September 2015 and their impact on the condensed interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·DTR 4.2.8 (R): any related party transactions in the six month period ended 30 September 2015 that have materially affected, and any changes in the related party transactions described in the 2015 Annual Report that could materially affect, the financial position or performance of the enterprise during that period.

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

*Non-executive Directors

A list of the current Directors is maintained on the Land Securities Group PLC website at: www.landsecurities.com.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.

By order of the Board

Tim Ashby

Group General Counsel and Company Secretary

9 November 2015

Independent review report to Land Securities Group PLC

Introduction

We have been engaged by the Company to review the condensed set of consolidated financial statements in the half-yearly financial report for the six months ended 30 September 2015 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated statement of cash flows and the related notes to the financial statements 1 to 18. 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.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our work, for this report, or for the conclusions we have formed.

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 Conduct Authority. As disclosed in note 1, the annual consolidated financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of 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 to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2015 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

London, 9 November 2015

Financial statements

Notes to the financial statements

Basis of preparation

This condensed consolidated interim financial information for the six months ended 30 September 2015 has been prepared on a going concern basis and in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and IAS 34 'Interim Financial Reporting' as adopted by the European Union (EU). In order to satisfy themselves that the Group has adequate resources to continue in operational existence for the foreseeable future, the Directors have reviewed an 18 month forecast extracted from the Group's current five year plan, which includes assumptions about future trading performance, valuation projections and debt requirements and an assessment of the impact of variations in the assumptions. This, together with available market information and experience of the Group's property portfolio and markets, has given the Directors sufficient confidence to adopt the going concern basis in preparing the financial statements.

The condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2015, presented in accordance with IFRS, were approved by the Board of Directors on 18 May 2015 and delivered to the Registrar of Companies. The report of the auditor on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. The condensed consolidated interim financial information has been reviewed, not audited.

The condensed consolidated interim financial information should be read in conjunction with the Group's annual financial statements for the year ended 31 March 2015, which have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (IFRSs).

This condensed consolidated interim financial information was approved for issue on 9 November 2015.

Presentation of results

The Group income statement is presented in a columnar format, split into those items that relate to revenue profit and capital and other items. The total column represents the Group's results presented in accordance with IFRSs; the other columns provide additional information. This is intended to reflect the way in which the Group's senior management review the results of the business and to aid reconciliation to the segmental reporting.

The presentation of individual cost items in the Income Statement has been reviewed in the period and some less significant items are now aggregated within Costs.

A number of the financial measures used internally by the Group to measure performance include the results of partly-owned subsidiaries and joint ventures on a proportionate basis. Measures that are described as being on a proportionate basis include the Group's share of joint ventures on a line-by-line basis and are adjusted to exclude the non-owned elements of our subsidiaries. These measures are non-GAAP measures and therefore not presented in accordance with IFRSs. This is in contrast to the Group's statutory financial statements, where the Group applies equity accounting to its interest in joint ventures, presenting its interest as one line on the income statement and balance sheet, and consolidating all subsidiaries at 100% with any non-owned element being adjusted as a non-controlling interest or redemption liability, as appropriate. Our joint operations are presented on a proportionate basis in all financial measures.

Revenue profit is the Group's measure of underlying pre-tax profit, which is used by senior management to assess the Group's income performance. It excludes all items of a capital nature, such as valuation movements and profits and losses on the disposal of investment properties, as well as one-off items. A full definition of revenue profit is given in the glossary. The components of revenue profit are presented on a proportionate basis in note 3. Revenue profit is a non-GAAP measure.

Except as described below, the condensed consolidated interim financial information has been prepared on the basis of the accounting policies, significant judgements, key assumptions and estimates as set out in the notes to the Group's annual financial statements for the year ended 31 March 2015. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

The following accounting standards or interpretations were effective for the financial year beginning 1 April 2015 and have been applied in preparing these interim financial statements to the extent they are relevant to the preparation of interim financial information:

·IAS 19 (amendment) 'Defined Benefit Plans: Employee Contributions'

·Annual Improvements to the IFRSs 2010-2012 Cycle which include amendments to:

oIFRS 2 'Share-based Payments'

oIFRS 3 'Business Combinations'

oIFRS 8 'Operating Segments'

oIFRS 13 'Fair Value Measurement'

oIAS 16 'Property, Plant and Equipment'

oIAS 24 'Related Party Disclosures'

oIAS 38 'Intangible Assets'

oIAS 40 'Investment Property'

None of the standards above have impacted the Group's reporting.

The following accounting standards and interpretations which are relevant to the Group have been issued, but are not yet effective:

·IFRS 9 'Financial Instruments'

·IFRS 11 (amendment) 'Accounting for Acquisitions of Interest in Joint Operations'

·IFRS 15 'Revenue from Contracts with Customers'

·IAS 1 'Disclosure initiative - amendments to IAS1'

·IAS 27 (amendment) 'Equity Method in Separate Financial Statements'

·IAS 28 and IFRS 10 (amendment) 'Sale or Contribution of Assets between an Investor and its Associate or Joint Venture'

·IAS 16 (amendment) 'Property, Plant and Equipment'

·IAS 38 (amendment) 'Intangible Assets'

·Annual Improvements to the IFRSs 2012-2014 Cycle (various standards)

These standards and interpretations have not been early adopted by the Group. The Group is in the process of assessing the impact of these new standards and interpretations on its financial reporting.

The Group's operations are organised into two operating segments, being the Retail Portfolio and the London Portfolio. The London Portfolio includes all our London offices and central London shops and the Retail Portfolio includes all our shopping centres and shops (excluding central London shops), hotels and leisure assets and retail warehouse properties. All of the Group's operations are in the UK.

Management has determined the Group's operating segments based on the information reviewed by senior management to make strategic decisions. During the year, the chief operating decision maker was the Executive Committee (ExecCom), which comprised the Executive Directors, the managing directors of the Retail and London portfolios, the Group General Counsel and Company Secretary, the Group HR Director, and the Director of Corporate Affairs and Sustainability. The information presented to ExecCom includes reports from all functions of the business as well as strategy, financial planning, succession planning, organisational development and Group-wide policies.

The Group's primary measure of underlying profit before tax is revenue profit. However, segment profit is the lowest level to which the profit arising from the on-going operations of the Group is analysed between the two segments. The Group manages its financing structure, with the exception of joint ventures, on a pooled basis and, as such, debt facilities and interest charges (other than those relating to joint ventures) are not specific to a particular segment. Unallocated income and expenses (Group services) are items incurred centrally which are neither directly attributable nor can be reasonably allocated to individual segments.

The Group's financial performance is not impacted by seasonal fluctuations.

1. Group income figures shown in this column are included in note 4 and agree to the revenue figure included in the revenue profit column in the income statement.

2. Included within rents payable is finance lease interest payable of £0.3mand £0.2mfor the Retail and London portfolios, respectively.

3. The net release of impairment of trading properties of £5.6mrelates entirely to the London Portfolio.

4. All items in the segment note are presented on a proportionate basis (see note 1). This adjustment represents the non-owned element of the Group's subsidiaries which is excluded from the numbers presented in the tables above. Included within the £2.2madjustment above is revenue of £1.7m, net surplus on revaluation of investment properties of £0.9m, joint venture profits in non-wholly owned subsidiaries of £nil, less costs of £0.4m.

1. Group income figures shown in this column are included in note 4 and agree to the revenue figure included in the revenue profit column in the income statement.

2. Included within rents payable is finance lease interest payable of £0.8m and £0.2m for the Retail and London portfolios, respectively.

3. Of the impairment of trading properties of £1.0m, an impairment of £0.2m relates to the Retail Portfolio and £0.8m relates to the London Portfolio.

4. All items in the segment note are presented on a proportionate basis (see note 1). This adjustment represents the non-owned element of the Group's subsidiaries which is excluded from the numbers presented in the tables above. Included within the £3.2m adjustment above is revenue of £1.8m, a net surplus on revaluation of investment properties of £1.6m, joint venture profits in non-wholly owned subsidiaries of £0.3m, less costs of £0.5m.

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

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

1. The table above includes Group employee costs for the period of £29.7m(2014: £26.4m), which has been split into £3.6m(2014: £3.7m) within service charge expense, £0.2m(2014: £0.1m) within direct property expenditure and £25.9m(2014: £22.6m) within indirect property expenditure.