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 strategy. However, over the last twelve months, given the impact of COVID-19, we have underperformed against our financial benchmarks.

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 1.7% for the year compared to 21.1% for the benchmark following reduced share price performance given the impact of COVID-19 on share prices of London office and retail-focused REITs.

Alignment with remuneration: LTIP and Exec Bonus

Total Accounting Return % (TAR)

Rationale

TAR is measured as absolute EPRA NTA 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 NTA.

Commentary

We have typically compared our TAR to a target year-on-year growth of 4%–10%. For the benchmark, we have used the minimum hurdle. TAR was minus 8.8% for the year. The reduction in EPRA NTA was primarily driven by property value declines as a result of the COVID-19 pandemic.

Alignment with remuneration: LTIP and Exec 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 MSCI.

Commentary

TPR is compared to a benchmark of around £50 billion of similar assets included in the MSCI central London annual benchmark. We await final confirmation of the annual benchmark. However, when compared to the quarterly benchmark of minus 3.3%, the Group generated a portfolio TPR of minus 5.9%, an underperformance of 2.6% for the year. This underperformance resulted from our greater than benchmark weighting to retail assets and offices with shorter income profiles, both of which have seen a greater reduction in value from the COVID-19 pandemic.

Alignment with remuneration: LTIP and Exec Bonus

Non-financial KPIs

Given the growing importance of sustainability, and our wider stakeholders to the success of our business, we introduced five new non-financial KPIs for 2020/21. Each of these KPIs are performance criteria for senior executive remuneration (see key below), with performance against our sustainability KPIs measured in aggregate.

Energy Consumption % reduction

Rationale

The energy consumption of our portfolio was 45% of our carbon footprint during the last year. Lowering our energy intensity is an essential part of delivering our Roadmap to Net Zero.

Commentary

Our target is to reduce our energy intensity by 40% by 2030, or an 8% reduction in the year. Our reduction in energy consumption benefited from lower levels of occupation during the pandemic and this has been reflected in the relevant annual bonus outcomes.

Alignment with remuneration: Exec Bonus

Embodied Carbon % reduction

Rationale

Embodied carbon from our development activities represents around 40% of our carbon footprint. Reducing our embodied carbon is key to delivering our Roadmap to Net Zero.

Commentary

Our target is to reduce the embodied carbon from our development and refurbishment activities by 40% by 2030. For the current year, the benchmark was a 10% reduction for new developments at the design stage. Given our significant progress on building design, we outperformed the benchmark in the year.

Alignment with remuneration: Exec Bonus

Biodiversity % increase

Rationale

Biodiversity is essential for human health and wellbeing. We aim to increase biodiversity across our portfolio by introducing urban greening to improve air quality, reduce the urban heat island effect and provide habitats for insects and birds.

Commentary

Our target is to increase biodiversity net gain across our portfolio by 25% by 2030, or by 5% for the year. The substantial biodiversity gains delivered by our development team this year have already exceeded our 2030 target. Accordingly, we will re-base the benchmark for the forthcoming year.

Alignment with remuneration: Exec Bonus

Occupier Satisfaction (NPS)

Rationale

High levels of occupier satisfaction are critical to both attracting and retaining businesses in our buildings.

Commentary

The Net Promoter Score (NPS) of the Group is compared to the overall UK sector average, expressed as a number between -100 and +100, with a minimum target of the sector average. Our NPS of +42.0 significantly outperformed the industry average of -6.1.

Alignment with remuneration: Exec Bonus

Employee Engagement % (EII)

Rationale

Maintaining high levels of employee engagement is key to motivation, productivity and ultimately the delivery of our business plans.

Commentary

The Employee Engagement Index (EII) of the Group is compared to a 75% hurdle. Our EII continues to be exceptionally high, with 98% of our employees participating in our latest survey delivering an EII of 93%.

Alignment with remuneration: Exec Bonus

Key

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

Exec Bonus 
Performance criteria for Executive Directors’ and all employees’ annual bonuses in the case of the financial KPIs and certain senior executives’ annual bonuses in the case of the non-financial KPIs. For the 2020/21 and 2021/22 annual bonuses, TAR was exceptionally replaced with TSR as the applicable metric.

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