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Land Securities Group plc

Harvard Business School Case N9-105-014


Case Software N9-105-702

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Exhibit 1 Land Securities Group plc 2002-2003 Balance Sheets (£ millions)

March 21, 2002 March 31, 2003

Fixed Assets
Intangible asset – goodwill 38.9 36.7
Tangible assets
Investment properties
Freehold 5,715.3 5,759.9
Leasehold 2,084.7 2,064.0

Total investment propertiesa 7,800.0 7,823.9


Operating properties 428.9 557.4
Other tangible assets 45.3 41.5
Investment in joint venture, net 188.8 106.8
8,501.9 8,566.3

Current assets 365.6 441.4


Creditors falling due within one year (690.9) (594.9)
Net Current Liabilities (325.3) (153.5)
Creditors falling due after more than one (2,010.1) (2,670.7)
Provision for liabilities and charges (129.9) (179.0)
Total Assets Less Total Liabilities 6,036.6 5,563.1

Capital and Reserves


Called up share capital b
524.3 76.9
Share premium account -- 13.3
Revaluation reserve 3,376.9 3,038.9
Other reserves b 901.3 0.1
Profit and loss account (retained earnings) 1,234.1 2,433.9

Total Equity 6,036.6 5,563.1

Source: Land Securities Group plc, 2002 and 2003 annual reports.
a
Operating properties are those managed by LSG under contract as part of its “total property outsourcing” strategy. These assets do
not satisfy the definition of investment properties and thus must be reported at depreciated cost.

b
LSG engaged in a capital restructuring in July 2002 that included a substantial dividend payment to shareholders. This restructuring
effectively exchanged one type of common stock shares for another and accounts for the reduction of both “called up share capital”
and “other reserves,” as well as much of the increase in “profit and loss account.”
Exhibit 2 Land Securities Group plc 2002-2003 Income Statements (£ millions)

For the Year Ending For the Year


March 31, 2002 Ending March 31, 2003

Revenue
Rental income/other 525.9 519.7
Total property outsourcing/joint venture 406.2 658.3
Other income 93.5 61.5
Total revenue 1,025.6 1,239.5

Expenses
Rentals (124.5) (164.4)
Direct property or contract expenditures (249.9) (399.4)
Indirect property or contract expenditures (50.6) (57.1)
Depreciation/amortization (21.0) (41.9)
Other (62.8) (26.5)
Total expenses (508.8) (689.3)

Operating profit 516.8 550.2

Profit on sale of investment properties 13.4 41.7

Interest and similar charges (166.7) (272.3)

Profit on ordinary activities before taxation 363.5 319.6

Taxation (99.9) (89.7)

Profit on ordinary activities after taxation 263.6 229.9

Dividends (178.4) (167.4)

Retained Profit 85.2 62.5

Source: Land Securities Group plc, 2002 and 2003 annual reports.
Exhibit 3 Land Securities Group plc, 1999-2003 Summary Financial Data (£ millions)

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001c 2002c 2003c

Balance Sheet
Total Assets 6,004 4,989 4,712 4,426 5,373 5,482 5,696 6,338 7,091 7,483 7,791 8,509 8,868 9,008

Investment Properties:
Historical Cost 2,213 2,478 2,693 2,872 2,981 3,092 3,264 3,411 3,407 3,624 3,871 4,210 4,423 4,785
Revaluation Reserve 3,398 2,231 1,608 1,227 2,051 2,078 2,002 2,349 3,029 3,287 3,583 3,696 3,377 3,039
Open Market Valuea 5,611 4,709 4,301 4,099 5,032 5,170 5,266 5,760 6,436 6,911 7,454 7,906 7,800 7,824

Income Statement
Revenue 296 360 407 437 449 460 462 471 484 500 528 647 1,026 1,240
Expenses
Profit on Ordinary Activities (after (172) (204) (242) (267) (268) (280) (290) (293) (287) (284) (276) (414) (762) (1,010)
tax) 124 156 165 170 181 180 172 178 197 216 252 233 264 230

Cash Flow Statement


Operating Cash Flowsb 138 228 215 175 185 196 183 195 168 229 247 284 133 109

Source: Compiled by casewriter from Land Securities Group plc, 1990–2003 annual reports.

a
Open Market Value for investment properties was £5,211 million at the end of fiscal 1989.
b
Operating Cash Flows represent cash flows after interest and taxation. This amount is comparable to cash flows from operations in the U.S.
c
The dramatic increase in revenues and expenses for 2001–2003 reflects the incorporation of “total property outsourcing” into LSG’s strategy.
Exhibit 5 Land Securities Group plc, 2003 Investment Property Portfolio

Investment Properties by Type

Median
Type # of Properties Valuation Rental Income Vacancy Rate Tenant Lease

£ million % £ million % % Years


Offices 69 3,312.5 42 240.4 46 1.9 6.3
Retail:
Shopping Centers 78 2,777.2 36 180.6 35 1.2 9.0
Retail Warehouses 43 1,116.8 14 60.1 12 1.2 17.8
Industrial 30 385.9 5 26.0 5 3.5 7.8
Other 11 231.5 3 12.6 2 0.0 12.3

TOTAL 231 7,823.9 100 519.7 100

Investment Properties by Location (all amounts are percent of investment property value)

Scotland/
Central / Inner Northern
Type London South East Midlands Wales North Ireland TOTAL

Offices 41 1 - - - - 42
Retail:
Shopping Centers 9 4 5 5 7 6 36
Retail Warehouses 4 2 1 5 2 14
Industrial - 5 - - - - 5
Other 1 1 - - 1 - 3
TOTAL 51% 15% 7% 6% 13% 8% 100%

Source: Land Securities Group plc, 2003 Annual Report.

Major Tenants

Note: The 10 largest tenants of LSG investment properties account for 23.8% of current rents. The top three are Central Government (9.6%), Allen and Overy (2.8%), and
Dresdner Bank (2.2%).
Exhibit 10 Condensed Balance Sheets and Income Statements

Cost Model: Vornado Realty Trust (December 31, 2003; $ millions)

Balance Sheet Income Statement


Land 1,504 Revenue 1,503
Buildings 6,244 Expenses:
Accumulated Depreciation (870) Operating (584)
Other Assets 2,641 Depreciation (215)
Total Assets 9,519 General and Administration (122)
Liabilities (principally debt) 4,520 Interest (230)
Equity 4,999 Other 67
Total Liabilities / Equity 9,519 Operating Income 285

Footnote excerpt: Real estate is carried at cost, net of accumulated depreciation . . . depreciation is provided on a
straight-line basis over the assets’ estimated useful lives from 7 to 40 years.

Revaluation Model: Land Securities Group (March 31, 2003; $ millions)

Balance Sheet Income Statement

Investments Properties 7,824 Revenue 1,240


Other Assets 1,184 Expenses:
Total Assets 9,008 Operating (621)
Liabilities (principally debt) 3,445 Depreciation (42)
Revaluation Reserve 3,039 Interest (272)
Equity 2,524 Other (75)
Total Liabilities / Equity 9,008 Operating Income 230

Footnote excerpt: Investment properties are carried at open market values, based on the latest professional
valuations. Unrealized capital surpluses and deficits, including those arising on the periodic revaluation of
properties, are taken to the revaluation reserve.

Fair Value Model: Hongkong Land Holdings (December 31, 2003; $ millions)

Balance Sheet Income Statement

Investments Properties 5,507 Revenue 384


Other Assets 1,083 Expenses:
Decrease in fair value of
Total Assets 6,590 investment propoerties (824)
Liabilities (principally debt) 2,950 Interest (65)
Equity 3,640 Cost of sales/Other (63)
Total Liabilities / Equity 6,590 Operating Loss (568)

Footnote excerpt: Investment properties are carried in the balance sheet at fair value, representing open market
value determined annually by independent valuers. Changes in fair value are recorded in the consolidated
profit and loss account.
Source: Compiled by casewriter from respective 2003 annual reports.