Investment analysis
November 2015
Jaime J. Delgado

Code Unit STR364
Student Num. Q12576077

TABLE OF CONTENTS

1. Introduction…….………………………………………………………................... 2 p

2. Overview of Land Securities..…….................................................................... 2 p

3. The market trends, opportunities and risks..…...…………................................ 2 p a. Housing in London 2 p b. Commercial real estate in the UK 3 p

4. Strategy for management and marketing.……………………………………….. 3 p c. Business model .……........................................................................... 3 p d. Performance.……................................................................................ 4 p 5. Specific project analysis …………....…………………........................................ 4 p e. Stakeholders aspirations …………………………………………………... 4 p f. Operational performance …………………………………………………… 5 p

6. Conclusion and recommendation ………………………………………….............. 8 p

7. References …………………………………………………………………………….. 9 p 8. Appendix………………………………………………………..…..............…..…....... 11 p

1. INTRODUCTION

This report aspires to critically evaluate the performance of Land Securities and provide enough evidence to allow non-professional investors to understand the Company performance, the market where it operates and decide if investing in Land Securities is appropriated, considering the risk and the ideal time frame for that potential investment.

2. OVERVIEW OF LAND SECURITIES

Land Securities, founded in 1944, is the biggest commercial property company in the United Kingdom. The company started with three houses in Kensington. In less than 2 decades its value on the stock market increase more than 4000%. The Company, acquired some of the more well-known offices in London such as Devonshire House, W1, following Lord Samuel’s phrase “location, location, location” for every investment project.

Land Securities established itself as the UK's leading property company. A position it still holds today with an operating profit of £ 2346.70 Million. The Company focus its investment portfolio in two segments through the UK: Retail Portfolio and London Portfolio. The Company’s Retail Portfolio valued in £50m at 31st March 2015, includes around 29 Accor Group hotels (Ibis and Novotel branded) through the UK, 13 retail parks, 13 shopping centres and 16 leisure destinations and has a floor spaces of approximately 19 million square feet. The London Portfolio is more diversified, including about 6.9 million sq. ft. of office and retail, 1.1 million sq. ft. of residential properties to let and 3.5 million acres of strategic land, Land Securities (2015).

3. MARKET TRENDS AND OPPORTUNITIES

The UK is the fifth largest economy in the world measured by nominal GDP, see Appendix B. The service sector is the main employer. The crisis hit UK´s economy on 2008 as it did with the rest of the Eurozone. There is a feeling to leave the EU and the Government has been negotiating the conditions in the European Parliament recently. The real wages have grown this year for the first time since the crisis began. The country is politically and socially stable. The Government has an ambitious plan to became greener, reducing the greenhouse gasses, recycle the disposal and reduce the water consume.

a. HOUSING IN LONDON

“London is the most overvalued market in Europe at risk of a bubble as a result of explosive price behaviour since 2013”, Holzhey and Skoczek (2015). According to Holzhey and Skoczek, the price increase results in London as one of the most expensive cities in the world. A skilled worker needs 14 years of average earning to buy a 60m2, it is comparable to renting it for 30 years. The prices are 6% above the prices in 2007, before the crisis started. (Appendix D)

The bubble risk is not only supported by the prices risen: real wages have been falling since 2010, London’s population has grown about 14% since 2002, the number of jobs 15%, but the housing stock has grown by only 9%. (Wilson, W. 2015). Looking back at 2007- 2008, when the global crisis started, we can clearly see a pattern mirrored in the Spanish Market, where the prices were rising about 10% yearly on average while the wages were constantly decreasing with interest rates below 3%. The difference between both markets is that while Spanish Constructors build over the demand, in London the offer is still being at least 5 points under the demand. (Lopez, S., 2015)

b. RETAIL The value of the commercial property stock in the UK at the end of 2014 was £787bn, only £80bn less than the maximum value before the crisis starts. The 57% of the commercial properties is owned by investors which obtain a payback of £52bn from the rents. The 25% of those investors are overseas companies. Another 15% is owned by UK based REITs and listed property companies and about 20% by UK insurance company funds and pension funds. (Mitchell,P., 2015).

According to ONS (2015) figures, the retail sales increased by 6.5% and the amount expended increased by 2.7% since September 2014. The average store prices fell by 3.6% for the same period. However, there are a few warning signals: the value of online sales increased by 15% and the consumer confidence, despite continues being positive, is falling as consequence of the lack of expectation for the General Economic situation. (GfK, 2015)
Distribution of the capital value on the retail portfolio. Source: Land Securities

4. STRATEGY FOR MANAGEMENT AND MARKETING.

b. BUSINESS MODEL

“Our goal is to create long-term shareholder value by growing the income produced by our assets and the value of our properties. In everything we do we aim to shape the future for good.” Land Securities is a FTSE 100 company and the largest Real Estate Investment Trust (REIT) in the UK on the basis of equity market capitalisation (Land Securities, 2015)

To achieve this goal the company has a simple but really effective business model: Buy,
Develop, Manage, Sell. The strategy is to provide sustainable return to the shareholders through the market cycle: buy assets at the correct price to ensure returns over the cost of capital; develop the properties to provide the highest level of customer satisfaction and the correct solutions for the occupiers and the local communities; manage the spaces to meet the occupiers’ needs; and sell some assets in a rising market, Land Securities (2015) (Appendix A).

Land Securities is aware of the impact that their business have on people. They reckon that the relationships with the stakeholders is essential and it is included in the strategic choice. It is important to create and maintain a first class reputation and trust by creating long-term and trust-based partnerships with suppliers whose values are complementary; attracting, developing and retaining high performance employees; working to grant health and safety conditions, taking care of natural resources and reducing the environmental footprint. The competitive advantage of Land Securities is the capacity to acquire properties “with discount”, taken the opportunity to develop that assets or keep it on their development pipeline waiting for the right moment. What makes Land Securities better than the others their management area, creating value by hiring the properties while they ensure to provide the correct service to all of their customers without forgotten the environment, their employees, their partners and suppliers and the local communities. (Appendix E and G).

c. PERFORMANCE

To control and have a measure of the performance the Company settled the following key performance indicators (KPIs). Each KPI is directly related to one specific stakeholder and used to be consistent to the company objectives. The general performance is beating the stablished KPIs (Apendix C)

In addition, it is important to take a look on the London Stock Exchange and the financial data, and compare it against their main competitors. (Appendix F)

According to the ratio analysis, Land Securities is performing better compared to the other REITs listed in the FTSE 100. The company has the capacity to produce a return of 18,11% for the money invested. It creates a 27,78% of return for the shareholders and it has an operating margin of 291% which reflect the efficiency of their price strategy after paying for the variable cost of production. The Company has enough capacity to face the current liabilities (the current liabilities are covered 1,14 times on 31 March 2015). The net asset value per share (excl. intangibles) is 1337,29 p, which reflects the theoretical value of the company. To evaluate the risk of Land Securities’ financial structure it is necessary to take a look on the debt to equity ratio. It will be an early warning of a potential insolvent situation. In this case, it is a 35,67% (being reduced a 28,20% in from 2011). Last, but not least, the investors’ ratios show a company which creates a sustained payback for their shareholders, the profit per share was 306,01 p in March 2015, offering 2,5% return on dividend (actually less than the other three companies compared in the las two years) but, the dividend cover (the measure to evaluate the security of the dividends) is over 1,3 times in the since 2011, while the companies compared were going up and down which impact on their risk grant causing that they need to offer a higher payback on dividend to their investors.

5. PROJECT ANALYSIS

The asset chosen from Land Securities’ portfolio to be evaluated and uses as a mirror to consider if the company is on-message or off-message is Gundwharf Quays.

d. STAKEHOLDERS ASPIRATIONS

The stakeholders map (Appendix G) introduced the interactions between the Company and its stakeholders. The principal one is the customers, 90 premium brands shops, 30 restaurants and cafés, multiplex cinema, a fitness club and casino. Land Securities includes the excellent customer service in all their core values and performance KPIs (Appendix G and C). Customer’s aspirations are to have an enjoyable environment for the people shopping and to have a communication with the company to address new proposals and necessities. The overall satisfaction is 4,28 out of 5 according to the customer satisfaction survey result, Land Securities (2015) In June 2011 they received the Sceptre Awards for the Customer Service Team of the Year and in March 2015 the BCSE Customer Excellence Awards.
Land Securities goal is “to outperform our peer group, in terms of total shareholder return, through the property cycle”, Land Securities (2015). The shareholders investing in the Company wants a long-term sustainable return with the minimum risk.

The community plays also a very important role. Land Securities introduced a program called ARISE (the Alliance to Reward Initiatives and Social Enterprise) to support local communities’ initiatives. Gunwharf Quays (2015) “ARISE is an alliance of business partners based in Portsmouth that have come together to provide an annual fund of money to support initiatives and socially based activities that improve the lives of groups or individuals in the city of Portsmouth and Southsea ranging from PO1 - PO17. The founder business partners in the alliance are Land Securities, GBM and Mitie. The fund, provided by the business partners, can be applied for by any group, organisation or individual based/living in areas of Portsmouth and Southsea.” Gunwharf Quays (2015) ARISE offers a maximum of £1.000 for application to support initiatives related to culture, amateur sporting, young people development, education and training, child and elderly care and support, improving community facilities… e. OPERATIONAL PERFORMANCE To evaluate the operational performance of Land Securities in Gunwharf Quays retail centre, first is necessary to answer to the Marketing Mix 7Ps

To understand how is the environment and the situation faced by this particular asset on the Company’s portfolio a SWOT analysis (strengths, weaknesses, opportunities and threats) offers a picture of the current environment. This technique was introduced by A. Humphrey in the 60s. The strengths are capabilities and positives aspects that will help to success, the weaknesses are any kind of disadvantages compared to the rest of the market. The opportunities are possible actions to be taken to improve and encourage the Company success. All the threats, including the competitors, are the factor of risk that Gunwharf Quays have to overcome. All the threats and opportunities are from the environment, externals to the Company. * Strength: * Biggest retail outlet in the UK * Diversified offer * Well communicated and enough parking spaces * Easily identifiable thanks to the land mark: Spinnaker Tower * Excellent customer service * Risk management cautiously designed and properly executed * Involved in the community: charity and City development

* Weakness * Limited geographic influence * High fluctuation in assets value

* Opportunity * Introduce new and attractive sellers * Increase the leisure offer

* Threats * Risk of retailers collapsing * Increase in online shoppers * Increase in tax rates and changes in VAT * Competitors: There is no other retail outlet in the south coast
Ashford Designer Outlet in Kent, Clarks Village Outlet Shopping and Kilver Court Designer Village in Somerset and Freeport Braintree in Essex are the closest shopping centres with a similar offer

To analyse if the sense of mission for Land Securities is applied to the project, is necessary to introduce the Astridghe Model. The sense of mission for the Company is defined in the Appendix E. The model will help to understand what the mission is and analyse if the company is on-message or off-message. According to the information reflected in Appendix H the project proves that land securities is on-message.
The values that the Company highlight in their Corporative Responsibility reports, Land Securities (2007 – 2014) matches with the behaviours standards reflected in the management of Gundwarf Quays.

6. CONCLUSION AND RECOMMENDATION

Based on the information analysed in the previous sections, Land Securities can be the perfect company for any investor willing afford a long-term investment in a reliable company avoiding high risk and volatility. It will be ideal for an investment portfolio on a pension scheme, either founds which actually invest in the company or private investors who want to control their assets.

As it was stated on the financial analysis, the Company provides sustainable payback to their shareholders over the economic cycle, securing the dividend payment by managing the risk on the company’s assets portfolio.

Taking a look on the London Stock Exchange’s interactive chart tool and setting the prices of the shares evolution since November 2010 and using the FTSE 100 as benchmark, we can obtain a picture of how the Capital Market react on Land Securities. As can be seen, Land Securities is over the benchmark which means that the market is optimistic on their value (based on the data provided on Appendix F). If we compare a Land Securities share with the value of the REITs listed on the FTSE 350 we can see a pattern on the market value (the share is following the sector trend) but still performing over 20%. Source: LSE Interactive Chart

Other factor to be considered once the objective time frame for the investment has been settled is invest in debt such as Sovereign Bonds. Considering the actual situation of the interest rates with the Bank of England offering a 0,5% and a UK 5 Years Bond with a 1,20% yield, Bloomberg (2015), Land Securities offers a great return with a reasonable risk.

In the chart there is a comparison of the UK sovereign bond index return value in the last 5 years against the value of Land Securities shares. The dividend yield of the Company for the same period was 3,82% in 2011, 3,96% in 2012, 3,19% in 2013, 2,96% in 2014 and 2,50% in 2015.

UK sovereign bond index vs Land Securities share Source: Bloomberg

REFERENCES

Bank of England, 2015. Credit Conditions Survey. 2015 Q3. Viewed on 1 November 2015. Available from: http://www.bankofengland.co.uk/publications/Documents/other/monetary/ccs/2015/q3.pdf

BARESA, S., BOGDAN, S. and IVANOVIC, Z., 2013. STRATEGY OF STOCK VALUATION BY FUNDAMENTAL ANALYSIS. UTMS Journal of Economics, 4(1), pp. 45-51.

Bloomberg, 2015. UK Government Bonds and BoE rates. Viewed on 27 November 2015. Available on: http://www.bloomberg.com/markets/rates-bonds/government-bonds/uk.

Drury, C.,2012. Management and cost accounting 8 ed, UK: Cengage Learning, pp. 584-595

Department for Work and Pensions, 2015. Viewed on 12 November 2015. Available from: https://www.gov.uk/government/news/real-wage-growth-highest-in-7-years

GfK, 2015. Consumer Confidence October 2015. Viewed on 9 November 2015. Available from: http://www.gfk.com/uk/Documents/Press-Releases/GfK_Consumer_Confidence%20(October%202015).pdf

Gunwhaf Quays, 2015. ARISE. Viewed on 20 November 2015. Available from: http://gunwharf-quays.com/arise

Holzhey, M., Skoczek, M. 2015. UBS Global Real Estate Bubble Index Switzerland, Galledia ag

Kaplan, R.S., Norton, D.P. 2001. Transforming the balanced scorecard from performance measurement to strategic measurement: Part I and II. Massachusetts Accounting Horizons. pp. 87-104 and pp. 147-160

Lopez, S., 2015. La burbuja que embriagó a España. El Pais. Viewed on 1 November 2015. Available from: http://economia.elpais.com/economia/2015/10/20/actualidad/1445359564_057964.html

Land Securities, 2015. Annual Report. Viewed on 5 November 2015. Available from: http://annualreport2015.landsecurities.com/

Land Securities, 2015, Company overview. Viewed on 20 October 2015. Available from: http://www.landsecurities.com/about-us/company-overview?&session-id=e18ae842f6fb7767ecc24ca5ea514fc5 Land Securities, 2015. Key performance indicators. Viewed on 21 October 2015. Available from: http://www.landsecurities.com/investors/investment-case/key-performance-indicators
Land Securities, 2015. Our strategy and performance. Viewed on 20 October 2015. Available from: http://www.landsecurities.com/investors/investment-case/our-strategy-performance

Land Securities 2015, Retail Property Portfolio, Viewed on 20 October 2015 Available from: http://www.landsecurities.com/retail-portfolio/retail-property-portfolio

Land Securities, 2015. Working with suppliers. Viewed on 20 October 2015. Available from: http://www.landsecurities.com/about-us/how-we-operate/working-with-suppliers

Land Securities, 2015. Sustainability reports. Viewed on 23 October 2015. Available from: http://www.landsecurities.com/sustainability/sustainability-reports
Land Securities, 2015. Solar PV at Gunwharf Quays. Viewed on 15 November 2015. Available from: http://www.landsecurities.com/sustainability/news-case-studies/sustainability-case-studies?id=74

Land Securities,2015. Gunwharf Quays, Portsmouth. Viewed on 15 November 2015. Available from: http://www.landsecurities.com/retail-portfolio/retail-property-portfolio/gunwharf-quays
Land Securities, 2015.Gunwharf Quays. Viewed on 15 November 2015. Available from: http://www.landsecuritiesretail.com/portfolio/outlets/gunwharf-quays/
MINTZBERG, H. and WATERS, J.A., 1985. Of Strategies, Deliberate and Emergent. Strategic Management Journal (pre-1986),6(3), pp. 257.

Mitchell, P., 2015. The Size and Structure of the UK Property Market: End-2014 Update. London. Investment Property Forum. Viewed on 7 November 2015. Available from: http://www.ipf.org.uk/resourceLibrary/the-size-and-structure-of-the-uk-property-market--end-2014-update--july-2015-.html

Martin, R.L. (2013). How strategy really works. Viewed on 25 October 2015. Available from: https://youtu.be/3vAIur-N8gM

ONS, 2015. Retail Sales, September 2015. Office for National Statistics. Viewed on 1 November 2015. Available from: http://www.ons.gov.uk/ons/rel/rsi/retail-sales/september-2015/index.html
ONS, 2015. GDP and the Labour Market –Q4 2014. Viewed on 1 November 2015. Available from: http://www.ons.gov.uk/ons/rel/elmr/gdp-and-the-labour-market/q4-2014--quarterly-update/sum-q4-2014.html

ONS, 2015. UK Labour Market. Viewed on 1 November 2015. Available from: http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/october-2015/statistical-bulletin.html)

ONS, 2015. National population projections, 2014-based Statistical Bulletin. Viewed on November 2015. Available from: http://www.ons.gov.uk/ons/rel/npp/national-population-projections/2014-based-projections/stb-npp-2014-based-projections.html
OCDE, 2015. Gross domestic spending on R&D. Viewed on 1 November 2015. Available from: https://data.oecd.org/chart/4p31

RBS, 2014, UK Commercial Real Estate Market Outlook. Viewed on 2 November 2015. Available from:http://www.rbs.co.uk/content/corporate/downloads/5368_RBS_BT_Real_estate_financebrochure_April%2014_Single%20page.pdf

SEGAL-HORN, S. 2004. The strategy reader, 2nd Ed. Oxford: Blackwell, pp.270-278

World Bank, 2015. Viewed on 27 October 2015. Available from: http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries?order=wbapi_data_value_2014%20wbapi_data_value%20wbapi_data_value-last&sort=asc&display=default

World Bank, 2015. Age dependency ratio. Viewed on 1 November 2015. Available from: http://data.worldbank.org/indicator/SP.POP.DPND

Wilson, W. 2015. Meeting London’s housing need. London, House of Commons Library

APENDIX A: Analysis of Land Securities strategy.

Martin (2013) stabilised a model of five questions to simplify the strategy analysis. By answering these five questions any company can develop a strategy that add more value than their competitors.

All the information to answer Roger Martin’s five questions is on Land Securities website (2015)

1. What is the Company winning aspiration? Concreate goals against which we can measure our progress.
Providing sustainable and reliable return trough the market cycle.
The strategic objectives are: I. Deliver sustainable long-term shareholder returns II. Maximise the returns from the investment portfolio III. Manage our balance sheet effectively IV. Maximise development performance V. Ensure high levels of customer satisfaction VI. Attract, develop, retain and motivate high performance individuals VII. Continually improve sustainability performance

2. Where will the Company play?
Land Securities operates nationwide in the UK. The market is delimited in two different areas:
Retail portfolio all over UK
London portfolio
“We believe being active in these two sectors rather than one provides us with greater financial stability as they work to different cycles.”

3. How will the Company win against the competitors there?
Land Securities business model: “Buy, Develop, Manage, Sell”. Providing sustainable and reliable return trough the market cycle.

Source: Land Securities

4. What capabilities are necessary to build and maintain to win in our chosen manner?
Manage the relationships, “being the company people prefer to work with and for”. To succeed is necessary that local authorities and communities trust the Company activity benefits the area. Adapt and anticipate the needs for the occupiers and customers.
Manage the risk, ensure that the previous decisions will warrant enough income through the cycle. All the locations are selected with excellent potential. Finally, creating a long-term investment in the buildings from the portfolio, continue to attract strong demand from occupiers.

5. What management systems are necessary to operate to build and maintain the key capabilities?
“Innovation, Excellence, Respect, Integrity and Customer Service” Land Securities (2015). Work in the organization to ensure that they matched to the current market environment and the changing world. Invest in people to attract and maintain the outstanding individuals. The management strategy should be 50% pure deliberate and 50% process (Appendix E).

APPENDIX B: Market analysis.

SWOT

Strength Is the largest commercial property company (REIT) per market capitalization in UK.
Listed in the FTSE 100
Excellent customer service
Risk management cautiously designed and properly executed
Weakness
Limited geographic influence
High fluctuation in assets value
Opportunity
Establishing partnerships to deliver and reduce risk in major developments
Geographic expansion
Create a large assets portfolio during down turn cycles
Threats
Falling demand for London’s offices and houses
Risk of retailers collapsing
Increase in online shoppers Increase in tax rates and changes in VAT Competitors British Land Company PLC
Hammerson PLC
Intu Properties PLC

PEST ANALYSIS

Real Estate market and the investment to be made is particularly sensitive to the external influences. I have applied the PEST analysis to assess the current market environment and any potential changes.
PEST is the abbreviation for political, economic, social and technological elements used to address the external macro-environment.

* Political factors to consider:
The UK (England, Wales, Scotland and Northern Ireland) follows a constitutional monarchy and parliamentary system in which the Monarch Queen Elizabeth II is Head of State and her power is limited by the Constitution. Prime Minister (David Cameron) is the head of the Government. Currently is politically stable but there is a referendum to be done about leaving the EU before May 2020 as the EU crisis affected the value of the UK economy and currency.
There is also a new immigration policy which can impact the workforce and the population. As a result, the demand will drop. * Economic factors to consider:
The UK is the fifth largest economy in the world measured by nominal GDP £2.91 million in 2014 according to World Bank (2015). It means that is the second largest in Europe (being approximately the 16% of the GDP of the whole European Union).The currency is the pound sterling, which is the fourth world reserve currency. The interest rates and the monetary policy is set by the Bank of England.
Chart 1

Chart 1

As can be seen in Chart 1, the amount of money that individuals have available for spending or saving in terms of real wages, has a negative increase from 2008 – 2014. On September 2014 the real wages growth by 2%, being a 2.7% on June 2015 as published by the Department from Work and Pensions. There is a minimum wage set by the government (£6.70 per hour). There is also a minimum wage of £3.30 for the apprentices.

Raw data from ONS. “CPI is the rate of Consumer Prices Index inflation. It is shown as negative here to demonstrate the impact it has on real wages. AWE (Average Weekly Earnings) is the growth rate of total nominal wages. The real wage series is the AWE series deflated by the CPI.” ONS (2015)

Chart 2

Chart 2

The unemployment rate fell to 5.4% as reported by ONS (August 2015) and it is the lowest since the crisis started in 2008, despite of the immigration.

Source: ONS 2015

According to the last report of the Bank of England (2015) the availability of credit is increasing so the interest rates for unsecured credit on to the households. * Socio-cultural factors to consider:
As disclosed in the statistical bulletin for National population projections, ONS (2015), the UK population is projected to increase by 9.7 million over the next 25 years from an estimated 64.6 million in mid-2014 to 74.3 million in mid-2039. Assumed net migration accounts for 51% of the projected increase over the next 25 years, with natural increase (more births than deaths) accounting for the remaining 49% of growth. Over the 10 year period to mid-2024, the UK population is projected to increase by 4.4 million to 69.0 million. This is 249,000 higher than the previous (2012-based) projection for that year.
The population is projected to continue ageing, with the average (median) age rising from 40.0 years in 2014 to 40.9 years in mid-2024 and 42.9 by mid-2039. By mid-2039, more than 1 in 12 of the population is projected to be aged 80 or over.
The age dependency ratio, defined as dependents (people younger than 15 and older than 64) divided by the working age population, is 54% in 2014 as reported by the World Bank data.

* Technological factors to consider:
As showed in the data from OECD (2015) the UK spend the 1.625% of the GDP in Research and Development (R&D) in 2013. It is 15% less than the average of the UE (28 countries) and it has being continually reduced since the 90s, with the exception of a slightly increase from 2004 to 2009.

Source: OECD data. Gross domestic spending on R&D. Total, % of GDP, 1991 – 2013

New construction technologies, such as 3D concrete painting, the massive impact of the wireless connectivity in coffee shops, airports, and hotels, will have a big impact on the how new buildings are made and people going shopping on line instead of visiting the shopping-center.

APPENDIX C According to Drury (2012, pp. 584-595) the balanced scorecard is used to encourage behaviour that is consistent with the company strategy integrating both financial and non-financial measures and incorporate performance measurement within the strategic management process as explained by Kaplan and Norton (2001)

Table I and II shows the Company objectives by stakeholder, the KPI set by to measure and the performance by KPI. The tables has being created using the balanced scorecard model proposed by Kaplan and Norton (2001) and the data from Land Securities (2015) to identify the critical internal and business processes that the Company must excel at to deliver the value propositions to customers in the market that they operated.

OBJECTIVE | STAKEHOLDER | KPI | Deliver sustainable long-term shareholder return. | Shareholders | Three year Total Shareholder Return (TSR) performance compared to the TSR of REITs within the FTSE 350 Real State Index | Maximise the returns from the investment portfolio | Shareholders | 1 and 3 years Total Property Return (TPR) performance compared to the Investment Property Databank Quarterly Univers, weighted to the sectors where the Group invested in. Revenue profit to exceed internal budget target * | Ensure high levels of customer satisfaction | Customers | Customer satisfactions surveys rates of 4 out of 5 or over. | Attract, develop, retain and motivate high performance individuals | Employees | Employee feedback survey to exceed the UK national norms | Improve sustainability performance | Environment and community | Reduces CO2 emissions by 15% by 2020 (against 2010/11 baseline)Increase to 90% the amount of waste diverted from landfill and recycle at least 70% by weight 10% reduction in water use (against 2010/11 baseline) |
TABLE I (Source: Land Securities, 2015)

The performance by KPI: KPI | PERFORMANCE | | Three year Total Shareholder Return (TSR) performance compared to the TSR of REITs within the FTSE 350 Real State Index | TSR outperformance of 4.1% per annum for the three year period from April 2011 | | 1 and 3 years Total Property Return (TPR) performance compared to the Investment Property Databank Quarterly Univers, weighted to the sectors where the Group invested in. * * * Revenue profit to exceed internal budget target | Underperformance versus the IPD quarterly universe over 1 year and out performance over 3 yearsUnder performance versus the weighted average index over one year and in line with performance over 3 yearsAchieved. Revenue profit of £319.6m was above internal budget target | | Customer satisfactions surveys rates of 4 out of 5 or over. | Retail:4.35London 4.15 | | Employee feedback survey to exceed the UK national norms | 88% engagement score+13% outperformance vs UK national norm | | Reduces CO2 emissions by 15% by 2020 (against 2010/11 baseline)Increase to 90% the amount of waste diverted from landfill and recycle at least 70% by weight 10% reduction in water use (against 2010/11 baseline) | Overall 16% reduction but it differ byportfolio: London offices increased 7% but shopping centres reduced a 33%98% landfill diversion achieved72% reused or recycledOverall 9% increase | | | | |
TABLE II (Source: Land Securities, 2015)

APPENDIX D

To consider London as one of the most expensive cities in the world, USB has created an index, the USB Global Real Estate Bubble Index. The aim is to high-light the signs of a possible bubble, as the existence cannot be proved unless it burs.

The main benchmarks used to configure this index are:

* The Price to Income (PI) ratio defined as how many years a skilled worker needs to work to be able to buy a 60m2 flat near the city centre. * The Price to Rent (PR) ratio defined as how expensive owner-occupied homes are relative to rental apartments.

The higher the ratios, the more expensive buying becomes. Earnings data is taken from official resources. For London the data is taken from Nationwide, Lloyds Banking Group for the prices, the ONS for the rents and the incomes and ONS and Bank of England for the information related to mortgages, GDP and inflation.
(USB 2015)

Raw data from ONS
APPENDIX E

Segal-Horn (2004) developed a theory of mission to create an “understanding of mission that is firmly grounded in the day-to-day realities of corporate life”.

To be able to evaluate if Land Securities has a strong sense of mission, it’s necessary to analyse the following elements that define a mission, : * Why the company exists? Purpose * What the company believes in? Values * Competitive position and distinctive. Strategy * Policies and behaviour patterns. Behaviour standards. Segal-Horn (2004)

According to the information provided by the company in their Corporate Responsibility Reports (CR reports), Land Securities (2008 – 2015), the purpose is provide sustainable and reliable return through the market cycle and deliver value to the shareholders and the wider community. In the CR report 2014, the Company also addressed a new goal: “to become a truly sustainable business”. Their values are customer service (address the needs of the customers to maintain durable relationships), respect, integrity, excellence (best possible quality for money and value for money in every project), innovation and accountability. Land Securities behaviours standards are based on “create and protect value by being the corporation that people prefer to work with and for”, by creating benefits for the community, taking care of natural resources and reducing the environmental footprint, developing their employees, developing long-term and trust-based partnerships with suppliers and prioritising the health and safety. Their strategy, what is the commercial logic of the Company, is to achieve their goals by managing the risk in the real estate market investing in two different areas: retail market, which is less volatile, offices and residential market, where they operate speculatively.

Mintzberg and Waters (1985), defined the concepts of deliberate and emergent strategy. According to the theory that they stablished we can consider Land Securities as deliberate “there is no doubt about what was desired before any actions were taken” Mintzberg and Waters (1985). However, we can’t consider their strategy as “pure deliberate” because the market environment is not completely predictable and external forces can interfere with the decisions. According to this theory Land Securities is following a planned strategy, where the intentions are precisely defined with a minimum of distortion. Nonetheless, it is necessary to keep in mind that Land Securities strategy is also a “process” strategy considering that buying and local management decisions are being taken deliberately emergent.

APPENDIX F Financial performance and competitors

To be able to analyse the Company’s performance and compare it to the competency is necessary to introduce a model which allow us to have a complete picture of the economics environment, the sector and the market trends and the financial status. Baresa, S.; Bogdan, S.; Ivanovic, Z. (2013) stablished that “the aim of fundamental analysis is reveal the actual current value of the company. It will allow to predict future profits, dividends and the risk in order to calculate the true value of the stocks”. Based on their work I stablish a model to understand the fundamental analysis (Table III). All the Macroeconomics analysis and the real state sector analysis have been covered on appendix B and D, except the Porter’s analysis, which has been included in the model but was not applied in this case.

FUNDAMENTAL ANALISYS | MACROECONOMICS ANALYSIS | REAL ESTATE SECTOR ANALYSIS | BUSINESS ANALYSIS | * GBP evolution: UK/UE/US * Inflation * Interest rates and monetary policies * Currency Exchange rate * Private consumption * Public expenditure * Savings ratio * Government debt ratio to GDP * Balance of payments * Tax system * Labour market (wages, job flexibility and legislation) * Unemployment rate | * Weight of the sector (national and international comparison) * Influence of the international market and competitors * Business concentration and cooperation * Maturity level * Barriers to entry/exit the market * Porter´s analysis * Legislation * Sector cycle * Sensibility to economic cycle * Short and mid-term trends. * Operative margin * Technology | * Market analysis * Investment policies * Company position on the market and competitive advantages * Product * Prices * Relative quality * Strategy * Diversification policies * Financial ratio analysis: financial statement and stock market |
Table III

This appendix is focus on the financial analysis and the ratios applied to evaluate Land Securities’ performance and compare it with the competency. The companies chosen to compare are the REITs listed on the FTSE 100: British Land Company PLC, Hammerson PLC and Intu Properties PLC.

Ratios used: definition and results.

Profitability ratios:

Return on Capital Employed: It is a ratio to analyse the performance of the business. What is the ability of the company to produce profit for the investors.

Return on shareholder: It’s a measure of profitability. It shows the profit that the company generates based on the money invested by the shareholders

Operating Margin: Reflects the efficiency of the price strategy. How much revenues left after paying for the variable cost of production

Gross profit margin: Defines the proportion on every pound generated remaining after paying the cost of the sales.

Activity ratios

Net Asset Value per Share (Excl. intangibles) : It is an efficiency measure. It reflects the capital used to finance net assets.

Return on Capital Employed

Liquidity ratios:
Current ratio: Used to measure the Company liquidity. Over 2,5/3 guarantee the capacity of the company to face the current liabilities without compromising the financial stability.

Gearing ratios: Evaluate the capital structure of the Companies.

Debt to equity: It is a measure to evaluate the risk of the Company’s financial structure. The ratio is an early warning of a potential insolvent situation. Defined as total liabilities divided by total equity, reveals what is the origin of the resources to finance its assets (how many pounds of debts does the company have for every pound of equity)

Investor Ratios:

Earnings per Share: Is the company profit per share.

Price-Earnings ratio (PE Ratio): It is a measure of the company perspective on the Capital Market, the higher the PE is, the more optimistic the investors are. Is defined as the times the year profit will one investor pay per share.

Dividend Yield: is defined as the part of dividend received per every pound invested in the Company at Capital Market value

Dividend Cover: It is a measure to evaluate the security of the dividends, defined as the times that profit cover the dividend.

APENDIX G

Land Securities’ stakeholders map:

* CUSTOMERS: are the main stakeholder, without costumers there is no reason to exist despite the fact that the aim of the Company is provide long-term shareholder value, Land Securities (2015). Provide excellent customer service and solutions to their needs, is one of the objectives included in the KPIs (Appendix C) * SHAREHOLDERS: Land Securities goal is “to outperform our peer group, in terms of total shareholder return, through the property cycle”, Land Securities (2015) * EMPLOYEES and SUPLIERS: Land Securities intent to be the company that people prefer to work with and for. They remain focus on attract, develop and retain the high performance individuals and maintain mutually beneficial and trust-based partnerships with those suppliers whose values are complementary. Land Securities (2015) * COMMUNITY: develop strong relationships with the local communities, creating extra value by making the area more attractive and enjoyable. Land Securities has Employment Programmes included in their aim to perform a better sustainability performance (Appendix C) * ENVIRONMENT: The Company has made a great improvement in managing the environment. Complying with all the environmental legislation they strongly believe in tackling the climate change. The Company has committed to move to renewables in order to move away from carbon. They reduced the energy requirements by 8%, Land Securities (2015), and the CO2 emmisions by 16% (Appendix C) through active management in all the portfolio.

APPENDIX H
CASE STUDY: GUNWHARF QUAYS

Gunwharf Quays is the biggest retail outlet in the UK. Located in Portsmouth (1 hour and 30 minutes from London Waterloo by direct train) receives 8 million visitors yearly. Built in 2001 is a freehold property 100% owned reporting an annualised net rent of £22,9 million. The offer includes 90 premium brands shops and 30 restaurants and cafés, multiplex cinema, a fitness club and casino. It also has a 165 room hotel and residential apartments. The shopping centre is next to the Spinnaker Tower (UK Millennium Commission project). Land Securities (2015)

The shopping centre supported Portsmouth Council with £5 million in 2011 to create a sustainable and connected City Centre, Land Securities (2015), Portsmouth City Council (2011). The objectives were: * Improve the connectivity between the City Centre and Portsmouth Harbour by sustainable modes * Reduce the congestion to improve ease of movement in the City Centre * Make the City a desirable place to work, live and for shopping and leisure activities

The support provided to the community were based in two elements: * “Park and Sail”, started in the summer of 2013 * Improving the public realm by introducing wider pavements and decorative elements such as planters and flag poles.

. On their aim to reduce the environmental footprint and their commitment with the reduction of CO2, Land Securities installed solar photovoltaic panels on Gundwharf Quays’ roofs. The electricity generated by those panels is currently used to power the car park. Land Securities (2015). This proactive management decision to install a green energy source not only reduced the CO2 emissions, it also reduces the energy price risks in the long-term.

Gundwharf Quays takes part in local projects to support local community initiatives and charities and works close to the Police. In the economic impact, they assist employment opportunities by encouraging the retailers to interview local unemployed people as part of their responsibility in operating at the centre.