Written evidence submitted by The Crown
Estate (Crown Estate Commissioners)
EXECUTIVE SUMMARY
The Crown Estate is part of the hereditary possessions
of the Sovereign in right of the Crown. It is not the Sovereign's
private estate, nor is it owned by the Government.
The Board of The Crown Estate is charged with
managing these property interests, comprising a diverse portfolio
across the UK of over 12,000 tenancies. It includes office, retail
and industrial premises; housing; farmland, forestry and minerals;
parkland; over half the foreshore and almost all the seabed.
The Crown Estate is required to enhance the value
of the portfolio and its income, and to surrender the profit to
the Treasury to the benefit of the taxpayer. The Crown Estate
sets clear commercial objectives and financial targets, acting
as a responsible long-term steward of its assets.
Over the last 10 years, the value of the portfolio
has increased by £2.3 billion and The Crown Estate has paid
a total of £1.8 billion to the Treasury. Over the same period
The Crown Estate has significantly outperformed the IPD (Investment
Property Databank) all property index, the property industry's
recognised benchmark. The diversity and quality of the portfolio
have helped The Crown Estate weather the recession.
The overall strategy is to concentrate on core
holdings and areas of expertise. While the major assets in London's
Regent Street and St James's will remain significant, the objective
is to build a more balanced portfolio with investment in higher
yielding assets elsewhere. The Marine Estate will play an increasing
part in this as it continues to facilitate the development of
offshore renewable energy.
Stewardship is an integral part of The Crown
Estate's commercial strategy. This benefits both the business
and the communities and environments in which it operates. Success
is more than annual financial performance: it is also important
to maintain assets of a quality to provide a sustainable return
over the longer term. The Crown Estate is committed to a policy
of accountability and transparency and publishes material in a
variety of formats to help interested observers understand the
business.
The Crown Estate discusses annually with the
Treasury the proposed corporate plan, financial targets and investment
strategy, keeping officials regularly informed of its business
and other significant initiatives. The Crown Estate also works
with other government departments and devolved administrations,
particularly in relation to offshore energy.
THE CROWN
ESTATE
1. The Crown Estate can trace its origins
back several hundred years and is conscious of its long term responsibilities
for its assets. It is charged by Parliament with responsibility
for managing the property interests belonging to the Sovereign
as part of the hereditary possessions of the Crown. It has four
constituent Estates: urban, marine, rural and Windsor.
2. The Crown Estate's responsibilities are
specified in The Crown Estate Act 1961 (the 1961 Act): in particular,
to enhance the value of the estate and its income and to do this
having regard to good management. The Crown Estate is therefore
a business that focuses on a combination of income return and
capital growth. Under the Civil List Act 1952, the net income
surplus, ie profit, goes to the Treasury. The Crown Estate is
not a government agency, nor a non-departmental public body, nor
a company owned by the Government.
3. The Crown Estate expresses its statutory
duties through three core values—commercialism, integrity
and stewardship. It operates at arm's length from Government,
takes a commercial approach and embraces high standards of responsible
management.
FINANCIAL PERFORMANCE
4. At the end of the financial year 2008-09,
the capital value of The Crown Estate was £6.0 billion of
which the property portfolio was £5.7 billion. Over the 10
years to March 2009 the value of the property portfolio has increased
by 66.7%. The following chart shows the property portfolio value
of each of the constituent Estates.
5. The gross income surplus[1]
for the financial year 2008-09 was £243.2 million. The following
chart shows the gross income surplus contributed by each of the
Estates.
6. The Crown Estate's total net income surplus,[2]
ie profit, is all payable to the Treasury: The Crown Estate is
not subject to corporation, income or capital gains tax. In 2008-09
the surplus was £226.5 million. The following chart shows
that the surplus grew by 70.5% for the 10 years from 1999-2000
to 2008-09—with total payments of £1.8 billion to the
Treasury, to the benefit of the taxpayer.
BENCHMARKING
7. Consistent with industry practice, The
Crown Estate compares its total return (income return plus capital
growth) with the IPD all property index. The following chart shows
how The Crown Estate's total return performance compares with
this index in each of the last five years.
8. The following table shows total return
performance against the IPD index over the last three, five and
10 years.
|
| Annualised Total Return % | 3 yr
| 5 yr | 10 yr
|
|
| The Crown Estate | 4.51
| 10.18 | 10.84
|
| IPD Quarterly Index | -7.74
| 2.00 | 6.09
|
|
For 2008-09, The Crown Estate's total return was -15.8, outperforming
the IPD Quarterly Index which reported a return of -25.5%.
9. In addition to benchmarking financial performance,
The Crown Estate will this year benchmark itself against the Business
in the Community (BitC) Corporate Responsibility Index, aiming
for "silver" status and, by 2014, "gold".
CONSTRAINTS
10. By law, The Crown Estate's operations are limited
in certain crucial ways:
— it is unable to borrow to finance investment;
— it is unable to retain revenue reserves for investment
because the whole of its income surplus is payable to the Treasury;
and
— it is unable to invest in land through limited companies.
11. Because of the first two constraints, funds for capital
investment have to be generated from capital activity; through
partnering and joint ventures; or through transfers from revenue
to capital in limited circumstances, as permitted under the 1961
Act. The consequence of the third constraint is to restrict the
opportunities for accessing modern investment vehicles.
THE MANAGEMENT
OF THE
CROWN ESTATE
12. The governance structure of The Crown Estate comprises
a non-executive Main Board and an executive Management Board.
The Main Board consists of a non-executive chairman, six non-executive
members and the chief executive, all of whom have property or
other relevant experience or expertise. The Main Board:
— agrees the objectives and strategy of The Crown Estate;
— ensures that there are effective systems of financial
delegation and control and risk management;
— monitors performance in meeting objectives and implementing
strategy;
— monitors financial performance and stewardship of
resources; and
— approves major transactions.
13. The Management Board, comprising the chief executive
and the five executive directors:
— implements the strategic direction of The Crown Estate;
— sets and ensures the achievement of corporate objectives,
including financial performance;
— keeps under review The Crown Estate's investment strategy,
in the light of economic and market conditions;
— ensures that business risks are properly identified
and managed;
— exercises oversight and control over The Crown Estate's
financial, human and other resources; and
— promotes sustainability and customer focus throughout
the business.
14. The chief executive, as accounting officer, is responsible
for regularity and propriety in the deployment of The Crown Estate's
resources.
15. The Crown Estate adopts a balanced scorecard approach
to measuring both financial and non-financial performance against
corporate objectives. These have been distilled into nine rolling
five year "Going for Gold" targets which are monitored
and reviewed regularly. Progress is communicated to all staff.
16. The Crown Estate outsources day-to-day management
of the majority of its property portfolio to professional firms
of property managing agents, with the in-house team focusing on
investment strategy and its implementation; asset management;
and property development. The total fees paid to managing agents
in 2008-09 for property management were £9.0 million.
17. At 31 March 2009, The Crown Estate's core business
employed 184 people on a permanent basis: managers, their supporting
teams and central services staff. Additionally, 207 staff were
employed in estate work, primarily at Windsor.
18. The total costs of The Crown Estate in 2008-09 were
£80.4 million, representing 26.4% of turnover. This consisted
of direct expenditure on the Estates of £60.9 million, (such
as service charges, which are recoverable from tenants, managing
agents' fees, repairs, provision for bad debt, etc); indirect
expenditure of £17.0 million (such as employees, accommodation
and IT); and depreciation of £2.5 million.
ANNUAL REPORT
AND CORPORATE
GOVERNANCE
19. The Crown Estate is audited by the National Audit
Office. In accordance with the 1961 Act, a clear distinction between
income and capital has to be maintained, similar to a trust. This
is reflected in the annual report.
20. In 2008-09, The Crown Estate adopted International
Financial Reporting Standards (IFRS) a year ahead of other public
sector organisations.
21. The Annual Report is laid before Parliament and gives
a comprehensive account of The Crown Estate's activities. Annual
reports are also produced for Scotland, Wales and Northern Ireland.
The 2009 Annual Report won two "Building Public Trust"
awards: one for "Excellence in Reporting" in the Public
Sector and one for "Sustainability Reporting" in the
Public Sector.
22. The Crown Estate recognises the importance of employing
high standards of governance in performing its obligations, including
compliance, where applicable, with the Treasury's corporate governance
guidelines.
RELATIONS WITH
GOVERNMENT
23. In accordance with the 1961 Act, The Crown Estate
provides the Treasury with all the information about The Crown
Estate's activities which the Treasury requires. The Treasury
is kept regularly informed of The Crown Estate's business and
significant initiatives to enable the Treasury to satisfy itself
that the Estate is performing its duties. There are two formal
annual meetings with officials; in the spring on the corporate
plan and revenue targets; and in the autumn on the investment
strategy, with additional meetings and discussion as the flow
of business requires throughout the year. The 1961 Act also confers
on the Treasury and the Secretary of State for Scotland a power
of direction over the discharge of The Crown Estate's functions
but to date this has not been exercised.
24. The Crown Estate also has extensive working relationships
with other UK government departments (DECC, DEFRA, BIS, DCLG and
DfT) and with a range of government committees and taskforces
on subjects including energy, marine environmental management,
fisheries and minerals. In many cases there is detailed bilateral
collaboration in the sharing of expertise and knowledge, eg constructing
the strategic environmental assessment for the current offshore
wind farm programme.
25. As offshore renewable energy is a devolved responsibility,
The Crown Estate also has comparable relationships with the Scottish
Government. There are parallel relationships with the Welsh Assembly
Government and the Northern Ireland Executive.
INVESTMENT STRATEGY
26. In order to enhance the long-term value of the portfolio
whilst providing a sustainable source of revenue to the Treasury,
The Crown Estate's strategy is to:
— concentrate on key areas of expertise and capitalise
on opportunities for specialisation;
— rebalance the portfolio to moderate its current high
dependence on central London towards higher yielding investments
elsewhere, including playing a full part in realising the potential
of the Marine Estate; and
— broaden access to working capital through joint ventures
and partnering with others.
27. Within this overall strategy, the priorities of the
different Estates reflect the nature of their business. The priority
of the Urban Estate is essentially to provide a mixture of long-term
capital and income growth. The Marine Estate's priority is to
produce a return driven primarily by income rather than capital
gain. The Rural Estate's priority is to maximise total returns
through capital growth combined with appropriate levels of capital
release and increased income. In the case of the Windsor Estate,
there are specific duties laid down by the 1961 Act. The following
sections explain this in more detail.
THE URBAN
ESTATE
28. The Urban Estate represents 74% of the property value
of The Crown Estate and generates a similar proportion of the
gross income surplus. It comprises commercial and residential
property and is one of the largest commercial property portfolios
in London.
29. The overall objective is to concentrate on a limited
number of sectors where we have a competitive advantage, for example
through concentrated ownership of assets, expertise or local knowledge.
Our relative success is due to the quality of the portfolio and
a continued focus on long-term opportunities.
30. Regent Street is the most significant part by value
of The Crown Estate. The Crown Estate has taken advantage of its
contiguous ownership of the Street and over recent years has transformed
it into a world class retail and business location. A major development—the
largest mixed-use scheme in the West End, the Quadrant,—is
currently underway at the southern end of Regent Street comprising
offices, a five star hotel, residential and retail accommodation.
This will incorporate energy-efficient and environmentally-friendly
technology for generating cooling, heat and power. It will also
provide the most significant improvement to the quality of London's
West End public space since the enhancement of Trafalgar Square.
PRINCIPAL CHALLENGES
31. Overall the principal challenges facing the Urban
Estate are:
— high dependence on the volatile central London office
market;
— limited access to working capital, restricting the
ability to invest; and
— managing the increased risk of tenant failure as businesses
struggle during the economic downturn.
32. Our response is to reduce our exposure to commercial
central London property by strategic disposals of non-core central
London holdings and through working with partners in our core
holdings. This enables us to spread our risk and access additional
sources of investment capital, while retaining a significant element
of control over our core holdings in Regent Street and St James's,
where we intend to remain major investors. A substantial part
of the funds raised from disposals is being invested outside London,
in major retail schemes and industrial estates. To manage and
mitigate the risk of tenant failure we are increasing our knowledge
of occupiers' businesses and, wherever possible, working closely
with them to understand their requirements and improve their occupational
efficiency.
33. Over the last year, we took advantage of the market
downturn to continue to rebalance and diversify our portfolio,
resulting in sales and purchases with a combined value of more
than £500 million from April 2009. Significant transactions
included sales of non-core central London assets and the acquisition
of major retail schemes in Exeter and Harlow. We also continued
the active asset management of our core central London holdings
including the Quadrant development.
THE MARINE
ESTATE
34. The property under the management of the Marine Estate
includes virtually the entire UK seabed out to the 12 nautical
mile territorial limit, plus the vested rights to explore and
utilise natural resources of the UK Continental Shelf which extends
to 200 miles from the coast. These rights include the sub-soil,
minerals and substrata below the surface of the foreshore and
seabed, but excludes oil, gas and coal. In effect, the Marine
Estate manages approximately 20,000 km of the UK's total 36,000
km coastline and approximately 880,000 km2 of seabed. The Crown
Estate does not own the water column or govern public rights such
as navigation and fishery over tidal waters.
35. The objective of the Marine Estate is to seek a financial
return from the land and property rights under its management
whilst placing emphasis on long term stewardship responsibilities
and sustainable development of the marine environment. The Crown
Estate works closely with government, devolved administrations,
local authorities, seabed users and developers, environmental
groups and other stakeholders and interest groups.
36. The Marine Estate undertakes or facilitates a diverse
range of commercial activities both coastal and offshore. These
include: offshore renewable energy and undersea storage of natural
gas and carbon dioxide; marine aggregate extraction; submarine
cables, pipelines and outfalls; marinas and moorings, port and
harbour operations and navigational aids; and mariculture—seaweed
harvesting, shellfish cultivation and fish farms.
37. In addition we undertake or facilitate ancillary
activities relating to our stewardship role to enhance long-term
value. These include: the leasing of about 5,000 km of the UK's
coastline to local authorities and other agencies for conservation
and preservation; aquaculture research; environmental research;
conservation projects and nature reserves; marine archaeological
investigations; and public education and interpretation of the
marine environment.
OFFSHORE RENEWABLE
ENERGY
38. Under the Energy Act 2004 The Crown Estate licenses
the generation of renewable energy on the continental shelf within
the Renewable Energy Zone out to 200 nautical miles. The government's
target for meeting 25% of the UK's electricity generating capacity
from renewable sources by 2020, for reasons both of climate change
and energy security, has therefore created new opportunities for
The Crown Estate. Its ownership and vested rights for the seabed
around the UK makes The Crown Estate uniquely placed to work with
government in helping to meet these targets.
39. Under the Energy Act 2008, The Crown Estate also
has the right to lease undersea storage of gas and carbon dioxide.
Carbon capture and storage (CCS) in the UK sea bed could become
important in helping to underpin energy security.
PRINCIPAL CHALLENGES
40. This substantial offshore renewable energy programme
presents significant challenges to the UK. The Crown Estate, by
virtue of its ownership and vested rights, is responding in the
following ways:
— helping facilitate the establishment of a robust framework
to provide confidence for investors and developers to participate
in the next phase of the offshore wind energy programme (Round
3), the wave and tidal programme in the Pentland Firth and the
offshore wind farm programme in Scottish territorial waters. It
is making available £123 million of capital to bring sites
under these programmes to the point where they can be developed.
On 8 January 2010, The Crown Estate and Government announced the
developers for nine new offshore wind zones with a total target
capacity of 32 gigawatts. The aim is for legal agreements with
developers in the Pentland Firth to be signed by 31 March 2010;
— helping facilitate the establishment of offshore transmission
networks for electricity distribution and working closely with
the National Grid, OFGEM and DECC; and
— working alongside the UK Government and regulators
to establish a robust licensing and leasing programme for the
first CCS projects, in the absence of a clear market mechanism
for pricing carbon dioxide.
41. In light of these new activities the Marine Estate
has invested in appropriate systems and processes and recruited
additional qualified and experienced people from relevant sectors.
THE RURAL
ESTATE
42. The Rural Estate is one of the largest commercial
rural land holdings in the UK and comprises 146,000 hectares (360,000
acres) of agricultural and common land, forestry, residential
and commercial property and minerals. The agricultural sector
comprises 450 principal farm holdings and 770 residential tenancies.
43. The principal commercial objectives of the Rural
Estate are to enhance income growth; create value through asset
management; and to re-balance the portfolio for long-term performance,
releasing capital where appropriate. Sales are focused on peripheral
land and property with limited long-term prospects. Purchases,
such as the Ashby St Ledgers Estate in Northamptonshire and the
Tabley Estate in Cheshire, both mixed estates with agricultural,
residential and commercial assets, are selected for their long-term
potential.
44. This approach is coupled with high standards of stewardship
which we believe enhances long-term value. We work in partnership
with tenants to help them achieve their own business objectives,
and involve other stakeholders to achieve high standards of sustainability.
The Crown Estate seeks to be recognised as a landowner with a
reputation for fair and environmentally responsible business practices.
PRINCIPAL CHALLENGES
45. The principal challenges are:
— the characteristics of agricultural investment mean
there is restricted scope for tactical trading of the portfolio;
— the scope for maximising income is limited by the
legislation governing agricultural tenancies; and
— releasing land for development in ways that are sensitive
to local opinion and environmental concerns.
46. To address these challenges, we ensure we are in
a position to realise profits when opportunities arise. Additionally,
we are working more closely with our tenants to add value to their
businesses and create new opportunities to our mutual benefit.
Examples of this include the help we have given our farming tenants
to develop ancillary businesses by stimulating tourism on the
Glenlivet Estate in the Highlands and on the Dunster Estate on
the edge of Exmoor.
47. To achieve successful development of surplus land
The Crown Estate places priority on extensive stakeholder consultation
and on employing high standards of design and construction to
benefit individual occupiers and secure sustainable local communities.
Examples range from a large-scale business and technology park
at Butterfield in Bedfordshire to a small-scale village development
at Burnhill Green in Staffordshire. The development of a Crown
Estate quality standard for residential property is designed to
add value to our housing stock.
48. Drawing on the expertise of our Marine Estate team,
a scoping study recently identified possible onshore renewable
energy generation opportunities, with a total output potentially
in excess of 500 megawatts. These could involve onshore wind,
anaerobic digestion, biomass and hydro technology, which together
with micro-generation will benefit individual farm tenants and
local communities.
49. As part of our stewardship programme, we reached,
a year ahead of schedule, the government target that 95% of our
145 Sites of Special Scientific Interest in "favourable"
or "recovering" condition.
THE WINDSOR
ESTATE
50. The Windsor Estate covers 6,300 hectares (15,600
acres) of the Surrey and Berkshire countryside. It includes Windsor
Great Park, farms, forests and residential and commercial properties.
Key features include the Savill and Valley Gardens, Virginia Water
Lake, Cumberland Lodge (a conference facility), the Long Walk
and deer park, six golf courses and Ascot Racecourse. Windsor
Castle is an occupied Royal Palace and therefore not in Crown
Estate ownership.
51. The 1961 Act requires The Crown Estate to maintain
the character of the Windsor Estate as a Royal Park and forest.
Subject to that requirement, the Act allows use of the Estate
for commercial purposes and access to the public for recreation.
52. Our objectives are therefore to ensure that the Windsor
Estate remains a valuable historic, national asset; to maintain
and improve the stewardship of the Estate; and to enable millions
of people to make use of the various facilities.
53. The challenge is to ensure that as far as possible
we offset the costs of complying with our statutory obligation
to maintain the Windsor Estate by identifying and maximising sources
of revenue. The cost of maintaining the Windsor Estate in 2008-09
was £8.3 million which was offset by revenue of £6.3
million from commercial and residential property, agriculture,
visitor revenue, the sale of timber and Christmas trees and filming
on the Estate.
IN CONCLUSION
54. The Crown Estate is first and foremost a commercial
organisation. The diversity of its portfolio spreads risk and
provides commercial benefit. The Crown Estate is engaged in issues
of major importance—urban development, offshore energy generation
and sustainability in the rural economy. Recognising the potential
of the assets under our control, we manage them actively and with
a long-term perspective.
January 2010
1
Turnover less operating costs which include management fees and
repairs and maintenance. Back
2
Gross surplus plus interest receivable, less administrative costs
and appropriations to capital. Back
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