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Retailers Annual Report and Accounts 2016 Contents Strategic report - PDF document

Nov 09, 2023 •510 likes •2.04k views

Real estate for Retailers Annual Report and Accounts 2016 Contents Strategic report Governance Financial statements At a glance 1 Introduction from the Chairman 54 Independent Auditors report 101 What we do 2 Governance at work 55

  1. Strategic report Governance Financial statements LondonMetric Property Plc 7 Annual Report and Accounts 2016 Chief Executive Q&A Andrew Jones (CEO) gives an overview of progress in the year, his assessment of the structural forces afgecting the retail sector and the impact on LondonMetric. Q What is your main focus The change in the digital economy is at LondonMetric? having a profound impact on retail stores and how they have been traditionally A Our overriding concern is to deliver The compounding understood. Retail is changing to reflect value to shareholders over the impact of repetitive this and the problems at retailers such long term. income is increasingly as BHS are just the tip of the iceberg for attractive in a lower We continue to focus on managing both a sector bedevilled by high rents, heavy growth environment. the structural and cyclical forces that discounting, inadequate online platforms influence our business. As managers and far too much physical capacity. of risk, we need to fully understand the Retailers have to invest heavily in dynamics of these forces and navigate their distribution capability and the business accordingly. Our judgement continually evolve their infrastructure is not clouded by the burden of legacy to drive operational effjciencies. assets and we endeavour to own assets Occupier demand for modern, high that remain relevant in a rapidly changing specification distribution warehousing retail environment. has meant that availability is low and this Equally, we believe that the world is has created structural demand/supply evolving from a focus on active strategies dynamics with good rental growth in to more passive ones, where the ofger of evidence for the right assets. higher repetitive and predictable income This is especially the case for more is clearer and more attractive. Whilst it is strategically located depot warehousing not always the case, investors are valuing and last mile distribution property which quality of income today more highly than facilitate same day and next day delivery its equivalent in NAV potential upside. requirements, particularly in the South Q What specific structural forces are East and major UK conurbations. afgecting LondonMetric? A Recession and technology have significantly altered consumer expectations and habits. Shopping patterns are rapidly evolving and the expectation of effjciency, speed, value and convenience are driving omni- channel retailing. The changing face of retail see page 14 Our business model see page 18

  2. Strategic report Governance Financial statements 8 LondonMetric Property Plc Annual Report and Accounts 2016 Chief Executive Q&A continued Q How are you responding to the We remain unemotional about ownership Distribution portfolio changing retail environment? of our assets and have crystallised strong returns from disposals whilst ensuring £824m A The £392 million of transactions in that we are unencumbered by legacy the year demonstrates our ongoing or less relevant assets. As evidenced by response to these changes. 54% of our £80 million of distribution disposals, We have made significant further we will sell core assets where purchasers’ portfolio sales of mature retail assets, achieving assessment of value is higher than our attractive prices, whilst recycling own aspirations. into big box logistics and smaller In today’s competitively priced distribution warehouses, which ofger environment, we are also disciplined attractive risk adjusted yields and asset and rational. We will step away from management opportunities. opportunities that don’t meet out return During the year, we acquired £155 million criteria and our customer centric model Falling retailer demand of distribution assets let to occupiers helps us to make the correct real estate for physical space is such as Next, Poundworld and DHL. decisions. The management team is being substituted by the We successfully delivered 1.9 million sq fully aligned with shareholders and constant need for better ft of developments and our distribution is incentivised to deliver enhanced distribution infrastructure. developments in Wakefield and returns and not simply grow assets Warrington are on track to complete later under management. this year. These two developments along Q How have you improved your with our pipeline developments at Stoke, financing arrangements and Bedford and Crawley will add a further describe your approach to gearing and £11.8 million of rental income. managing interest rate risk? Distribution assets, including A At the start of the year, we signed developments, totalled £824 million at a new £400 million unsecured the year end and now represent 54% facility which was recently increased of our portfolio – a significant increase to £444 million. This facility provides from 20% at the time of merger in 2013. significantly greater flexibility and has Our strong retailer relationships have also helped to reduce finance fees that might generated further convenience deals otherwise have arisen from our investment where we have worked in partnership and development activity. It has also with M&S and Aldi. helped to increase our average debt maturity to 5.6 years, reduce our cost Q What are the key drivers of of debt to 3.5% and provide additional LondonMetric’s success? financing headroom. A Our strong occupier relationships as Our loan to value of 38% at the year end well as the deep relationships that is at an appropriate level that allows us to we have within the real estate sector draw down further on our debt facilities to are paramount to our success and key fund developments without impacting on to maintaining our very strong portfolio our conservative approach to gearing. metrics of long leases, extremely high We continue to take a prudent approach occupancy and strengthening income. to managing interest rate risk and, as Our asset management activities at the year end, 93% of our drawn debt delivered 55 lettings and rent reviews was hedged. which helped to drive like-for-like income growth of 3.1% at 6.9% above ERV. Investment review Asset management and see page 22 development review see page 26 Financial review see page 35

  3. Strategic report Governance Financial statements LondonMetric Property Plc 9 Annual Report and Accounts 2016 Chief Executive Q&A continued £40 million distribution development for Poundworld Replenishing our near term per annum. The rent is subject to five development portfolio yearly compounded RPI rent reviews to a minimum of 2.5% per annum and Our developments are short cycle a maximum of 5.0% per annum. in nature and we are constantly focused on replenishing our The highly prominent 30 acre site is development pipeline. located near J31 of the M62 in a well- established logistics hub. During the year, we purchased a 524,000 sq ft retail distribution Construction commenced in summer development in Wakefield. The purchase 2015 and practical completion and forward fund development was is expected in autumn 2016. acquired at a yield on cost of 6.3% and The warehouse will be rated BREEAM was pre-let to Poundworld Retail Ltd on Very Good. a 15 year lease at a rent of £2.5 million Q Q How has LondonMetric delivered on What are you most alert to as you its Responsible Business Strategy? look forward? A We have built on our significant A We continue to monitor investment progress from the previous year and activity and market liquidity very our efgorts have been recognised with an closely. This ensures that we maintain EPRA sBPR Gold award and a substantially flexibility to fund our developments and improved GRESB score. other opportunities as they arise whilst enjoying attractive margins of safety 94% of our 2015/16 targets were achieved between our long and strong income and highlights included the introduction and our cost of debt. of a new Responsible Business Procurement Policy and implementation of initiatives to install solar panels, replace external lighting and monitor occupier contentment and energy usage. In addition we completed three major Andrew Jones developments, all of which are rated Chief Executive BREEAM Very Good. 1 June 2016 Our approach to Responsible Business see page 45

  4. Strategic report Governance Financial statements 10 LondonMetric Property Plc Annual Report and Accounts 2016 The year in review 1 2 3 First quarter Second quarter Third quarter April to June July to September October to December 2015 2015 2015 £128m £73m of investment activity of disposals, mainly retail assets Left: 330,000 sq ft distribution warehouse in Doncaster. Let to Next for nine years. Generates £1.9m pa rent with a further 2.5% pa compounded fixed uplift in 2019 Three distribution assets purchased for £72m. Key purchases included a Next warehouse for £29m and a forward funding distribution development for Two retail parks in Poundworld for £40m . Southampton and Milton Keynes. Two distribution assets sold for £33m, consisting of Harlow and Brackmills. The retail parks had been significantly repositioned to strengthen the income, and delivered yield compression of 150 bps . Four retail assets purchased for £16m including three convenience assets let to M&S for 20 years. Left: M&S in Haslemere, opened in March 2016 £61m IRR of 28%+ of acquisitions per annum on Three distribution disposals acquisitions including a 230,000 sq ft DHL warehouse in Reading and a 356,000 sq ft future development at Omega , Warrington.

  5. Strategic report Governance Financial statements LondonMetric Property Plc 1 1 Annual Report and Accounts 2016 The year in review continued 4 Fourth quarter January to March 2016 £58m of disposals Five retail parks sold for £40m , one in Hove where PC World agreed a new 15 year lease on an enlarged store. Sold a WHSmith distribution warehouse for £20m £18m against a £10m purchase price. of retail and leisure disposals A number of retail parks let to tenants including B&Q, Wickes and Completion Halfords were sold at a of three major net initial yield of 6.1%. developments 1.9m In addition, following an impressive film slate and strong institutional sq ft developed interest, we sold 3 delivering rental the Odeon cinema uplift of £11.7m at at Preston. a yield on cost distribution depots of 7.4%. acquired for £22m let to Hamleys , Howdens and Goodrich . Further £16m invested into convenience and opportunistic retail assets let to Aldi, M&S and Wickes . Investment review see page 22

  6. Strategic report Governance Financial statements 12 LondonMetric Property Plc Annual Report and Accounts 2016 Our business Our activity continues to align our real estate to the strength and growth of internet shopping and omni-channel retailing to deliver sustainable income growth and long term value. Key facts We are focused on retailer-led distribution Portfolio Number of assets LFL Income growth 100 +3.1% 2015 – £1,400m 2016 – £1,521m 5% 4%5% 4% 5 % 6% Area EPRA topped up net 40% 52% initial yield 12.1m sq ft 27% 5.4% 32% 4% 9% 4% 3% Value Total property return Distribution Retail Parks Offjce Development Leisure Residential £1,521m + 10.5% Convenience Retail Valuation performance Uplift – £50m Development Capital return Occupancy 10.0% +4.9% 99 .3% Asset management Market yield 29.3% movement 60.7% ERV growth +6.4% • 29.3% valuation movement • 24 bps yield compression attributable to asset across the portfolio management activity • Portfolio NIY of 5.4% compared to IPD of 4.8% Distribution Value Total return £824.4m + 13.1% EPRA topped up NIY Occupancy 5.2% 100%

  7. Strategic report Governance Financial statements LondonMetric Property Plc 13 Annual Report and Accounts 2016 Our business continued Where our assets are located Our business activity Investment activity 2016 Distribution Acquisitions Disposals Retail and Leisure £187 .6m £204.1m Marlow Offjce Retail £32.1m Retail £110.1m Distribution £155.5m Distribution £80.4m Non core (residential) £13.6m Development activity 2016 Delivered Under construction 1.9m sq ft 1.1m sq ft Rent £11.7m Rent/uplift £8.4m per annum Yield on cost 7.4% Yield on cost 7.1% Capital expenditure £158.5m Capital expenditure £118.8m Pipeline 1.1m sq ft Rent £7.7m Yield on cost 6.9% Capital expenditure £111.5m Asset management activity 2016 New lettings Rent reviews 28 27 0.3m sq ft 1.8m sq ft Rental growth 13.5% above Rental growth 4.8% above ERV ERV Retail Value Total return £491.4m +8.6% EPRA topped up NIY Occupancy 5.8% 98.1%

  8. Strategic report Governance Financial statements 14 LondonMetric Property Plc Annual Report and Accounts 2016 The changing face of retail We are focused on the winning sub sectors within retail: retailer-led distribution, fulfilment and convenience-led retail. Retail continually evolves, responding to new trends, changes in technology and developing shopping habits. History shows that as shopping habits change, real estate requirements respond. Aligning our real estate investment strategy to these shifts, will deliver long term shareholder value. Shopping habits 1940 1980 continually evolve with a shift seen every 20 years • No cars • Out of town/edge of since the 1940s. town convenience • Limited refrigeration Today, we live in a digital • Rise and increased dominance • Daily shopping trips age with the continued of supermarkets ets rise of eCommerce and • Rise in high street • Birth of out of town own online shopping and real estate requirements are responding. Retailers’ supply chains are now consumer facing with spending migrating away from more traditional modes of shopping. It is business critical for retailers to meet the demand of the consumer which is resulting in 1960 2000 distribution and fulfilment becoming more important than retail stores. • Car borne shopping • Continued growth of out of town • Mass refrigeration • Migration of in town retailers out of town • Weekly shopping trips • Birth of the shopping park • Birth of the shopping centre

  9. Strategic report Governance Financial statements LondonMetric Property Plc 15 Annual Report and Accounts 2016 The changing face of retail continued 2010 Shoppers embrace In excess of 1 billion parcels are delivered to the consumers’ front door, internet shopping growing year on year with c. 1.2 billion forecast for 2016 and forecast to The UK is now one of the most continue to rise by c. 12% per annum to • Technological sophisticated online retail markets in the 2018. Consumer habits are becoming advancements world with an internet penetration rate in more entrenched. transforming supply excess of 85% and 61% of shoppers now chains to consumer Recent retailer results confirm the latest actively shopping online. This is double centric models consumer shopping habits. 40% of Next the OECD average and the UK active sales are now through their directory • Shoppers embracing online shoppers is significantly higher business which is efgectively online. internet shopping than other western economies such Dixons Carphone have 29% of their sales as US (35%), Germany (48%), Canada • Birth of omni- coming from online and 55% of Argos (42%) and Spain (18%). channel shopping sales originate online. Recent retailer May 2010 saw the UK launch of the trading performance also shows the • Sheds become the Apple iPad and the start of true strength of online with like-for-like growth new shops mobilisation of the internet. Up until this up and store sales falling. John Lewis point, desktops were the key tool to online sales are up 21% and stores down access the internet and shop online. 3%, Argos online sales are up 10% and The technological advancements store sales down 13%. These trends of the iPad and devices such as the continue to accelerate as shoppers smartphone that have followed have continue to embrace internet shopping. truly opened up online shopping to the consumer.

  10. Strategic report Governance Financial statements 16 LondonMetric Property Plc Annual Report and Accounts 2016 The changing face of retail continued 2010 Resulting in a It is imperative for the retailer to ensure continued that their overall logistics and operation is structural shift and an fit for purpose and meeting the demands of the consumer. Further technological evolving landscape advancements will continue this trend for retailers with increased operational effjciencies driven through warehouse automation and robotics. Accelerating technological change will drive continued growth of ecommerce Consumers have adopted difgerent and the digitalisation of retail. methods of purchasing from an entire purchase online to browsing online and Pure play online retailers, such as Amazon, buying in store to buying online and ASOS, Boden, Boohoo and The Hut picking up from store. Looking forward, Group, demonstrate that physical stores these changes in consumer shopping are no longer a pre-requisite to successful habits will re-shape the role of store and retail. Reductions in operational costs and place further emphasis on the supply information asymmetry has allowed a chain model and how it interfaces with wide variety of products to be profitably the consumer. sold online. The consumer wants to buy the goods to meet their specific requirements with the modern supply chain now consumer facing. Retailer landscape in the past Retailer landscape now Manufacturer Importer Manufacturer Importer Regional distribution unit National distribution unit Local distribution unit Local distribution unit Delivery parcel (returns) Retail stores Retail stores Consumers Consumers

  11. Strategic report Governance Financial statements LondonMetric Property Plc 17 Annual Report and Accounts 2016 The changing face of retail continued Driving logistics and According to Local Data Company, Outlook vacancy rates across retail shops stand at retail real estate 12.4%, however this masks the polarisation We believe that the pace of change within this market. Prime retail real estate is requirements will continue. more robust with secondary and tertiary The significant retail increasingly redundant in today’s Logistics evolvement since digital age. Rental levels continue to fall 2009 demonstrates Online retail is driving demand for a in poorer retail locations as shoppers vote the impact that technological range of difgerent types of warehousing with their feet and retailers see no need to changes and including mega national distribution be located there. shopping behaviour centres, parcel sortation centres, is having on real The success stories within retail real estate local parcel depot stations, dot.com estate requirements. revolve around top up, convenience- warehouses and local delivery centres Non food online led retail. Footfall supports the strength for same day delivery. spending is estimated of retail parks nationally, with their to grow from 17.4% The occupier market remains robust convenience and the ease at which today to 25% of all non with take up above long term averages. click and collect orders can be fulfilled. food sales by the end of 2019. Around 4.5 million sq ft was taken up in Q1 Destination retail remains strong, however 2016 which was 22% up on Q4 2015 and the consumer expects more which is It is now widely accepted by retailers 18% up on Q1 2015. resulting in increased capital expenditure that the supply chain and operational costs to keep the Supply remains muted. From a peak is consumer facing destination relevant and attract footfall. requiring retailers to availability of 94 million sq ft in 2009, have fit for purpose it is estimated that current supply Leading to a re-rating in asset logistics to meet the is c.15 million sq ft equating to pricing increasing consumer approximately six months’ demand. demands for instant Speculative development has risen as a Investor demand remains strong for gratification and quicker online delivery. result of the supply/demand imbalance distribution assets. Investment volumes in however remains significantly below this sector in the last two years have been We believe that the retailers’ response and pre-recession levels of c. 10 million sq the strongest for the last 15 years. impact to real estate ft per annum at 5.6 million sq ft per Yields have continued to narrow further requirements means annum. The average void period for units that sheds are the with prime distribution yields being c.4.5% speculatively built since 2009 is just five new shops. having improved by 125 bps in the last months, reducing to five weeks in prime We seek to position two years. Further yield compression locations such as the Midlands. our real estate is likely to be muted, however rental portfolio to these values are growing reflecting the supply/ wider structural trends Retail demand imbalances in the sector. whilst maximising shareholder returns Whilst online is contributing to a successful Investment volumes in the retail through the cyclical supply/demand dynamic in logistics, sector are down on historic long term drivers of the market. it is causing great disruption to more averages, possibly reflecting a perceived traditional retail real estate. A shop unit is nervousness in the sector and the future no longer the only route to market and as role the sector has to play in the market. a result retailers continue to re-examine Yields remain robust for prime retail with and rationalise their store networks. weakness seen in the secondary markets reflecting the occupational trends.

  12. Strategic report Governance Financial statements 18 LondonMetric Property Plc Annual Report and Accounts 2016 Our business model We use our knowledge and close relationships with our clients to buy assets and land where we can build both value and income. We will recycle these assets when we feel there are others we can buy with greater potential. To invest in assets 2 and land where we can increase both value and rental income We use our 1 relationships to make informed decisions Occupier People and Financial relationships expertise strengths Our strong retailer People are central We retain flexible relationships to our business and and highly shape our decision we look to attract attractive debt making. We aim and retain among arrangements to be the partner the best people to suit our of choice across in our industry. We property strategy the retail and have a talented and enhance distribution sectors. and committed shareholder returns. team. The value created 4 Evaluate 5 whether to hold £78m £50m 18% or recycle assets Net rental income Increased Growth in EPRA portfolio value earnings per share 7.25p 11.5% Dividends Total accounting return Financial review see page 30

  13. Strategic report Governance Financial statements LondonMetric Property Plc 19 Annual Report and Accounts 2016 Our business model continued How we add value 3 Our management approach: • We actively manage the portfolio to deliver superior returns • We manage the balance sheet through efgective financing • We run the business with due regard to sustainability • We employ a best in class team 2016 activities: Income Asset management Short-cycle development Contracted rental income 28 new lettings 0.3m sq ft 1.9m sq ft delivered £87.1m 27 rent reviews across 2.3m sq ft committed 6.0% of leases expire 1.8m sq ft and pipeline in five years £3.5m rental income uplift Planning consents 49.0% of portfolio subject on 0.4m sq ft to rent increases New developments Occupancy at 99.3% delivering BREEAM Very Good rating Investment review Asset management and development review see page 22 see page 26 A clear strategy to maximise performance • Focus on occupier-led distribution and retail • Buy assets with strong underlying fundamentals to deliver superior returns • Look to forward fund and pre-let development opportunities • Acquire land suitable for future developments • Consistently look to maximise income and grow value • Deliver long term superior shareholder returns Chief Executive Q&A see page 07

  14. Strategic report Governance Financial statements 20 LondonMetric Property Plc Annual Report and Accounts 2016 Key performance indicators We aim to deliver sustainable, progressive earnings of the Group and its share of joint ventures. A number and long term capital value through the execution of the key performance indicators are also used to of our strategy. We continue to use seven key evaluate management performance and remunerate performance indicators to monitor the performance senior employees. Objective KPI measure/numbers Performance Deliver long-term Total Shareholder Return, being the share price Total shareholder 41.7 19.7 5.9 movement together with the dividend, in the shareholder returns return three years post merger was 80%, outperforming % the FTSE 350 Real Estate Super Sector Index of 47% by 1.7 times. 2016 2014 2015 12 month Total Shareholder Return delivered 5.9% compared to a fall of 6% in the FTSE 350 Super Sector. Maximise Total Accounting Return of EPRA NAV movement Total accounting 16.5 21.7 11.5 together with dividend paid over the year. long-term total return accounting return 12 month Total Accounting Return delivered a % return of 11.5%. 2014 2015 2016 Maximise property Unlevered Total Property Return, including capital Total property 17.0 17.5 10.5 and income return, of the portfolio as calculated portfolio returns return by IPD. % 12 months Total Property Return delivered a return of 10.5% compared to IPD benchmark of 10.1%. 2014 2015 2016 Deliver sustainable Recurring earnings per share from core EPRA earnings 4.2 6.6 7.8 operational activities have grown by 18% over growth in EPRA per share the last 12 months. In the last three years since earnings p merger, EPRA earnings per share have grown by 100%. 2014 2015 2016 Drive like-for-like Year-on-year movement of net rental income on EPRA 3.4 2.9 3.1 properties owned through the period increased income growth like-for-like by 3.1%. through income growth management % actions 2014 2015 2016 Maintain strong Occupancy rate of investment portfolio of 99.3% EPRA 0.4 0.3 0.7 against IPD all property benchmark of 93.0%. occupier vacancy contentment % 2014 2015 2016 Maintain a higher Weighted average unexpired lease term across WAULT 12.7 13.1 12.8 the investment portfolio (excluding residential than market Years and development) of 12.8 years as at 31 March benchmark 2016, which outperformed the IPD all property weighted average benchmark of 11.2 years. unexpired lease 2014 2015 2016 term (WAULT)

  15. Strategic report Governance Financial statements LondonMetric Property Plc 21 Annual Report and Accounts 2016 Key performance indicators continued Remuneration 2016/17 ambition Performance indicators 75% of existing and 37.5% of future LTIP Three year TSR performance LTV ratio % awards vest after three years subject to to be in the upper quartile 2016 38 outperformance of the FTSE 350 Real of the FTSE 350 Real 2015 36 Estate index. Estate companies. 2014 32 The TSR component of the 2013 LTIP award is expected to vest in full. Debt maturity Years 2016 5.6 37.5% of future LTIP awards will be subject Three year total accounting 2015 4.2 to outperformance of the FTSE 350 Real return to be in the upper 2014 3.7 Estate sector. quartile of FTSE 350 Real Estate companies. Cost of borrowing % 2016 3.5 2015 3.7 35% of annual bonus award is subject to TPR One year TPR 2014 3.9 outperforming relevant IPD benchmark. outperformance against relevant IPD Quarterly EPRA topped up net This year TPR outperformed the IPD Universe benchmark. initial yield % benchmark delivering a 35% bonus payout. 2016 5.4 2015 5.8 2014 6.4 35% of annual bonus award is subject to an Deliver and sustain EPRA EPRA EPS growth target. This year EPRA EPS earnings growth and outperformed its growth target securing a full dividend progression. EPRA cost ratio % bonus payout. 2016 17 25% of LTIP awards vest after three years 2015 17 subject to an EPS growth target. The EPS 2014 25 component of the 2013 LTIP award is expected to vest in full. Risk management Forms part of EPRA earnings per share. Deliver like-for-like income The achievement of our growth ahead of inflation seven KPIs is influenced plus 1.5%. by the identification and management of risks which might otherwise prevent the attainment of our strategic priorities. The relationship Linked to individual non financial targets. Maintain high occupancy between our principal risks across the investment and KPIs is reviewed in the portfolio, targeting >99%. Managing risk section on pages 36 to 43. Linked to individual non financial targets. Maintain high weighted average unexpired lease term targeting >12 years. Managing risk see page 36

  16. Strategic report Governance Financial statements 22 LondonMetric Property Plc Annual Report and Accounts 2016 Investment review Our strategy is to own desirable real estate that ofgers opportunity to leverage our asset management and development capabilities. Delivering future income Selective distribution disposals Valentine Beresford Investment Director and capital growth Distribution disposals totalled £80 million Our disciplined approach to capital across four assets. allocation prompted us to sell £204 million These four disposals resulted from direct Investment activity of assets which had delivered on their approaches where the prices ofgered business plans. In particular, as yields £392m were ahead of our value aspirations. continued to tighten across the property We had regeared several of these market, we have taken the opportunity assets and as a result of our actions and to sell a significant number of retail assets market yield compression generated an at highly attractive prices. We also made impressive geared IRR of 36%. selective distribution disposals and continue the sell down of our remaining At our recently completed development residential assets. in Warrington, let to The Hut Group, the occupier has exercised its option Through our strong market relationships, to purchase the asset for £53.7 million. we selectively recycled into earnings The sale completes in November 2016 Distribution accretive acquisitions that ofgered good and will generate a geared IRR of 22%. acquisitions income growth prospects, delivering a 100 bps positive yield arbitrage. Acquisition activity focused £155m on distribution Significant retail disposals In a highly competitive investment market Our main focus was on the further we remained disciplined and selective disposal of our retail parks and we sold in acquiring assets. During the year, we £110 million of retail assets at a net initial purchased 16 assets totalling £188 million, yield of 5.8%, 160 bps better than their predominantly in the distribution sector, historic yield on cost. These disposals at a blended yield of 6.6%. crystallised impressive returns and Re-investment generated an average geared IRR of The forward funded development that we arbitrage 26%, reflecting both the benefit from acquired in Wakefield and our recently market yield compression and our asset acquired speculative development in + 100 management activity. Warrington represented approximately half of the distribution investments. Post year end, we sold a further three bps These developments are expected to retail parks and one cinema for generate a yield on cost of c.100-150 bps £17 million. higher than the ‘up and built’ investment yield. We continue to see good development opportunities. Investment activity by sub sector Acquisitions1 Disposals Cost at share NIY Proceeds at share NIY £m % £m % Distribution 85.5 6.3 80.4 5.4 Distribution – Development 70.0 6.8 – – Retail 32.1 7.0 110.1 5.8 Residential – – 13.6 1.8 Total 187.6 6.6 204.1 5.6 1 Assuming fully let

  17. Strategic report Governance Financial statements LondonMetric Property Plc 23 Annual Report and Accounts 2016 Investment review continued The balance of our distribution Outlook investments was mainly focused on regional and depot warehouses that We remain active and engaged in have the capability to facilitate next day sourcing new investments and selling delivery to major cities and conurbations. out of those retail assets which have We made six such acquisitions in the year, delivered to plan. We continue to the most significant of which was our refresh our development pipeline and £29 million DHL logistics hub in Reading. make further selective acquisitions Depot warehouses are typically well and disposals, and expect to further located, ofger attractive yields and ofger increase the percentage of our strong rental growth prospects. They are portfolio in distribution. becoming increasingly critical to a retailer’s logistics infrastructure and we anticipate further similar acquisitions going forward. Value creation from convenience and opportunistic retail assets Retail acquisitions in the year amounted to £32 million, purchased at a NIY of 7.0%, and these were predominantly convenience food acquisitions that ofger modern trading formats, let at afgordable rents and on very long leases to occupiers including Aldi and M&S. Towards the year end, we also acquired a development site in Ipswich, pre-let to Wickes. £29 million distribution warehouse acquisition Owning strategically important of the M4, and in close proximity to assets that can facilitate last mile Tesco’s one million sq ft regional hub. and local deliveries to major cities Other companies nearby include Royal and conurbations. Mail and Procter & Gamble. In November 2015, we acquired a DHL The building was acquired with a distribution warehouse for £28.8 million. WAULT of ten years and let at a rent of £1.8 million per annum, equating to The 230,000 sq ft asset is situated in a £7.73 per sq ft, with an open market rent prime distribution location on a 11.5 review in July 2020. acre site in Reading, next to Junction 11

  18. Strategic report Governance Financial statements 24 LondonMetric Property Plc Annual Report and Accounts 2016 Investment review continued Distribution Acquisitions Developments Investment 330,000 sq ft in Doncaster 524,000 sq ft in Wakefield £29.0 million acquisition of a Next warehouse. Purpose built Purchase and forward activity in 2005. Mezzanine floors increase the internal area to fund of a development 725,000 sq ft. Acquired at a NIY of 6.3% and with a WAULT for £40.0 million: of nine years • pre-let to Poundworld for 15 years 230,000 sq ft in Reading £28.8 million acquisition of a DHL warehouse in a prime • located near J31 of Overview location next to J11 of the M4. Acquired at a NIY of 5.8% the M62 and with a WAULT of ten years £155.5m acquired: • yield on cost of 6.3% • NIY: 6.6% 80,000 sq ft in Royston • completes in • WAULT: 11.4 years £8.3 million acquisition of a warehouse let to Hamleys and autumn 2016 connected to J10 of the M11. The building was acquired at £80.4m disposed: a NIY of 6.5% and with a WAULT of 13 years 356,000 sq ft in Warrington Purchase and forward • NIY: 5.4% 66,000 sq ft in Castle Donnington fund of a development for • WAULT: 15.5 years £6.0 million acquisition of a warehouse let to Howdens £30.0 million: located close to Midlands airport. Acquired at a NIY of 7.1% • located at Omega South and with a WAULT of nine years logistics hub next to J8 of 64,000 sq ft in Hemel Hempstead the M62 £7.5 million acquisition of a warehouse let to Goodrich Post period end • speculative development located one mile from J8 of the M1. Acquired at a NIY 41,000 sq ft in Basildon: • yield on cost of c.7.0% of 6.3% and with a WAULT of 15 years • £3.8 million acquisition • completes in 38,000 sq ft in Basildon of a warehouse let November 2016 £3.5 million acquisition of a warehouse let to Activair. to Modular Heating Acquired at a NIY of 6.5% and a WAULT of five years Group. The building was acquired at a NIY 25,000 sq ft in Edinburgh £2.4 million acquisition of a warehouse let to Scottish of 6.5% and a WAULT Widows. Acquired at an NIY of 8.2% and a WAULT of four years of 11 years 690,000 sq ft in Warrington: • Option exercised in the year by the Disposals occupier to acquire the warehouse for 341,000 sq ft in 268,000 sq ft in 210,000 sq ft in 170,000 sq ft in £53.7 million reflecting Wellingborough Harlow Birmingham Brackmills a NIY of 6.5%. The yield Sold for £29.2 million Sold for £37.2 million Sold for £18.2 million Sold for £14.4 million on cost for The Hut at a NIY of 5.8%. (Group share: at a NIY of 5.2%. at a NIY of 5.5%. Group development £18.6 million) at a LondonMetric LondonMetric LondonMetric was 8.0%. The sale topped up NIY to the acquired the acquired the re-geared the lease completes in November purchaser of 5.0%. building for building for at a yield on cost of 2016 and will generate £19.6 million The building was £10.1 million in 2013 8.0% a 22% geared IRR acquired in 2011 for £22.9 million 112,000 sq ft in Crawley: • Speculative development at an anticipated cost of £20 million reflecting a 6.3% yield on cost

  19. Strategic report Governance Financial statements LondonMetric Property Plc 25 Annual Report and Accounts 2016 Investment review continued Retail Acquisitions Developments Investment Speke Ipswich £6.9 million acquisition (Group share: £3.5 million) of a 20,000 sq ft £7.9 million acquisition activity retail unit let for 15 years to Currys PC World at a NIY of 6.8% of a 31,000 sq ft development pre-let Cowes to Wickes at a yield £3.0 million acquisition of a 12,000 sq ft convenience food store of 8.0% let to M&S at a NIY of 5.6% Leicester Overview Penrith £4.7 million acquisition £4.7 million acquisition of a 15,000 sq ft convenience food store of a 18,000 sq ft £35.5m acquired let to M&S for 20 years at a NIY of 6.0% development (Group share: £32.1m): pre-let to Aldi at Matlock • NIY: 7.0% a yield of 5.7% £3.6 million acquisition of a 22,000 sq ft convenience food store • WAULT: 19 years at a NIY of 7.0%. 13,000 sq ft has been pre-let to M&S for 25 years Haslemere £154.7m disposed £4.7 million acquisition of a 15,000 sq ft convenience food store (Group share: £110.1m): let to M&S at a NIY of 5.3%. The store opened in March 2016 • NIY: 5.8% • WAULT: 13.3 years Post period end Disposals There were four further Four retail parks were sold for Our MIPP joint venture has disposed of disposals for £25.0m (Group share: £17.1m): £64.5 million: six assets for £55.2 million (Group share: £27.6 million): • MIPP sold three assets Milton Keynes in Chatham, Bridgwater £27.2 million disposal of the 77,000 sq ft Lichfield Westcroft Retail Park at a NIY of 5.7%, and Grimsby for £13.3 million disposal of the 45,000 sq ft compared to a yield on cost of 7.2% Retail Park at a NIY of 5.5% £15.9 million (Group share: £8.0 million) at Southampton Bristol a NIY of 5.7% £16.2 million disposal of the 52,000 sq ft £12.6 million disposal of Longwell Green • One Odeon Cinema Mountbatten Retail Park at a NIY of 5.8%, Retail Park at a NIY of 5.4% compared to a yield on cost of 6.9% sold in Taunton for Camborne £9.1 million at a NIY Hove £9.9 million disposal of our 49,000 sq ft of 5.5% £13.6 million disposal of the 28,000 sq ft PC Retail Park at a NIY of 6.1% World retail unit in Hove at a NIY of 5.4%, compared to a yield on cost of 7.0% Maldon £7.2 million disposal of the 27,000 sq ft Cannock Retail Park at a NIY of 6.0% £7.5 million disposal of the 25,000 sq ft Watling Retail Park anchored by DFS. Haverhill Sold at a NIY of 6.2% £7.0 million disposal of our 39,000 sq ft Cambridge Road Retail Park at a NIY of 6.1% One Odeon Multiplex Cinema was sold in Preston for £10.2 million at a Nottingham NIY of 5.8%. £5.2 million disposal of the 24,000 sq ft Retail Park at a NIY of 6.4% Our DFS joint venture sold a property in Enfield for £24.5 million (Group share: £7.5 million) at a NIY of 6.6%.

  20. Strategic report Governance Financial statements 26 LondonMetric Property Plc Annual Report and Accounts 2016 Asset management and development review Our activities have further enhanced our portfolio metrics and strengthened our underlying income and prospects for income growth. Delivering strong and growing (ii) Secure income Mark Stirling Asset Director income We are highly focused on maintaining a strong and diverse tenant list and ensuring Our asset management and that there is strong occupier contentment. development initiatives were Our occupancy rate is 99.3% and our WAULT fundamental to delivering a significant top ten tenants represent 52.2% of total uplift in our net rental income during contracted rent compared to 54.1% the year. 12.8 in 2015. Our top five tenants consist of Primark, Dixons Carphone, M&S, Argos The £11.7 million per annum of additional and Odeon which together account for income from our successfully completed years 32.7% of contracted income. developments at Islip, Warrington and Kirkstall has been the key driver of this (iii) Rising income uplift. The blended yield on cost of 7.4% Contractual rental uplifts provide security for these developments was materially of income growth and 49.0% of our higher than yields on assets that we have contracted rental income is subject to sold. Our occupier transactions in the year fixed or RPI linked uplifts. Portfolio subject to also generated £3.5 million of contracted contractual uplifts rental uplift. We are confident of capturing meaningful open market rental uplifts 49% Future income growth underpins further from our distribution portfolio given the dividend progression. We will continue to positive rental growth outlook for the recycle into higher yielding opportunities, distribution sector. primarily our 2.3 million sq ft of committed and pipeline developments across Value enhancing activities 13 assets. Valuation uplift in the year was Our activities have maintained £49.8 million and the portfolio’s topped the portfolio’s strong income up net initial yield fell from 5.8% to 5.4%. characteristics Committed Our asset management and and pipeline development activities accounted for (i) Long income developments 39.3% of yield compression and, going The portfolio weighted average 2.3m forward, these activities will become unexpired lease term of 12.8 years (12.2 increasingly important in delivering years to first break) represents one of the valuation uplift. sq ft longest in the sector. In the year we achieved a property We continue to achieve long leases return of 10.9% on our core portfolio and on asset purchases and occupier 10.5% for all properties. Our core portfolio transactions of 12.9 years and 13.6 outperformed the IPD benchmark years respectively. reweighted for our core sectors of 10.1%. Only 6.0% of our income expires in the next five years, rising to only 37.9% over ten years.

  21. Strategic report Governance Financial statements LondonMetric Property Plc 27 Annual Report and Accounts 2016 Asset management and development review continued Asset management – occupier transactions Area Net uplift WAULT sq ft No. of in income to expiry ‘000 transactions £m years Asset New lettings and re-gears 253 28 3.3 13.6 management Rent reviews 1,836 27 0.2 During the year, Total 2,089 55 3.5 we executed 55 occupier transactions Lettings Rent reviews generating a £3.5 million rental income uplift. 28 lettings were undertaken During the year, we agreed 27 rent Lettings were undertaken generating a rental uplift of reviews, including fixed uplifts, across at a WAULT of 13.6 years. £3.3 million at an average of £21.40 1.8 million sq ft at 4.8% above ERV. These transactions per sq ft, 13.5% above ERV and with Post year end, we agreed rental uplifts achieved a 6.9% average lease lengths of 13.6 years. on two of our distribution assets totalling uplift against ERV and Lettings completed post year end 0.3 million sq ft at 2.7% above ERV and delivered EPRA like-for- and currently in legals total £1.8 million 15.4% above the previous passing rent. like income growth of covering 100,000 sq ft. 3.1%. ERV growth in the year was 6.4%. King’s Lynn New lettings were signed with B&M, Our occupancy rate Starbucks, DFS and Tapi Carpets on Occupier contentment remains very high at 43,000 sq ft. The 74,000 sq ft scheme is 99.3%. Occupier contentment and working fully let and will generate £1.5 million per annum rental income. in partnership with our retailers are key priorities for us and we continue to Coventry maintain a very high occupancy rate Poundworld signed a ten year lease at at 99.3%. the Airport Retail Park. Together with previous lettings to Aldi, B&M and A comprehensive independent Smyths Toys, the 136,000 sq ft park is occupier survey was undertaken fully occupied. in the year and our top 35 tenants Kirkstall were invited to participate. The retail park successfully opened LondonMetric achieved very in October and is 90% let. We signed favourable scores from those lettings with Smyths Toys, Card Factory, that responded: Lloyds Pharmacy, Trespass, Iceland, Cancer Research and, post year end, • 100% scored LondonMetric as either with Peacocks, Holland & Barrett good or excellent in relation to how and Specsavers. satisfied they were with LondonMetric as a landlord and how well we Leicester understood their needs Lettings were signed with Home Bargains and Smyths Toys on 28,500 sq ft. • 75% scored our ability to ofger real Ipswich estate solutions as good or excellent, M&S signed a 15 year lease on with the remainder scoring us in line 20,000 sq ft and new lettings were signed with expectations with Hobbycraft and Brantano. • 73% rated LondonMetric as better Tonbridge when compared against other Home Bargains signed a 15 year lease on landlords, with the remainder rating 15,000 sq ft of space previously occupied us in line with other landlords by B&Q. Hove Dixons Carphone signed a new 15 year lease on an enlarged 28,000 sq ft unit. For the full Responsible Business 2016 report see www.londonmetric.com

  22. Strategic report Governance Financial statements 28 LondonMetric Property Plc Annual Report and Accounts 2016 Asset management and development review continued Development summary (currently committed and pipeline) Area Anticipated Yield sq ft additional rent on cost Scheme Sector ‘000 £m % Short-cycle Committed development Wakefield Distribution 524 2.5 6.3 Warrington Distribution 356 2.2 7.0 We successfully completed three Tonbridge Retail 71 0.7 8.0 major developments King’s Lynn Retail 64 1.0 11.3 in the year across Liverpool Retail 29 0.5 5.9 1.9 million sq ft delivering St Margaret’s, Leicester Retail 29 0.4 7.4 £11.7 million of additional Aldi, Leicester Retail 18 0.3 5.6 income. Post year end, we completed Coventry Retail 18 0.3 7.3 the development at Loughborough Retail 12 0.5 5.1 Ferndown let to M&S. 1,121 8.4 7.1 In addition to a Conditional number of smaller retail Bedford Distribution 700 4.4 7.3 developments, we will Stoke Distribution 300 1.4 6.0 complete our distribution Crawley Distribution 112 1.3 6.3 developments in Ipswich Retail 31 0.6 8.0 Wakefield and Warrington by the 1,143 7.7 6.9 end of 2016. Committed and pipeline Distribution Retail developments total 2.3 million sq ft. Wakefield King’s Lynn The forward funded development Construction work is expected to is pre-let to Poundworld for 15 years. complete in October 2016. Construction completes Tonbridge in September 2016. Downsizing of the 18,000 sq ft Halfords unit Warrington will complete in September 2016. Planning Planning was approved in March consent to split and extend the 38,000 sq ft 2016. Construction has commenced B&Q unit is expected in June 2016. and completion is expected by Ipswich November 2016. The former Tesco site has been acquired Bedford and revised planning consent is Planning consent received for a expected by September 2016. development of up to 700,000 sq ft with Leicester acquisition of the land expected in 28,500 sq ft at St Margaret’s Retail Park September 2016. Several schemes for the will be completed and handed over in site are under consideration. July 2016. The nearby 18,000 sq ft Aldi Stoke development at Abbey Lane is expected Planning consent for up to 300,000 sq ft to complete in August 2016. was received in the year and demolition Coventry work has commenced and is expected Development of the 18,000 sq ft Aldi store to complete in January 2017. at the Airport Retail Park is expected to Crawley complete in October 2016. Speculative development of 112,000 sq ft. Loughborough Planning is expected by December Extension works to the Morrisons store with practical completion anticipated complete in December 2016. in Spring 2018.

  23. Strategic report Governance Financial statements LondonMetric Property Plc 29 Annual Report and Accounts 2016 Asset management and development review continued Key responsible development activities in the year Islip, Northamptonshire Warrington • 1,062,000 sq ft distribution warehouse let to Primark • 690,000 sq ft distribution warehouse let to The Hut Group • Completed in September 2015 • Completed in November 2015 • BREEAM Very Good • BREEAM Very Good • Built on brownfield site which was once an ironworks • Roof lights on 66,000 sq ft • Solar panels installed covering 30,000 sq ft and • Roof designed for future fitting of solar panels generating electricity for the occupier • Surface water discharge storage incorporated • Roof lights on 100,000 sq ft into scheme • Foul drainage system on-site with dedicated treatment plant • Monitoring energy usage of occupier Kirkstall, Leeds Coventry • 120,000 sq ft retail park • 136,000 sq ft retail park • Completed in October 2015 • Responsible asset management and development has transformed the retail park and generated • BREEAM Very Good significant socioeconomic benefits • Insulation and solar shading incorporated • Ten occupier initiatives added four new retailers into scheme • Currently developing an 18,000 sq ft Aldi • High effjciency LEDs for external lighting convenience store which completes in • Tenant fit out guide produced for occupiers October 2016 • Initiating monitoring of occupier energy usage • Initiating car park lighting upgrade and, in partnership with Dixons Carphone, installed solar panels For the full Responsible Business 2016 report See page 51 for further details see www.londonmetric.com

  24. Strategic report Governance Financial statements 30 LondonMetric Property Plc Annual Report and Accounts 2016 Financial review Our ongoing commitment to reposition the portfolio and capitalise on asset management and development opportunities has enabled us to grow income and earnings this year. This year we achieved one of our key Our strong financial results are Martin McGann Finance Director strategic and longstanding goals of fully underpinned by robust portfolio metrics, covering our dividend commitment, as the combination of which has enabled the charge for the year, paid in December us to increase the ordinary dividend 2015 and April 2016, was 107% covered by for the year to 7.25p, up 3.6% from last Reported profit EPRA earnings. year. We have decided to commence £82.7m the payment of our dividends on a We have achieved both earnings quarterly basis going forward with and NAV growth this year and have the next payment of 1.8p expected in strengthened and de-risked our October 2016. financing position. Our financing ratios remain strong with EPRA earnings have increased by LTV at 38%, an average cost of debt of 18.6% to £48.5 million or 7.8p per share, 3.5% and loan maturity of 5.6 years. compared with £40.9 million or 6.6p last year. We entered into a new £400 million Management monitors the performance unsecured revolving credit facility at the of the business on a proportionally beginning of the year and refinanced consolidated basis, although the Net assets £269 million of secured debt, lowering statutory results reflect the share of joint £898m the average interest rate, increasing ventures using the equity accounting debt maturity and strengthening the method. The commentary in this review balance sheet. is consistent with the proportionally consolidated approach. EPRA NAV per share is 147.7p, an increase of 5.0% in the year or 6.6% excluding the EPRA earnings and other performance additional 2p special dividend which measures are used as alternatives to IFRS was paid in July 2015. Reported profit equivalent measures as they highlight has fallen to £82.7 million as a result of the Group’s underlying recurring lower valuation gains and a £16.8 million performance. EPRA earnings is a key adverse movement in derivatives. performance indicator, reflecting the recurring profit of the Group’s property rental business and excludes items such as changes in property valuations and movements in the fair value of derivatives. EPRA earnings per share KPI EPRA net assets per share Dividend per share Dividend cover 7.8p +18% 147.7p +5% 7.25p +4% 107% 2016 7 .8 2016 147.7 2016 7.25 2016 107% 2015 6.6 2015 140.6 2015 7.0 2015 94% 2014 4.2 2014 121.0 2014 7.0 2014 60% Key performance indicators see page 20

  25. Strategic report Governance Financial statements LondonMetric Property Plc 31 Annual Report and Accounts 2016 Financial review continued Income statement EPRA earnings EPRA earnings for the Group and its share of joint ventures are detailed as follows: £48.5m Group JV 2016 Group JV 2015 For the year to 31 March £m £m £m £m £m £m Gross rental income 67.9 11.1 79.0 60.2 13.8 74.0 Property costs (0.8) (0.5) (1.3) (2.6) (0.5) (3.1) Net rental income 67.1 10.6 77.7 57.6 13.3 70.9 Management fees 2.2 (0.9) 1.3 2.2 (0.9) 1.3 Administrative costs (13.6) (0.2) (13.8) (12.5) (0.1) (12.6) Net finance costs (13.8) (2.9) (16.7) (15.4) (3.2) (18.6) Net rental income Other – – – – (0.1) (0.1) £78m EPRA earnings 41.9 6.6 48.5 31.9 9.0 40.9 The table below reconciles the movement In addition, the Group increased its in EPRA earnings in the year: holding in the MIPP joint venture from 33% to 50% in the previous year resulting in £m p additional income of £0.6 million this year. EPRA earnings 2015 40.9 6.6 Income lost as a result of disposals in the Net rental income 6.9 1.1 year of £13.5 million was ofgset in part by income of £3.4 million generated by Administrative costs (1.2) (0.2) acquisitions in the year. Net finance costs 1.9 0.3 Last year £1.6 million of development EPRA earnings 2016 48.5 7.8 feasibility costs were written ofg and included within reported property costs. Net rental income After adjusting for these non recurring Net rental income increased 9.6% in costs, property costs have fallen by the year to £77.7 million. Movements in £0.2 million or 13.3% compared with the net rental income are reflected in the previous year. This reflects lower vacant table below: unit costs post disposals of Carter Lane and residential assets. £m Administrative costs Net rental income 2015 70.9 Like-for-like properties 15.1 Administrative costs have increased by Acquisitions 3.4 9.5% to £13.8 million after capitalising stafg costs of £1.5 million (2015: £1.7 million) in Disposals (13.5) respect of time spent on development Property costs 1.8 activity in the year. Net rental income 2016 77.7 Total administrative costs including amounts capitalised increased by 7.0% or There was significant growth in like-for-like £1.0 million to £15.3 million, primarily due to rental income in the year which an increased LTIP charge as each of the increased by £15.1 million due to the awards granted for the three years post impact of acquisitions in the previous merger are now being amortised. year, contributing additional income of £9.4 million and the completion of three large developments, contributing a further £5.0 million.

  26. Strategic report Governance Financial statements 32 LondonMetric Property Plc Annual Report and Accounts 2016 Financial review continued EPRA cost ratio EPRA cost ratio 2016 2015 The Group’s cost base is closely monitored For the year to 31 March £m £m 1 7% and the EPRA cost ratio is used as a key MIPP 4.0 3.4 measure of efgective cost management. Retail Warehouse 2.4 3.2 Distribution – 2.6 2016 2015 % % Residential 0.2 (0.2) EPRA cost ratio 17 19 6.6 9.0 including direct vacancy costs In addition, the Group received net EPRA cost ratio 17 17 management fees of £1.3 million for excluding direct vacancy costs acting as property advisor, consistent with Cost of debt the previous year. 3.5% The EPRA cost ratio for the year, including The Group’s distribution joint venture direct vacancy costs, was 17% compared disposed of its remaining asset in with 19% last year. The ratio reflects total Harlow in June 2015 and its residential operating costs, including the cost of joint venture sold a further 25 flats at vacancy, as a percentage of gross rental Moore House, London. income. The full calculation is shown in Supplementary note iv on page 137. IFRS reported profit A full reconciliation between EPRA Net finance costs earnings and IFRS reported profit is given Net finance costs, excluding the costs in note 8(a) to the financial statements associated with repaying debt and and is summarised in the table on terminating hedging arrangements on page 33. sales and refinancing in the year were Despite an 18.6% increase in the year £16.7 million, a decrease of £1.9 million in EPRA earnings to £48.5 million, the over the previous year. Group’s reported profit for the year was This was due to a £1.8 million increase in £82.7 million compared with £159.5 million interest receivable from forward funded last year. The £76.8 million reduction was development projects and an increase primarily due to lower property valuation in capitalised interest on developments gains realised and a larger adverse of £1.1 million, both ofgset by increased movement in derivatives. commitment fees on the unsecured Medium and long term interest rates have facility and bank interest costs associated fluctuated over the year falling to very low with higher levels of debt of £1.0 million. levels by year end thereby increasing our Our interest rate exposure is hedged by a exposure to out of the money swaps. combination of fixed and forward starting Other movements in reported profit interest rate swaps and caps. include the profit on sale of properties At 31 March 2016, 93% of our debt was and associated debt and hedging break hedged. Independent advice is given costs, which together totalled £1.6 million by J C Rathbone Associates. this year compared with £9.9 million last year. In the previous year the sale of Share of joint ventures offjces at Carter Lane generated a profit on sale of £12.4 million. EPRA earnings from joint venture investments were £6.6 million, a reduction The total profit over original cost on of £2.4 million over last year as reflected in sales in the year was £37.9 million or 23% the table above. (2015: £51.1 million or 23%). Disposals are discussed in detail in the Investment review section of the Strategic report on pages 22 to 25.

  27. Strategic report Governance Financial statements LondonMetric Property Plc 33 Annual Report and Accounts 2016 Financial review continued The amortisation of the MIPP management contract, acquired on merger in 2013, EPRA net assets continues to flow through the income statement and is reflected in other items in the table below which reconciles EPRA earnings with IFRS reported profit. £922m Group JV 2016 Group JV 2015 For the year to 31 March £m £m £m £m £m £m EPRA earnings 41.9 6.6 48.5 31.9 9.0 40.9 Revaluation of investment 51.1 (1.3) 49.8 112.4 6.0 118.4 property Fair value of derivatives (16.7) (0.1) (16.8) (7.5) (1.1) (8.6) Debt and hedging early (0.1) (0.4) (0.5) (3.9) (0.1) (4.0) close out costs Valuation gain Profit/(loss) on disposal 2.4 (0.3) 2.1 13.4 0.5 13.9 Other items1 (0.4) – (0.4) (1.1) – (1.1) £50m IFRS reported profit 78.2 4.5 82.7 145.2 14.3 159.5 1 Other items include amortisation of intangible assets and deferred tax Balance sheet EPRA net assets for the Group and its share of joint ventures are as follows: Group JV 2016 Group JV 2015 As at 31 March £m £m £m £m £m £m Investment property 1,346.2 174.7 1,520.9 1,164.1 236.3 1,400.4 Gross debt (575.0) (62.9) (637.9) (465.5) (97.5) (563.0) Cash 42.6 4.1 46.7 50.6 13.0 63.6 Other net (liabilities)/assets (11.7) 4.1 (7.6) (20.6) (3.2) (23.8) EPRA net assets 802.1 120.0 922.1 728.6 148.6 877.2 EPRA net assets increased in the year by £44.9 million or 5.1% to £922.1 million. On a per share basis, net assets increased by 7.1p, or 5.0%, to 147.7p. The movement in the year is summarised below. The major contributor to EPRA NAV EPRA net asset value (£m and pence per share) growth in the year was the £49.8 million 877.2 48.5 49.8 (43.7) (12.5) 2.8 922.1 valuation uplift. Our asset management 147.7 140.6 7.8 8.0 (7.0) (2.0) 0.3 and development activities accounted for 39.3% of yield compression. The impact of the stamp duty increase to 5% on commercial property in March 2016 reduced the valuation uplift by £10.7 million. EPRA earnings covered the ordinary EPRA earnings revaluation Property dividend paid Ordinary dividend paid Special movements 1 Other 2015 2016 dividend paid in the year. A special dividend was paid in July 2015 to distribute the realised gain on sale of offjces at Carter Lane in the previous year. 1 Other movements include amortisation of intangible assets, profit on sales and share-based awards

  28. Strategic report Governance Financial statements 34 LondonMetric Property Plc Annual Report and Accounts 2016 Financial review continued IFRS reported net assets increased Portfolio value Portfolio by £28.0 million or 3.2% in the year to value £898.2 million. A reconciliation between £1,521m £m IFRS and EPRA net assets is detailed in Opening valuation 2015 1,400.4 note 8(c) to the financial statements Acquisitions 113.0 on page 118. Developments 105.0 Portfolio valuation Capital expenditure on 14.5 completed properties The Group’s portfolio including its share Disposals (193.2) of joint venture properties grew to £1,520.9 million over the year, an increase Revaluation 49.8 of £120.5 million or 8.6%. Lease incentives 31.4 Distribution value Closing valuation 2016 1,520.9 The core property portfolio of retail £824m and distribution assets (including associated development) represented Further detail on the split between Group 91% of the total portfolio valuation and joint venture movements can be at the year end compared to 90% in found in Supplementary note vii on March 2015 as reflected in the following page 138. segmental analysis: The Group’s commitment to its development pipeline is evidenced by 2016 2015 As at 31 March £m £m the significant spend in the year, which Retail 543.8 567.8 included £71.3 million on forward funded developments at Warrington, Wakefield, Distribution 784.4 558.6 Ferndown, Liverpool and Leicester and Offjces 80.2 73.3 £33.7 million on other developments, Residential 55.9 69.6 principally at Kirkstall and Islip. Three of Development 1 56.6 131.1 these developments completed in the year. Property value 1,520.9 1,400.4 The Group has continued to take 1 Distribution £40.0 million; Retail £16.6 million advantage of the strong investment market to dispose of mature assets that Investment in distribution assets, including have delivered their business plans and those under development, has increased enabled us to recycle capital into big to 54% of the portfolio from 47% last year box logistics and smaller distribution as reflected in Supplementary note ix on units which ofger attractive yields, strong page 139. rental growth prospects and asset We have retained our remaining offjce at management opportunities. Marlow and have continued to sell down The disposal of 16 commercial and 26 residential assets. residential assets in the year generated Investment in development assets has proceeds of £204.1 million at share and fallen as three developments at Islip, reduced the carrying value of property Kirkstall and Warrington completed on by £193.2 million. schedule in the year and have been reclassified as investment assets. The movement in the investment portfolio is explained in the table above.

  29. Strategic report Governance Financial statements LondonMetric Property Plc 35 Annual Report and Accounts 2016 Financial review continued Financing The MIPP debt facility with Deutsche Loan to value Pfandbriefbank was reduced by Net debt on a proportionately £37.9 million (Group share: £19.0 million) to 38% consolidated basis at the year end was £87.1 million (Group share: £43.6 million), £591.2 million, a £91.8 million or 18.4% of which currently £10.0 million (Group increase over last year. The proportionally share: £5.0 million) remains available to consolidated key performance indicators draw. The Retail Warehouse facility with used to monitor the Group’s debt M&G was reduced by £11.5 million (Group and liquidity position are shown in the share: £3.5 million) following the sale of a table below. DFS unit in Enfield. Debt maturity and the average cost of 2016 2015 As at 31 March £m £m debt both improved as a result of the Undrawn facilities Gross debt 637.9 563.0 Group refinancing at the beginning of the year and were 5.6 years (2015: 4.2 years) £70m Cash 46.7 63.6 and 3.5% (2015: 3.7%) respectively at the Net debt 591.2 499.4 year end. Loan to value 1 38% 36% Loan to value net of cash resources and Cost of debt 2 3.5% 3.7% deferred consideration on the sale of Undrawn facilities 69.9 83.4 Odeon Preston which completed post Average debt 5.6 years 4.2 years year end was 38% (2015: 36%). maturity At 31 March 2016, 93% of our exposure Hedging 93% 80% to interest rate fluctuations was hedged. This reduces to 84% as existing undrawn 1 2016 LTV includes £10.2 million of deferred consideration receivable on sales facilities are fully utilised. During the year, we acquired forward starting swaps and 2 Cost of debt is based on gross debt and including amortised costs but excluding swaptions to increase and extend the commitment fees longer term hedging profile. We monitor interest rate movements and since the The Group and joint venture split is shown year end have bought down £66.3 million in Supplementary note iii on page 136. of legacy interest rate swaps to reduce The Group refinanced all of its existing our interest cost. This reduces our average secured debt facilities on 1 April 2015 debt cost to 3.3%. except for its £196.2 million distribution The Group has complied throughout facility with Helaba and its joint venture the year comfortably with the financial facilities. A new unsecured facility covenants contained in its debt was agreed with a syndicate of five funding arrangements. lending banks for an initial commitment of £400 million and five year term. Taxation The commitment was increased in November 2015 by £43.8 million and As the Group is a UK REIT, any income and the term was extended by one year in capital gains from our qualifying property March 2016. rental business are exempt from UK corporation tax. Any UK income that does The refinancing simplified the Group’s not qualify as property income within the debt arrangements and provides greater REIT regulations is subject to UK tax in the operational flexibility. normal way. The Group’s share of joint venture gross We continue to monitor and comfortably debt has fallen by £34.7 million or 35.5% comply with the REIT balance of since last year as a result of flat sales at business tests to ensure our REIT status Moore House, the distribution warehouse is maintained. sale in Harlow and retail asset sales through the MIPP and Retail Warehouse joint ventures.

  30. Strategic report Governance Financial statements 36 LondonMetric Property Plc Annual Report and Accounts 2016 Managing risk The strategic priorities for the business continue to be the delivery of sustainable, progressive earnings and long term capital growth. The Directors recognise that risk is Management’s role in the process Risk management inherent in running the business and framework A key part of the risk management therefore the associated risks must be process is the assessment of the impact understood and managed. and likelihood of risks occurring so that appropriate mitigation plans can Board’s role in the process be developed and implemented. The Board is responsible for determining The Executive Committee is responsible Board the nature and extent of the principal for the identification of risk and the design, Audit risks that the Company is willing to take implementation and maintenance of the Committee in achieving its objectives. It undertakes systems of internal controls and is assisted Executive a robust assessment of the principal risks by senior management in this process. Committee facing the business at each meeting and The Company operates from one offjce Senior Managers has adopted a risk dashboard to assist location and has short reporting lines this process. Its assessment covers a three ensuring the Executive Committee’s close year period, consistent with its statement involvement in day-to-day matters and Processes on viability on page 37. Material issues enabling increasing risk to be identified are monitored so that key risks can be quickly and appropriate responses to be Risk identification managed appropriately and new risks put in place. identified early on and action taken Assessment and The risk register rates the significance quantification to remove or reduce their likelihood and probability of each risk identified by and any potential negative impact. management as having either a high, Mitigation action plan Efgective risk management has always medium or low impact. Greater weighting been embodied within the culture of the is applied the higher the significance Ongoing monitoring business and decision making processes. and probability of a risk. These weightings In general the Board’s appetite for risk are then mathematically combined to Reporting to Board is low where it prejudices its objectives produce an overall gross risk rating which being achieved. is colour coded using a traffjc light system. Specific risk management safeguards Audit Committee’s role in the for each risk are identified, detailed and process rated as strong, medium or weak with The Board has delegated responsibility greater weighting applied the stronger for detailed assurance of the risk the safeguard. The gross risk rating and management process to the Audit strength of safeguards against that risk are Committee. The Audit Committee then combined to produce a resultant carries out a detailed review of the risk overall net risk. Consideration is given register and internal controls at least to the implementation of further action once a year to consider the efgectiveness to reduce risk where it is considered of the risk management and internal necessary. Finally each risk is allocated an control processes and reports its findings owner and details of how the safeguards to the Board. The risk register was last are evidenced is noted. presented to and considered by the Audit Committee in March 2016.

  31. Strategic report Governance Financial statements LondonMetric Property Plc 37 Annual Report and Accounts 2016 Viability Statement In accordance with provision C.2.2 of the 2014 revision The principal risks and uncertainties that afgect the of the Code, the Directors have assessed the prospect Company are those risks identified as having the of the Group over a period longer than the 12 months potential to cause material harm to the business and its required by the ‘Going Concern’ provision. The Board ability to execute the strategic objectives or exceed the conducted this review taking account of the Group’s Board’s risk appetite. The risks identified and reported on long term strategy, principal risks, current position and pages 38 to 43 and matrix below are broadly the same future plans and for a period of three years. as those reported at the last year end but have been categorised in a manner consistent with the Board’s This period was chosen for the following reasons: risk dashboard which it considers at each meeting. • The Group’s financial business plan and detailed The rationale for perceived increases or decreases in budgets cover a rolling three year period. The business the risks identified are contained within the commentary plan includes budgeted profit and cashflows and for each risk category. also considers dividend cover, loan to value, loan The matrix below illustrates the assessment of the impact covenants and REIT compliance metrics. These are and likelihood of principal risks identified. updated and reviewed at least quarterly against actual performance • It reflects the short-cycle nature of the Group’s Perceived likelihood of occurrence after mitigation developments and asset management initiatives. Rare Low Medium High Three major developments completed this year at Islip, significant Kirkstall and Warrington. All three developments were Not completed within one year • The average length of asset management initiatives involving significant reconfiguration of retail parks is under one year. All other committed developments Low 4 in progress at the end of the year are expected to 9 complete in 2016 Potential impact 5 Medium • Three years is considered to be the optimum balance 2 between long term property investment and the 3 inability to accurately forecast ahead given the cyclical nature of property investment 6 10 7 High The business model is stress tested to validate its resistance to principal risks including changes to property valuations 8 1 and associated asset yield curves, ERV growth, future libor and swap rates, committed capital expenditure and Extreme the ability to finance forecast transactions and refinance maturing debt. The sensitivity analysis assessed the limits at which key financial covenants and ratios would be breached or The Board consider this risk has increased since last year: deemed unacceptable. The modelling consists of a base 2 – Economic and political outlook case scenario which only includes deals under ofger and 8 – Valuation risk also an assumed case which factors in reinvestment. The Board consider this risk has remained broadly unchanged from last year: Based on the results of their review, the Directors have a 1 – Strategy reasonable expectation that the Company will be able 3 – Human resources to continue in operation and meet its liabilities as they fall 4 – Systems, processes and financial management due over the three year period of their assessment. 5 – Regulatory and tax framework 6 – Investment risk 7 – Development risk 9 – Transaction and tenant risk The Board consider this risk has reduced since last year: 10 – Capital and finance risk

  32. Strategic report Governance Financial statements 38 LondonMetric Property Plc Annual Report and Accounts 2016 Corporate risks Risk, impact, appetite How it is managed Commentary 1 Strategy That the Company The Board review and update strategy Portfolio repositioning has continued during has an unclear or and objectives on a regular basis adapting the year towards big box logistics and unrealistic strategy for to changes in economic conditions and smaller distribution warehouses. the current stage of opportunities as they arise. 54% of the portfolio is in the Company’s the property cycle and The Executive Directors are closely involved core distribution sector including 40% in economic climate in the day to day management of the retailer-led distribution, a strong performing Impact: Company which operates from one sector with real prospects for rental growth Suboptimal returns offjce location and has a relatively flat and therefore capital growth due to a for shareholders. organisational structure making it easier supply/demand imbalance. The Company to identify market changes. Delivery of three developments over may not be able to Management have an entrepreneurial 1.9 million sq ft of space in the year adding take advantage of approach and extensive experience in real rent of £11.7 million per annum. opportunities and estate particularly the retail sector. Committed and pipeline development of efgectively manage Research is commissioned into consumer 2.3 million sq ft is expected to add a further threats to its success. shopping patterns and occupational £16.1 million of rental income. It may not be able to markets to assist in strategic decisions. EPRA like-for-like income growth was 3.1% ensure that the people, Financial forecasts are updated in light over 55 lettings and rent reviews. resources and systems of strategic changes and reported to the are in place to ensure These strong operational metrics supported Board and Executive Committee regularly. ongoing success. another strong financial performance with The Group has a rolling three year forecast. EPRA earnings per share increasing 18% to Appetite: Management has a substantial investment 7.8p. The Board views this in the Company and their interests are as fundamental to Executive Directors hold 8.5 million shares aligned with external shareholders. the business and between them and comfortably meet the its reputation. The Company’s staffjng plan is focused Company’s shareholding guidelines as on experience and expertise necessary shown on page 90. to deliver its strategy. Investment review No significant change from 2015 see page 22 Asset management and development review see page 26 Financial review see page 30 Governance see page 90 The categorisation of and Increased risk from 2015 movement in the principal risks No significant change from 2015 identified are consistent with the risk matrix reflected on page 37. Risk reduced since 2015

  33. Strategic report Governance Financial statements LondonMetric Property Plc 39 Annual Report and Accounts 2016 Corporate risks continued Risk, impact, appetite How it is managed Commentary 2 Economic and political outlook Economic and political Research is commissioned into economic Weighted average unexpired lease term factors may lead to a matters and market volatility is monitored. of 12.8 years and EPRA vacancy rate of downturn or specific 0.7% are amongst the highest and lowest The Company only invests in the UK and has sector turbulence respectively in the industry. little exposure to the London market. Impact: Distribution assets represent 54% of the A significant proportion of the Company’s Poorer than expected portfolio. Current logistics supply equates portfolio is in a resilient asset class with a performance, property to approximately six months’ demand. supply/demand imbalance. values may fall, tenant 88% of development expenditure in the The Company has a high weighted demand and asset year related to forward funded and pre- average unexpired lease term reducing liquidity may reduce. let opportunities. re-letting risk. Debt markets may The Board is conscious of the uncertainty The Company has a low vacancy rate due be impacted. which surrounds the outcome of the to its strict investment and development Appetite: European Referendum and the risks criteria. It also has a diversified tenant base. Market conditions posed by it. Acquisition due diligence considers tenant are outside of the covenant strength. The Board is confident that these risks Company’s control. are mitigated by the makeup of the Developments and asset management portfolio with its strong focus on retailer- initiatives are predominantly undertaken led distribution and convenience and on a pre-let basis or geographically out of town retail and that the strong where a researched supply/demand portfolio and financial returns outlined in imbalance exists. this report will provide protection in the The Company has medium term, flexible form of a sustainable long term income funding with headroom in covenant levels return to investors whatever the outcome and no reliance on sales. of the Referendum. Asset management and development review Increased risk from 2015 see page 26 Human resources 3 An inability to attract, The Company maintains an organisational The Chairman’s contract was extended to motivate and retain high structure with clear responsibilities and 31 March 2017. Further consideration will be calibre stafg reporting lines. given to the position of Chairman during the course of the current year. Impact: The remuneration structure for stafg is That the Company aligned to long term performance targets The Company appointed an executive doesn’t have stafg with the for the business with long term share based search company, the Zygos Partnership, right skills and experience incentive arrangements in place. to source potential Non Executive Director to deliver its business plan. candidates for succession planning Senior management shareholdings in the purposes. As a result of this search Andrew Appetite: Company are significant. Livingston, Chief Executive of Screwfix, The Board views it as Annual appraisals identify training will replace Charles Cayzer on the Non vitally important that requirements and assess performance. Executive Board. the Company has the Specialist agencies are contracted where appropriate level of Additional stafg have been employed with appropriate if there are perceived short leadership, expertise and development and logistics expertise given term skills shortfalls. experience to deliver its increased focus on these areas. objectives and adapt to change. Governance No significant change from 2015 see page 68

  34. Strategic report Governance Financial statements 40 LondonMetric Property Plc Annual Report and Accounts 2016 Corporate risks continued Risk, impact, appetite How it is managed Commentary Systems, processes and financial management 4 Controls for safeguarding There is a strong control culture within A new property database was assets and supporting the Company. implemented in the year which interfaces strategy are weak with the accounting system to provide up Systems security is in place, supported by a to date accessible information. The external Impact: specialist advisor. Business continuity plans auditors tested the integrity of the system Inadequate asset security. are up to date with adequate back up which has been used to provide the key Suboptimal returns and which is tested. portfolio metrics in this report. decisions made on Procedures are in place to ensure inaccurate information. The Audit Committee received and accuracy of the property database and considered a report from management on Appetite: data capture. the implementation of the new system in The Board’s appetite Assets are safeguarded with appropriate the context of internal control. for such risk is low and levels of insurance. management continually Appropriate segregation of duties and strives to monitor and controls over financial systems are in place. improve processes. Financial information is provided to management on a timely basis for approval and decision making purposes. Costs are controlled with procedures to ensure that expenditure is valid, properly authorised and monitored. Audit Committee report No significant change from 2015 see page 76 Regulatory and tax framework 5 The Company has been afgected by recent Non compliance with There is a clear focus on obligations under tax changes. legal or regulatory the Company’s responsible business obligations strategy and regulatory influences on The increase in the commercial rate of the business such as Health and Safety, Impact: SDLT to 5% has impacted the whole real environmental, employment, anti- Fines, penalties, sanctions estate sector. corruption related legislation and the UK and reputational The stamp duty increase reduced the Corporate Governance Code. damage which may portfolio valuation uplift in the second half impact investor demand Responsibility for specific obligations is of the year by £10.7 million. in the Company. allocated to individuals and overseen Changes in respect of the taxation of Potential loss of REIT by the Executive Committee. External residential property, particularly the rate of status. Increased costs. specialists provide advice and support. SDLT has, in addition to economic factors, Impact on re-letting Stafg training is provided. led to a slowdown in the London residential potential of an asset. The Company is provided with external market to which the Company still has Appetite: specialist tax advice. some exposure through a 40% joint venture The Board has no interest in Moore House. Compliance with REIT legislation is appetite where non monitored on an ongoing basis for decision The joint venture has continued to sell down compliance risks injury or making purposes and reported. flats with 25 being sold in the year bringing damage to stafg, tenants, the total number of flats sold to 58. The impact of legislative changes is assets, shareholders considered in strategic terms. and reputation. Financial review No significant change from 2015 see pages 32 and 33

  35. Strategic report Governance Financial statements LondonMetric Property Plc 41 Annual Report and Accounts 2016 Property risks Risk, impact, appetite How it is managed Commentary 6 Investment risk Investment opportunities The extensive experience of management The Company acquired £187.6 million of cannot be sourced at and their strong network of connections property with a number of significant ofg attractive prices provide insight into the property market market transactions. and opportunities. Impact: The yield arbitrage between Ability to implement Management’s relationship with retailers acquisitions and disposals was 100 bps strategy and deploy capital and its ability to forward fund assets is an evidencing appropriate investment and into value and earnings important factor in generating deal flow divestment decisions. accretive investments at risk. given that it is harder to find value in income Opportunities to acquire assets let on generating assets due to yield compression Appetite: long leases to strong covenants have in the market. The Board aims to keep this reduced as yields have compressed. risk to a minimum but it is Better value opportunities have been afgected to a large degree identified with development and asset by matters outside of its management potential that ofger good control. The Board’s focus is income growth prospects. on having the right people and funding in place to take advantage of opportunities as they arise. Investment review No significant change from 2015 see page 22 Development risk 7 Excessive capital is The Company only considers short cycle Development represents 4% of the allocated to activities and relatively uncomplicated development. portfolio at the year end compared which carry development Management have significant experience with 9% last year. risk. Developments fail to of more complex development. Delivery of three developments over deliver expected returns Exposure to developments and phasing 1.9 million sq ft of space in the year due to inconsistent timing of projects is considered as part of the on schedule. with the economic cycle, quarterly financial forecasting process for Further developments in progress at adverse letting conditions, the Board. The Company’s overall level Wakefield, Ferndown, Liverpool and increased costs, planning of exposure to development is low as a Leicester are all due to complete on or construction delays percentage of the total portfolio. time and budget this year. Impact: Standardised appraisals and cost budgets Committed development at the year Poorer than are prepared for developments with regular end totalled 1.1 million sq ft and was expected performance. monitoring of expenditure against budget to 72.3% pre-let. Appetite: highlight potential overruns at an early stage. Short cycle development pipeline The Board is willing to External project managers are appointed. of 1.1 million sq ft. take some speculative The procurement process includes development and planning tendering and the use of highly regarded risk if it represents a firms with track records of delivery to relatively small proportion minimise uncertainty over costs. of the total property Developments are only undertaken in areas portfolio and is supported of high occupier demand and significant by robust research in pre-lets are secured where possible respect of demand before development work commences and a high likelihood of to de-risk projects. planning approval. Where possible development sites are acquired with planning approval in place. Asset management and development review No significant change from 2015 see page 28

  36. Strategic report Governance Financial statements 42 LondonMetric Property Plc Annual Report and Accounts 2016 Property risks continued Risk, impact, appetite How it is managed Commentary Valuation risk 8 Assets may fall in value The property cycle is continually monitored The valuation uplift in the year was with investment and divestment decisions £49.8 million. Impact: made strategically in anticipation of Pressure on NAV growth and Asset management and development changing conditions. potentially loan covenants. activities accounted for 39.3% of Property portfolio performance is regularly yield compression. Appetite : reviewed and benchmarked on an asset by There is no certainty that 55 letting and rent review transactions asset basis. property values will be generated an increase in like-for-like realised. This is an inherent Focus is on income security. Lettings to high income of 3.1%. risk in the industry. quality tenants within a diversified portfolio Delivery of developments on of well located assets and a high weighted schedule and budget supported the average unexpired lease term reduces the valuation assumptions. risk of negative movements in a downturn. Our top ten tenants contribute 52% Acquisitions which have opportunities of contracted rental income. to enhance value by undertaking asset management initiatives and playing to the strengths of the asset management team and their connections are favoured as well as assets which are considered to be mis-priced. Valuations across the sector have reduced as a result of the increase Asset management and development review see page 26 in the rate of SDLT charged on commercial property from the date of the March 2016 budget. Supplementary note xvii see page 141 Transaction and tenant risk 9 Property purchases Acquisitions are thoroughly evaluated The Company has a very low level of are inconsistent with by undertaking a detailed financial, tenant default within the industry and strategy. Inadequate due legal and operational appraisal prior to high occupancy levels. diligence is undertaken. Board approval. The EPRA vacancy rate at the year end Lettings are made to Asset management initiatives undergo cost- was 0.7%. inappropriate tenants benefit analysis prior to implementation. There were no trade debtors considered Impact: External advisors are used to ensure at risk at the year end. Pressure on NAV, appropriate pricing of lease transactions The tenant base has been further earnings and potentially and to carry out acquisition due diligence. diversified during the year and the loan covenants. Tenant covenant strength and covenant strength of the top ten tenants Appetite: concentration are assessed for all has increased. The Board’s appetite to acquisitions and leasing transactions. The Board consider that fundamentally risks arising out of poor due An experienced property management the occupational market is currently diligence processes on team work closely with tenants and strong particularly for its core asset class. acquisitions, disposals and consider action for slow payers. lettings is low. Rent collection is closely monitored and reported to the asset management team to identify potential issues. The Group has a diversified tenant base and limited exposure to individual occupiers in bespoke properties. Supplementary note vi No significant change from 2015 see page 138

  37. Strategic report Governance Financial statements LondonMetric Property Plc 43 Annual Report and Accounts 2016 Financing risks Risk, impact, appetite How it is managed Commentary 10 Capital and finance risk The Company has Assets which have achieved target returns Disposals of £204.1 million and insuffjcient funds and and strategic asset plans are sold. Cash flow acquisitions of £187.6 million were made credit available to it forecasts are monitored closely to ensure in the year demonstrating our ability to suffjcient funds are available to take recycle capital. Impact: advantage of investment opportunities Implementation of strategy The secured Helaba facility was and meet financial commitments. is at risk. refinanced in the prior year for a seven Relationships with a diversified range of year term. Appetite: banks and alternative lenders are nurtured The Board has no appetite The Company took advantage of a and loan facilities regularly reviewed. for imprudently low levels of continuing improvement in the debt The availability of debt and the terms available headroom in its market and entered into a £400 million on which it is available is considered as reserves or credit lines. unsecured revolving credit facility to part of the strategy and analysis for each refinance its remaining balance sheet It accepts a low degree of acquisition and development. debt on 1 April 2015 for an initial five market standard inflexibility Loan facilities incorporate covenant year term. This facility together with in return for the availability headroom, appropriate cure provisions the Helaba facility provides greater of credit. and suffjcient flexibility to implement asset operational flexibility and alignment with The Board has some management initiatives. Headroom is the real estate strategy. The facility also appetite for interest rate risk, actively monitored and incorporated into diversified the lending partners to the loans are not fully hedged. forecasts. Non financial covenants are also Company and has since been extended This follows cost benefit by a further year and the credit limit closely monitored. assessment and takes into raised to £443.8 million. The facility can Gearing levels are carefully considered account that not all loans be increased by a further £56 million. and stress tested before entering into new are fully drawn all the time. arrangements. The Company maintains a At 31 March 2016, the Group had modest level of gearing overall. £593 million of derivatives in place covering 93% of total available debt The impact of disposals on secured including joint venture arrangements. loan facilities covering multiple assets Advantage has been taken of falling is considered as part of the decision swap rates during the year and making process. subsequently to improve the hedging Interest rate derivatives are used to profile following the unsecured fix or cap exposure to rising rates. loan refinancing. Hedging recommendations are received The Company complied with all financial from a specialist advisor. covenants during the year. The Company has joint ventures with Increased diversification, scale and well funded partners particularly for reduced interest rate costs under the larger transactions. Current joint venture new unsecured facility and hedging arrangements have no significant profile insulate the Company from credit foreseeable equity requirements. risks associated with one ofg shocks from Joint venture partners are chosen with care any single asset. to ensure that strategies are not misaligned which may impact asset value and liquidity. Financial review Risk reduced since 2015 see page 35

  38. Strategic report Governance Financial statements 44 LondonMetric Property Plc Annual Report and Accounts 2016 Our approach to Responsible Business There has been increased legislative pressure on environmental issues and growing demand from investors for sustainability disclosure. We have worked hard to fully integrate Responsible Business policies and procedures across our core business activities. Our approach Importance of to Responsible Business Responsible Business Our Responsible Business Policy was first • Critical to managing sustainability risks Beyond driving our own sustainability published in 2014 following a detailed • Important in generating sustainable performance, the review of the sustainability risks and value from our portfolio and work we put in to meet opportunities which are most material enhancing profitability our annual targets to our business. allows us also to • Helps us to mitigate any potential continue to meet our Our Responsible Business Strategy sets out long term risks posed by less resource stakeholders’ advancing our sustainability priorities across four core effjcient assets expectations. business activities: • Enables us to successfully and Martin McGann (i) our business operations Finance Director sustainably deliver on our developments (ii) our property investments • Promotes excellent stakeholder (iii) property development relationships and assists them in For the full Responsible delivering on their own responsible (iv) asset management Business 2016 report business objectives see www.londonmetric.com It is supported by the foundations of good risk management. Key targets are set for each of our sustainability priority areas on an annual basis. The delivery of these targets is Responsible Investment, Asset Management overseen by our Executive Committee and Development and progress is monitored on a quarterly basis through our Responsible Business meetings, attended by key representatives from across the business. Responsible We also receive support from our external Investment Generating real estate sustainability advisors. sustainable value Responsible Business training is carried out across all employees annually to make sure we efgectively deliver on our targets and continue to optimise our Responsible Business approach. We actively engage with stakeholders Responsible Business (investors, JV partners, occupiers, Managing stakeholder relationships and communities and local authorities) risk well on Responsible Business themes and relevant materials are included Responsible e R Responsible Development nt Asse Asset Management in investor roadshows. Future-proofing ng Responding R our pipeline to occupier needs

  39. Strategic report Governance Financial statements LondonMetric Property Plc 45 Annual Report and Accounts 2016 Key achievements in the year During the year, we built on our significant progress from the previous year. In particular we expanded our Responsible Business efgorts through the introduction of our new Responsible Business Procurement Policy with contractors and suppliers and rolled out processes to better measure occupier contentment through the introduction of a satisfaction survey. The successful rolling out of our Responsible Business Strategy has allowed us to significantly improve our GRESB performance and achieve an EPRA sustainability BPR Gold award. EPRA sBPR Gold award Targets 2015/16 Independent tenant EPCs on unknown assets and significantly satisfaction survey completed; 100% of 94% improved GRESB score undertaken assets rated ‘E’ or above 100% achieved One remaining target partially achieved and good progress made See the full Responsible See page 47 See page 49 See page 49 Business 2016 Report BREEAM Very Good Solar PVs installed Full Health & Safety Established Responsible certification on 1.9m sq ft policy roll out across Procurement Policy and 536 kw of developments corporate and development contractor development projects checklist on projects 1 2 3 4 See page 48 See page 49 See page 52 See page 48 Initiated external lighting Commenced collection Community and Carbon footprint LED replacement of tenant energy Charities Working Group reduced by 11% programme across retail usage and monitoring formalised and initiatives -1 1% warehouse portfolio of performance commenced on completed developments on a like-for-like basis See page 49 See page 49 See page 50 See page 46

  40. Strategic report Governance Financial statements 46 LondonMetric Property Plc Annual Report and Accounts 2016 Performance highlights In 2015, we established a baseline and benchmarks for measurement of the environmental performance of our portfolio. Since then we have significantly reduced our utilities consumption and GHG emissions, enabling us to save around £283,000 in costs. Energy Greenhouse gas Water Waste 1 consumption (GHG) emissions consumption production 7 ,080 MWh 2,808 tCO 2 e 6,191 m 3 99 tonnes Down 39% Down 36% Down 19% 39% recycled We have also reduced On a like for like basis, We reduced total like-for- 90% of waste generated our total like-for-like GHG emissions were like water consumption by our offjce asset. Our energy consumption down by 11% as a result of by 19%. Water saving recycling rate was 39% (electricity and natural the reduction in energy measures are now and 100% of waste was gas) by 8% compared consumption. We have in place at Marlow diverted from landfill. to 2014. A key initiative also reduced our Carbon International, the offjce Our most significant which helped us to Reduction Commitment asset which accounts waste occurs from our achieve this was lighting (CRC) liabilities from for 89% of our total water developments. We have and energy effjciency £60,385 to £43,382 since footprint. implemented procedures improvements at our last year. to measure and reduce offjce asset in Marlow. our waste impact from development. 1 Scope 1, 2 and 3 emissions Mandatory GHG emissions reporting Year to Year to 31 March 2016 31 March 2015 Direct greenhouse gas emissions in tonnes of CO 2 e Scope 1 491 979 (combustion of fuel and operation facilities) Indirect greenhouse gas emissions in tonnes of CO 2 e Scope 2 1,049 1,796 (purchased electricity, heat, steam and cooling) Total carbon footprint in tonnes of CO 2 e Scope 1 & 2 1,540 2,775 Scope 1 and 2 intensity 28 59 (tonnes of CO 2 e per £m net income after administration costs) Data qualifying notes We have reported on all of the emission sources required under the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013. We have used the main requirements of ISO14064 Part 1 and the GHG Protocol Corporate Accounting and Reporting Standard (Revised Edition) for our methodology, using energy consumption data from our owned and occupied properties. We have chosen to report greenhouse gas emissions under our operational control. These sources fall within our consolidated financial statements. We do not have responsibility for any emissions sources that are not included in our consolidated financial statements. Emissions factors are taken from the latest UK Government (DEFRA) conversion factors for company reporting (2015). Data for the year to 31 March 2015 has been restated, including associated intensity metrics, as additional energy consumption data has been obtained since the previous report was published. Scope 1 data does not include refrigerant emissions as these have been determined to not be material (represent <2% of total emissions); owned fleet does not apply. For EPRA performance measurement tables see the full Responsible Business 2016 Report at www.londonmetric.com

  41. Strategic report Governance Financial statements LondonMetric Property Plc 47 Annual Report and Accounts 2016 Recognition of our greater focus on sustainability We have now fully integrated Responsible Business policies and procedures across our core business activities. The significant improvement in our sustainable performance and practices made last year was rewarded this year when we received an EPRA sBPR Gold award for environmental performance reporting as well as a substantially improved GRESB score, proving that two leading industry bodies recognise the soundness of our Responsible Business approach. Global Real Estate Sustainability Benchmark 2015 50% Global Real Estate Sustainability Sustainability Best Practices Benchmark (GRESB) Recommendations (sBPR) • Achieved 50% score in 2015 survey • Framework for reporting (2014: 34%) standardised environmental data • Up from 34% in 2014 • For first time in 2015, we reported in • Two points short of achieving a format required by the EPRA sBPR green star status • One of only ten listed UK companies • Gap analysis undertaken to to receive a Gold award enable further improvements in • Received special commendation the 2016 survey for improvement made Performance in 2015 GRESB Survey % 100 FTSE4Good assessment • Reviewed results of 2014/15 Management and policy assessment prior to 2015/16 re-assessment • Took actions in 2015 to respond to 50 FTSE4Good’s findings and make more information publicly available • Updated assessment will be published in June/July 2016 • A significant improvement in score is expected for next year 0 0 50 100 Implementation and measurement This entity Peer group average Peer group GRESB average

  42. Strategic report Governance Financial statements 48 LondonMetric Property Plc Annual Report and Accounts 2016 Responsible Development Managing risks and future-proofing our assets Development is an increasingly important activity and a key area of sustainability risk and opportunity for LondonMetric. Creating desirable real estate is fundamental to our business, and we strive to develop assets that are compliant with the evolving financial, environmental and social requirements of our occupiers. High environmental standards upholding human and labour rights within supply chains (see page 52). The majority of our new build projects are designed to meet BREEAM Very We created the Monitoring our contractors Responsible Procurement Good as the minimum sustainability Having implemented our development Policy and Responsible certification standard. checklist on all new projects, we are now Development Checklist focusing on ensuring that contractors are In 2015, we achieved three BREEAM expanding our meeting our requirements. Very Good certifications. In addition, sustainability efgorts throughout our supply we integrated a range of sustainable Benefits for local communities chain with our contractors features, including solar panels and and suppliers. cycle parking. Our developments typically involve Tom Pinder local contractors and suppliers. Active supply chain management Responsible Business Once developments are complete and operational, our tenants employ Responsible Procurement Policy locally-based employees for their Supply chains are coming under retail stores or distribution warehouses. Responsible asset increased scrutiny and, in 2015, we Our developments, therefore, generate management developed a procurement policy to and development significant employment and economic see page 29 for ensure that our supply chain and our benefit to the local area. further details procurement practices meet good We engage extensively with the local practice standards and deliver social BREEAM Very Good community, in particular councils and and environmental benefits. achieved on local organisations to ensure that proper 1.9m sq ft Responsible Development Checklist consideration is given to the local area, All of our contractors are obliged to its needs and opportunities for local adhere to our development checklist, jobs and apprenticeships. By way of BREEAM Very Good which sets minimum requirements for example,this engagement supported the expected on working on our development projects successful outcomes seen at our Kirkstall 0.9m sq ft by and include: development (see page 51). December 2016 • Requirements for on-site Health & Safety Future plans management We will focus on ensuring that • Compliance with the Considerate our Responsible Development Constructors Scheme Requirements are efgectively • Environmental impact monitoring implemented and our developments continue to include environmental • Management and reporting of progress sustainability aspects. against the checklist We will also continue to support local • Promoting employment opportunities job creation and the use of local for local people and fair remuneration suppliers to ensure that economic benefits accrue to the communities UK’s Modern Slavery Act near our developments. The UK’s Modern Slavery Act was introduced in 2015 and our development checklist stipulates requirements for

  43. Strategic report Governance Financial statements LondonMetric Property Plc 49 Annual Report and Accounts 2016 Responsible Investment and Asset Management Sustaining value for our business and our tenants We aim to invest in assets that have enduring occupier appeal and ensure that material sustainability risks and opportunities are integrated into the way we acquire and sell assets. We work in partnership with occupiers to undertake mutually beneficial asset management opportunities and mitigate any material risks. Responsible Investing Our key Responsible Asset Management EPCs on unknown assets activities in the year consisted of: completed; 100% of Material sustainability risks are addressed assets rated E or above and considered throughout the 1. Regulatory compliance investment cycle. We are actively maintaining compliance 100% and managing risks associated with key Pre-acquisition due diligence and regulatory drivers. In 2015, we achieved decision making process include risk further improvements against key assessment criteria for: environmental indicators, minimised • Energy effjciency and energy costs, our EPC risk; met our obligations under and CRC liabilities the CRC Energy Effjciency Scheme and Car park lighting carried out audits across our portfolio • EPC risks, flooding and other extreme 65% in accordance with the Energy Savings weather events Opportunity Scheme (ESOS). Preparation for sale: energy reduction 2. Energy and cost savings • Following a complete portfolio review expected from ten With external car park lighting accounting of EPC ratings, all our assets now have of our retail parks for a significant part of our energy and EPCs with ratings of E or above carbon footprint, we are initiating an LED • We include key sustainability lighting upgrade in car parks across up to information into our asset ten retail parks which would deliver over marketing materials £20,000 of energy cost savings per year for our tenants through a 65% reduction in Solar PV installed To support the efgective implementation lighting energy requirements (equivalent 536 kw of sustainability risk management, to annual energy savings of 187,740 kWh). we deliver training to our investment The expected payback period for the and asset management teams on investment is approximately six years. an annual basis. 3. Tenant engagement Responsible Asset Management • Feasibility studies on and installation of renewable energy, for example As part of our asset management activity at our Coventry Retail Park and we focus on: Islip development • Monitoring and targeting improvements For the full Responsible • Independent tenant Satisfaction Survey in the environmental performance of Business 2016 report (see page 27) our assets see www.londonmetric.com • Collection of environmental data on • Ensuring that our managing completed projects agents implement our policies and procedures properly Future plans • Active engagement with our In 2016 and beyond we have set tenants, including on matters relating targets to further improve our assets’ to sustainability environmental performance and to engage with tenants to help them to mitigate their environmental risks.

  44. Strategic report Governance Financial statements 50 LondonMetric Property Plc Annual Report and Accounts 2016 Our communities and charitable commitments We recognise the importance of supporting our local communities. Our activities bring significant benefits to local areas and we see engagement with all stakeholders as crucial to maximising these benefits. Our responsibilities also extend to supporting local causes and encouraging our employees to be community minded. Benefiting local communities During the year, we supported New leases signed through our activities community causes local to our assets, with 21 occupiers including: bringing long term We work in close partnership with our • Sponsorship of Coventry’s participation local employment occupiers to deliver real estate that helps at the International Children’s Games across 15 locations to fulfil modern shopping requirements. These activities benefit local communities • Contributing towards improving sports in a number of ways, primarily through: facilities in Islip, Northamptonshire • Investment and construction jobs • Maintaining our support of the annual in the local area through our asset community festival in Kirkstall, Leeds management and development activities; the fit out work of our retailers Community and charity also brings local job creation minded company £20,000 total • Creation of desirable shopping charitable During the year, we formed a destinations which provide amenities, contributions in Communities and Charity Working Group diverse retail ofgerings and convenient the year to formalise our approach to community shopping locations that will remain activities and charitable giving. vibrant for the long term Future plans • Long term commitment of our retailers, who typically sign 10-15 year leases As well as continuing our local bringing long term employment to the community engagement, we will local area publish a communities policy over the next year to help us achieve a number Engaging with local communities of charity objectives: In undertaking our activities we • Increased targeted giving to understand the importance of engaging community causes local to our assets with local stakeholders including planning authorities, local councils and • Support of LandAid events and New Communities highways, local residence and business, one employee-led charity event and Charity Working employment organisation and charities. per annum Group set up On each of our assets, through our • Matching by LondonMetric of procurement and development policies employee charity giving and work we require that our suppliers and • Encouragement of pro bono work contractors source locally and have and employee volunteering proper regard for local communities. We encourage our occupiers to also employ locally. LondonMetric charity cycle challenge arranged for June 2016

  45. Strategic report Governance Financial statements LondonMetric Property Plc 51 Annual Report and Accounts 2016 Communities and charitable commitments Kirkstall Bridge Retail Park, Leeds Taking our Overview • 120,000 sq ft development local community • 19 retail stores • Offjcially opened responsibilities 30 October 2015 • BREEAM Very Good seriously • Retailer fit out guide implemented • Commenced tenant energy data collection There are so many great things happening across Kirkstall and this new shopping park is a fantastic addition. Rachel Reeves Leeds West MP Community engagement Accessible to all • Charity collaboration with • Significant road and access Re’New on stafg recruitment improvements with parking for 356 cars • Fifth year of sponsorship of the Kirkstall Festival • Replaced and enhanced bus stop with Real Time Information • Volunteering and pro bono (RTI) displays providing an work by LondonMetric improved waiting environment • Introduction of cycle parking links and pedestrian routes Job creation and training connecting surrounding areas • Training opportunities, work • Green travel plan designed and experience placements and Incorporating heritage implemented into the scheme four apprenticeships As part of the development, • c.200 permanent jobs created we commissioned several from the opening of a number items to celebrate the history of retailers including M&S, Costa, of the area, including a clock Smyths Toys, Iceland, Home tower, a heritage board and a Bargains, Outfit and JD Sports commemorative board for the Abbey Light Railway. The four metre high glass clock tower was designed to celebrate Kirkstall’s rich industrial history including the blanket making and textile fulling work.

  46. Strategic report Governance Financial statements 52 LondonMetric Property Plc Annual Report and Accounts 2016 Our people, Health & Safety and human rights We aim to create safe and healthy workspaces for both our employees at our main offjce as well as the construction workers on our development sites. We work with our contractors to ensure our construction sites are operated in a safe and healthy environment. We also support our employees internally by providing a healthy and productive workplace. Our people We require our contractors to adhere Employee gender to a number of standards including: diversity Stafg development, satisfaction and paying a fair wage to their workers, wellbeing is equally important to our Directors respecting Human Rights and Labour business; we aim to attract, retain and The number of persons of Rights Legislation, and investigating their each sex who were Directors motivate high performing individuals, own supply chains for slavery and human of the Company: and recognise the importance of traffjcking. For each development, employee wellbeing in achieving this contractors are expected to provide, aim. We actively promote healthy on request, evidence that they meet living and also encourage volunteering 1 10 these requirements. and sponsorship activities to support No human rights concerns have arisen charitable causes. within our direct operations or our supply Health & Safety chain during 2015/16. Senior Managers In 2015 we updated our Health & Safety The number of persons of Future plans each sex who were senior policy. The policy is designed to provide managers of the Company and maintain safe and healthy working We will continue to promote stafg (other than identified as conditions for all employees, providing satisfaction and wellbeing, and monitor Directors): appropriate equipment, operational compliance with our procedures for processes and safe systems of work to Health & Safety and human rights. cover all of our activities. 2 6 In addition, the Company aims to ensure that Health & Safety is properly considered for all non-employees including visitors and contractors to the Company’s premises and Employees The number of persons managed properties. of each sex who were employees of the Company: Human rights and the UK Modern Slavery Act As a Company located and operating 17 23 solely in the UK, our exposure to human rights risks – including modern forms of slavery – is very limited. Our Remuneration Policy demonstrates our commitment to transparent and fair remuneration for all employees. For the full Responsible Business 2016 report In order to reduce exposure to slavery see www.londonmetric.com and human traffjcking within our supply chain, we specifically address these important areas in our Responsible Procurement Policy and Responsible Development Requirements Checklist.

  47. Strategic report Governance Financial statements LondonMetric Property Plc 53 Annual Report and Accounts 2016 Governance In this section: Introduction from the Chairman 54 Governance at work 55 Board of Directors 56 Leadership 58 Efgectiveness 63 – Nomination Committee report 64 Accountability 69 – Audit Committee report 71 Remuneration 78 – Remuneration Committee report 78 Report of the Directors 96 Directors’ responsibility statement 99

  48. Strategic report Governance Financial statements 54 LondonMetric Property Plc Annual Report and Accounts 2016 Introduction from the Chairman The Board remains committed to Regular and open dialogue and upholding the high standards of communication with investors is a corporate governance that underpin the key priority for the Executive Board. successful management of the business During 2016 the Executive Directors and its long term success. met with over 200 shareholders, fund managers, private wealth investors and Good governance is embedded into the other interested parties to communicate way we manage the business to create a the Company’s strategy and culture of appropriate decision making, Patrick Vaughan performance. risk assessment and transparency at all Chairman levels in the organisation. Board leadership and succession planning have been areas of particular The high level of involvement of the focus this year as the length of service Executive Directors in the day to day Statement of of certain Non Executive Directors may business operations promotes good Compliance soon be considered to compromise governance practices beyond the their independence. A specialist search The Board has considered Boardroom, supporting the successful the Company’s compliance agency was appointed and prepared a delivery of strategic objectives. with the main principles and shortlist of candidates with the requisite provisions of the UK Corporate The Corporate Governance report skills and experience for interview. I am Governance Code (the ‘Code’) published by the which follows demonstrates how the delighted to report that as a result of this Financial Reporting Council Board is committed to the principles exercise Andrew Livingston has been in September 2014, publicly available at www.frc.org.uk. and provisions of the UK Corporate appointed to replace Charles Cayzer The Board considers that the Governance Code (the ‘Code’). who will be retiring as a Non Executive Company has complied with Director of the Board in September 2016. the main principles set out in This year the Nomination Committee the Code throughout the year The Board would like to thank Charles led an internal Board evaluation having under review and to the date for his commitment and valuable of this report. undertaken an externally facilitated contribution to the Company over evaluation last year. All Directors were the last six years. required to complete a questionnaire which focused on the key components The Remuneration Committee has, once of good governance and efgective again, had a busy year in their efgorts performance and the findings were to maintain a fair reward structure that collated and reviewed. The results of adequately incentivises and retains the the evaluation were very positive and valued Executive team to deliver long concluded that the individual Directors, term growth and success. the Board and its Committees continue The Committee reviewed the variable to operate efgectively. elements of remuneration and has The Audit Committee has considered made some amendments to the the mandatory changes made this year implementation of the Remuneration to the Code in respect of the ongoing Policy for next year following consultation review and evaluation of risk and has with leading shareholders. No changes introduced as an agenda item at to the Policy are proposed for the every Board meeting a risk dashboard year ahead and a full review will be which highlights changes in the Group’s undertaken in advance of the next exposure to current and emerging risks mandatory Policy vote in 2017. and the mitigation thereof. The Audit Committee has also challenged the going concern principal underlying the preparation of these accounts and Patrick Vaughan considered the level of stress testing Chairman undertaken by management in order 1 June 2016 to report on the Company’s longer term viability.

  49. Strategic report Governance Financial statements LondonMetric Property Plc 55 Annual Report and Accounts 2016 Governance at work The Board seeks to promote and embed a culture of good governance into its daily activities and continues to uphold the principles of good governance by adhering to the requirements of the UK Corporate Governance Code. The Board is collectively responsible to the Company’s shareholders for creating and delivering the long term success of the business. This report sets out the Company’s governance policies and practices and explains how it complies with the four main provisions of the Code. Leadership Efgectiveness See pages 58 – 62 See pages 63 – 68 The Board provides The Board has considered The Board sets the Group’s An external Board evaluation leadership either directly the length of service of Non strategic objectives and exercise was undertaken by or through the operation Executive Directors and approves and monitors Law Debenture last year. of its Committees. In doing commissioned Zygos, a performance against In February 2016, an internal so Directors have regard specialist search agency, budgets and forecasts. performance review was to the interests of the to prepare a shortlist of undertaken which involved Company’s shareholders candidates with the requisite completing a questionnaire, and employees, the impact skills and experience to start collating the results and on the Communities within to refresh the Board. follow up review and debate. which it operates and Andrew Livingston, Chief the environment. Findings were positive and Executive of Screwfix, has concluded that the Board been appointed to the Non and its Committees continue Executive Board, replacing to operate efgectively. Charles Cayzer who will retire in September 2016. Accountability Remuneration See pages 69 – 77 See pages 78 – 95 The Board is responsible for The Audit Committee has The role of the Remuneration amendments to the establishing and maintaining considered and challenged Committee is to determine implementation of the Policy the Group’s system of risk the process followed to and maintain a fair reward for the next financial year management and internal allow the Board to make the structure that incentivises were necessary to maintain controls and has delegated statement on the Company’s Directors to deliver the an appropriate level of responsibility for reviewing longer term viability as Group’s strategic objectives retention and incentive its efgectiveness and required by the Code. whilst maintaining stability in for the highly regarded compliance with the new the management of its long Executive Director team. The Executive Directors have provisions of the Code to the term business. met with, and presented The Committee considered Audit Committee. to, over 200 investors and Although there are no it important to maintain an Following revisions to the analysts throughout the year. changes proposed to the open and timely dialogue Code in 2014 the system of Remuneration Policy for the with shareholders and wrote reporting and reviewing year ahead, the Committee to them in February 2016 risks at Board level has been carried out a thorough to explain the rationale considered and improved review of the variable for the amendments. with the introduction of a risk elements of remuneration Shareholders were supportive dashboard as an agenda and concluded that some of the changes proposed. item at each Board meeting.

  50. Strategic report Governance Financial statements 56 LondonMetric Property Plc Annual Report and Accounts 2016 Board of Directors Valentine Beresford Martin McGann Andrew Jones Patrick Vaughan Mark Stirling Patrick Vaughan Andrew Jones Martin McGann Chairman Chief Executive Finance Director Appointed 13 January 2010 Appointed 25 January 2013 Appointed 13 January 2010 Skills and experience Patrick has been Skills and experience Andrew was a Skills and experience Martin joined London involved in the UK property market since 1970. co-founder and CEO of Metric from its & Stamford as Finance Director in September He was a co-founder and CEO of Arlington, of inception in March 2010 until its merger 2008 until its merger with Metric in January Pillar, and of London & Stamford, leading all with London & Stamford in January 2013. 2013, when he became Finance Director three of the companies to successful listings On completion of the merger, Andrew of LondonMetric. Between 2005 and 2008, on the FTSE main market. Upon completion became Chief Executive of LondonMetric. Martin was a Director of Kandahar Real Estate. of London & Stamford’s merger with Metric in Andrew was previously Executive Director and From 2002 to 2005 Martin worked for Pillar, January 2013, he was appointed Chairman, Head of Retail at British Land. Andrew joined latterly as Finance Director. Prior to joining becoming Non Executive Chairman on British Land in 2005 following the acquisition of Pillar, Martin was Finance Director of the 1 October 2014. Patrick also served as an Pillar where he served on the main Board. Strategic Rail Authority. Martin is a qualified Executive Director of British Land 2005 to 2006, Chartered Accountant, having trained and Other appointments Non Executive Director following its acquisition of Pillar. qualified with Deloitte. of The Unite Group Plc Other appointments None Other appointments None Board Committees Executive Committee Board Committees Nomination Committee Board Committees Executive Committee Mark Stirling Valentine Beresford Charles Cayzer Asset Director Investment Director Senior Independent Director Appointed 3 June 2014 Appointed 3 June 2014 Appointed 29 July 2010 Skills and experience Mark was co-founder Skills and experience Valentine was and Asset Management Director of Metric Skills and experience Charles has co-founder and Investment Director of from its inception in March 2010 until its merger considerable experience of merchant Metric from its inception in March 2010 with London & Stamford in January 2013. banking, commercial banking and corporate until its merger with London & Stamford He joined the Board of LondonMetric on and project finance from his career at Baring in January 2013. He joined the Board of 3 June 2014 as Asset Management Director. Brothers, Cayzer Irvine and Cayzer Limited LondonMetric on 3 June 2014 as Investment Prior to the setting up of Metric, Mark was and was appointed a Director of Caledonia Director. Prior to setting up Metric, Valentine on the Executive Committee of British Land Investments in 1985. was on the Executive Committee of and as Asset Management Director was Other appointments Non Executive Director British Land and was responsible for all responsible for the planning, development of Caledonia Investments plc and Chairman their European retail developments and and asset management of the retail portfolio. of The Cayzer Trust Company Ltd and investments. Valentine joined British Land Mark joined British Land in July 2005 following The Sloane Club in July 2005, following the acquisition of the acquisition of Pillar where he was Pillar, where he also served on the Board as Managing Director of Pillar Retail Parks Limited Board Committees Nomination Committee Investment Director. from 2002 until 2005. (Chairman), Audit Committee and Remuneration Committee Other appointments None Other appointments None Board Committees Executive Committee Board Committees Executive Committee

  51. Strategic report Governance Financial statements LondonMetric Property Plc 57 Annual Report and Accounts 2016 Board of Directors continued Charles Cayzer Alec Pelmore Rosalyn Wilton James Dean Andrew Varley Philip Watson Alec Pelmore Rosalyn Wilton Philip Watson Independent Director Independent Director Independent Director Appointed 25 January 2013 Appointed 25 March 2014 Appointed 25 January 2013 Skills and experience Alec joined the Board Skills and experience Rosalyn was appointed Skills and experience Philip joined the Board of Metric at the Company’s inception in to the Board of LondonMetric in March of Metric at the Company’s inception in March 2010. He has been a member of the 2014, becoming Chairman of the Audit March 2010. He is the Chief Investment Offjcer Supervisory Board of Unibail-Rodamco SE, Committee in March 2015. Until 2009, Rosalyn of Mirabaud Asset Management Limited. Europe’s largest property company, since was Chairman of Ipreo Holdings LLC, the Philip joined Hill Samuel in 1971 and then 2008 and is currently a member of its Audit US-based financial data and solutions group Robert Fleming in 1972 on the UK desk, where Committee. Alec held positions as an equity formed following the merger of i Deal LLC and he worked as an investment analyst and fund investment analyst specialising in property Hemscott Group Ltd. Prior to this, she worked manager. Philip left Robert Fleming in 1982 to companies from 1981 to 2007. The majority for Reuters Group where she was a member found TWH Asset Management Limited (now of his career as an investment analyst was of the Executive Committee. Rosalyn has Mirabaud Asset Management Limited) in spent at Dresdner Kleinwort Benson and Merrill held a number of Non Executive Directorship which he and his partners sold a controlling Lynch, where his teams were voted number positions, most recently with AXA UK Limited, interest to Mirabaud Pereire Holdings Limited one for property in Europe by the Institutional until September 2015, where she acted as in 1991. Investor European Property Research Survey Chair of the Risk Committee and Optos Other appointments Chief Investment for 12 out of 13 years from 1995 to 2007. Plc, where she was Chair of Remuneration. Offjcer and Director of Mirabaud Asset She has previously served as a Senior Other appointments Member of the Management Limited Advisor to 3i Investments and Providence Supervisory Board of Unibail-Rodamco SE Equity Partners. Board Committees Nomination Committee Board Committees Nomination Committee and Remuneration Committee Other appointments Trustee of the and Audit Committee University of London, Vice Chair of the Harris Andrew Livingston Federation and Chair of Governors of Harris Andrew Varley Independent Director Girls Academy Independent Director (not pictured) Board Committees Audit Committee Appointed 25 January 2013 Appointed 31 May 2016 (Chairman) Skills and experience Andrew joined the Skills and experience Andrew was appointed James Dean Board of Metric at the Company’s inception to the Board on 31 May 2016. He has been Independent Director in March 2010. He was Group Property the Chief Executive of Screwfix since 2013 Director and an Executive Director of Next where he was previously the Commercial Appointed 29 July 2010 from 1990 until his retirement in May 2014, and Ecommerce Director from 2009 to with the responsibility for property, franchise, Skills and experience James is a Chartered 2013. Before joining Screwfix, Andrew was corporate responsibility and code of practice Surveyor and has worked with Savills plc since Commercial Director at Wyevale Garden related issues. His previous experience 1973, serving as a Director from 1988 to 1999. Centres between 2006 and 2008 and then includes 12 years in retail and commercial Chief Operating Offjcer between 2008 and Other appointments James is a Non Executive property. From 1999 to 2007, Andrew was a 2009. Andrew has worked previously at Marks Director of Branston Holdings and Chairman Non Executive member of the British Heart & Spencer, CSC Index and B&Q where he was of Pearlcrown Ltd, London & Lincoln Properties Foundation’s Shops Committee. Showroom Commercial Director from 2000 Ltd and Patrick Dean Ltd to 2005. Other appointments None Board Committees Remuneration Committee Other appointments Chief Executive Board Committees Audit Committee (Chairman) of Screwfix Direct Limited and Director and Remuneration Committee of Vedoneire Limited Board Committees Audit Committee

  52. Strategic report Governance Financial statements 58 LondonMetric Property Plc Annual Report and Accounts 2016 Leadership The Role of the Board Board Committees The Board is collectively responsible to its shareholders for The Board has three Committees of Non Executive the long term success of the business. It seeks to achieve Directors to which it has delegated a number of its this through efgective leadership, strategy development responsibilities; the Audit, Remuneration and Nomination and delivery, and the management and control of its Committees. The Committees ensure a strong resources and inherent risks. governance framework for decision making and each operates within defined terms of reference which are There is a division of responsibility between the Chairman reviewed annually by each Committee and the Board and Chief Executive which has been approved by the and which are available on written request and on the Board. The Chairman is responsible for leading the Board Company’s website: www.londonmetric.com. and monitoring its efgectiveness and the Chief Executive, supported by the Executive Directors, is responsible for The Audit and Remuneration Committees are composed the day to day management of the Group and the entirely of Independent Non Executive Directors. implementation and delivery of its agreed strategic The Nomination Committee includes the Chairman objectives. The Chairman is responsible for ensuring who is not considered to be independent but his a constructive relationship between Executive and attendance is permitted by the Code. The Company Non Executive Directors and for encouraging and Secretary acts as secretary to each Committee. fostering a culture of Boardroom challenge and debate. The Chairman of each Committee reports the He maintains regular contact with the Executive Directors outcome of meetings to the Board. and senior management. The Executive Committee meets monthly to discuss Each of the Non Executive Directors, other than property investment, development and asset the Chairman, is considered by the Board to be management activities, financial and operating targets independent. Committees comprise only independent and performance and the management of the business Non Executive Directors, other than the Nomination and its stafg. There are informal meetings between the Committee as permitted by the Code. The Board’s Executive Directors at other times and they are involved composition throughout the year met the Code’s in all significant business discussions and decisions due to requirement that at least half of its members, excluding the size of the organisation. the Chairman, are independent Non Executive Directors. The Executive Committee has established three sub Committees; the Investment Committee, chaired by Valentine Beresford, the Asset Management Committee, chaired by Mark Stirling and the Finance Committee, chaired by Martin McGann. These Committees comprise Executive Directors and members of the senior A balanced board management team and meet at least monthly. Composition Tenure 1–3 years Executive 27% (3) 6–9 years 36% 18% (2) 3–6 years Non Executive 55% (6) 64% 1 Tenure has been reflected from Gender diversity the date of appointment to the LondonMetric Board Female 2 All charts reflect the 9% composition of the Board as at 31 March 2016 Male 91%

  53. Strategic report Governance Financial statements LondonMetric Property Plc 59 Annual Report and Accounts 2016 Leadership continued Governance framework The Board Chairman Comprises Role Patrick Vaughan 4 Executive and Responsible to the 7 Non Executive Directors shareholders for the long term strategy, control and leadership of the Group Board Committees Audit Remuneration Nomination Executive Committee Committee Committee Committee Chairman Chairman Chairman Chairman Rosalyn Wilton James Dean Charles Cayzer Andrew Jones Comprises Comprises Comprises Comprises 4 Non Executive 4 Non Executive 4 Non Executive 4 Executive Directors Directors Directors Directors 1 Senior Executive Role Role Role Role Oversees corporate Determines and Evaluates Board Implementation of reporting, risk maintains a fair reward appointments, strategy, achievement management and structure to incentivise composition, skills, of targets, day to day internal control and the Executive Directors efgectiveness, management of the the external audit succession and business process diversity Audit Remuneration Nomination Committee report Committee report Committee report see page 71 see page 78 see page 64 Management Committees Investment Asset Finance Committee Management Committee Committee Chairman Chairman Valentine Beresford Chairman Martin McGann Mark Stirling Comprises Comprises 4 Executive Comprises 4 Executive Directors and senior 4 Executive Directors and senior management Directors and senior management management Role Role Reviews investment Role Reviews budgets and divestment Reviews value and forecasts, opportunities enhancing activities achievement of and development targets, funding opportunities requirements and liquidity The framework reflects the composition of the Board as at 31 March 2016

  54. Strategic report Governance Financial statements 60 LondonMetric Property Plc Annual Report and Accounts 2016 Leadership continued How we divide up our responsibilities Chairman Chief Executive Non Executive Directors Senior Independent Director • Patrick Vaughan • Andrew Jones • Charles Cayzer • Charles Cayzer • James Dean • Alec Pelmore • Andrew Varley • Philip Watson • Rosalyn Wilton Responsibilities: Responsibilities: Responsibilities: Responsibilities: • Leads the Board and • Manages dialogue and • Constructively challenge • Acts as a sounding board ensures it operates communication with the Executive Directors for the Chairman and efgectively shareholders in determining and trusted intermediary for implementing strategy the other Directors • Sets Board agenda and • Recommends and tone and promotes implements strategy • Bring independent • Available as a Boardroom debate approved by the Board judgement and scrutiny communication channel to decisions taken by the for shareholders if • Builds relationships • Day to day management Executive Board other means are not between Executive and of the business operations appropriate Non Executive Directors and personnel assisted • Monitor delivery of by the Executive team agreed strategy within the risk and control framework set by the Board • Review the integrity of financial information and risk management systems Non Executive Directors The Senior Independent Director acts as an intermediary to the Executive Directors for the Non Executive Directors The Non Executive Directors are a diverse group with and shareholders as required. He is available to meet a wide range of experience encompassing property, with shareholders at their request to address concerns or, finance, fund management, risk management and if other communication channels fail, to resolve queries retailing. They provide a valued role by challenging raised. No such requests were received from shareholders aspects of executive decisions and monitoring the in the year. delivery of the agreed strategy. They bring independent The Non Executive Directors meet regularly with the and objective scrutiny and judgement to all matters Chairman without the Executive Directors present to raised, ensuring that no one individual has unfettered discuss business matters and their contribution. decision making powers. On appointment Non Executive Directors are advised Charles Cayzer is a Non Executive Director of Caledonia of the likely time commitment to fulfil the role. The ability Investments Plc, a shareholder of the Company holding a of individual Directors to allocate suffjcient time to 1.9% interest as at the date of this report. Charles Cayzer discharge their responsibilities is considered as part himself is not a shareholder in the Company and the of the annual evaluation process undertaken by the Board is satisfied that there are procedures in place Nomination Committee. The Board is satisfied that each at Caledonia Investments to address this potential of the Non Executive Directors is able to devote suffjcient conflict. The Board does not believe Charles Cayzer’s time to the Company’s business. independence is compromised by his position and is satisfied that he is able to carry out his function as Senior Independent Director efgectively.

  55. Strategic report Governance Financial statements LondonMetric Property Plc 61 Annual Report and Accounts 2016 Leadership continued Board membership and attendance Name Appointed Board meetings2 Independent (Y/N) Chairman Patrick Vaughan 13 January 2010 6 (6) N/A1 Executive Directors Andrew Jones 25 January 2013 6 (6) N Martin McGann 13 January 2010 6 (6) N Valentine Beresford 3 June 2014 6 (6) N Mark Stirling 3 June 2014 6 (6) N Non Executive Directors Charles Cayzer 29 July 2010 5 (6) Y James Dean 29 July 2010 6 (6) Y Andrew Varley 25 January 2013 5 (6) Y Alec Pelmore 25 January 2013 6 (6) Y Philip Watson 25 January 2013 6 (6) Y Rosalyn Wilton 25 March 2014 6 (6) Y Percentage independent1 60% 1 Provision B.1.1 of the Code regarding independence is not appropriate in relation to the Chairman 2 Bracketed numbers indicate the number of meetings the member was eligible to attend The Board has a regular schedule of meetings together As reported in the Nomination Committee report with further ad hoc meetings as required to deal with on page 68, an executive search company was transactional matters. Non Executive Directors are commissioned to source possible candidates for new encouraged to communicate directly and openly Non Executive Directors of the Company. As a result of with the Executive Directors and senior management this search Andrew Livingston was appointed as a Non between scheduled Board meetings, as part of each Executive Director and member of the Audit Committee Director’s contribution to the delivery of strategy. on 31 May 2016. He will replace Charles Cayzer who is The table above shows Directors’ attendance at retiring in September 2016. meetings they were eligible to attend during the year. Philip Watson will replace Charles Cayzer as Senior Attendance at Committee meetings is set out in each Independent Director and Rosalyn Wilton and James Committee report. Dean will be appointed to the Remuneration and All Directors are expected to attend all meetings Nomination Committees respectively following the of the Board and of the Committees on which they AGM in July. serve, and to devote suffjcient time to the Company’s Patrick Vaughan will be appointed as Chairman of the afgairs to enable them to fulfil their duties as Directors. Nomination Committee following the AGM. Where Directors are unable to attend meetings, papers will be provided in advance and their comments are provided to the Board prior to the meeting.

  56. Strategic report Governance Financial statements 62 LondonMetric Property Plc Annual Report and Accounts 2016 Leadership continued Board activities in 2016 Day to day management of the Group is delegated to the Executive Directors, subject to formal delegated authority limits. Certain matters are reserved for consideration by the full Board, which are reviewed and updated annually and in 2016 included consideration of the following: Strategy Financial Governance People • Strategy and three • Interim and annual • Risk appetite and culture • Reviewing succession year financial budgets financial statements planning and tenure • Risk register and quarterly and performance, • Interim and annual dashboard update, • Reviewing executive including and focus on property valuations including debate remuneration and retailer-led distribution of significant and performance and convenience retail • Financing arrangements, emerging risks sectors available debt facilities • Health & Safety and financial covenants • Efgectiveness of • Property and retail the internal control market outlook, general • Dividends declared and framework to economic climate and the dividend policy manage risks competitor activity • Developments in • Significant property corporate governance acquisitions and disposals and regulatory • Major capital requirements including expenditure and the Viability Statement development projects and going concern principal • Shareholder interests, relations and liaison • Performance evaluation of the Board and Committees Professional development Board priorities in 2017 Newly appointed Directors participate in a tailored • Implementation of • Set a base EPS target induction programme and receive a comprehensive business objectives for the 2016 LTIP awards pack of information on the Group, its business and the in line with strategy and annual bonus for to promote the long the year to 31 March governance structure. term success of the 2017 Ongoing training and information updates in relation Company • Review existing to the Group’s business and regulatory framework are • Consider regulatory and Remuneration Policy in provided to the Directors through Board briefing papers, technical developments advance of shareholder reports and seminars from advisors, presentations by on the horizon including approval required in the Modern Slavery Act, July 2017 senior executives and property visits. Each Director is the Prompt Payment expected to maintain his or her professional skills and • Succession planning code, Gender Pay take responsibility for identifying their individual training and ongoing Board Gap reporting, the EU refreshment needs to ensure they are adequately informed about the Audit Directive and Integrated reporting Group’s strategy, business and responsibilities. • Continue to embed Non Executive Directors are encouraged to familiarise risk culture into all daily themselves with the Group’s business through regular business activities and communications with the Executive Directors and senior promote the early management. One of the Non Executive Directors identification and mitigation of risks accompanied a site visit to the Next Distribution warehouse in Doncaster in the year.

  57. Strategic report Governance Financial statements LondonMetric Property Plc 63 Annual Report and Accounts 2016 Efgectiveness Key events throughout the year 2015 May July October November – December • Full year 2015 results • Annual General Meeting • Appointed specialist search • 2016 Interim results presentation presentation of the Company agency to identify potential • Investor presentations new Non Executive Directors • Investor presentations and roadshows follow and roadshows follow Interim results Full Year results 2016 February March May – post year end • Internal Board and Committee • Full review of Risk Register and • Considered Fair, Balanced and performance evaluation Internal Controls Under standable assertion • Interviewed candidates for • Reviewed FRC’s assessment of • Considered going concern Non Executive Director role Deloitte’s audit work carried and viability out last year • Letter from Chairman of Remuneration Committee sent to shareholders • South Africa investor relations trip and presentations to potential new investors Information flow Independent advice The Chairman, together with the Company Secretary, All Directors and Committees have access at all times ensure that the Directors receive clear information on to the advice and services of the Company Secretary, all relevant matters on a timely basis. Comprehensive who is responsible for ensuring that Board procedures are reports and briefing papers are circulated one week followed and that governance regulations are complied prior to Board and Committee meetings to give the with. The Directors may, in the furtherance of their duties, Directors suffjcient time to consider their content take independent professional advice at the expense of prior to the meeting and promote an informed the Company. None of the Directors sought such advice Boardroom debate. in the year. The Board papers contain market, property, financial and Board evaluation risk updates as well as other specific papers relating to agenda items. The Board receives other ad hoc papers The Board undertakes an annual evaluation of its own of a transactional nature at other times, circulated by performance and that of its Committees to ensure each email, for their review and approval which are ratified at continues to operate efgectively. This process is externally the next Board meeting. facilitated every three years and was undertaken last in 2015. The Board has delegated responsibility for carrying out this year’s internal performance evaluation to the Nomination Committee and its review and assessment can be found on pages 66 and 67.

  58. Strategic report Governance Financial statements 64 LondonMetric Property Plc Annual Report and Accounts 2016 Efgectiveness continued The role of the Committee is to evaluate the size, structure Nomination and composition of the Board, including the balance Committee report of skills, knowledge, experience and independence of Board members. The Committee considers succession planning for The Committee is mindful of the Directors and other senior executive positions and need to ensure that the Board and ensures that the ongoing refreshment of Board members its Committees continue to have the Charles Cayzer is properly planned and managed to maintain stability right balance of skills, experience Chairman, and mitigate against business disruption. and knowledge to independently Nomination Committee carry out their duties and lead It is responsible for identifying and recommending the Company in achieving its candidates to fill Board vacancies using external search strategic objectives. consultants where appropriate and for ensuring that the process is formal, rigorous and transparent. 2016 Priorities On appointment, the Company arranges a tailored • Considered the size and structure of the Board induction programme for all new Directors to help them and succession planning in light of Non Executive develop an understanding of the business including Directors’ tenure its strategy, processes, people, assets, finances, risks and controls. The induction includes the provision of • Initiated phased Board refreshment and a detailed Company information pack, site visits and commissioned the Zygos Partnership to facilitate introductions to and meetings with senior management a Non Executive search and advisors. • Led internal Board and Committee performance Principal responsibilities of the Nomination Committee: evaluation in February 2016 • Review and evaluation of the size, structure and • Considered the appointment of Andrew Livingston composition of the Board as a new Non Executive Director and Audit • Make recommendations to the Board regarding Committee member to replace Charles Cayzer Board and Committee membership changes who will retire in September 2016 • Succession planning for Directors and other • Recommended the appointments of: Senior Executives – Rosalyn Wilton to the Remuneration Committee • Identify candidates to fill Board vacancies as they arise – James Dean to the Nomination Committee – Philip Watson as Senior Independent Director • Lead Board and Committee performance evaluation exercise following the AGM in July • Assess the time commitment required from • Extended Chairman’s appointment for a further Non Executive Directors 12 months to 31 March 2017 • Consider the annual re-election of Directors to the Board Members of the Committee Date Meetings Member appointed attended Patrick Vaughan 1/11/12 3 (3) Charles Cayzer 1/11/12 2 (3) Alec Pelmore 25/1/13 3 (3) Philip Watson 25/1/13 3 (3) Bracketed numbers indicate the number of meetings the member was eligible to attend.

  59. Strategic report Governance Financial statements LondonMetric Property Plc 65 Annual Report and Accounts 2016 Efgectiveness continued Composition of the Committee It supports the Davies Report recommendations to promote greater female representation. It does not Throughout the year, the Committee comprised the consider, given the size of the Company and Board Chairman and three independent Non Executive that diversity quotas are appropriate in determining its Directors and was chaired by Charles Cayzer. composition and has not set targets. However, there is an ongoing commitment to strengthen female Diversity representation at Board level which will be kept under review in light of the Board refreshment exercise currently The Board is committed to a culture that attracts and underway. retains talented individuals to deliver outstanding results and as part of this it promotes diversity across a range of The Company as a whole is supportive of gender criteria including skills, knowledge, experience, gender, diversity, with 25% of senior management positions being age and ethnicity throughout the Company at every filled by women. level of recruitment. The Company supports flexible working practices for All appointments to the Board and senior management employees on a case by case basis, as utilised by six of team are made on merit alone. The Board believes that the total 33 employees at the year end excluding Non an appointment on any other basis would not be in the Executive Directors. best long term interests of the Company. Further information on the Company’s commitment to developing people is contained in the report on Responsible Business on pages 44 to 52. Meetings and activities Gender diversity The Committee met three times during the year to Employees Senior management consider and make recommendations to the Board in respect of the following: Female Female 43% 25% • Composition of the Board and its Committees • Non Executive Directors’ length of service • Succession planning and Board refreshment process Male Male 57% 75% • Engagement of the Zygos Partnership to assist with the recruitment of Non Executive Directors Directors • Extension of Chairman’s appointment Female • Internal performance evaluation 9% • Appointment of Andrew Livingston as a Non Executive Director • Reappointment of Directors at the 2016 AGM • Its own efgectiveness, Terms of Reference, Male 91% constitution and performance • Retirement of Charles Cayzer as a Non Executive Director All charts reflect the composition of the Company and Board as at 31 March 2016

  60. Strategic report Governance Financial statements 66 LondonMetric Property Plc Annual Report and Accounts 2016 Efgectiveness continued Board performance and evaluation This year the Committee led an internal evaluation of its performance and that of its Committees to ensure each continues to operate efgectively, having undertaken an externally facilitated exercise last year. Progress against 2015 targets Progress against the recommendations from last year’s externally facilitated review is set out below. Recommendation Progress Consider the ongoing • The Nomination Committee considered the tenure of Non Executive Directors against independence of Non the provisions of the Code Executive Directors • As a result of this review the Committee commenced a phased plan for the refreshment of the Non Executive Board • The Zygos Partnership was commissioned to assist with recruiting new Non Executive Directors • The refreshment plan is underway with one new appointment being made in May 2016 and further rotation underway Consideration of • As part of the Board refreshment plan the Directors considered the requirement for new skills required for new skills to complement core strategy appointments given the • Retail and e-commerce experience were highlighted as preferable and taken into changing nature of the consideration by Zygos when preparing a role specification and conducting their business and customer search base Continue to promote • Both male and female candidates were proposed by Zygos as potential new diversity at all levels Non Executive Directors • 25% of senior management positions are filled by women Succession planning for • Ongoing the Chairman • The Chairman’s letter of appointment has been extended for a further 12 months to 31 March 2017 This year’s performance evaluation was led by the The review of the Chairman’s performance was led Chairman of the Nomination Committee and Company by the Senior Independent Director who praised the Secretary and involved the Directors completing a Chairman for continued good leadership both in and detailed questionnaire which focused on the key aspects out of meetings and for promoting Boardroom discussion of good governance. The findings were collated by the and facilitating debate in an open yet respectfully Company Secretary and were tabled for discussion at constructive environment. the Nomination Committee who reported their findings The Directors unanimously considered the Board to to the Board in March 2016. The key areas of focus and be well led and administered with the timely delivery findings are set out in the table on page 67. of information and the appropriate complement of skills required to monitor performance, challenge Overall the results were extremely positive and management, promote debate and develop strategy. concluded that the Board, its Committees and individual Directors continued to operate efgectively with the right The Board is committed to undertake an annual internal balance of skills and expertise and within a climate of review of its performance and an externally facilitated trust and transparency. No issues were raised and the review every three years. Board acknowledged that good progress had been made against targets established last year.

  61. Strategic report Governance Financial statements LondonMetric Property Plc 67 Annual Report and Accounts 2016 Efgectiveness continued 2016 performance evaluation Focus areas Findings Board strategy • There is a clear strategy and set of objectives that have been agreed with management and are fully supported by Directors Development of strategy, review • Strategy is continually reviewed in relation to individual asset performance and external of performance factors such as changes in shopping patterns, the direction of the real estate market against strategic and investor preferences objectives • Any downside risks associated with changes to strategy are clearly highlighted • Strategy is aligned to the Company’s personnel and financial resources Performance • Reporting to the Board is regular and timely Reporting of • Comprehensive, thorough and succinct Board papers are prepared performance against strategy, • Board papers analyse the efgect of changes in strategy and the portfolio and the impact communication on earnings, dividend cover, NAV and liquidity of expected • Enhanced use of KPIs this year performance and variances Board composition • Appropriate size and mix of skills Committees, • Adequate time devoted to consideration of pertinent matters balance of skills, diversity, size, • Cohesive Board which combines management support and appropriate challenge appointment • Ongoing implementation of Non Executive Director rotation and consideration of appropriate process, contribution balance of skills, given strategic focus and regulatory changes of Directors, succession, tenure • Committed to promoting diversity at all levels of recruitment Relationships with • Extensive programme of investor meetings led by Chief Executive shareholders • High proportion of shares held through private client fund managers Shareholder engagement and • The Company has a good reputation in the investor community and is well regarded perception Risk management • Risk management is a standing Board agenda item Process of identifying, • A risk dashboard is prepared and circulated ahead of each meeting providing commentary reporting and on changes to and emerging risks in the period under review reviewing principal risks and Health & • Audit Committee reviews the risk register and internal controls on behalf of the Board Safety issues • This year the Board considered the risk associated with increased development activity Areas of focus for 2017 Potential areas for the Board to consider in 2016/17 highlighted in the review include the following: • Continued focus on succession planning and Board refreshment of Non Executive Directors • Ongoing consideration of skills required for new appointments given strategic direction, property cycle and regulatory requirements • Consider proposed Code changes to Audit Committee membership which will require at least one member to have competence in accounting and/or auditing through a professional qualification or recent experience • Continue to promote diversity at all levels • Succession planning for the Chairman • Further promote a risk culture which underpins business decisions and ensures that cyclical property market risk is addressed and understood

  62. Strategic report Governance Financial statements 68 LondonMetric Property Plc Annual Report and Accounts 2016 Efgectiveness continued Succession planning • Two were selected for final interview by the Committee, both being Chief Executive of successful retailers This year the Committee has focused on the composition with a greater breadth of experience than the of the Board and succession planning in light of the other candidates length of service of the current Non Executive Directors. • The Committee recommended to the Board the The Code, as amended in September 2014, recommends appointment of Andrew Livingston, Chief Executive of that the Board undertakes a rigorous review of any Non Screwfix, as a Non Executive Director and member of Executive appointment whose term exceeds six years the Audit Committee, to replace Charles Cayzer who and should consider the need for a progressive refreshing has expressed his intention to retire in September 2016 of the Board. • The Committee also recommended that Philip Watson All Non Executive Directors except Rosalyn Wilton were be appointed as Senior Independent Director and originally appointed pre-merger either by London that Rosalyn Wilton and James Dean be appointed & Stamford or Metric in 2010. Last year’s externally as members of the Remuneration and Nomination facilitated Board evaluation noted plans to refresh the Committees respectively, following the AGM in July. Non Executive Board and further consider the balance Patrick Vaughan will be appointed as Chairman of of skills, experience and diversity of the leadership team the Nomination Committee following the AGM given the changes in strategic focus and customer base. The Committee has therefore instigated a phased Re-election of Directors refreshment of the Non Executive Board which it plans to Following the Board evaluation and appraisal process rotate over the next few years. The process has consisted the Committee concluded that each of the Directors of the following steps: seeking re-election continues to make an efgective • Three executive search agencies were invited to tender contribution to the Board and has the necessary skills, for the opportunity to assist in selecting and recruiting knowledge and experience to enable them to discharge new Non Executive Directors. The Zygos Partnership their duties properly in the coming year. was appointed on the basis of its specialist knowledge The Committee considers the time commitment required in both the real estate and retail sector and track of the Directors and other external appointments record of Non Executive Director appointments at peer they have. Before taking on any additional external group companies commitments Directors must seek prior agreement of the • The Committee considered the independence of The Board to ensure possible conflicts of interest are identified Zygos Partnership which had no other connection with and to confirm they will continue to have suffjcient time the Group available to devote to the business of the Company. • Zygos approached a large number of potential The Board, following the advice of the Committee, candidates and shortlisted eight for consideration with recommends the election and re-election of all Directors particular focus on retailing and ecommerce, being at the forthcoming AGM. areas of expertise identified by the Board as being fundamental to the delivery of the Group’s strategic objectives and complementary to the existing mix of Board skills and knowledge • Candidates from a range of business and cultural Charles Cayzer backgrounds were considered, including both men Chairman of the Nomination Committee and women. Some candidates were unable to 1 June 2016 consider the position due to employments restrictions on external appointments or lack of capacity • Five candidates were shortlisted for interview by the Chief Executive and Financial Director, who reviewed the respective skills, experience and cultural fit of each candidate against the Board’s role specification

  63. Strategic report Governance Financial statements LondonMetric Property Plc 69 Annual Report and Accounts 2016 Accountability Relations with shareholders In February 2016, a number of investors, several Directors and one Non Executive Director visited the Company’s Communication with investors is given very high priority distribution warehouse in Doncaster which is occupied and the Company undertakes regular dialogue with its by Next. shareholders, in particular institutions and private wealth A breakdown of the type of investors that the Company managers and brokers. has seen in the year is shown in the second chart below. The Chief Executive and Finance Director are the The Company places a growing importance on private Company’s principal representatives and, along with wealth managers and brokers and will maintain this high the other Executive Directors, hold meetings throughout level of interaction. the year to communicate the Group’s strategy and performance. These include results presentations, one to Investor feedback one meetings, group meetings, panel discussions and Investor feedback is provided to the Board, together with investor tours. published analyst comments. Shareholder activity Feedback received is very supportive of the Company’s strategy, performance, management and future During the financial year, the Company met with over direction. Last year an independent research 200 shareholders, analysts and potential investors. organisation conducted an investor perception study. Meetings were held in the UK, Amsterdam, United States As part of its ongoing shareholder engagement, the and South Africa. A breakdown by region is shown in the Company is planning to conduct bi-annual investor chart below. satisfaction surveys. Almost a quarter of meetings were held in regions outside As part of a separate exercise, the Chairman of the London including Birmingham, Glasgow, Edinburgh, Remuneration Committee wrote to shareholders in Dublin, Leeds, Manchester, Liverpool, Bristol and York. February 2016 to inform them in advance of changes A further quarter of meetings were held overseas and the to the implementation of the Remuneration Policy Company continues to build its overseas investor base. next year and to explain the rationale for its decisions. Shareholders were supportive of the proposals. Key shareholder events throughout the year Investor meetings 2015 By location By type of investor April – June July – September Site visit Broker Specialist 2% 4% Private institution Overseas • Full year 2015 results • Annual General wealth 24% 23% presentation Meeting of Shareholders 30% • Investor full year roadshow • US investor roadshow held post results • Investor meetings in Bristol • Dutch investors conference and Manchester UK London regional 51% Generalist 24% 2016 institution 42% October – December January – March • Half year results presentation • Investor meetings in Dublin, Leeds, Liverpool, Birmingham • Half year investor roadshow and York post results • Letter sent to major • Investor roadshow in Scotland shareholders on the and the Netherlands proposed remuneration implementation changes • Investor site visit to Doncaster • South Africa investor roadshow

  64. Strategic report Governance Financial statements 70 LondonMetric Property Plc Annual Report and Accounts 2016 Accountability continued Public communication Risk management and internal control Shareholders are kept informed of the Company’s The Board is responsible for establishing and maintaining progress through results statements and other the Group’s framework of risk management and internal announcements released through the London Stock control and for ensuring risk is efgectively managed. Exchange. Company announcements are made It recognises that efgective risk management is critical available on the website afgording all shareholders to the achievement of the Group’s strategic objectives. full access to material information. The website is an The principal risks and uncertainties identified by the important source of information for shareholders and Board and the processes in place to manage and includes a comprehensive investor relations section mitigate such risks are summarised in the Managing risk containing all RNS announcements, share price section on pages 36 to 43. information, investor presentations and Annual Reports available for downloading. The Board has delegated responsibility for reviewing the efgectiveness of the risk management framework and During the year, the website was reviewed and a internal control to the Audit Committee and its review comprehensive update was undertaken. A live and on and assessment can be found on page 76. demand webcam of results has been introduced and, in addition, a CEO interview is posted twice a year. Individual shareholders can raise questions directly with the Company at any time through a facility on the website. Annual General Meeting Shareholders are encouraged to participate in the Annual General Meeting of the Company. The Senior Independent Director is available for shareholders to contact if other channels of communication with the Company are not available or appropriate. The whole Board attends and is available to answer shareholder questions at the Company’s Annual General Meeting, which provides a forum for communication with both private and institutional shareholders alike. The Annual Report is sent to all shareholders at least 20 working days before the AGM and details of the resolutions to be proposed can be found in the Notice of Meeting on pages 143 to 147. Details of the number of proxy votes for, against and withheld for each resolution will be disclosed at the meeting and in the AGM RNS announcement.

  65. Strategic report Governance Financial statements LondonMetric Property Plc 71 Annual Report and Accounts 2016 Accountability continued The role of the Audit Committee is to review and report to Audit Committee the Board on financial reporting, internal control and risk report management and the performance, independence and efgectiveness of the external auditors and audit process. This year the Committee has scrutinised the processes The Audit Committee continues in place to ensure that the Annual Report is fair, to play a key oversight role, balanced and understandable, overseen the ongoing assisting the Board and ensuring Rosalyn Wilton monitoring of the Group’s principal risks and internal shareholder interests are protected Chairman control framework and has challenged the significant by monitoring the integrity of the Audit Committee accounting judgements made by management, Group’s financial reporting and including those concerning the valuation of the activities of management investment property. and external auditors. It has also considered the independence and 2016 Priorities efgectiveness of the external audit process in light of EU and UK reforms on the level of non audit services • Considered and advised the Board on the new provided. During the year, the FRC conducted a review provisions of the UK Corporate Governance of the last year’s audit work undertaken by the external Code concerning principal risk, going concern auditor and reported their findings to the Committee. and viability The Committee has considered the new provisions of the • Recommended to the Board that, taken as a UK Corporate Governance Code concerning principal whole, the Company’s 2016 Annual Report is fair, risks, going concern and viability and has advised balanced and understandable the Board on the statement made in the section on Managing risk of this report on page 37. • Reviewed the FRC’s assessment of the audit work carried out by the external auditor for the year to As part of its review of internal controls, the Committee 31 March 2015 considered the implementation and outputs of the • Considered the implementation of the new Group’s new property management database system. property management database in the context Membership of internal control The Committee continues to comprise four Non Executive Directors, chaired by Rosalyn Wilton. There have been no Members of the Committee membership changes during the year. Members have no Date Meetings day to day involvement with the Company or links with Member appointed attended the external auditor. Rosalyn Wilton 25/3/14 5 (5) The Board is satisfied that Rosalyn Wilton brings recent Charles Cayzer 1/10/10 4 (5) and relevant financial experience as required by the UK Andrew Varley 25/1/13 5 (5) Corporate Governance code as a former Chairman of Alec Pelmore 25/1/13 5 (5) the Risk Committee at AXA UK Limited. Biographies of the Committee members which set out the relevant Bracketed numbers indicate the number of meetings the member knowledge and experience they bring can be found on was eligible to attend. pages 56 and 57.

  66. Strategic report Governance Financial statements 72 LondonMetric Property Plc Annual Report and Accounts 2016 Accountability continued Activities during 2016 During the year, the work undertaken by the Committee has included the consideration, review and approval of the following: Financial reporting Property valuation External audit • Interim and year end results • The appropriateness of the interim • Scope of the external audit plan announcement and Annual Report and year end individual property • The independence, objectivity and valuations • Significant issues and areas of tenure of Deloitte LLP judgement which could have a • The independence of the external • Level of audit and non audit fees material impact on the financial valuers paid statements • Performance of the external auditor • Processes undertaken to ensure and efgectiveness of the audit that the financial statements are process fair, balanced and understandable • Evaluation of key audit findings • Audit Committee report Risk management Other • Annual assessment of the Group’s • Committee’s own terms of principal risks and risk register and reference, constitution and update reports on risk appetite, performance emerging risks and risk dashboard • The need for an internal audit • The adequacy and efgectiveness of function the Group’s internal control and risk • The Group’s whistle blowing management systems arrangements • Implementation of new property management database • The appropriateness of the going concern assumption and the level of stress testing undertaken • The Viability Statement and compliance with the new provisions in the UK Corporate Governance Code Meetings The May and November meetings are scheduled to precede the approval and issue of the full and half year The Committee follows an annual programme to financial reports. Separate meetings are held with the ensure it gives full consideration to matters of particular Company’s property valuers to challenge the valuation importance. process and review their independence. At the March meeting, the Committee reviewed risk management The Committee met five times last year, with meetings and internal control processes and considered the year aligned to the Company’s financial reporting timetable. end audit plan. Meetings are attended by the Committee members and, by invitation, the Group’s external auditor, independent The Chairman of the Committee reports to the Board on property valuers (CBRE Ltd and Savills Advisory Services the matters considered and conclusions reached after Limited), the Finance Director and senior management. each Committee meeting. Time is allocated for the Committee to meet the external The Committee is satisfied that it receives suffjcient, auditor and property valuers. In addition, the Committee reliable and timely information from management to Chairman has regular meetings with the audit partner. allow it to fulfil its obligations.

  67. Strategic report Governance Financial statements LondonMetric Property Plc 73 Annual Report and Accounts 2016 Accountability continued Financial reporting and significant judgements These included judgements concerning the recoverability of financial assets, the presentation The Committee monitors the integrity of the financial of recurring and non recurring items in the income information published in the interim and annual statement and the valuation of derivative instruments. statements and considers the extent to which suitable Management confirmed that they were not aware of accounting policies have been adopted, consistently any material misstatements and the auditor confirmed applied and disclosed. they had not found any material misstatements in the It pays particular attention to matters it considers to course of their work. be important by virtue of their size, complexity, level After reviewing reports from management and of judgement and potential impact on the financial following its discussions with the auditor and valuers, statements and remuneration. The significant areas of the Committee is satisfied that the key financial focus considered by the Committee, discussed with the judgements and estimates have been appropriately external auditor and addressed during the year are set and adequately addressed by the Executive Directors, out in the table below. Further details can be found in reviewed by the external auditor and reported in these note 1 to the financial statements. financial statements. The Committee is also satisfied The Committee has considered a number of other that the processes used for determining the value of the judgements made by management, none of which were assets and liabilities have been appropriately reviewed, material in the context of the Group’s results or net assets. challenged and are suffjciently robust. Significant areas of focus Committee’s approach Property valuation All of the Group’s investment properties and those held in joint ventures are externally valued by two independent property valuers, namely CBRE and Savills. The property valuation is a The Committee met twice during the year with the property valuers to challenge critical and significant part and assess the integrity of the valuation process, methodologies and outcomes. of the Group’s reported The key judgements applied to each property valuation and any issues raised with performance and level of management were considered and discussed. executive remuneration and is therefore a key area The ERV growth and yield capitalisation assumptions on individual properties of focus. were challenged and supporting market evidence was provided to enable the Committee to benchmark assets and conclude that the assumptions applied Property valuations are were appropriate. They also discussed market conditions and recent market inherently subjective transactions that had an impact on the valuation. Any valuation which required as they are based on a greater level of judgement, for example for properties under development, significant judgements and were scrutinised. assumptions underpinned by recent market The Committee discussed the impact on values of committed expenditure transactions. on developments, vacant space, rent free periods and lease incentives with the valuers. For further details on property valuations refer As part of their audit work, Deloitte use valuation specialists to assess and to notes 1 and 9 to the challenge the valuation approach, assumptions and judgements. A summary of financial statements. their audit work is noted on pages 101 to 105. The Audit Committee receive and assess reports from the external auditor on their valuation work. The total valuation fees paid during the year represented less than 5% of each firms’ total fee income for the year.

  68. Strategic report Governance Financial statements 7 4 LondonMetric Property Plc Annual Report and Accounts 2016 Accountability continued Significant areas of focus Committee’s approach Significant transactions Significant property acquisitions and disposals were reviewed by the Committee to the extent that there were unusual terms and conditions of judgement in During the year, the Group relation to timing. transacted on £392 million of property. The Committee, in conjunction with the external auditor, received and challenged management’s accounting proposals in relation to: Some transactions were large and complex and • the corporate disposal of the Group’s 50% interest in the Harlow Distribution required management Centre which was considered to be a property disposal to make judgements in • the timing of recognition of acquisitions and disposals on unconditional determining whether a exchange of contracts rather than completion, including the acquisition of transaction represented Omega South, Warrington and the disposal of the Odeon cinema in Preston, a business combination both of which completed post year end under IFRS 3, when a transaction should be • the timing of the disposal of the distribution unit in Warrington where the recognised and the fair occupier exercised its option to purchase value of consideration. The Committee concurred with the approach adopted by management in each case. Revenue recognition The Committee considered the timing of recognising rental income arising on development assets at Islip, Kirkstall and Warrington that reached practical Certain transactions completion in the year and concluded that income was appropriately are unusual or complex recognised from the commencement of the lease. in nature and require management to make The Group is funding developments in Wakefield, Ferndown, Liverpool and judgements as to whether, Leicester, each of which accrue a return throughout the development phase and to what extent, which has been reflected as interest receivable. The Audit Committee were revenue should be satisfied with this treatment. recognised in the year. The Committee received and assessed reports from the external auditor on the timing of revenue recognition for property and lease transactions completing in the year, lease incentives and surrender payments and considered consistency of accounting treatment with previous years. The Committee was satisfied that revenue had been appropriately recognised in the financial statements. Going concern The Committee reviewed the appropriateness of the going concern assumption in the preparation of these financial statements. The Company’s ongoing solvency and liquidity It considered the quarterly reports presented by the Finance Director to the Board is a critical risk to its which includes the Group’s three year profit and cash flow forecasts and future future viability and the financing requirements, the availability of committed and undrawn debt facilities appropriateness of and anticipated compliance with lenders’ financial covenants. preparation of the Group The Committee reviewed management’s assumptions about future trading financial statements. performance, valuation projections, capital expenditure, forecast transactions and debt requirements implicit within the forecasts. In light of this review, the Committee confirmed to the Board that it was appropriate for the financial statements to be prepared on a going concern basis and that there was a reasonable expectation that the Company would be able to continue in operation over the three year viability period. The Board’s statement on Viability is reflected on page 37. REIT status Failure to comply would result in tax charges and penalties that would have a significant impact on the Group’s results. The Group must comply with the UK REIT regulations The Committee reviews compliance with the REIT tests which are presented by to benefit from the management on an annual basis and concluded that there was full compliance favourable tax regime. and significant headroom for the current year.

  69. Strategic report Governance Financial statements LondonMetric Property Plc 75 Annual Report and Accounts 2016 Accountability continued External audit Audit and non audit fees to Deloitte Deloitte LLP was appointed as external auditor following 2016 2015 a formal tender process in 2013. Current UK regulations Year to 31 March £000 £000 require rotation of the lead audit partner every five years Audit fees including related 179 183 and a formal tender of the auditor every ten years. assurance services Non audit fees – 2 The Group was in compliance with the provisions of the Statutory Audit Services for Large Companies Market Total 179 185 Investigation (Mandatory Use of Competitive Tender Ratio of non audit fees to audit fees n/a 1% Processes and Audit Committee Responsibilities) Order 2014 during the year. Audit fees paid to the external auditor in respect of joint The Committee has assessed the performance, ventures totalled £17,000 at share (2015: £19,000 at share). independence, objectivity and fees of the external The Company’s policy governing the provision of non auditor through discussions with the Finance Director audit services considers each appointment on a case by and senior management team and through a review case basis. Taxation, valuation, due diligence, liquidation of the audit deliverables. The results of the audit debrief and remuneration services are generally provided by meeting held between senior management and the other agencies but other advisory services, including audit team are relayed to the Audit Committee along but not limited to taxation, property advisory, REIT with any areas identified for improvement. In addition compliance and regulatory, may be undertaken by the the Committee Chairman meets with the Audit Partner external auditor given their knowledge of the Group’s during the year on a regular basis. business. The Executive Directors can authorise an In making its assessment the Committee considers the engagement up to a fee limit of £100,000, above which qualifications, expertise and resources of the audit the engagement is referred to the Audit Committee partner and team as well as the quality and timeliness for review and approval. Deloitte LLP has confirmed to of the audit deliverables. It reviewed the extent to the Audit Committee that they remain independent which the audit plan was met, the level of independent and have maintained internal safeguards to ensure the challenge and scrutiny applied to the audit, the depth objectivity of the engagement partner and audit stafg is of understanding and the review of key accounting not impaired. They have also confirmed that they have judgements. The Committee also considered the internal procedures in place to identify any aspects of interaction with and feedback from senior management non audit work which could compromise their role as in the audit process, focusing on the early identification auditors and to ensure the objectivity of their audit report. and resolution of issues and judgements and the Having undertaken its review, in the opinion of the Audit quality and timely provision of draft accounts for review. Committee, the relationship with the auditor continues It recognises the importance of auditor objectivity to work well, the audit process is efgective and the and has reviewed the level of non audit fees as noted auditor remains independent and objective. It has in the table to ensure their independence was not recommended to the Board that a resolution is proposed compromised. It took into account the fact that taxation at the forthcoming AGM to reappoint Deloitte LLP as the services and advice is provided separately by PwC Company’s and Group’s auditor. and corporate due diligence and liquidation work is undertaken by BDO LLP . The FRC’s Audit Quality Review team selected to review the audit of the 31 March 2015 Group financial statements as part of their 2015 annual inspection of audit files. The focus of their review and their reporting is on identifying areas where improvements are required rather than highlighting areas performed to or above the expected level. The Chairman of the Audit Committee received a full copy of the findings of the Audit Quality Review team and has discussed these with Deloitte. The Audit Committee confirms that there were no significant areas for improvement identified within the report. The Audit Committee is also satisfied that there is nothing within the report which might have a bearing on the audit appointment.

  70. Strategic report Governance Financial statements 76 LondonMetric Property Plc Annual Report and Accounts 2016 Accountability continued Risk management and internal controls • Short term cash flow forecasting that is considered weekly in light of investment and The Board is responsible for establishing and maintaining development opportunities the Group’s framework of risk management and internal • An up to date property management system covering control and for ensuring risk is efgectively managed. the Group and Joint Venture commercial portfolio It recognises that efgective risk management is critical to the achievement of the Group’s strategic objectives. • An organisational structure with clearly defined roles, responsibilities and limits of authority that facilitates The principal risks and uncertainties identified by the efgective and effjcient decision making Board and the processes in place to manage and mitigate such risks are summarised in the Managing risk • Close involvement of the Executive Directors in day section on pages 36 to 43. to day operations including regular meetings with senior management on all operational aspects of The system is designed to give the Board confidence the business that the risks are managed or mitigated as far as possible. However, it should be noted that no system • Monthly meetings of the Executive, Investment, Asset can eliminate the risk of failure to achieve the Group’s Management and Finance Committees, which assess objectives entirely and can only provide reasonable but and monitor strategic and operational risk not absolute assurance against material misstatement • The maintenance of a risk register and risk dashboard or loss. which is updated quarterly and highlights movements The Board has delegated responsibility for reviewing the in principal risks and mitigation strategies efgectiveness of the risk management framework and • A formal whistle blowing policy internal control environment and compliance with the Code to the Audit Committee. A detailed internal control evaluation questionnaire is completed by management and reviewed annually The Company has established processes and procedures by the Committee. to identify, assess and manage the significant risks it faces. The key strategic, economic, transactional and This year the Group implemented an integrated property financial risks facing the business are documented in a management system to sit alongside and interface with risk register which identifies the following: the accounting system. The database holds commercial portfolio data for the Group and its joint ventures and • Likelihood and impact of the risk provides robust and up to date operational statistics for • Movements in the Group’s exposure to the risk since management reporting. The Committee received and the last review considered a report from management outlining the new system and the implementation process. • Controls in place to manage and minimise each risk The auditors have tested data on a sample basis in A comprehensive update of the risk register was order to place reliance on its outputs for these financial undertaken by management in February 2016 and statements. presented to the Audit Committee at their planning meeting in March. The requirement for a dedicated internal audit function was reviewed by the Audit Committee during the year In addition to this annual review, the Group has and was not felt to be necessary or appropriate given implemented this year a quarterly process for assessing the size and simple structure of the Group, the close day and managing its principal risks by way of a risk to day involvement of the Executive Directors and the dashboard which highlights changes in the Group’s internal control procedures in place. This is kept under exposure to current and emerging risks and the regular review. mitigation thereof. This is prepared by management and reviewed at each Board meeting. The Audit Committee is satisfied that there are no material weaknesses in the Group’s internal control The key elements of the internal control framework are structure and an efgective risk management system is as follows: in place, and has reported these findings to the Board. • A defined schedule of matters reserved for the Based on its review and assessment, the Committee is Board’s attention satisfied that the Group has complied throughout the year with the new provisions C2.1 and C2.3 of the Code. • A documented appraisal and approval process for all significant capital expenditure • A comprehensive and robust system of financial budgeting and forecasting which is reviewed and updated quarterly against actual performance

  71. Strategic report Governance Financial statements LondonMetric Property Plc 77 Annual Report and Accounts 2016 Accountability continued Fair, balanced and understandable Fair At the request of the Board, the Audit Committee • Includes relevant transactions and balances considered whether the 2016 Annual Report and Accounts was fair, balanced and understandable • Includes required regulatory disclosures and whether it provided the necessary information for shareholders to assess the Group’s position, performance, Balanced business model and strategy. The Audit Committee is • Consistent throughout satisfied that the Annual Report and Accounts met this requirement. • Appropriate mix of statutory and adjusted measures In reaching this decision the Committee reviewed the robust procedures established and adopted by • Adjusted measures explained management which consisted of the following: • Clear guidance was issued to all contributors at the Understandable start of the process • Straight forward language • Regulatory and technical updates were provided by • Lack of repetition and discussed with the external auditor as part of a • Use of diagrams and charts technical briefing workshop attended by relevant stafg in January 2016 • Clear cross references and links • The Chief Executive provided early input to and • Clear contents pages to aid navigation agreed the overall message and tone of the report • Individual sections of the Annual Report were drafted by appropriate senior management, who met regularly to review consistency • The Executive Directors were closely involved in the Rosalyn Wilton initial drafting process and reviewed their respective Chairman of the Audit Committee draft sections 1 June 2016 • A full verification exercise to ensure factual accuracy was undertaken • The final draft report was reviewed by the Audit Committee and discussed with the Finance Director and senior management before being presented for Board approval In addition, the Committee considered whether the Annual Report had been written in straightforward language, without unnecessary repetition and the use of any adjusted measures (e.g. EPRA) had been adequately explained. The Directors’ statement on fair, balanced and understandable is on page 99.

  72. Strategic report Governance Financial statements 78 LondonMetric Property Plc Annual Report and Accounts 2016 Remuneration Chairman’s introduction Remuneration The Group’s Remuneration Policy is designed to align Committee report Executive pay and incentives with the Company’s goals and encourage and reward exceptional overall and individual performance. The primary role of the Remuneration Committee is to The Remuneration Policy we have operated throughout determine and recommend to this financial year was approved by shareholders at the James Dean the Board a fair reward structure Chairman, 2014 AGM and has been reproduced for reference on that incentivises Executive Remuneration pages 81 to 84. The Annual Remuneration Report on Committee Directors to promote and deliver pages 85 to 95 outlines the implementation of the policy the Group’s strategic objectives for the year to 31 March 2016 and is subject to an advisory whilst maintaining stability in vote at the forthcoming AGM. the management of its long term business. Performance during 2015/16 2016 Priorities The Remuneration Policy is driven by EPRA earnings (EPS), total property return (TPR) and total shareholder • Reviewed the variable elements of remuneration return (TSR). and the implementation of policy for the next The Group’s commitment to repositioning the portfolio financial year into its core sectors and away from its legacy residential • Communicated proposed changes to and offjce sectors, combined with its unemotional shareholders in February 2016 approach to recycling capital and capitalising on asset management and development capabilities, • Maximum annual bonus to increase by 15% has enabled it to grow contracted income and deliver of salary another good set of results, underpinned by robust • Maximum LTIP award to increase by 25% of salary portfolio metrics. • Total Accounting Return included as an LTIP The Group has achieved its longstanding aim of fully performance measure covering its dividend commitment and has increased its full year ordinary dividend by 3.6% to 7.25p per share. • Agreed 2% salary increases for Directors EPRA earnings per share has increased by 18% to 7.8p and EPRA NAV per share by 5% to 147.7p. Group like-for- Members of the Committee like net rental income increased by 3.1% and the Group’s total property return of 10.5% outperformed the IPD Date Meetings Member appointed attended Quarterly Universe Index reweighted to the Group’s James Dean 1/10/2010 5 (5) core assets of 10.1% by 40bp. Charles Cayzer 1/10/2010 4 (5) The Executive Directors have delivered successfully Philip Watson 25/1/2013 5 (5) against a large number of operational and strategic objectives including dividend cover and progression, Andrew Varley 30/5/2013 5 (5) growing contracted income, an increased focus Bracketed numbers indicate the number of meetings the member on development opportunities and strengthened was eligible to attend. relationships with key stakeholders. This strong financial and non financial performance has been taken into account when considering the variable elements of remuneration. The Committee has calculated annual bonuses for the Executive Directors to be at 77% of their respective maximum levels. Half of the bonus will be deferred into shares which vest in equal tranches over three years.

  73. Strategic report Governance Financial statements LondonMetric Property Plc 79 Annual Report and Accounts 2016 Remuneration continued Vesting of the LTIP awards granted to Executive Directors The Committee believes that changes to Executive in 2013 is dependent on Company performance over Directors’ packages should be achieved through greater the three year period to 31 March 2016. Performance is alignment with shareholders returns and so, over the last measured by reference to TSR versus the FTSE 350 Real two years, has approved salary increases for Directors at Estate Super Sector and EPS growth. The Committee less than half the average rate applied to the Company’s assessed performance and based on actual EPS of 7.8p employees. and TSR performance of 70%,100% of both components Reflecting this philosophy, for 2016/17 the maximum are expected to vest in August and November 2016, potential annual bonus will increase by 15% of salary for subject to continued service. each Executive Director and the maximum LTIP award The Committee is satisfied that the level of payout levels will increase by 25% of salary for each Executive under the variable incentive plans is appropriate Director. In addition the financial performance targets given the performance outcomes over the respective of LTIP awards will be broadened to include a total performance period. accounting return (TAR) measure over 37.5% of the award and recovery and withholding provisions for both Delivery of long term growth in shareholder value is bonus and LTIP awards will be introduced, broadened rewarded through the Group’s LTIP arrangements and consistently applied. The TAR measure better and the Executive Directors already hold and are reflects the nature of the repositioned portfolio as a total encouraged to retain significant shareholdings to align return model and is considered to provide a balanced their interests with those of shareholders. LTIP awards over assessment when considered alongside the existing 1,373,558 shares were granted to the Executive Directors relative TSR (37.5% of the award) and EPRA EPS growth in the year. One third of the deferred bonus shares (25% of the award) measures which will continue to be awarded in 2014 amounting to 236,733 shares vested in used for awards granted in 2016. This change will make June 2015. The Executive Directors disposed of 111,602 it harder for the new higher level of maximum award to shares to meet tax liabilities and retained the remaining vest in full. At the same time the maximum target for the 125,131 shares. relative TSR and TAR measures has been reworked to provide a more stringent assessment of outperformance Implementation of policy for 2016/17 in an expected lower return environment for the next Since the merger of London & Stamford and Metric award cycle. Property in 2013, the combined entity has continued to The Committee believes the new bonus and LTIP evolve, repositioning into its core sectors to deliver long award levels reflect the increased size of the business term income and capital growth for its shareholders. and role of the Executive Directors in driving the long It has transacted on £2 billion of investment deals since term performance of the Company and provide the merger, delivered significant increases in reported an appropriate level of retention and incentive in profits, EPRA EPS and NAV and maintained a near full the currently competitive market for Directors in occupancy rate and robust loan to value ratio. It has well performing real estate companies. The revised become an established constituent of the FTSE 250 Index performance conditions are better aligned to business with a broader shareholder base and has a property strategy and the overall package increases the portfolio of over £1.5 billion. weighting of variable elements of pay, rewarding at In light of this, the Committee carried out a thorough maximum levels only for true balanced outperformance. review of the existing variable elements of remuneration The Committee approved salary increases of 2.0% for the and concluded that some amendments to the Executive Directors, efgective from 1 June 2016 which are implementation of the Policy for the next financial year lower than the increases for employees generally of 4.6%. were necessary to maintain an appropriate level of retention and incentive for the highly regarded and dynamic Executive Director team. Although these changes are within the current approved Remuneration James Dean Policy and no changes to the Policy are proposed, the Chairman of the Remuneration Committee Committee considered it important to maintain an open 1 June 2016 and timely dialogue and I wrote to major shareholders representing more than 50% of the share capital in February 2016 to explain the rationale for our decisions. Feedback from those consulted was supportive and none of the shareholders indicated that they would not agree with the proposals.

  74. Strategic report Governance Financial statements 80 LondonMetric Property Plc Annual Report and Accounts 2016 Remuneration continued Total remuneration for Executive Directors Salary Benefits Pension Bonus LTIP Total £000 £000 £000 £000 £000 £000 Andrew Jones 500 24 75 583 1,594 2,776 Martin McGann 328 25 49 319 319 1,040 Valentine Beresford 301 24 103 336 863 1,627 Mark Stirling 346 25 52 336 863 1,622 Annual bonus plan – financial targets Payout target Performance measure 25% 50% 100% Actual % awarded Adjusted EPRA EPS 7.57p 7.64p 7.76p 7.77p 100% TPR 10.1% 11.1% 12.1% 10.5% 35% Annual bonus plan – outcome Bonus % of Total bonus maximum £000 Andrew Jones 77% 583 Martin McGann 77% 319 Valentine Beresford 77% 336 Mark Stirling 77% 336 2013 LTIPs vesting – targets Payout target Actual % awarded Performance measure 25% 100% TSR 45% 68% 70% 100% EPRA EPS 6.8p 7.1p 7.8p 100% 2013 LTIPs vesting – outcome Estimated Estimated LTIP % of number value of award maximum of shares £000 Andrew Jones 100% 977,155 1,594 Martin McGann 100% 195,322 319 Valentine Beresford 100% 529,038 863 Mark Stirling 100% 529,038 863 LTIPs awarded in 2015/16 Face value Number of award of shares £000 Andrew Jones 522,128 878 Martin McGann 274,118 461 Valentine Beresford 288,656 486 Mark Stirling 288,656 486

  75. Strategic report Governance Financial statements LondonMetric Property Plc 81 Annual Report and Accounts 2016 Remuneration continued Summary of Remuneration Policy The Remuneration Policy for the Group was approved The principles which underpin the Company’s by the shareholders at the 2014 AGM. There have been Remuneration Policy ensure that Executive no changes to the policy this year. For information Directors’ remuneration: purposes only a summary of the Remuneration Policy • Is aligned to the business strategy and achievement is represented with changes made to reflect page of business goals references, irrelevant prior year information and changes to the policy implementation described on page 79. • Is aligned with the interests of shareholders by encouraging high levels of share ownership The full report is available on the Company’s website at www.londonmetric.com • Attracts, motivates and retains high calibre individuals • Is competitive in relation to other comparable Overview of Policy property companies The overriding objective is to operate a fair and • Is set in the context of pay and employment conditions transparent Remuneration Policy which motivates and of other employees retains individuals of the highest calibre and rewards the delivery of the Group’s key strategic priorities, long • Rewards superior performance through the term growth and attractive shareholder returns. As well variable elements of remuneration that are linked as motivating, remuneration plays a key role in retaining to performance highly regarded individuals and needs to be competitive. Executive Directors’ remuneration Base salary Purpose and link to Provide a competitive level of fixed pay to attract and retain Directors of the required strategy calibre to deliver the Group’s strategy. Level of pay reflects individuals’ skills, seniority and experience and complexity of the role. Operation Normally reviewed annually with changes efgective from 1 June, with reference to inflation, responsibilities, performance and market rates. In determining the base salary, consideration is given to pay increases for other employees and for other comparable property companies. Maximum opportunity The Committee considers average wage increases across the Group, prevailing rates of inflation, the Directors’ development, performance and role and comparable market data. In normal circumstances the Directors’ salaries will not increase by more than the range ofgered to the wider workforce. However, larger increases may be ofgered if there is a material change in the size and responsibilities of the role (which covers significant changes in Group size and/or complexity) or if it is necessary to remain competitive to retain a Director. Performance measures The Directors are subject to an annual performance assessment, the outcome of which is taken account of in setting base salaries. Pension Purpose and link to Provide a competitive post-retirement benefit to attract and retain individuals. strategy Operation The pension allowance is a 15% monthly contribution to the Executive Director’s individual personal pension plan or taken as a cash equivalent. Salary sacrifice arrangements can apply. Maximum opportunity The maximum contribution is 15% of salary. No element other than base salary is pensionable. Performance measures None.

  76. Strategic report Governance Financial statements 82 LondonMetric Property Plc Annual Report and Accounts 2016 Remuneration continued Executive Directors’ remuneration continued Annual bonus Purpose and link to Incentivise the achievement of annual financial targets consistent with the Group’s business strategy plan for the relevant financial year with particular focus on total property return (TPR) and EPRA earnings per share (EPS) as well as the delivery of agreed personal objectives. Partial award in shares aligns interests with shareholders. Operation Annual performance targets are set by the Committee at the start of the financial year linked to the Group’s long term strategy of growth in EPRA EPS and TPR. At least half of the bonus will be linked to the key property and financial metrics. Non financial targets are set to measure individual personal performance and contribution to the achievement of portfolio management initiatives and other operational management objectives. The annual bonus will be paid 50% in cash and 50% in deferred shares, which will vest in three equal instalments over three years and will be subject to continued employment, save as in the leaver circumstances described in the Service contracts and payment for loss of offjce section of this policy. No further performance conditions apply and dividend equivalents are paid out at the end of each vesting period. The Committee has the discretion to exercise clawback and withholding provisions to the cash and share-based elements of the bonus in the event of gross misconduct, material mis-statement in the accounts, error in calculation and serious reputational damage to the Group for a period of up to three years post vesting. Maximum opportunity The maximum bonus limit is capped at 200% of base salary. Within this limit, the following individual limits were previously applied: • 150% of salary for the Chief Executive • 125% of salary for the other Executive Directors For the year to 31 March 2017 the Committee increased these individual limits by 15% of salary for each Executive Director after consultation with leading shareholders and their representative bodies. Performance measures The Committee will set challenging annual targets consistent with the Group’s business strategy that are appropriately stretching, but achievable. Performance is assessed against target financial and non financial measures which may vary each year depending on the annual priorities of the business. At least half of the bonus payment is subject to financial and/or property performance targets. There is no payment in respect of TPR if it is negative. The Committee retains discretion to amend the vesting level where it considers it to be appropriate but not so as to exceed the maximum bonus potential. Benefits Purpose and link to Provide a comprehensive and competitive benefit package to aid recruitment and the strategy retention of high quality executives. Operation Each Executive Director receives the following: • Car allowance • Private medical insurance • Life insurance • Permanent health insurance The Committee may wish to ofger Executive Directors other benefits on broadly similar terms as other employees. Maximum opportunity Car allowance is £20,000 per annum for each Executive Director. Other benefits are provided at the market rate and therefore the cost will vary from year to year based on the cost from third party providers (e.g. reflecting changes in insurance premiums). Performance measures None.

  77. Strategic report Governance Financial statements LondonMetric Property Plc 83 Annual Report and Accounts 2016 Remuneration continued Executive Directors’ remuneration continued Long term incentives Purpose and link to Incentivise and reward the delivery of long term Group performance and sustained growth strategy in line with business strategy, thereby building a shareholding in the Group and aligning Directors’ interests with shareholders’. Operation The LTIP rules were approved by the shareholders at the 2013 AGM. Awards made are discretionary and vesting is dependent upon the achievement of performance conditions over three years starting at the beginning of the financial year in which the award is made. If employment ceases during the vesting period, awards will normally lapse, save in the leaver circumstances as described in the Payment for loss of offjce section of this policy. Awards granted are subject to clawback and withholding provisions in the event of gross misconduct, material mis-statement in the accounts, error in calculation and serious reputational damage to the Group for a period of up to three years post vesting. Awards include dividend equivalent (in cash or shares) in lieu of dividends forgone between the day of grant and the vesting of the award based on the number of shares which have vested. Maximum opportunity Maximum overall limit on LTIP awards of 200% of salary. Within this limit, the following individual caps were previously applied: • 175% of basic salary for the Chief Executive • 140% of basic salary for other Executive Directors For the year to 31 March 2017 the Committee increased these individual limits by 25% of salary for each Executive Director after consultation with leading shareholders and their representative bodies. Performance measures The Committee will review the appropriateness of performance measures on an annual basis and set challenging targets consistent with the business strategy. This review may result in changes to weightings or the introduction of new measures which are more closely aligned to the Group’s business strategy at the time. For the year to 31 March 2017 three measures will apply as follows: 37.5% of any award is subject to a total shareholder return (TSR) exceeding the TSR of the FTSE 350 Real Estate Super Sector Index (excluding agencies and operators), 37.5% is subject to achieving a relative TAR measure and 25% is on the basis of EPRA EPS growth versus RPI. The Committee retains the discretion to amend the performance conditions and/or weightings of each of the future awards. Non Executive Directors’ remuneration Fees and benefits Purpose and link to To attract and retain suitably qualified Non Executive Directors by ensuring fees are competitive. strategy Non-Executive Directors are not eligible to receive benefits other than travel, hospitality related or other incidental benefits linked to the performance of their duties as a Director. Operation Normally, fees payable are reviewed annually by the Board and reflect the time commitment and responsibility taken by them. Where appropriate, the Board considers fees paid by comparative companies of similar scale. Maximum opportunity Increases may be greater than those of Company employees in a particular year (in percentage terms) given the periodic nature of increases and changes in responsibilities or time commitments. The maximum level of fees set out in the Articles of Association for Non-Executive Directors is £1,000,000 per annum. Notes: The Committee will operate the Company’s incentive plans according to their respective rules and consistent with normal market practice, the Listing Rules and HMRC rules where relevant, including flexibility in a number of regards. These include making awards and setting performance criteria each year, dealing with leavers, adjustments to awards and performance criteria following acquisitions, disposals, changes in share capital and to take account of the impact of other M&A activity. The Committee also retains discretion within the policy to adjust the targets, set difgerent measures and/or alter weightings for the annual bonus plan and, in exceptional circumstances, under the rules of the long term incentive plan to adjust targets to ensure that the awards fulfil their original purposes. All assessments of performance are ultimately subject to the Committee’s judgement. Any discretion exercised (and the rationale) will be disclosed in the Annual Remuneration Report.

  78. Strategic report Governance Financial statements 84 LondonMetric Property Plc Annual Report and Accounts 2016 Remuneration continued Recruitment remuneration arrangements notice of 12 months. The Committee considers this appropriate for all existing and newly appointed Directors. The Committee will seek to apply the same Provision for payments on termination are contained Remuneration Policy and principles when setting the in the Directors’ service contracts which stipulate that remuneration package for a new Executive Director as compensation is based on what would be earned by listed in the policy table on pages 81 to 84. way of salary, pension entitlement and other contractual Salary will be set at a level appropriate to the role, the benefits over the notice period. Non Executive Directors’ experience of the Director being appointed and their appointments are normally for an initial three year current salary, and may initially be set below the perceived term and may be terminated on three months’ notice market rate, with phased multi-year increases (which may without compensation. be above those ofgered to wider employees) to bring it into The Committee will exercise discretion when calculating line with the market subject to their continued development termination payments and will take into consideration in the role. Ongoing benefits and pension provision will be individual and Group performance, mitigation of no more than that ofgered to Executive Directors. loss and the length of service undertaken. It believes The Committee may make awards on hiring an external discretion on such payments is required to recruit and candidate to buy out remuneration packages forfeited retain the highest calibre Directors. on leaving a previous employer. This may take the form of If a claim is made against the Group in relation to a cash and/or share awards. The maximum payment under termination (e.g. for unfair dismissal), the Committee any such arrangement, which would be in addition to the retains the right to make an appropriate payment normal variable remuneration, should be no more than in settlement of such claims as considered in the the Committee considers is required to provide reasonable best interests of the Group. Additional payments compensation to the incoming Director and would not in connection with any statutory entitlements (e.g. exceed an estimate of the expected value being forfeited, in relation to redundancy), departing Directors’ legal taking into account the time period to expected vesting fees and out placement services may be made as the and any relevant performance criteria. The Committee Committee deems reasonable and as required. may therefore rely on exemption 9.4.2 of the Listing Rules which allow for the grant of awards to facilitate, in If the departing Director is deemed a ‘good leaver’, i.e. exceptional circumstances, the recruitment of a Director. if he or she dies or leaves employment through illness, If an external appointment requires a Director to relocate, injury or disability, retirement, sale of the Company, or a relocation payment can be paid at the discretion of the for any other reason approved by the Committee, a Committee which it feels is reasonable and appropriate. discretionary bonus may be payable for the period worked, subject to the achievements of the relevant The maximum level of ongoing variable remuneration performance condition. Deferred shares which have granted to newly appointed Directors would be in line with not vested shall vest although the vesting of share the existing level of variable remuneration granted to the awards under the Group’s LTIP is not automatic and current Executive Directors. Depending on the timing and the Committee would retain discretion to allow partial nature of the appointment, the Committee may wish to set vesting depending on the extent to which performance difgerent annual bonus performance measures and targets conditions had been met and the length of time the to those of current Executive Directors, although this will only awards had been held. be in respect of the bonus year in which he/she is appointed. The emphasis on linking pay with performance through Shareholding guidelines the Company’s LTIP will continue so as to align the The Remuneration Policy places significant importance Directors’ and shareholders’ interests. on aligning the long term interests of shareholders with In the case of an internal appointment, any pre-existing those of management by long term incentives and share remuneration commitments would be honoured in awards. The share ownership guidelines for the Executive accordance with their terms. Otherwise the policy will Directors encourage them to build up a shareholding in be consistent with that for external appointees. the Company over a five-year period equivalent to at New Non Executive Directors will be appointed through least four years’ salary. letters of appointment and fees set at a competitive Other directorships market level and in line with the other existing Non Executive Directors. Letters of appointment are normally Executive Directors are permitted to accept external, for an initial term of three years and are subject to non-executive appointments with the prior approval of a notice period of three months by either party. the Board where such appointments are not considered to have an adverse impact on their role within the Group. Service contracts and payment for loss of offjce Fees earned may be retained by the Director. There were no new appointments in the year. Andrew Jones is a The service contracts for the Executive Directors were reviewed and revised following the merger in 2013. Non Executive Director of Unite Plc and earned fees of Service contracts are terminable by either party with £44,325 in the year to 31 March 2016.

  79. Strategic report Governance Financial statements LondonMetric Property Plc 85 Annual Report and Accounts 2016 Remuneration continued Annual Remuneration Report The Company Secretary acts as secretary to the Committee and the Chief Executive and Finance Director attend meetings by invitation but are not present Set out below is the Annual Remuneration Report for the when their own pay is being discussed. year ending 31 March 2016 which provides details of how The Chairman reports to the Board on proceedings and the Remuneration Policy was applied. It is subject to an outcomes following each Committee meeting. advisory vote at the forthcoming AGM and complies with UK Corporate Governance Code, Listing Rules and Meetings and activities The Large and Medium Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The Committee met on five occasions during the year. The areas of the report which are subject to audit have The main activities of the Committee during the year been highlighted. and to the date of this report were as follows: The role of the Remuneration Committee • Set a base EPS target for the 2015 LTIP awards and annual bonus for the year to 31 March 2016 The Committee determines Directors’ remuneration in accordance with the approved policy and its terms • Approved Executive Directors’ share awards of reference, which are reviewed annually by the under the LTIP following the announcement of the Company’s results for the year ended 31 March 2015 Board and are available on the Company’s website: www.londonmetric.com. • Approved the Deferred Bonus Shares vesting in the year for Executive Directors The Committee’s responsibilities include the following: • Reviewed the Remuneration Policy approved in 2014 • Setting and reviewing the Group’s overall and recommended changes to its implementation Remuneration Policy and strategy for the year to 31 March 2017 • Assessed the performance of Executive Directors • Determining and reviewing individual against targets set and determined annual bonuses remuneration packages for the year • Determining and reviewing the rules for the Long • Reviewed and approved annual salary increases Term Incentive Plan (LTIP) and Deferred Bonus efgective from 1 June 2016 and reviewed against pay Plan arrangements increases within the wider workplace • Reviewed and approved the Chairman’s annual fee • Approving salaries, bonuses and share awards for to be fixed at its current level until 31 March 2017 the Executive Directors • Reviewed its own efgectiveness, Terms of Reference, The Board recognises that it is ultimately accountable constitution and performance for executive remuneration but has delegated this • Reviewed and approved the Remuneration responsibility to the Committee. All Committee members Committee Report are Non Executive Directors of the Company, which is an important pre-requisite to ensure Executive Directors’ and senior executives’ pay is set by Board members who have no personal financial interest in the Company other than as potential shareholders. The Committee meets regularly without the Executive Directors being present and is independently advised by New Bridge Street (a trading name of Aon plc), a signatory of the Remuneration Consultants’ Code of Conduct and which has no connection with the Group other than in the provision of advice on executive and employee remuneration matters. For the financial year under review, total fees paid to New Bridge Street were £103,195. No Executive Director is involved in the determination of his own remuneration and fees for Non Executives are determined by the Board as a whole.

  80. Strategic report Governance Financial statements 86 LondonMetric Property Plc Annual Report and Accounts 2016 Remuneration continued Single total figure of remuneration for each Director (audited) Salary and fees Benefits 1 Pension 2 Annual bonus 3 LTIP 5 Total 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Director £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Executive Patrick Vaughan 4 – 203 – 20 – 31 – 161 – – – 415 Andrew Jones 500 490 24 24 75 74 583 579 1,594 – 2,776 1,167 Martin McGann 328 322 25 27 49 48 319 317 319 – 1,040 714 Valentine Beresford 6 301 336 24 24 103 50 336 334 863 – 1,627 744 Mark Stirling 346 336 25 24 52 50 336 334 863 – 1,622 744 Non Executive Patrick Vaughan 4 320 160 8 – – – – – – – 328 160 Charles Cayzer 61 60 – – – – – – – – 61 60 James Dean 61 60 – – – – – – – – 61 60 Alec Pelmore 51 50 – – – – – – – – 51 50 Andrew Varley 56 54 – – – – – – – – 56 54 Philip Watson 51 50 – – – – – – – – 51 50 Rosalyn Wilton 61 53 – – – – – – – – 61 53 1 Taxable benefits include the provision of a car allowance for Executive Directors and private medical insurance 2 Pension contribution is 15% of salary (excluding any salary sacrifice) and may be taken partly or entirely in cash 3 Annual bonus payable in respect of the financial year ending 31 March 2016 paid 50% in cash and 50% in deferred shares 4 Patrick Vaughan was Executive Chairman until 30 September 2014 and received total remuneration of £415,000 in respect of that period. For the remainder of the financial year to 31 March 2015 he was a Non Executive Chairman and received total remuneration of £160,000 5 2013 LTIP awards expected to vest in August 2016 and November 2016 for the performance period to 31 March 2016. The value of the award has been calculated by multiplying the estimated number of shares that will vest, including the dividend equivalent, by the average share price for the three months to 31 March 2016 6 Valentine Beresford paid an additional contribution of £45,000 to his pension plan in the year under a salary sacrifice arrangement Annual bonus outcome for the year ended The financial performance element measures growth 31 March 2016 in adjusted EPRA EPS and Total Property Return relative to the IPD Quarterly Universe Index re-weighted to the The annual bonus performance targets set for the Company’s core portfolio. The financial targets and year to 31 March 2016 and the assessment of actual calculations are consistent with previous years. performance achieved is set out in the tables on In determining the base EPRA EPS target, the Committee page 87. looks to maintain consistency with longer term incentive The proposed bonus is included in the single figure of targets but is mindful of shorter term strategic priorities remuneration and the 50% cash element will be paid and changing market conditions. The 2016 annual bonus in June 2016. Bonus awards are based 70% on the outcome is set out in the table below. Company’s financial performance and 30% on the individual’s contribution in the year. Financial Individual Bonus % Bonus % Total bonus objectives objectives of maximum of salary £000 Andrew Jones 47% 30% 77% 116% 583 Martin McGann 47% 30% 77% 97% 319 Valentine Beresford 47% 30% 77% 97% 336 Mark Stirling 47% 30% 77% 97% 336

  81. Strategic report Governance Financial statements LondonMetric Property Plc 87 Annual Report and Accounts 2016 Remuneration continued Group financial targets Performance Basis of Range Maximum Actual measure Weighting calculation (0%) (25%) (50%) (100%) performance % awarded Adjusted 35% Growth in 7.45p 7.57p 7.64p 7.76p 7.77p 100% EPRA EPS EPRA EPS – Base – Base – Base – Base against a target target target target challenging plus RPI plus RPI plus RPI base target plus 1% plus 2.67% Total property 35% Growth 0% – 10.1% 11.1% – 12.1% – 10.5% 35% return (TPR) in TPR Positive – TPR TPR is 1.1 TPR is 1.2 against IPD growth matches times times Quarterly index index index Universe index for the core portfolio Individual non financial targets had fully achieved their individual personal objectives and approved the maximum level of payout. Executive Directors’ non financial targets accounted for The table below outlines the key personal objectives 30% of the maximum bonus award. Personal objectives set and the Committee’s assessment for each of the were aligned to the delivery of the Group’s key strategic Executive Directors for the 2015/16 annual bonus. objectives. The Committee felt that all Executive Directors Andrew Jones Martin McGann Valentine Beresford Mark Stirling Objective Objective Objective Objective • Portfolio focus to maximise • Optimising the funding • Continue to reposition • Portfolio focus to deliver both both EPS and NAV growth structure to support the real portfolio with the objective of income and capital growth estate strategy increasing distribution to c.70% • Recycling capital with sell • Continuing focus on asset and reducing retail bias to 20% down of non core assets • Deliver risk management/ management to lengthen and over an 18-24 month period corporate governance strengthen our rent roll • Focus on income quality agenda to increasing • Sell down non-core, ex-growth to deliver growth in our • Continuing to increase and satisfaction of stakeholders and underperforming assets sustainable earnings improve our development • Focus on income quality • Maximise yield arbitrage pipeline through new • Lengthen and strengthen to deliver growth in our between acquisitions/ opportunities and new relationships with sustainable earnings developments versus disposals planning consents key stakeholders: Institutional shareholders, Private client • Improve our ranking in the • Continue to strengthen team • Maintain our high occupancy wealth managers, Occupiers EPRA/GRESB sustainability and further integrate whole • Retain our position as partner and Analysts rankings Investment team into broader of choice amongst key Company business • Continue to strengthen the retailers Assessments team in line with our evolving • Promote the Company as portfolio strategy ‘partner of choice’ with • Strong financial results Assessments developers, vendors and achieved with an 18% increase • Reinforce the position of the • 55 occupier transactions agents in EPRA EPS Company as leading investor/ • 3.1% growth in like-for-like partner of choice in logistics • Debt maturity extended to Assessments income and out of town retail 5.6 years and cost of debt reduced to 3.5% • Increased investment in • Portfolio return of 10.5%, Assessments distribution sector to 54% outperforming IPD by 40bp • £400 million unsecured facility (2015: 47%) and reduced • 18% growth in EPRA EPS and agreed in April 2015 and investment in retail to 37% • Delivery of 1.9 million sq ft 5% growth in EPRA NAV increased to £443.8 million in (2015: 43%) developments November 2015 • 91% invested in core sectors, • £155.5 million of distribution • Committed developments of 54% in distribution • Maintained low LTV of 38% acquisitions 1.1 million sq ft • Like-for-like income growth • Risk dashboard introduced • c.100 bps yield arbitrage • Conditional development of 3.1% as an agenda item at each between acquisitions and pipeline of 1.1 million sq ft Board meeting sales • Held meetings with over 200 • Occupancy of 99.3% shareholders, analysts and • Improved ranking in the EPRA/ potential investors GRESB tables

  82. Strategic report Governance Financial statements 88 LondonMetric Property Plc Annual Report and Accounts 2016 Remuneration continued Deferred Bonus Plan One third of the deferred shares granted on 19 June 2014 and held at 31 March 2015 vested on 19 June 2015. In accordance with the Remuneration Policy, 50% of Further shares representing one third of the June 2014 the annual bonuses of the Executive Directors will be and June 2015 awards are expected to vest in June deferred and paid by way of shares in the Group in three 2016. Deferred shares representing 50% of the Executive equal instalments over three years and are subject to Directors’ bonus entitlement for the year ended 31 March continued employment. 2016 will be awarded in June 2016. The shares are held in an Employee Benefit trust which at 31 March 2016 held Dividend equivalents accrue on shares held. Income tax 3,945,092 shares. and employees’ national insurance liabilities are payable on release based on the market value of the shares Outstanding deferred bonus shares held by the Executive at that date. Directors are set out in the table below. Entitlement to Ordinary shares Face value At Awarded on grant 1 1 April in the Notional Released in the At Date of grant £000 2015 year dividend shares year 31 March 2016 Andrew Jones 19 June 2014 360 263,004 – 23,334 (92,656) 193,682 11 June 2015 290 – 172,202 13,782 – 185,984 Martin McGann 19 June 2014 166 121,302 – 10,762 (42,735) 89,329 11 June 2015 158 – 94,172 7,537 – 101,709 Valentine Beresford 19 June 2014 197 143,830 – 12,761 (50,671) 105,920 11 June 2015 167 – 99,168 7,937 – 107,105 Mark Stirling 19 June 2014 197 143,830 – 12,761 (50,671) 105,920 11 June 2015 167 – 99,168 7,937 – 107,105 1 Face value is the weighted average share price over the five business days immediately preceding the date of the award. For 2014 this was 136.9p, for 2015 this was 168.2p Long Term Incentive Plan Awards granted in the year to 31 March 2016 are summarised in the table below. Share Face value Basis of award Date awards Face value of award Director (% of salary) of grant number per share £000 Andrew Jones 175% 11 June 2015 522,128 168.2p 878 Martin McGann 140% 11 June 2015 274,118 168.2p 461 Valentine Beresford 140% 11 June 2015 288,656 168.2p 486 Mark Stirling 140% 11 June 2015 288,656 168.2p 486 The face value is based on a weighted average price continued service and the achievement of performance per share, being the average share price over the five conditions as approved by shareholders in July 2013 and business days immediately preceding the date of the as set out on page 89. award. Awards will vest after three years subject to

  83. Strategic report Governance Financial statements LondonMetric Property Plc 89 Annual Report and Accounts 2016 Remuneration continued Performance condition Vesting level TSR measured against FTSE 350 Real Estate Index (75% of Award) TSR less than index over 3 years 0% TSR equals index over 3 years 1 25% TSR between 1 and 1.5 times index over 3 years 1 Pro rata on a straight-line basis between 25% and 100% TSR is 1.5 times index over 3 years 1 100% EPRA EPS growth against a base target plus RPI (25% of award) Less than base plus RPI plus 3% over 3 years 0% Base plus RPI plus 3% over 3 years 25% Base plus RPI plus between 3% and 8% over 3 years Pro rata on a straight-line basis between 25% and 100% Base plus RPI plus 8% over 3 years 100% 1 TSR must be positive over 3 years The adjusted EPRA EPS base target for the three year previous years’ results. Targets are considered challenging performance periods commencing 1 April 2013, 1 April yet achievable in order to adequately incentivise 2014 and 1 April 2015 has been set at 6.3p, 7.0p and 7.45p management and are in line with the Company’s strategic respectively. The Group’s three-year financial forecast was aim of delivering long term growth for shareholders. taken into account when setting these targets along with Awards expected to vest in 2016/17 in relation to the three consideration of strategic goals and priorities, proposed year performance period commencing 1 April 2013 are investment and development plans, gearing levels and summarised below. Range Performance Actual measure Weighting Basis of calculation (0%) (25%) (100%) performance % awarded Total 75% Growth in TSR <45% 45% 68% 70% 100% shareholder against FTSE return (TSR) 350 Real Estate Index EPRA EPS 25% Growth in EPRA EPS <6.8p 6.8p 7.1p 7.8p 100% against a challenging base target Estimated face Estimated value of award 1 Director LTIP% of maximum number of shares £000 Andrew Jones 100% 977,155 1,594 Martin McGann 100% 195,322 319 Valentine Beresford 100% 529,038 863 Mark Stirling 100% 529,038 863 1 The face value is based on the average share price for the three months to 31 March 2016

  84. Strategic report Governance Financial statements 90 LondonMetric Property Plc Annual Report and Accounts 2016 Remuneration continued Outstanding LTIP awards held by the Executive Directors are set out in the table below. Number of shares under award Notional Date of Face value At Granted dividend Vested At Performance Director grant on grant 1 April 2015 in year shares in year 31 March 2016 Period Andrew Jones 21.8.2013 114.3p 839,895 – 137,260 – 977,155 1.4.2013 to 31.3.2016 19.6.2014 136.9p 575,102 – 60,200 – 635,302 1.4.2014 to 31.3.2017 11.6.2015 168.2p – 522,128 41,789 – 563,917 1.4.2015 to 31.3.2018 Martin McGann 27.11.2013 131.3p 167,885 – 27,437 – 195,322 1.4.2013 to 31.3.2016 19.6.2014 136.9p 294,852 – 30,864 – 325,716 1.4.2014 to 31.3.2017 11.6.2015 168.2p – 274,118 21,939 – 296,057 1.4.2015 to 31.3.2018 Valentine Beresford 21.8.2013 114.3p 454,724 – 74,314 – 529,038 1.4.2013 to 31.3.2016 19.6.2014 136.9p 310,491 – 32,501 – 342,992 1.4.2014 to 31.3.2017 11.6.2015 168.2p – 288,656 23,103 – 311,759 1.4.2015 to 31.3.2018 Mark Stirling 21.8.2013 114.3p 454,724 – 74,314 – 529,038 1.4.2013 to 31.3.2016 19.6.2014 136.9p 310,491 – 32,501 – 342,992 1.4.2014 to 31.3.2017 11.6.2015 168.2p – 288,656 23,103 – 311,759 1.4.2015 to 31.3.2018 Payments to past Directors and for loss of offjce There have been no payments made to retiring Directors or for loss of offjce in the year. Directors’ shareholdings and share interests (audited) LTIP shares Total Overall subject to interests Share beneficial performance Deferred bonus as at ownership Shareholding Interest conditions shares 31 March 2016 as % of salary 1 guideline met Andrew Jones 2,297,455 2,176,374 379,666 4,853,495 726% Yes Martin McGann 2,364,174 817,095 191,038 3,372,307 1139% Yes Valentine Beresford 2,171,895 1,183,789 213,025 3,568,709 993% Yes Mark Stirling 1,665,557 1,183,789 213,025 3,062,371 762% Yes 1 Based on the Company’s share price at 31 March 2016 of 158.6p and the beneficial interests of the Directors

  85. Strategic report Governance Financial statements LondonMetric Property Plc 91 Annual Report and Accounts 2016 Remuneration continued The beneficial interests in the ordinary shares of the The starting point required by the remuneration Company held by the Directors and their families who regulations was close to the bottom of the property cycle were in offjce during the year at the date of this report where a number of property companies launched rights are set out below. issues while the Company did not. The Company’s share price had not fallen as much as the average share price 31 March 2016 31 March 2015 of the FTSE Real Estate sector prior to this starting point, Ordinary shares Ordinary shares thereby setting a higher initial base price for this graph. of 10p each of 10p each Total shareholder return measures share price growth Executive Directors with dividends deemed to be reinvested on the Andrew Jones 2,297,455 2,243,479 ex-dividend date. Martin McGann 2,364,174 2,341,585 240 Valentine Beresford 2,171,895 2,114,036 220 Mark Stirling 1,665,557 1,618,574 200 Non Executive Directors 180 Patrick Vaughan 13,777,500 15,277,500 160 Charles Cayzer – – 140 James Dean 20,000 20,000 120 Alec Pelmore 120,500 120,500 100 Andrew Varley 47,000 47,000 Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Philip Watson 214,000 214,000 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 Rosalyn Wilton 50,000 50,000 LondonMetric Property Plc FTSE All Share REIT Index FTSE 350 Real Estate Index There were no movements in Directors’ shareholdings FTSE 350 Real Estate Super Sector Index between 31 March 2016 and the date of this report. The Company’s total shareholder return over the period The shareholding guidelines recommend Executive since merger in 2013 has outperformed all indices as Directors build up a shareholding in the Company at shown in the graph below. least equal to four times salary. All Executive Directors complied with this requirement at 31 March 2016 and as 200 at the date of this report as shown in the table on page 90. No Director had any interest or contract with the 180 Company or any subsidiary undertaking during the year. 160 Performance graph 140 The graph shows the Group’s total shareholder return 120 (TSR) for the period from 1 October 2010, when the Company listed on the Main Market of the London Stock 100 Exchange, to 31 March 2016, compared to the FTSE All Apr Oct Apr Oct Apr Oct Apr 2013 2013 2014 2014 2015 2015 2016 Share REIT Index, the FTSE 350 Real Estate Index and the FTSE 350 Real Estate Super Sector index. These have LondonMetric Property Plc been chosen by the Committee as in previous years as FTSE All Share REIT Index FTSE 350 Real Estate Index they are considered the most appropriate and relevant FTSE 350 Real Estate Super Sector Index benchmarks against which to assess the performance of the Company.

  86. Strategic report Governance Financial statements 92 LondonMetric Property Plc Annual Report and Accounts 2016 Remuneration continued Chief Executive’s remuneration table Relative importance of spend on pay The table below details the remuneration of the Chief The table below shows the expenditure and percentage Executive for the period from the Company’s listing on change in spend on employee remuneration compared the main market of the London Stock Exchange on to other key financial indicators. 1 October 2010 to 31 March 2016. 2016 2015 % £000 £000 change Annual bonus LTIP vesting Total (as a % of the (as a % of the Employee costs 1 9,734 9,515 2.3% remuneration maximum maximum Dividends paid 2 43,689 43,749 – Year to 31 March £000 payout) opportunity) 2016 2,776 77 100 1 Figures taken from note 4 Administration expenses on page 114 and are stated before any amounts capitalised and exclude share 2015 1,167 78 – scheme costs 2014 1,296 100 – 2 Figures taken from note 7 Dividends on page 116 and excludes 2013 166 100 – Special Dividend paid (Andrew Jones) 1 2013 583 100 – Statement of voting at AGM 1 (Patrick Vaughan) 2012 664 100 – At the AGM on 16 July 2015, the Annual Remuneration Report received the following votes from shareholders 2011 2 323 100 – representing 70% of the issued share capital of the 1 Andrew Jones became Chief Executive and Patrick Vaughan Company. There was no policy vote. became Chairman on 25 January 2013 following the merger of the Company with Metric Property Investments plc % 2 For the six months from the Company’s listing on 1 October 2010 to Number of votes 31 March 2011 of votes cast For 433,180,933 98.78 Percentage change in Chief Executive Against 5,352,741 1.22 remuneration Withheld 3,917,378 The percentage change in the Chief Executive’s Total 442,451,052 remuneration from the previous year compared to the average percentage change in remuneration for all other employees is as follows: % change Salary Taxable Annual and fees benefits bonus Chief Executive 2% 1% 1% Other employees 3% 7% 5% (excluding Chief Executive)

  87. Strategic report Governance Financial statements LondonMetric Property Plc 93 Annual Report and Accounts 2016 Remuneration continued Statement of implementation of Remuneration Policy for the year ending 31 March 2017 Base salary In May 2016 the Committee approved increases of 2.0% for the Executive Directors with efgect from 1 June 2016. The average base salary increase for other employees was 4.6%. The salaries for the year ahead are therefore as follows: Base salary Base salary from 1 June from 1 June % Executive Director 2016 2015 increase Andrew Jones £511,877 £501,840 2.0 Martin McGann £335,920 £329,333 2.0 Valentine Beresford £353,736 £346,800 2.0 Mark Stirling £353,736 £346,800 2.0 There are no changes to the pension contributions and other benefits which are described in the summary policy table on pages 81 to 84. Annual Bonus Plan The table below details the performance conditions and composition of targets for the annual bonus: Performance measure Weighting Target Growth in EPRA EPS 35% Growth in Company’s EPRA EPS against a range of challenging targets Growth in total property return (TPR) 35% Growth in Company’s TPR against IPD Quarterly Universe Index Full payout if growth is 120% of the Index 50% payout if growth is 110% of the Index 25% payout if growth matches the Index Straight-line interpolation between limits No payout if TPR is negative Personal objectives 30% Vary between individuals and include portfolio management metrics, financial and people management, investor relations and regulatory compliance The Committee proposes to increase the individual In the opinion of the Committee, the annual bonus limits for bonus payments in 2016/17 to 165% of salary performance targets and individual objectives for the for the Chief Executive and 140% of salary for the other year ahead are commercially sensitive and accordingly Executive Directors. The increase in bonus potential are not disclosed. These will be reported and disclosed reflects a market competitive maximum which provides retrospectively next year in order for shareholders to a greater weighting on performance related pay. assess the basis for any payouts.

  88. Strategic report Governance Financial statements 94 LondonMetric Property Plc Annual Report and Accounts 2016 Remuneration continued LTIP Awards The following performance measures will apply to awards to be granted in 2016/17: Start of Performance measure Measured Measurement (over three years) against % of Award Vesting level 1 Period Total Shareholder FTSE 350 Real 37.5% 25% – performance equals index 1 April 2016 Return (TSR) Estate Super Sector 100% – performance equal or better than the excluding agencies upper quartile ranked company in the index & operators Straight-line interpolation between limits No payout if TSR is negative Total Accounting FTSE 350 Real 37.5% 25% – performance equals index 1 April 2016 Return (TAR) Estate Super Sector 100% – performance equal or better than the excluding agencies upper quartile ranked company in the index & operators Straight-line interpolation between limits EPRA EPS growth Base target 25% 25% – performance equals RPI plus 3% 1 April 2016 plus RPI over three years 100% – performance equals RPI plus 8% over three years Straight-line interpolation between limits 1 The weighting of the Index is based on the market capitalisation (for TSR) and NAV (for TAR) for each company in the comparator group at the start of the performance period The Committee has resolved that grants to Andrew Illustration of potential remuneration Jones, Martin McGann, Valentine Beresford and Mark for Executive Directors Stirling will be at the levels of 200%, 165%, 165% and 165% The chart on page 95 sets out the potential remuneration of salary respectively for 2016/17. The individual caps have receivable by the Executive Directors for the year to been increased to reflect the increased contribution the 31 March 2017 reflecting base salaries proposed for the Executive Directors make to the strategic direction and year commencing 1 April 2016 as reflected on page 93 performance of the Group. They are within the 200% of and as increased from 1 June 2016. salary limit within the policy. The minimum scenario reflects fixed remuneration of Recovery and withholding provisions will be introduced salary, pension and benefits only as the other elements for the cash element of the bonus and broadened for are linked to future performance. Base salary is that to be the deferred share element and future LTIP awards so paid in 2016/17. Benefits are as shown in the single figure they operate consistently. These will cover misconduct, remuneration table for 2015/16 on page 86. misstatement, error in calculation and serious reputational damage to the Group. These provisions will apply for a The on-target scenario reflects fixed remuneration period of up to three years post payment/vesting which as above plus 50% of the maximum annual bonus may extend to five years if an investigation is initiated entitlement and the threshold level of vesting for the LTIP prior to the end of the initial three year period. awards, being 25% for each performance requirement. The maximum scenario reflects the fixed remuneration plus the maximum payout of all other incentive arrangements.

  89. Strategic report Governance Financial statements LondonMetric Property Plc 95 Annual Report and Accounts 2016 Remuneration continued Potential remuneration for Directors £m 3.0 2.5 2.0 1.5 1.0 0.5 Andrew Martin Valentine Mark Jones McGann Beresford Stirling Minimum On Target Maximum Non Executive Directors’ fees The fees for Non Executive Directors are determined and reviewed by the Board. The base fee will be increased by 2.0% to £46,818 per annum from I June 2016 for all Non Executive Directors except the Chairman whose fee of £320,000 is fixed until 31 March 2017. An additional fee of £10,000 per annum is payable to the Chairmen of the Audit and Remuneration Committees and of £5,000 per annum for each member of the Audit and Remuneration Committees and to the Senior Independent Director. Non Executive Directors are not eligible for performance- related bonuses, participation in the stafg incentive plan, pensions or any other benefits from the Company other than travel, hospitality-related benefits or other incidental benefits linked to the performance of their duties as a Director. James Dean Chairman of the Remuneration Committee 1 June 2016

  90. Strategic report Governance Financial statements 96 LondonMetric Property Plc Annual Report and Accounts 2016 Report of the Directors Principal activities and business review The Directors present their report together with the audited financial The purpose of the Annual Report is to provide statements for the year ended information to the members of the Company which 31 March 2016. is a fair, balanced and understandable assessment of the Group’s performance, business model and The principal activity of the strategy. A detailed review of the Group’s business Group continues to be property and performance during the year, its principal risks investment and development, Martin McGann and uncertainties and its business model and strategy both directly and through joint Finance Director is contained in the Strategic report on pages 1 to 52 venture arrangements. and should be read as part of this report. Annual General Meeting The Annual Report contains certain forward-looking statements with respect to the operations, performance The Annual General Meeting (‘AGM’) of the Company and financial condition of the Group. By their nature, will be held at the Connaught, Carlos Place, Mayfair, these statements involve uncertainty since future events London W1K 2AL at 10 am on 14 July 2016. and circumstances can cause results and developments The Notice of Meeting on pages 143 to 147 sets out the to difger from those anticipated. The forward-looking proposed resolutions and voting details. statements reflect knowledge and information available at the date of preparation of this Annual Report. The Board considers the resolutions which promote the Nothing in this Annual Report should be construed success of the Company and are in the best interests as a profit forecast. of the Company and its shareholders. The Directors unanimously recommend that you vote in favour of Results and dividends the resolutions as they intend to do in respect of their own beneficial holdings, which amount in aggregate The Group reported a profit for the year of £82.7 million to 22,728,081 shares representing approximately 3.6% (2015: £159.5 million). An interim dividend for 2016 of 3.5p of the existing issued ordinary share capital of the per share was paid on 21 December 2015 and a second Company as at 31 May 2016. interim dividend of 3.75p per share was paid on 5 April 2016. The Directors do not propose a final dividend this Substantial shareholders year, resulting in a total dividend of 7.25p per share for the year to 31 March 2016 (2015: 7.0p per share). The Directors have been notified that the following shareholders have a disclosable interest of 3% or more Of the total dividend of 7.25p, 4.6p was paid as a in the ordinary shares of the Company at the date of Property Income Distribution (PID) as required by REIT this report: legislation, after deduction of withholding tax at the basic rate of income tax. The balance of 2.65p was Number paid as an ordinary dividend which is not subject to of shares % withholding tax. Rathbones 44,628,177 7.11 Blackrock Inc 39,347,435 6.26 Investment properties Columbia Threadneedle 36,462,297 5.81 A valuation of the Group’s investment properties at Troy Asset Management 28,475,898 4.53 31 March 2016 was undertaken by CBRE Limited and Aberdeen Asset Management 22,169,268 3.53 Savills Advisory Services Limited on the basis of fair value Hargreave Hale 19,018,311 3.03 which amounted to £1,520.9 million including the Group’s share of joint venture property as reflected in notes 9 and 10 to these accounts.

  91. Strategic report Governance Financial statements LondonMetric Property Plc 97 Annual Report and Accounts 2016 Report of the Directors continued Share capital Directors’ and Offjcers’ liability insurance As at 31 March 2016, there were 628,043,905 ordinary The Company has arranged Directors’ and Offjcers’ shares of 10p in issue, each carrying one vote and all liability insurance cover in respect of legal action against fully paid. There is only one class of share in issue and its Directors, which is reviewed and renewed annually there are no restrictions on the size of a holding or on and remains in force at the date of this report. the transfer of shares. None of the shares carry any Suppliers special rights of control over the Company. There were no persons with significant direct or indirect holdings The Group aims to settle supplier accounts in in the Company other than those listed as substantial accordance with their individual terms of business. shareholders on page 96. The number of creditor days outstanding for the Group There were no changes to the Company’s share capital at 31 March 2016 was 16 days (2015: 17 days). during the year or since the year end. Provisions on change of control The rules governing appointments, replacement and powers of Directors are contained in the Company’s Under the Group’s credit facilities, the lending banks may Articles of Association, the Companies Act 2006 and require repayment of the outstanding amounts on any the UK Corporate Governance Code. These include change of control. powers to authorise the issue and buy back of shares by the Company. The Company’s Articles can be The Group’s Long Term Incentive Plan and Deferred amended by Special Resolution in accordance with Share Bonus Plan contain provisions relating to the Companies Act 2006. vesting of awards in the event of a change of control of the Group. Purchase of own shares Essential contracts The Company was granted authority at the Annual General Meeting in 2015 to purchase its own shares up The Company has no contractual or other arrangements to an aggregate nominal value of 10% of the issued which are considered essential to the business. nominal capital. That authority expires at this year’s Financial instruments AGM and a resolution will be proposed for its renewal. No ordinary shares were purchased under this authority Details of the financial instruments used by the Group during the year. and financial risk management policies can be found in note 14 and in the Managing risk section on page 43. Directors Charitable and political contributions The present membership of the Board and biographical details of Directors are set out on pages 56 and 57. During the year, the Group made charitable donations Andrew Livingston was appointed to the Board as a of £20,000 (2015: £24,820). No political donations were Non Executive Director and a member of the Audit made during the year (2015: £nil). Committee on 31 May 2016. The interests of the Directors and their families in the shares of the Company are set out in the Remuneration Committee report on page 91. In accordance with the UK Corporate Governance Code, all of the Directors will ofger themselves for election and re-election at the forthcoming AGM on 14 July 2016.

  92. Strategic report Governance Financial statements 98 LondonMetric Property Plc Annual Report and Accounts 2016 Report of the Directors continued Going concern Viability Statement The principal risks and uncertainties facing the Group’s The Company’s statement on viability is presented activities, future development and performance are on page 37. on pages 36 to 43. The Group’s borrowings, undrawn Greenhouse gas reporting facilities, hedging and liquidity are described in note 14 to the accounts and in the Financial review on page 35. In accordance with Schedule 7 of the Large and The Directors have reviewed the current and projected Medium-Sized Companies and Groups (Accounts and financial position of the Group, making reasonable Reports) Regulations 2008, information regarding the assumptions about future trading performance. As part Company’s greenhouse gas emissions can be found of the review, the Group has considered its cash on page 46. balances, its debt maturity profile, including undrawn Disclosure of information to auditor facilities, and the long term nature of tenant leases. On the basis of this review, and after making due So far as the Directors who held offjce at the date of enquiries, the Directors have a reasonable expectation approval of this Directors’ report are aware, there is that the Company and the Group have adequate no relevant audit information of which the auditor is resources to continue in operational existence for the unaware and each Director has taken all steps that he foreseeable future. Accordingly, they continue to adopt or she ought to have taken as a Director to make himself the going concern basis in preparing the Annual Report or herself aware of any relevant audit information and to and financial statements. establish that the auditor is aware of that information. Post-balance sheet events Auditor Details of the Group’s post-balance sheet events are Deloitte LLP is willing to be reappointed as the external reflected in note 19 to these financial statements on auditor to the Company and Group. Their reappointment page 128. has been considered by the Audit Committee and recommended to the Board. A resolution will be Employees proposed at the AGM on 14 July 2016. At 31 March 2016 the Group had 40 employees. On behalf of the Board The Group’s employment and environmental policies are summarised in Our approach to responsible business on pages 50 to 52. Martin McGann Shares Held in the Employee Benefit Trust Finance Director 1 June 2016 The Trustees of the LondonMetric Long Term Incentive Plan hold 3,945,092 shares in the Company in trust to satisfy awards under the Company’s Long Term Incentive and Deferred Bonus plans. The Trustees have waived their right to receive dividends on shares held in the Company.

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STRATEGIC REVIEW Ricardo Currs CEO DIA Group Consumers continue to prefer 2P food retailers: Price &amp; Proximity Rising oil and Ageing energy costs population Less persons per Western Europe Consum umer ers s household &amp;

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