Investment case

 

Our key performance indicators (KPIs) measure the principal metrics that we focus on to run the business and they help determine how we are remunerated. Over the longer term, we aim to outperform our benchmarks through successfully executing our strategic priorities.

Total shareholder return (%) (TSR)

Rationale

TSR is a standard measure of shareholder value creation over time. It measures the movement in a company’s share price plus dividends expressed as an annual percentage movement.

Commentary

TSR of the Group is benchmarked against the TSR of the FTSE 350 Real Estate index (excluding agencies). The TSR of the Group was 4.0% for the year compared to 6.5% for the benchmark following a continued under-performance of the share prices of London-focused office property companies relative to the benchmark index. This was due, in part, to adverse market sentiment resulting from the EU referendum.

Alignment with remuneration

Performance criteria for Executive Directors’ and certain senior managers’ long-term incentives.

 

Total accounting return (%) (TAR)

Rationale

TAR is measured as absolute EPRA NAV per share growth (the industry standard measure of a real estate company’s success at creating value) plus any ordinary dividends paid, expressed as a percentage of the period’s opening EPRA NAV. It is a new KPI for 2018 reflecting its inclusion as a performance criteria for a number of the Group’s remuneration schemes during the year. It replaces EPRA NAV growth.

Commentary

We compare our TAR to a target year on year growth of 4%–10% used in our remuneration arrangements (see below). For the benchmark, we have used the minimum hurdle. TAR was 7.1% for the year as our property values increased. This resulted in a 3.1 percentage point relative out-performance for the year.

Alignment with remuneration

TAR is a performance criteria for Executive Directors’ and certain senior managers’ long-term incentives, and for Executive Directors’ and employees’ annual bonus.

Total property return (%) (TPR)

Rationale

TPR measures a company’s performance at driving value from its property portfolio. It is calculated from the net capital growth of the portfolio plus net rental income derived from holding these properties plus profit or loss on disposals expressed as a percentage return on the period’s opening value as calculated by IPD.

Commentary

TPR is compared to a universe of £53.7 billion of similar assets included in the IPD central London benchmark. The Group generated a portfolio TPR of 5.5% in the year whereas the benchmark produced a total return of 8.2%. This relative under-performance resulted from our higher than benchmark exposure to investment properties with shorter lease lengths, where valuations were less resilient given the potential leasing risk. These properties form our development pipeline and active portfolio management opportunities where income is necessarily shorter to enable us to unlock the future longer-term value upside.

Alignment with remuneration

Performance criteria for Executive Directors’ and certain senior managers’ long-term incentives. The capital element of TPR is a performance criteria for Executive Directors’ and employees’ annual bonus.

Five year performance (%)

Commentary

Over the last five years, our proactive approach has delivered attractive growth in our KPIs, including a cumulative TAR of 99.9% and TPR of 81.3%. Our positive TSR of 44.1% is behind our benchmark, largely driven by under-performance since the EU referendum in 2016.

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