BRITISH LAND (LON:BLND) Final Results

Transparency directive : regulatory news

17/05/2018 07:00
British Land Co PLC  -  BLND   

Final Results


Released 07:00 17-May-2018

 


The British Land Company PLC Full Year Results


17 May 2018


 


Chris Grigg, Chief Executive said: "This has been another good year for British Land.  Our financial performance has been robust following significant asset sales and we have made further strategic and operational progress.  Leasing activity has been strong across our business.  In London Offices, our unique campus offering is driving demand for our space, and we successfully launched Storey, our flexible workspace offer.  In Retail, we remained focused on delivering best-in-class customer service and the highest quality modern space, and this drove another year of good leasing and operational outperformance. We completed over £1 billion of sales in the year and continued to make smart use of our capital. This included significant but low risk investment in our development pipeline, selective acquisitions and a £300 million share buyback, while further reducing net debt, with LTV now at 28%. 


                                                                                                                           


Looking forward, we are mindful of the uncertainties.  In retail, market conditions are likely to remain challenging.  In offices, demand for our space is healthy, with a range of businesses continuing to commit to London and the supply of high quality new space relatively constrained in the short term.  As the ways in which businesses and people use space evolves, our strong and flexible balance sheet means we can capitalise on the opportunities we have created, which broaden the type of space we offer and further enhance the mix of uses and occupiers at our places to deliver enduring growth and returns."


 


Highlights


 


·       Robust financial performance


·        EPRA NAV 967 pence, up 5.7%; valuation up 2.2% with buyback contributing 15 pence


·        Underlying Profit £380 million, down 2.6% following £1.5 billion net sales of income producing assets, in the last two financial years


·        Full year dividend 30.08 pence, up 3.0% with a payout ratio of 80%; final dividend of 7.52 pence


·        Total accounting return of +8.9% (2016/17: +2.7%)


 


·       London Offices: strong leasing activity driven by campus strategy and good market demand


·        Portfolio value up 4.5% reflecting quality of our assets and leasing success


·        1.2 million sq ft of leasing activity; up four times on last year; 5.6% ahead of ERV


·        Under offer or in negotiations on a further 548,000 sq ft, to a wide range of occupiers


·        Storey successfully launched across all campuses, with 77% of space now let


 


·       Retail: quality space driving operational outperformance in polarising markets


·        Portfolio value up 0.3%, with ERV growth offsetting yield expansion 


·        1.2 million sq ft of leasing activity; 10.3% ahead of ERV with incentives unchanged


·        90% of leases reaching expiry were either retained or replaced; occupancy maintained at 98%


·        Continued operational outperformance vs benchmarks: footfall 340bps ahead; retailer sales 130bps ahead


·        £419 million disposals; £2.3 billion over the last four years as we proactively reshape the portfolio


 


·       Strong progress on developments to drive future growth, with risk carefully managed


·        Committed pipeline doubled to 1.6 million sq ft with speculative exposure low at 4.5%


·        Generating estimated future rent of £63 million, of which 55% pre-let or under offer


·        Committed construction costs to come substantially covered by Clarges residential receipts


·        1.9 million sq ft of planning consents in the year including Meadowhall Leisure extension


 


·       Canada Water Master Development Agreement signed and planning application submitted


 


·       Strong performance on sustainability indices, including DJSI, FTSE4Good, GRESB and MSCI


 

Summary




































































































































Year ended 31 March



 2017



2018



Change



Income statement



 



 



 



Underlying Profit



£390m



£380m



(2.6)%



Diluted underlying earnings per share 2



37.8p



37.4p



(1.1)%



IFRS profit before tax



£195m



£501m



 



IFRS basic earnings per share



18.8p



48.7p



 



Dividend per share



29.20p



30.08p



+3.0%



Balance sheet



 



 



 



Portfolio at valuation (proportionally consolidated)



£13,940m



£13,716m



+2.2%1



EPRA Net Asset Value per share²



915p



967p



+5.7%



IFRS net assets



£9,476m



£9,506m



 



Loan to value ratio (proportionally consolidated)



29.9%



28.4%



 



Total accounting return ²



2.7%



8.9%



 



 



 



 



 



Operational Statistics



 2017



2018



 



Lettings and renewals, sq ft



1.7m



2.4m



 



Gross investment activity



£1.3bn



£1.8bn



 



Committed development, sq ft



0.7m



1.6m



 



Sustainability Performance



 



 



 



MSCI ESG



AAA rating



AAA rating



 



GRESB



5* and Green Star



5* and Green Star



 



1 Valuation movement during the year (after taking account of capex) of properties held at the balance sheet date, including developments (classified by end use), purchases and sales


2 See Note 2 to the condensed set of financial statements


 


Results Presentation and Investor Conference Call


A presentation of the results will take place at 9.30am on 17 May 2018, and will be broadcast live via webcast (www.britishland.com) and conference call.  The details for the conference call are as follows:


 














UK Toll Free Number:



0808 109 0700



Passcode:      



British Land



 


A dial in replay will be available later in the day and will be available for 7 days. The details are as follows:


 














Replay number:                     



0208 196 1998



Passcode:      



7151297#



A video replay of the event will be available at www.britishland.com from 2pm on 17 May 2018. The accompanying slides will be made available at www.britishland.com just prior to the event starting.


 


For Information Contact


 



































Investor Relations



 



 



David Walker, British Land



020 7467 3418



 



 



Media



 



Cressida Curtis, British Land 



020 7467 2938



Guy Lamming/Caroline Seton, Finsbury



020 7251 3801



 



 



 


 

CHIEF EXECUTIVE'S REVIEW


This has been another good year across our business. We let four times as much London office space as last year - a clear demonstration of the attractiveness of our unique campuses. In Retail, we let or renewed over 1 million sq ft of space, well ahead of ERV and at 98% occupancy our portfolio is effectively full. All of this helped drive NAV up 5.7% with values up 2.2%.


 


Our financial performance was robust with profits down 2.6% following £1.5 billion net sales of income producing assets over the last two years, of which £0.8 billion completed this year. We have maintained our capital discipline, completing a £300 million share buyback and increasing our dividend again by 3% while reducing LTV to 28%, further strengthening our financial position. At the same time, we have completed our super-prime Clarges Mayfair residential development and the £60 million refurbishment of Meadowhall, while doubling our committed development pipeline. All of this was done on a carefully risk managed basis, with 55% of committed developments already pre-let or under offer. This is a great achievement at an early stage and gives us confidence in both our strategy and in the quality of the space we are delivering. 


 


Future British Land: continuing to evolve our business


The current strength of British Land is underpinned by the consistent strategic actions we have pursued over several years. We identify and invest behind the attractive long term trends which are driving our core business. In recent years this has included the development of our campus strategy, investments into locations which benefit from Crossrail, and most recently the launch of Storey, our flexible workspace offering. 


 


Going forward, we are focused on building an increasingly mixed use business and continuing to evolve our model and respond to changing customer needs. Indicatively, future British Land will comprise:


·       A campus-focused London Office business: With a blend of core and flexible space, including the further build out of Storey, integrated alongside a strong retail and leisure offering at our campuses;


·       A further refined Retail business: including high quality, well located Regional and Local assets but focused on a smaller number of larger, multi-let places with mixed use potential;


·       Residential, primarily Build to Rent: will play an increasingly important role in our mixed use business. It is a structural growth market which is complementary to our core model. We will progress existing opportunities within our portfolio such as Canada Water and explore ways to build further meaningful exposure.


 


As we do this, we will remain disciplined regarding our use of capital, investing in our business and progressing development, while remaining mindful of the importance of shareholder returns.


 


Outlook


Businesses remain cautious but continue to commit to London and the supply of high quality new office space is relatively constrained, so we expect demand for our space to remain firm. In Retail, the market is more challenging with many occupiers facing short-term headwinds. Polarisation is accelerating but we are confident that the quality and range of our space meets retailers' evolving needs in the omni-channel retail world.


 


We are mindful of the current market environment, but the strengths of our business, including the scale, balance and quality of our portfolio, the opportunities we have created and our strong balance sheet mean we look to the future with confidence.


 


London Offices


Our Offices business had a strong year with values up 4.5%.  Leasing activity covered more than 1.2 million sq ft, delivering £40 million of future rent - a strong endorsement of our campus strategy.  


 


We secured several major lettings at Broadgate, including Sumitomo Mitsui Banking Corporation Europe Limited ("SMBCE") at 100 Liverpool Street, demonstrating the continued appeal of London to global financial institutions. Mimecast, the technology business, took space at 1 Finsbury Avenue (1FA), and Eataly, the Italian marketplace, will open their first UK site at 135 Bishopsgate. This broad range of activity demonstrates our focus on enhancing the mix of uses and occupiers on the campus to create a seven-day-a-week destination for London. Elsewhere, we signed the largest West End pre-let in 22 years at Regent's Place and our development at Paddington, 4 Kingdom Street was nearly 90% let ahead of launch in June 2017, significantly ahead of ERV.


 


We are also pleased with the progress of Storey, our flexible workspace offer launched in June 2017. It now covers 114,000 sq ft, with space at each of our three campuses and is now 77% let.   We have allocated additional space at 1FA, 4 Kingdom Street and Wells Street, so total space will reach more than 230,000 sq ft in the short term with further long term plans for expansion. 


 


Retail


In Retail, values were up 0.3%, with positive ERV growth offsetting yield expansion. Our leasing activity covered 1.2 million sq ft generating £7 million in additional rent, with incentives unchanged.  At 98% occupancy, our portfolio is effectively full and is outperforming benchmarks on both footfall and sales. 


 


We delivered this strong operating performance in the context of ongoing, long-term structural changes in the market. As online retail grows, many operators are evolving their models to focus on the optimal size, shape and nature of their physical store network. This year, these challenges were compounded by short-term trading headwinds, and several highly leveraged operators with challenged models applied for company voluntary arrangements (CVAs).  


 


We recognise these trends, and so for a number of years we have been actively repositioning our portfolio to focus on well located, high quality space that reflects people's changing lifestyles and drives enduring demand for our assets. We have sold £2.3 billion of retail assets over the last four years, including £419 million this year, primarily single use assets but also multi-let space that does not fit our strategy. However, Retail remains a core part of our business. This year we made acquisitions in Woolwich, south east London and in Ealing, adjacent to our existing Ealing Broadway shopping centre; both are well-connected mixed use assets with development potential.  In addition, we completed the £60 million refurbishment of Meadowhall to ensure it is well positioned to meet the changing demands of consumers into the future.    


 


Development Activity


Development is an important part of how we deliver value.  This year we made strong progress on our pipeline of opportunities, with committed developments more than doubling to 1.6 million sq ft, and risks carefully managed.  55% of the future rent from these developments, estimated at £63 million, is pre-let or under offer and our speculative exposure remains low at 4.5% of the portfolio value.  Committed construction costs of £427 million are substantially covered by £373 million of Clarges Mayfair residential receipts to come post year end. 


 


Looking further ahead, we have created a range of opportunities in our near and medium term pipelines, which we have the flexibility to progress when the time is right.  This includes Canada Water, where our masterplan will create a new urban centre for London.  We signed the Master Development Agreement with Southwark Council and submitted our outline planning application for the masterplan in May 2018. 


 


Sustainability


This was our second year holding the Queen's Award for Enterprise, the UK's highest business accolade recognising our economic, social and environmental achievements.  Our activity this year has supported 228 people into work, through Bright Lights, our skills and employment programme.  35 of our retail and leisure occupiers participated in "Starting out in Retail", helping 100 young people find employment, and building on this, we will be introducing Starting Out in Construction in 2019. In support of the Living Wage Foundation, we pay all Group employees at least the voluntary living wage rate and encourage our suppliers to do the same. This year, our three London campuses became Living Wage Accredited Employers, with everyone we employ to manage and maintain the campuses, including contractors, paid at least the London Living Wage. 


 


Chris Grigg,


Chief Executive


BUSINESS REVIEW


 


Key metrics
































































































Year ended 31 March



2017



2018



Portfolio valuation



£13,940m



£13,716m



Occupancy



98.0%



97.4%



Weighted average lease length to first break



8.3 yrs



7.7 yrs



 



 



 



Total property return



+3.1%



+7.0%



-        Yield shift



+15 bps



+1 bps



-        ERV growth



+1.1%



+1.8%



-        Valuation movement



(1.4)%



+2.2%



 



 



 



Lettings/renewals (sq ft)



1.7m



2.4m



Lettings/renewals vs ERV



+8.0%



+8.2%



 



 



 



Gross investment activity1



£1,251m



£1,766m



-       Acquisitions2



£103m



£206m



-       Disposals1



(£856)m



£(1,308)m



-       Capital investment



£292m



£252m



Net investment/(divestment)



(£461)m



£(850)m



On a proportionally consolidated basis including the Group's share of joint ventures and funds


1Current period figures include £575 million Leadenhall Building disposal that exchanged during the year ended 31 March 2017 and completed this financial year


2 Prior period figures restated to exclude £92 million purchases completed after 1 April 2017


 


Market backdrop


The economic environment remained uncertain across the year, with consumer spending more subdued, as inflation (measured by CPI) reached a high of 3.1% in November.  The impact of political and economic uncertainty relating to the ongoing Brexit negotiations weighed on investment decisions for UK businesses and in November 2017, we saw the first interest rate rise in ten years.  However, at 4.2%, unemployment is at its lowest in more than 40 years and inflation is slowing, as the impact of sterling weakness moderates. So while UK GDP growth forecasts remain below other major economies, the relative strength of the global economy is supportive for UK businesses. 


 


The investment market


The London investment market proved resilient, with real estate continuing to offer good relative returns, and the unique attractions of London remaining persuasive, particularly for overseas investors.  However, buyers have become more selective, with well-let, best-in-class assets still generating good interest while pricing on other assets has softened, driving further polarisation.  The picture is similar in retail, where higher quality assets, both large and small continue to see demand, although the market remains cautious with investors generally demanding a higher yield to compensate for a perceived increase in risk.      


 


The Office occupational market


Demand for the best quality space has remained firm, with businesses continuing to make long term commitments to London despite wider uncertainty.  Initial estimates for Brexit-related job losses in the financial sector have been substantially lowered and financial services companies have continued to take space, although media and technology companies are now a more significant source of demand.  Flexible workspace was another important driver, with its share of take up increased from an average of 7% in 2012-16 to 21% in 2017.  This represents a shift towards more collaborative workplaces on more flexible terms. This is largely driven by the growth of small and medium sized businesses, but also many larger corporates, who increasingly require flexible workspace in addition to their core office space.


The supply pipeline has moderated substantially since the referendum, and nearly 50% of all space under construction is currently pre-let, including nearly 60% of space due for completion in 2018.  As a result, occupiers with relatively large space requirements have limited options in the coming years, which should support rents on the best quality space.   


 


The Retail occupational market


In Retail, the occupational market became more challenging as the year progressed.  The long term structural impact of online continues to affect operators, and these issues have been exacerbated by short term factors, notably rising costs and subdued consumer confidence.  Retailers continue to rationalise their store networks, and several highly leveraged operators with challenged models have applied for CVAs (company voluntary arrangements).  However, this negative sentiment obscures healthy performances from operators with strong and differentiated offerings, who are evolving the role of their stores to reflect the changing way people shop. 


 


In the casual dining sector, operators who over-expanded in recent years have been similarly impacted by short term cost pressures, although the overall leisure market remains strong.  Spending on leisure has continued to grow and this year is expected to reach nearly £130 billion, a 17% increase compared to five years ago


 


As a result, polarisation is accelerating rapidly.  The best quality retail schemes, which meet a much broader mix of uses, including leisure and entertainment and which support the important role physical retail can play in an omni-channel strategy are still generating good rental tension and delivering income growth. 


 


Our strategy


Our strategy is to create outstanding places, which reflect the changing lifestyles of the people who work, live or spend time in our space - we call this creating Places People Prefer.  We do this by understanding and responding to the evolving needs and expectations of our customers.  Increasingly people want to combine working, shopping, socialising, and entertainment in a single place.  Across our business we are responding to this trend by curating the environment inside and outside our buildings to create more of these opportunities, which include a mix of activities.  As our markets evolve, we will continue to position our business to benefit from the long term trends to drive enduring demand for our space.    


 


London Offices


Our campus approach enables us to successfully differentiate our space by creating neighbourhoods we can enhance and enliven through placemaking. 78% of our offices are located on our three Central London campuses at Broadgate, Paddington Central and Regent's Place.  At each, we are delivering a growing mix of uses alongside our offices, including dining, shopping, leisure and entertainment as well as events and activities people can enjoy seven days a week.  Our newest buildings reflect the changing ways people are working, with more collaborative space, distinctive features such as roof terraces and smart technology, and sustainable characteristics, all of which is driving good demand from a wide range of occupiers.  


 


Storey, our flexible workspace business is an integral part of that approach, helping to attract new occupiers to our campuses and allowing us to meet the evolving needs of existing customers.  Importantly, our campuses benefit from excellent connectivity and transport infrastructure, which will be further enhanced by Crossrail at Broadgate and Paddington Central.  This makes them accessible and convenient, and will drive footfall, providing a strong rationale for extending the retail and leisure offer.    


 


Retail


We believe that physical stores have a key role as a part of a successful omni-channel retail strategy, but that the market is polarising towards the best locations.  Size should be appropriate to the catchment and quality of space and services are key.  Placemaking is an important part of how we can add value as owners and managers of property: by curating our space to meet the needs of our customers, we can support the way the role of the store is changing.   This is where our investment is focused.


 


There are typically three phases to a modern consumer journey: "discovery", "transaction" and "fulfilment".  Our Regional centres typically support the "discovery" phase; they attract visitors from a wide catchment so we are enhancing the nature of this space to encourage people to stay longer and spend more by enlivening our space with more leisure and entertainment.    Our data shows that when customers engage with our catering offer, their retail spend is typically 27% higher. 


 


The second stage is the actual "transaction", which may take place in store or online.  For retailers, transactions which are made (or fulfilled) instore are preferred, as they do not incur the cost of last mile delivery, reducing pressure on margins.


 


The third stage is "fulfilment".  Retailers are focused on rightsizing their store networks, but are committed to maintaining good coverage, with stores increasingly playing a role in logistics and distribution.  Across our portfolio 27% of shoppers now use click and collect up from 19% three years ago, and here, our Local centres, which provide convenient shopping for local communities, have a particular role to play. 


 


Broadgate Estates


In May 2018, we announced the sale of the third-party portfolio of Broadgate Estates, our property management business, to international real estate advisor Savills.  This transaction enables us to focus exclusively on our own assets and enhance the service we provide to our customers as our business becomes increasingly mixed-use.  


 


 


Portfolio performance






















































YE 31 March 2018



Valuation


£m



Valuation movement


%



ERV growth


%



Yield


shift


bps



Total property return


%



Offices



6,705



4.5



2.1



(7)



9.0



Retail



6,596



0.3



1.6



6



5.7



Residential



132



1.6



n/a



n/a



4.6



Canada Water



283



(7.0)



n/a



n/a



(3.9)



Total



13,716



2.2



1.8



1



7.0



 


The portfolio value was up 2.2%, driven primarily by our leasing activity, in particular the pre-letting of our developments which saw a valuation gain of 9.6%.  ERV growth was positive in Retail and Offices, but was stronger in the first half, particularly in Retail.  Office yields contracted 7 bps mostly in the first half reflecting our leasing success, whilst Retail saw yield expansion of 6 bps, which was more pronounced in our Local centres.  Overall, the portfolio equivalent yield was broadly flat at 4.8%.


 


The portfolio underperformed the IPD all property total return index by 310 bps over the year, largely reflecting the continued strength of the industrial sector within the index, where we have no exposure.  Offices outperformed the sector benchmark by 70 bps on a total returns basis while Retail underperformed by 50 bps. 


 


We have completed the first phase of our valuer appointment policy, which restricts the engagement of valuers on individual assets to ten years.  As a result, this year, 45% of the portfolio was subject to a change in valuer.  Despite some variations on individual assets, there was no material impact at a subsector level, and therefore overall.  All of these changes were reported at half year and full details on our policy can be found in the Governance section of our website. 


 


 


Investment and development






































































From 1 April 2017



Retail



Offices



Residential



Canada Water



Total



 



£m



£m



£m



£m



£m



Purchases



199



-



-



7



206



Sales1,2



(419)



(577)



(312)



-



(1,308)



Development Spend



31



82



54



23



190



Capital Spend



57



5



-



-



62



Net Investment



(132)



(490)



(258)



30



(850)



Gross Investment



706



664



366



30



1,766



On a proportionally consolidated basis including the Group's share of joint ventures and funds


1 Includes £575 million Leadenhall Building disposal exchanged during the year ended 31 March 2017 and completed this year. Includes sale of Richmond which exchanged during the year and completed post year end


2 Includes £193 million of Clarges completions which exchanged prior to FY18, of which £168 million completed after the year end


 


The gross value of our investment activity since 1 April 2017, as measured by our share of acquisitions, disposals, capital spend on developments and other capital projects was £1.8 billion.  This includes our share from the sale of the Leadenhall Building of £575 million (100%: £1.15 billion) which completed in the year, £419 million retail sales in line with book value and more than £200 million of asset purchases. 


 


We exchanged or completed residential sales of £119 million in the year, on average 16% ahead of most recent valuations. In addition, we have completed on £193 million of Clarges sales which exchanged prior to 1 April 2017, of which £168 million completed post year end.  This brings total completed and exchanged sales at Clarges to £344 million to date. 


 


This year, development spend has totalled £190 million, with the majority relating to Broadgate developments and Clarges.  Capital expenditure of £62 million relates to income enhancing investment and more general asset enhancement initiatives including at Meadowhall, Glasgow Fort, Peterborough and Teesside.


 


Development activity





































































At 31 March 2018



Sq ft



Current Value



Cost to complete



ERV



 ERV


let/under offer



Resi Exchanged



 



'000



£m



£m



£m



£m



£m



Completed in year



170



 488



17



2



1



344²



Committed



1,614



572



427



63



35



-



Near term



578



55



436



30



-



-



Medium term



2,992



 



 



 



 



 



Canada Water Phase 11



1,848



 



 



 



 



 



On a proportionally consolidated basis including the Group's share of joint ventures and funds (except area which is shown at 100%)


1Total site area is 5 million sq ft


² of which £193 million completed to date including £168 million post year end


 


Across our portfolio, we have created attractive development opportunities in line with our strategy, giving us the optionality to progress when the time is right.  This is a unique advantage in the current environment, where we see limited opportunity to make accretive acquisitions, given the continuing strength of investment markets.


 


We believe that space which meets a broader range of needs will be most successful long term, so our development pipeline focuses on our London campuses where we see the potential to further enhance the mix of uses, with retail and residential in addition to our core office space. 


 


In line with our disciplined approach to capital allocation, we carefully manage our development risk, and pre-letting our space is an important part of that approach.  55% of the £63 million ERV in our committed pipeline is already pre-let or under offer and our total speculative exposure is just 4.5% of portfolio gross asset value (GAV), well below our internal risk threshold for speculative development of 8%.  In addition, costs to come on our committed pipeline of £427 million are substantially covered by residential receipts to come of £373 million from our Clarges Mayfair development.


 


Looking forward, our medium term pipeline comprises a broad mix of opportunities including mixed use schemes at Eden Walk, Kingston and Ealing where we see potential to deliver sizeable residential schemes alongside an improved retail offer.  At Canada Water, we are creating a new urban centre for London, which will comprise offices, retail and leisure as well as residential.  We signed a Master Development Agreement with Southwark Council and submitted our outline planning application for the masterplan in May 2018. In total, our medium term pipeline covers 4.8 million sq ft, with the majority of projects currently income producing or held at low cost.   


 


Construction cost forecasts continue to suggest that the rate of growth has moderated from the level in recent years. However, pressure on labour costs and limited capacity in the industry indicate the rate of cost inflation will increase in 2019/20 back to closer to 3-4% per annum.  To manage this, 89% of the costs on our committed development programme have been fixed.


 


London Offices: Strong leasing activity driven by campus strategy and good market demand


 


Key metrics







































































As at:



2017



2018



Portfolio Valuation (BL share)



£6,844m



£6,705m



-       Of which campuses



£4,960m



£5,250m



Occupancy



97.7%



96.7%



Weighted average lease length to first break



7.8 yrs



7.3 yrs



 



 



 



Total property return



+2.8%



+9.0%



-       Yield shift



+15 bps



(7) bps



-       ERV growth



+0.5%



+2.1%



-       Valuation movement



(0.7)%



+4.5%



 



 



 



Lettings/renewals (sq ft)



279,000



1,221,000



Lettings/renewals vs ERV



1.4%



5.6%



On a proportionally consolidated basis including the Group's share of joint ventures and funds


 


Highlights


·      Portfolio value up 4.5%, with the West End up 5.8% and the City up 2.8%


·      Yield contraction of 7 bps overall, with 13 bps contraction in the West End, weighted towards the first half and 2 bps expansion in the City


·      ERV growth of 2.1%, with the West End up 2.5%  and the City up 1.5%


·      70 bps ahead of IPD on a total return basis, 100 bps ahead on a capital basis, with ERV growth 100 bps ahead


·      Leasing activity covered 1.2 million sq ft, four times the area achieved last year, adding £40 million to future rents; under offer or in negotiations on a further 548,000 sq ft


·      Rent reviews, covered 226,000 sq ft, 10% ahead of passing rent


·      Activity generating like-for-like income growth of 2.4%


·      £664 million (excluding residential sales at Clarges) of gross capital activity, including our share of the Leadenhall Building (£575 million)


 


Campus Review


78% of our offices are located on our three central London campuses, Broadgate, Regent's Place and Paddington Central.  Each benefit from excellent transport links, as well as vibrant local neighbourhoods, which supports our placemaking initiatives and makes them more dynamic and interesting places to work and visit.


 


Broadgate


At Broadgate, our leasing activity covered nearly 590,000 sq ft, including 160,000 sq ft at 100 Liverpool Street, to SMBCE, the European subsidiary of SMBC (Sumitomo Mitsui Banking Corporation).  Having committed to this building on a speculative basis at the end of 2016, we are now 37% let on the office space by area, and are seeing good levels of interest on the remaining space.  A key focus remains increasing the mix of uses at our campuses, and this year we signed a major deal with Eataly, the Italian marketplace at 135 Bishopsgate, where they will open their first UK location covering 42,000 sq ft.  This is an important letting for the campus, in line with our objective to make Broadgate an internationally recognised centre for new food, retail and culture.  We are under offer or in negotiations on a further 269,000 sq ft of office space at this development, together accounting for around 80% of the space.  At 1 and 2 Finsbury Avenue (1FA and 2FA), we are building Broadgate's reputation as a centre for innovation and finance.  We have let 79,000 sq ft to Mimecast at 1FA and are under offer on a cinema (11,000 sq ft), together representing more than one third of the building.  At 2FA, we have let 14,500 sq ft on a short term basis to Starling Bank, as well as a host of lettings in the technology and creative sectors through Storey, our flexible workspace business which covers 60,000 sq ft at Broadgate at 2FA and Appold Street. 


 


This year, we were pleased that Broadgate was the winner of two Revo Opal Awards.  The first recognised how our commercialisation strategy had helped transform and positively enhance the environment at Broadgate, and the second recognising our Winter Forest as a best in class build, execution and visitor experience. 


 


Regent's Place


At Regent's Place, our leasing activity covered 411,000 sq ft, with our pre-let to Dentsu Aegis of all the office space at 1 Triton Square accounting for 310,000 sq ft, the largest pre-let in the West End for 22 years.  As part of this letting, Dentsu Aegis have an option to return their existing space at 10 Triton Street in 2021, which if exercised, would have a compensating adjustment covering the rent free period of the letting at 1 Triton Square. 


 


Facebook reaffirmed their commitment to the campus, taking a further 39,400 sq ft at 10 Brock Street, bringing their total occupation to 213,000 sq ft across two buildings, doubling their initial requirement.  This is a good example of how we have been able to accommodate the needs of our occupiers as their business expands or needs change, so we are pleased that Storey is now operational across 23,000 sq ft at 338 Euston Road.  We also signed Flykick, a new kick-boxing gym at 350 Euston Road, which opened in March 2018 in line with our focus on enlivening our spaces and diversifying the mix.


 


The Regent's Place Community Fund is also entering its second year, bringing together occupiers to support local charities and make a positive local difference. In its first year, over 2,600 people benefited from projects addressing employability, social cohesion and health and wellbeing.


 


Paddington Central


Paddington was our best performing campus, up in value more than 7% in the year as we benefitted from the placemaking activities we have undertaken across our five years of ownership.  This has delivered a total unlevered return of 12% per annum.  4 Kingdom Street (147,000 sq ft), reached practical completion in April 2017 and was nearly 90% let ahead of launch in June; to occupiers including Vertex, Sasol and Mars, whose activities span pharmaceuticals, energy and food products.  Storey is now operational across 15,000 sq ft and a further 25,000 sq ft has been allocated.


 


Pergola, an outdoor drinking and dining experience which welcomed 179,000 people in 2017 reopened for the summer season at the end of April.  We are continuing to improve the food and beverage, and leisure offering at Paddington with six operators, including a gym, barbers and a number of independent cafés, together covering 12,500 sq ft signed in the period.  We completed stage one of our public realm improvement programme and are now underway with stage two, which will enhance and enliven the canal-side space. 


Storey


Since its launch in June 2017, Storey, our flexible workspace brand has made good progress.  We introduced the concept in response to changing customer needs, and to broaden the range of services we offer campus occupiers.  It is now operational at all three of our campuses, as well as International House, Ealing, covering a total of 114,000 sq ft, of which 77% is now let.  We are differentiating our offer to appeal to innovative businesses that have outgrown conventional co-working space, as well as larger organisations seeking additional space on more flexible terms in addition to their core requirement. Marketing and fit out are tailored accordingly, so our occupiers are able to create their own brand within our space, but benefit from shared facilities in the building as well as the advantages that our campuses provide. 


 


The average size of occupier is 52 employees and the average lease length is 27 months (21 months term certain), with existing occupiers from our campuses accounting for more than half of the space taken.  AIM-listed robotic software company Blue Prism have taken space at 338 Euston Road and at Broadgate our activity is supporting the campus's emergence as a centre of technology and innovation, with lettings to Wipro's strategic and digital arm, Digital +Designit, Tantalum, an automotive technology innovator and Rotageek, which offers data-driven employee scheduling services.


 


The premium to ERV we are achieving is at or above target, and we have allocated a further 119,000 sq ft to Storey from within the portfolio, of which 73,000 sq ft will be at 1FA.  10,000 sq ft will be "club" space at 4 Kingdom Street, where customers will be able to host events and meetings and benefit from collaboration with fellow Storey and other campus occupiers.  This brings total space committed to Storey to more than 230,000 sq ft.


 


Residential


Clarges Mayfair, our super prime residential development reached practical completion in December 2017.  To date we have completed or exchanged on 24 residential units totalling £344 million and will commence marketing of the remaining ten valued at £141 million, this summer.  This scheme, which has delivered profits of more than £200 million to date, (of which residential accounts for over £150 million) demonstrates our expertise in residential.  The offices element of this scheme reached practical completion in June 2016 and is nearly 90% let.


 


Offices development


Over the year, we have committed to nearly 1 million sq ft of development opportunities on our London campuses, more than doubling our development commitments, but without a material increase in our speculative exposure.  56% of the ERV in our committed office developments is pre-let or under offer. 


 


We achieved planning consents covering more than 1 million sq ft across our three campuses, and are already on site on more than 90% of this space. 


 


Committed pipeline


Our committed pipeline covers 1.5 million sq ft.  This includes 366,000 sq ft at 1 Triton Square, Regent's Place, but the majority is at Broadgate. 


 


We are making good progress at 100 Liverpool Street, our 522,000 sq ft development adjacent to the Crossrail station at Liverpool Street station.  The building targets the Platinum WiredScore certification for connectivity, a BREEAM Excellent rating for sustainability and the WELL Gold certification for wellbeing; our plans include 20,000 sq ft of outdoor terraces on five levels providing outside spaces for office workers to come together.  We have pre-let 37% of the office space to SMBCE and are seeing good interest on the 90,000 sq ft of retail space here.  Also at Broadgate, we are on site at 1FA, (291,000 sq ft), which will include a cinema and roof terrace, and 135 Bishopsgate (328,000 sq ft), with 42,000 sq ft of retail, pre-let to Italian marketplace Eataly.  In total we are delivering more than 1 million sq ft at Broadgate, of which 15% of the space will be retail or leisure, with 32% of the total ERV pre-let or under offer.    


 


Near-Term pipeline


Looking ahead, our near term pipeline covers 445,000 sq ft of opportunities we would look to progress in the next twelve months.  It includes the Gateway Building at Paddington Central, and our option at Blossom Street in Shoreditch.


 


In line with our strategic focus on expanding the mix of uses at our campuses, we were pleased to achieve planning consent for the Gateway, a 105,000 sq ft premium hotel at Paddington Central. 


 


At Blossom Street, Shoreditch, we have an option over two-acres of land which expires in February 2019.  We have consent for a 340,000 sq ft mixed use development, integrating 258,000 sq ft of character office space, with retail and residential, to create a mixed use development, that builds on the historic fabric of the area.  Our plans envisage a mix of floorplates, to appeal to small and growing businesses, particularly in the technology and creative sectors, with the potential for some space to be allocated to Storey.  We will make a decision on this development before the end of this calendar year. 


 


Medium-Term Pipeline


Looking further ahead, we have created options across our portfolio, which provide opportunities to grow and develop our business well into the future.  Our medium term office pipeline covers 1.4 million sq ft, of which three-quarters is at Broadgate. 


 


At 2-3 Finsbury Avenue (2FA and 3FA), we have consent for a 563,000 sq ft development, adding 374,000 sq ft to the existing space, but would seek a significant pre-let before making any commitment.  In the meantime, the space is generating a good income through short term more flexible lets and is proving particularly successful amongst technology and creative occupiers.  20,000 sq ft has been let to TMT and creative occupiers through our core business at 2FA, and a further 60,000 sq ft by Storey at 2FA and Appold Street.  We recently achieved vacant possession at 3FA, and the space is enjoying similar success, with 44,000 sq ft of short term lets agreed as well as 1,700 sq ft of events space which we expect to launch in the coming months.  This short term activity provides us with options over when we commence development.  We are progressing our plans at 1-2 Broadgate, in total covering 507,000 sq ft, including a significant retail, leisure and dining element.  Vacant possession is not expected until the end of 2019 but we expect to make a planning application towards the end of this year. 


 


At 5 Kingdom Street, at Paddington Central, we have existing consent for a 240,000 sq ft office-led scheme; our plans will increase this to more than 332,000 sq ft and we expect to submit a revised application later this year.  The site sits above the Box, a 70,000 sq ft site which will become redundant on the completion of Crossrail, when ownership reverts to British Land.  This represents an interesting opportunity to create an alternative use, potentially retail, leisure conference or events space, which will further differentiate our campus offering.  


 


Retail: Quality space driving operational outperformance in polarising markets  


 


Key metrics












































































As at:



2017



2018



Portfolio valuation (BL share)



£6,654m



£6,596m



-       Of which multi-let



£5,102m



£5,328m



Occupancy



98.3%



98.0%1



Weighted average lease length to first break



8.6 yrs



7.9 yrs



 



 



 



Total property return



+3.5%



+5.7%



-       Yield shift



+14 bps



+6 bps



-       ERV growth



+1.6%



+1.6%



-       Multi-let ERV growth



+2.4%



+1.9%



-       Valuation movement



(1.8)%



+0.3%



 



 



 



Lettings/renewals (sq ft)



1,272,000



1,156,000



Lettings/renewals vs ERV



+10.8%



+10.3%



On a proportionally consolidated basis including the Group's share of joint ventures and funds


1 Occupancy reduces to 97.5% treating space as vacant where occupiers have gone into liquidation post 31 March 2018


 


 


Highlights


·      Portfolio value up 0.3%, with the multi-let portfolio down 0.5% offset by positive movements on our solus and leisure assets


·      In the multi-let portfolio, Regionals were marginally up in value whilst Locals were down 1.5%


·      Yield expansion of 6 bps overall, with 9 bps expansion in the multi-let portfolio, more pronounced in the Local portfolio


·      ERV growth of 1.6%, with 1.9% growth in the multi-let portfolio reflecting our successful leasing activity   


·      Underperformed IPD by 50 bps on a total return basis and 70 bps below on a capital basis; ERV growth was 70 bps ahead of the index


·      Leasing activity covered 1.2 million sq ft, adding £7 million to future rents


·      Virtually full with occupancy at 98%


·      Completed more than 100 rent reviews, 4.2% ahead of passing rent


·      Nearly 90% of leases reaching expiry were either retained or replaced on terms ahead of ERV, with a further 5% re-let in the short term


·      Activity generating like-for-like income growth of 1.2%


·      Footfall up 0.3%, 340bps ahead of benchmark; retailer sales down 1.6%, 130bps ahead of benchmark


·      Gross investment activity of £706 million, with sales of £419 million, overall in line with book value; £199 million of acquisitions, including £152 million of regeneration opportunities in London, benefitting from Crossrail


 


Operational Review 


We have a focused leasing strategy, informed by our insights, which keeps our offer relevant in today's market; this means we are targeting growth subsectors and meeting customer needs.  Compared with 2015, we have undertaken 8.8% more leasing to 'health and beauty' operators, and 5.6% more in 'outdoor and sports clothing'.  At the same time, we have reduced leasing to sectors where sales have declined, notably general fashion is down more than 10%. 


 


We are also leveraging our insights to demonstrate the attractions of our assets to potential occupiers.   This year for example, we signed Decathlon at Ealing after providing compelling research on the strategic fit between its demographic profile and the local catchment and at Broughton, Chester, Footasylum opened its first out of town store, having demonstrated to the occupier that a physical store was an opportunity to enhance their previously low brand awareness to over one million residents in the catchment. Early indications are that it is trading well.  This approach is integral to our leasing strategy across the portfolio and instrumental in encouraging operators to open out of town stores, with recent examples including Lush, Ann Summers, Disney and Joules all opening at Glasgow Fort, and Hotel Chocolat at Teesside, Stockton.  In addition, our rent to sales ratio remains attractive at 11%.


 


At Meadowhall, we have seen a strong response to our £60 million refurbishment, with nearly 80 occupiers investing £46 million upgrading their stores.  We have signed 28 new occupiers, including online retailer Joe Browns' first physical store, and Australian homewares brand, House who opened one of their first UK stores here.   We have strengthened the premium offering to reflect the improving catchment, with Godiva, Michael Kors, Flannels, Tag Heuer, Neal's Yard, Joules and Nespresso all signing.  We have relocated or upsized a further 21 occupiers and renewed or re-geared leases on another 14.  This year, deals were signed 13% ahead of ERV, and our activity has generated ERV growth of 2.8%.  We are also pleased that our investment has benefited the local community, with 69% of construction spend going to local businesses and 24 people supported into apprenticeships. 


 


Across the market, sales and footfall are down but our assets have continued to outperform.   Footfall was up 0.3% across the multi-let portfolio, outperforming the market by 340 bps with the scale of our outperformance continuing to grow.  A number of our centres performed particularly well, including Stockton, Teesside, where we are on site with a £30 million refurbishment, and SouthGate Bath, where the dining offer has been revitalised, introducing new brands like Comptoir Libanais, Thaikhun, Franco Manca and Absurd Bird.  Retailer sales (which only capture instore sales) were down 1.6% at our centres, but were ahead of market by 130 bps.    


 


In what has been a more challenging occupier market, we are confident in the relative strength of our portfolio.  The combined impact of administrations and CVAs during the year was 0.6% of total gross income or £3.7 million and the portfolio is virtually full with occupancy of 98%.   


 


Capital activity


We are committed to reshaping our retail portfolio to focus on assets which best align with our strategy.  This has been ongoing for some time: in the last four years, we have made £2.3 billion of retail asset disposals.  This year, we sold £419 million of assets (£662 million on a gross basis), in line with book value, of which £122 million were made in the second half, 7.6% ahead of book value, and we are now under offer on a further £72 million.


 


Acquisitions of £199 million in the period included a Tesco JV swap, which resulted in a net £73 million of superstore disposals.  We also acquired the Woolwich Estate and 10-40 The Broadway in Ealing for a total of £152 million.  These acquisitions are in line with our focus on well-connected assets with mixed use potential, strong or improving local demographics and where we can put our placemaking expertise to work.  Both areas benefit from Crossrail, and have already seen significant regeneration ahead of that.  This brings total gross activity, including development and capital spend, to more than £700 million. 


 


We have invested £88 million into the portfolio, of which 70% is income producing capex, and the remainder focusing on improvements to the public realm.  We have a strong track record of delivering value with assets benefitting from material investment (more than 5% of value) delivering a total return outperformance of c.80 bps, over the last three years, driven by ERV growth.


 


Retail development


Across the retail portfolio, we achieved 44 planning consents covering nearly 800,000 sq ft. 


 


We completed our 66,000 sq ft leisure extension at New Mersey, Speke, which added an 11-screen cinema, pre-let to Cineworld and six restaurant units.  Overall, the scheme is 80% let or under offer, and will open in summer 2018.  .


 


Committed pipeline


We are on site with a 107,000 sq ft leisure extension at Drake Circus, Plymouth which will add a 12 screen cinema and 15 restaurants.  We expect to reach practical completion towards the end of 2019 and are already 38% let or under offer. 


 


Near term pipeline


Our near term pipeline includes leisure extensions at Stockton, Teesside (84,000 sq ft) and Forster Square, Bradford (49,000 sq ft).  At Teesside, we received a resolution to grant planning for our masterplan, which includes a redevelopment of the existing terrace, the introduction of smaller retail and restaurant units and improvements to the public realm, overall adding 51,000 sq ft, but we will seek a significant pre-let before committing to this development.  We expect to submit a planning application for our plans at Bradford this year.


 


Medium term pipeline


Our medium term pipeline includes our 330,000 sq ft leisure extension at Meadowhall, where we secured a resolution to grant planning consent.  Our plans will transform the centre's leisure offer with new dining and entertainment options, a new cinema, café court, gym, open-air terrace and space for leisure, event and community use.  We also submitted planning for a 208,000 sq ft leisure extension at Serpentine Green, Peterborough, which will add 139,000 sq ft.  Our mixed use opportunities include a £400 million redevelopment of Eden Walk, Kingston, where we have consent for 380 new homes, 28 new retail units, 12 restaurants and cafés and 35,000 sq ft of flexible office space.  At Ealing, we are working up plans for a wider mixed use development.


 


Canada Water


At Canada Water, we are working with the London Borough of Southwark on one of London's most significant development projects.  Our long term vision for the area, spanning 53 acres will deliver a major new mixed use urban centre for this part of London, just one stop on the Jubilee Line from Canary Wharf, in Zone 2. 


 


In March 2018, we were delighted to receive Southwark Cabinet approval to enter into a Master Development Agreement with Southwark Council, which was signed in May 2018.  Under the terms of the agreement, we have negotiated a new headlease, which consolidates our holdings (including the Printworks, the Surrey Quays Shopping Centre and the Mast Leisure Centre) into a single 500 year headlease, with Southwark Council as the Lessor.  This structure effectively aligns the ownership of these assets, with British Land owning 80% and Southwark Council owning the remaining 20%.  Southwark Council will have the opportunity to participate in the development of the individual plots, up to a maximum of 20% and returns will be pro-rated accordingly. 


 


This agreement enabled us to submit our planning application in May 2018, which included a detailed application for the project's first three buildings, comprising workspace, retail, homes (of which 35% will be affordable) and a new leisure centre.  These buildings are part of a major first phase of the development covering a total of 1.8 million sq ft of mixed use space.  This includes one million sq ft of workspace, 250,000 sq ft of retail and leisure space and 650 homes.  The overall Masterplan, of which Phase 1 forms part, is expected to deliver up to 3,000 new homes, two million sq ft of workspace and one million sq ft of retail, leisure, entertainment and community space. 


 


Subject to planning approvals, construction of the first detailed plots could begin in spring 2019.  Potential structures will be explored when we have greater visibility on timing, but we are already seeing interest in the space from a range of sectors and discussions are underway on several buildings. 


 


In the meantime, the success of the Printworks, our award-winning entertainment space in the old Daily Mail Printworks is building awareness of the area.  With capacity for 5,000, it has welcomed more than 250,000 visitors since launch, and has hosted bands including So Solid Crew and Django Django as well as the Beavertown Brewery Extravaganza bringing over 70 of the world's best breweries together.  The space has proved to be such a commercial success, as well as an effective driver of footfall, that it has now been incorporated into our development plans. 


 


While the gross valuation of Canada Water was marginally up to £283 million, the net valuation was down 7%, reflecting feasibility costs incurred over the year which were not recoverable through the valuation, pending achievement of planning.


 

FINANCE REVIEW


 
























































Year ended 31 March 



2017



2018



Underlying Profit1,2



£390m



£380m



Underlying earnings per share1



37.8p



37.4p



IFRS profit before tax



£195m



£501m



Dividend per share



29.20p



30.08p



Total accounting return1,3



+2.7%



+8.9%



EPRA net asset value per share1,2



915p



967p



IFRS net assets



£9,476m



£9,506m



LTV 1,4,5



29.9%



28.4%



Weighted average interest rate 5



3.1%



2.8%



1See Glossary for definitions. 2See Table B within supplementary disclosure for reconciliations to IFRS metrics. 3See Note 2 within condensed financial statements for calculation. 4See Note 14 within condensed financial statements for calculation and reconciliation to IFRS metrics. 5On a proportionally consolidated basis including the Group's share of joint ventures and funds


 


Overview


Financial performance for the year was robust with underlying earnings per share down 1.1% at 37.4 pence and Underlying Profit down 2.6% at £380 million, despite significant sales. EPRA net asset value per share (NAV) increased by 5.7% reflecting a portfolio valuation gain of 2.2% on a proportionally consolidated basis and the impact of the £300 million share buyback programme. 


 


We have continued to reposition the portfolio with £1.8 billion of gross capital activity (£0.8 billion of net capital activity) since 1 April 2017. This comprises £1.0 billion of disposals of income producing assets representing 7% of the total portfolio, primarily single-let Retail assets and our 50% interest in The Leadenhall Building which exchanged in the previous financial year. Sales were made at an average yield of 4%. We completed or exchanged on residential sales of £0.1 billion during the year and completed £0.2 billion of further residential sales at Clarges post year end.


 


The net proceeds from this activity provide capacity for reinvestment into our portfolio, particularly through the development opportunities we are now progressing with a forecast yield on cost of around 6%. We have maintained a disciplined approach to capital and completed our £300 million share buyback programme in February 2018, purchasing 47.6 million ordinary shares at an average price of 630 pence. This has increased NAV by 15 pence and added 0.4 pence to EPS this year. During the period we have also reinvested £0.3 billion in our developments and capital expenditure across the portfolio, and made £0.2 billion of acquisitions.


 


Underlying Profit was down 2.6% reflecting the impact of net sales over the past two years and lease expiries at properties going into development. This has been largely offset by leasing success at our developments, like-for-like rental growth and financing activity, as well as one-off surrender premia received. IFRS profit before tax was £501 million, up from £195 million in the prior year, primarily due to the positive property valuation movement in the period.


 


Our financial metrics remain strong. LTV has decreased 150 bps to 28.4% from 29.9% at 31 March 2017, primarily through net sales, offset by the share buyback. Our weighted average interest rate is at its lowest level at 2.8%. This financial strength provides us with the capacity to progress opportunities, including our development pipeline whilst retaining significant headroom to our covenants. We have been active in debt markets, including issuing our £300 million Sterling unsecured bond. Our senior unsecured credit rating has been upgraded to 'A' by Fitch.


 


Shareholder returns remain a priority. We increased the dividend 3% to 30.08 pence for the year ended 31 March 2018, resulting in a dividend payout ratio of 80%. The Board propose a further increase of 3% next year to 31.00 pence, a quarterly dividend of 7.75 pence. 


Presentation of financial information


The Group financial statements are prepared under IFRS where the Group's interests in joint ventures and funds are shown as a single line item on the income statement and balance sheet and all subsidiaries are consolidated at 100%.


 


Management considers the business principally on a proportionally consolidated basis when setting the strategy, determining annual priorities, making investment and financing decisions and reviewing performance. This includes the Group's share of joint ventures and funds on a line-by-line basis and excludes non-controlling interests in the Group's subsidiaries. The financial key performance indicators are also presented on this basis.


 


A summary income statement and summary balance sheet which reconcile the Group income statements to British Land's interests on a proportionally consolidated basis are included in Table A within the supplementary disclosures.


 


Management monitors Underlying Profit as this more accurately reflects the Group's financial performance and the underlying recurring performance of our core property rental activity, as opposed to IFRS metrics which include the non-cash valuation movement on the property portfolio. It is based on the Best Practices Recommendations of the European Public Real Estate Association (EPRA) which are widely used alternate metrics to their IFRS equivalents.


 


Management also monitors EPRA NAV as this provides a transparent and consistent basis to enable comparison between European property companies. Linked to this, the use of Total Accounting Return allows management to monitor return to shareholders based on movements in a consistently applied metric, being EPRA NAV, and dividends paid.


 


Loan to value (proportionally consolidated) is also monitored by management as a key measure of the level of debt employed by the Group to meet its strategic objectives, along with a measurement of risk.  It also allows comparison to other property companies who similarly monitor and report this measure.


 


Income statement


 


1.   Underlying Profit


Underlying Profit is the measure that is used internally to assess income performance. No company adjustments have been made in the current or prior year and therefore this is the same as the pre-tax EPRA earnings measure which includes a number of adjustments to the IFRS reported profit before tax. This is presented below on a proportionally consolidated basis:


 
































































































 



Section



2017



2018



 



 



£m



£m



Gross rental income



 



643



613



Property operating expenses



 



(33)



(37)



Net rental income



1.1



610



576



Net fees and other income



 



17



15



Administrative expenses



1.2



(86)



(83)



Net financing costs



1.3



(151)



(128)



Underlying Profit



 



390



380



Non-controlling interests in Underlying Profit



 



14



14



EPRA adjustments1



 



(209)



107



IFRS profit before tax



2



195



501



Underlying EPS



1.4



37.8p



37.4p



IFRS basic EPS



2



18.8p



48.7p



Dividend per share



3



29.20p



30.08p



1 EPRA adjustments consist of investment and development property revaluations, gains/losses on investment and trading property disposals, changes in the fair value of financial instruments and associated close out costs.  These items are presented in the 'capital and other' column of the consolidated income statement.


 


1.1  Net rental income






















































 



 



 



£m



Net rental income for the year ended 31 March 2017



 



 



610



Net divestment



 



 



(44)



Expiries on developments



 



 



(22)



Surrender premia



 



 



20



Development lettings



 



 



6



Like-for-like rental growth



 



 



6



Net rental income for the year ended 31 March 2018



 



 



576



 


The £34 million decrease in net rental income during the year was the result of divestment activity and development expiries partially offset by surrender premia, leasing of developments and like-for-like rental growth.


 


Net sales of income producing assets of £1.5 billion over the last two years have reduced rents by £44 million in the year.


 


Lease expiries relating to properties in our development pipeline reduced net rents by £22 million, including £6 million at 100 Liverpool Street where we are on site and progressing well with development, £5 million at the substantially pre-let 1 Triton Square scheme, £5 million at 1FA where we started on site in August 2017, and £6 million at 135 Bishopsgate where we are now committed having let 42,000 sq ft to Eataly. These are partially offset by one off surrender premia received, the majority being a £15 million surrender premium received from Royal Bank of Scotland in June 2017.


 


Development lettings, notably at 4 Kingdom Street and Clarges, have contributed £6 million to rents in addition to like-for-like rental growth of 1.8%, excluding the impact of surrender premia. Retail growth was 1.2% driven by asset management activities, such as splitting units, as well as leasing of vacant space. In Offices, like-for-like growth was 2.4% driven by fixed uplifts at rent reviews as well as leasing of completed developments that are now in the like-for-like portfolio.


 


1.2  Administrative expenses


Administrative expenses decreased by a further £3 million this year as a result of lower variable pay. Due to the impact of sales on rents, the Group's operating cost ratio increased by 130 bps to 16.9% (2016/17: 15.6%).


 


1.3  Net financing costs
















































 



 



 



£m



Net financing costs for the year ended 31 March 2017



 



 



(151)



Financing activity



 



 



19



Net divestment



 



 



15



Developments



 



 



(9)



Share buyback



 



 



(2)



Net financing costs for the year ended 31 March 2018



 



 



(128)



 


Financing costs have come down by £23 million this year.


 


Debt transactions undertaken over the last two years reduced financing costs by £19 million in the year.  This includes repayment of BLT debt following the net sales of five properties and exit from the joint venture in April 2017, and early redemption of our 6.75% and 9.125% 2020 debentures. In December 2017 we also successfully tendered and repaid £84 million of our 5.357% 2028 and 5.0055% 2035 Debentures. Prior year activity includes early repayment of the £295 million TBL Properties Limited secured loan and close-out of related swaps.


 


In September 2017, the 1.5% convertible bond was cash settled using existing bank facilities. This has proven to be highly efficient financing since its issue in September 2012: we estimate that it has saved £40 million in financing costs compared to a fixed rate Sterling bond at the time.


 


Also in September we issued a £300 million unsecured Sterling bond for 12 years at a coupon of 2.375%, the lowest for a UK real estate company in this market. As well as diversifying both our sources of funding and our maturity profile, it also established a benchmark for us in the unsecured Sterling market. 


 


During the year we agreed a new £100 million bi-lateral bank revolving unsecured credit facility ('RCF') and extended £225 million of existing facilities. In May, following the year end, we completed an amendment and extension of our largest syndicated RCF at £735 million, with 12 banks, at an initial margin of 90 bps and new maturity of five years, which may be extended by a further two years at our request and on each bank's approval. This facility, together with the bi-laterals, adds further liquidity and flexibility to our debt portfolio.


 


Net divestment activity reduced costs by a further £15 million, the impact of which is partially offset by development spend.  


 


At 31 March 2018 we had interest rate hedging on 80% of our debt (spot), and on 60% of our projected debt on average over the next five years.


 


1.4  Underlying Earnings Per Share


Underlying EPS is 37.4 pence based on Underlying Profit after tax of £380 million. EPS decline of 1.1% against the Underlying Profit decline of 2.6% was driven by the 0.4 pence benefit of the share buyback programme, which would be 1.4 pence on an annualised basis. 


 


2.     IFRS profit before tax


The main difference between IFRS profit before tax and Underlying Profit is that it includes the valuation movement on investment and development properties and the fair value movements on financial instruments. In addition, the Group's investments in joint ventures and funds are equity accounted in the IFRS income statement but are included on a proportionally consolidated basis within Underlying Profit.


 


The IFRS profit before tax for the year was £501 million, compared with a profit before tax for the prior year of £195 million. This reflects the positive valuation movement on the Group's properties which was £346 million more than the prior year and the valuation movement on the properties held in joint ventures and funds which was £145 million more than the prior year, resulting from ERV growth of 1.8% in the current year. This was partially offset by higher capital financing costs of £176 million more than the prior year primarily due to recycling of cumulative losses within the hedging and translation reserve in relation to a hedging instrument which is no longer hedge accounted. The recognition of these amounts in capital financing charges in the income statement has a limited impact on EPRA NAV, with financing and debt management activity undertaken in the year leading to a 5 pence reduction in EPRA NAV per share.


 


IFRS basic EPS was 48.7 pence per share, compared to 18.8 pence per share in the prior year, driven principally by positive property valuation movements. The basic weighted average number of shares in issue during the year was 1,013 million (2016/17: 1,029 million).


 


3.     Dividends


The fourth interim dividend payment for the quarter ended 31 March 2018 will be 7.52 pence to give a full year dividend of 30.08 pence, an increase of 3.0%. Payment will be made on 3 August 2018 to shareholders on the register at close of business on 29 June 2018. The final dividend will be a Property Income Distribution and no SCRIP alternative will be offered.


This results in an increase in the dividend pay-out ratio to 80% for the year (2016/17: 77%).


 


The Board propose to increase the dividend by 3.0% in 2018/19 to 31.0 pence per share, with a quarterly dividend of 7.75 pence per share. The Board have taken into account future profit shape, our preferred payout range and the external environment.


 


Balance sheet


 




















































































 



Section



 2017



2018



 



 



£m



£m



Properties at valuation



 



13,940



 13,716



Other non-current assets



 



156



185



 



 



14,096



13,901



Other net current liabilities



 



(364)



(368)



Adjusted net debt



6



(4,223)



(3,973)



Other non-current liabilities



 



(11)



-



EPRA net assets



 



9,498



9,560



EPRA NAV per share



4



915p



967p



Non-controlling interests



 



255



254



Other EPRA adjustments1



 



(277)



(308)



IFRS net assets



5



9,476



9,506



Proportionally consolidated basis


1 EPRA net assets exclude the mark-to-market on derivatives and related debt adjustments, the mark-to-market on the convertible bonds as well as deferred taxation on property and derivative revaluations. They include the trading properties at valuation (rather than lower of cost and net realisable value) and are adjusted for the dilutive impact of share options. No dilution adjustment is made for the £350 million zero coupon convertible bond maturing in 2020. Details of the EPRA adjustments are included in Table B within the supplementary disclosures.


 


4.   EPRA net asset value per share




























































 



 



 



pence



EPRA NAV per share at 31 March 2017



 



 



915



Valuation performance



 



 



32



Underlying Profit



 



 



37



Dividends



 



 



(29)



Financing and debt management costs



 



 



(5)



Share buyback



 



 



15



Other



 



 



2



EPRA NAV per share at 31 March 2018



 



 



967



 


EPRA NAV per share has increased 5.7%, reflecting a valuation increase of 2.2% for the year (H1: +1.4%, H2: +0.9%). This is the result of stable yields and ERV growth of 1.8% resulting from healthy leasing activity and investor appetite for long term, secure income streams. In addition, property performance includes the benefit of completing the sale of The Leadenhall Building ahead of book value, which contributed £32 million to capital profit and an uplift of £59 million following completion of Clarges.


 


Retail valuations are up 0.3% with marginal outward yield movement of 6 bps and ERV growth of 1.6%: the multi-let portfolio, which accounts for 81% of our Retail assets, was down 0.5% but saw ERV growth of 1.9% driven by leasing success.


 


Office valuations were up 4.5% driven by inward yield movement of 7 bps and ERV growth of 2.1%. Valuation increases are driven by successful leasing, developments (up 10.6%) and strong sales activity. The campuses account for 78% of the Offices portfolio and all delivered strong performance, reflecting the attractiveness of our campus approach.


 


The 5 pence impact of financing and debt management costs primarily relates to early repayment of debentures, term debt and termination of interest rate swaps. Our share buyback programme has contributed 15 pence to EPRA NAV.


 


5.   IFRS net assets


IFRS net assets at 31 March 2018 were £9,506 million, an increase of £30 million from 31 March 2017. This was primarily due to IFRS profit before tax of £501 million and other comprehensive income of £141 million, partially offset by £302 million of dividends paid as well as £300 million of share purchases under the share buyback scheme.


 


Cash flow, net debt and financing


 


6.   Adjusted net debt1


































































 



 



 



£m



Adjusted net debt at 31 March 2017



 



 



(4,223)



Disposals



 



 



                     1,015



Acquisitions



 



 



(206)



Development and capex



 



 



(209)



Net cash from operations



 



 



353



Dividends



 



 



(302)



Share buyback



 



 



(300)



Other



 



 



(101)



Adjusted net debt at 31 March 2018



 



 



(3,973)



1 Adjusted net debt is a proportionally consolidated measure. It represents the Group net debt as disclosed in Note 14 to the financial statements and the Group's share of joint venture and funds' net debt excluding the mark-to-market on derivatives, related debt adjustments and non-controlling interests. A reconciliation between the Group net debt and adjusted net debt is included in Table A within the supplementary disclosures.


 


Net sales reduced debt by £0.8 billion in the year. Completed disposals during the year included the sale of The Leadenhall Building for £575 million (BL share) and, in line with our strategy of focusing on multi-let assets, 20 superstores totalling £302 million (BL share). We completed purchases of £206 million during the year, including The Woolwich Estate.


 


We've also spent £122 million on developments and a further £87 million on capital expenditure related to asset management on the standing portfolio. The value of committed developments is £572 million, with £427 million costs to come. Speculative development exposure is 4.5% of the portfolio after taking into account residential pre-sales. There are 578,000 sq ft of developments in our near term pipeline with anticipated cost of £436 million.


 


7.   Financing




























































 



Group



Proportionally consolidated



 



2017



2018



2017



2018



Net debt / adjusted net debt 1



£3,094m



£3,046m



£4,223m



£3,973m



Principal amount of gross debt



£3,069m



£3,007m



£4,520m



£4,265m



Loan to value



22.6%



22.1%



29.9%



28.4%



Weighted average interest rate



2.4%



2.0%



3.1%



2.8%



Interest cover



4.5



5.3



3.6



4.0



Weighted average maturity of drawn debt



6.9 years



8.1 years



7.7 years



8.6 years



1 Group data as presented in note 14 of the condensed financial statements. The proportionally consolidated figures include the Group's share of joint venture and funds' net debt and exclude the mark-to-market on derivatives and related debt adjustments and non-controlling interests.  


 


Our balance sheet remains strong. LTV and weighted average interest on drawn debt have been reduced since 31 March 2017. At 31 March 2018, our proportionally consolidated LTV was 28.4%, down 150 bps from 29.9% at 31 March 2017 due to net disposals, offset by the share buyback. This is positioned to support investment into our development pipeline as well as maintain significant headroom. Note 14 of the condensed financial statements sets out the calculation of the Group and proportionally consolidated LTV.


 


The strength of our business is reflected in British Land's senior unsecured credit rating which was upgraded by Fitch to 'A' in February 2018. The long-term issuer default rating was also upgraded to 'A-'. 


 


We maintained focus on ensuring our debt is cost effective. Our weighted average interest rate is at an all time low of 2.8% driven by proactive financing and debt management actions, together with market rates. Our interest cover has also improved to 4.0x at 31 March 2018 from 3.6x at 31 March 2017.


 


Our weighted average debt maturity is almost nine years following issuance of the £300 million unsecured Sterling bond, and maturity of the convertible.


 


At 31 March 2018, British Land has £1.8 billion of committed unsecured revolving bank facilities, £1.2 billion undrawn. These facilities have maturities of more than two years. Based on our current commitments, these facilities and debt maturities, we have no requirement to refinance until early 2021.


 


Further information on our approach to financing is provided in the financial policies and principles section of the audited annual report for the year ended 31 March 2018.


 


Chris Grigg


Chief Executive


 


Notes to Editors


 


About British Land


Our portfolio of high quality UK commercial property is focused on Retail around the UK and London Offices.  We own or manage a portfolio valued at £18.2 billion (British Land share: £13.7 billion) as at 31 March 2018 making us one of Europe's largest listed real estate investment companies.


 


Our strategy is to provide places which meet the needs of our customers and respond to changing lifestyles - Places People Prefer.  We do this by creating great environments both inside and outside our buildings and use our scale and placemaking skills to enhance and enliven them.  This expands their appeal to a broader range of occupiers, creating enduring demand and driving sustainable, long term performance.


 


Our Retail portfolio is focused on Regional and Local multi-let centres, and accounts for 48% of our portfolio.  Our Offices portfolio comprises three office-led campuses in central London as well as high quality standalone buildings and accounts for 49% of our portfolio.  Increasingly our focus is on providing a mix of uses and this is most evident at Canada Water, our 53 acre redevelopment opportunity where we have plans to create a new neighbourhood for London. 


 


Sustainability is embedded throughout our business. Our places, which are designed to meet high sustainability standards, become part of local communities, provide opportunities for skills development and employment and promote wellbeing.  Our industry-leading sustainability performance led to British Land being awarded a five star rating in the 2017 Global Real Estate Sustainability Benchmark for the second year running.


 


In April 2016 British Land received the Queen's Award for Enterprise: Sustainable Development, the UK's highest accolade for business success for economic, social and environmental achievements over a period of five years.


 


Further details can be found on the British Land website at www.britishland.com 


Statement of directors' responsibilities in respect of the financial statements


The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.


 


Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure Framework", and applicable law).


 


Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period. In preparing the financial statements, the directors are required to:


·      select suitable accounting policies and then apply them consistently;


·      state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the parent Company financial statements, subject to any material departures disclosed and explained in the financial statements;


·      make judgements and accounting estimates that are reasonable and prudent; and


·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.


 


The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.


 


The directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.


The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.


 


The Directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and the Company's performance, business model and strategy.


 


Each of the directors, whose names and functions are listed in the Board of Directors on pages 58-61 of the annual report confirm that, to the best of their knowledge:


 


·      the company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure Framework", and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the company;


·      the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and


 


the Strategic Report and the Directors' Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces.


Principal risks


External risks
















































Risks and impacts



 



How we monitor and manage the risk



Change in risk assessment in the year



Economic


outlook


Responsible


executive:


Chris Grigg



The UK economic climate and future movements in


interest rates present risks and opportunities in


property and financing markets and the businesses of our customers which can impact both the delivery of our strategy and our financial performance.



- The Risk Committee reviews the economic environment in which we operate quarterly to assess whether any changes to the economic outlook justify a re-assessment of the risk appetite of the business.


 


- Key indicators including forecast GDP growth, employment rates, business and consumer confidence, interest rates and inflation/deflation are


considered, as well as central bank guidance and government policy updates.


 


- We stress test our business plan against a downturn in economic outlook to ensure our financial position is sufficiently flexible and resilient.


 


- Our resilient business model focuses on a high quality portfolio, with secure income streams and robust finances.



←→The decision to leave the EU continues to impact the economic outlook. Nonetheless, UK economic


growth has remained relatively resilient and has fared better than many expected, albeit growing at levels lower than other major economies.


 


Consumer spending has softened as inflation has


squeezed household spending, although there are some early signs that inflation is moderating. There has,


however, been some offset from a stronger global economy. Equity and foreign exchange markets have


been less volatile in the year, although remain sensitive to external shocks.


 


The Bank of England increased interest rates for the first time in a decade, with the prospect of more rises to come. Increases are expected to be limited and gradual and to remain low by historical standards.


 


We are mindful of the ongoing political and economic


uncertainties; however we are confident that the resilience of our business with our sustainable long term income streams and balance sheet strength, together with the actions we have taken, leaves our business well positioned.


 



Political


and regulatory


outlook


Responsible


executive:


Chris Grigg



Significant political events and regulatory changes, including the decision to leave the EU, bring risks principally in two areas:


- Reluctance of investors and businesses to


make investment and occupational decisions whilst the outcome remains uncertain and


- On determination of the outcome, the impact on the case for investment in the UK, and on


specific policies and regulation introduced,


particularly those


which directly impact real estate or our customers



- Whilst we are not able to influence the outcome of


significant political events, we do take the uncertainty related to such events and the range of possible outcomes into account when making strategic investment and financing decisions.


 


- Internally we review and monitor proposals and


emerging policy and legislation to ensure that we take the necessary steps to ensure compliance if applicable. Additionally we engage public affairs consultants to ensure that we are properly briefed


on the potential policy and regulatory implications of political events. We also monitor public trust in business. Where appropriate, we act with other industry participants and representative bodies to contribute to policy and regulatory debate. We monitor and respond to social and political reputational challenges relevant to the industry.



Whilst a Brexit transition period has been agreed


to 2020, uncertainty remains over the outcome of


negotiations on our future relationship with the EU,


including crucial issues of market access, labour


movement and trade. Furthermore, the global


geopolitical and trade environments remain uncertain. The present hung parliament also creates domestic policy uncertainty.


 


In terms of significant regulatory changes, General


Data Protection Regulation (GDPR) comes into force


on 25 May 2018 and will control and govern the use of personal data, affecting operations across the business.


 


In these more volatile times, we will benefit from our


long term, secure rental income, with 97% of our


portfolio occupied and our financial capacity and flexibility to adjust to evolving conditions.


 



Commercial


property


investor demand


Responsible


executives:


Charles Maudsley,


Tim Roberts



Reduction in investor demand for UK real estate may result in falls in asset valuations and could arise


from variations in:


- The health of the UK economy


- The attractiveness of


investment in the UK


- Availability of finance


- Relative attractiveness


of other asset classes



- The Risk Committee reviews the property market quarterly to assess whether any changes to the market outlook present risks and opportunities which should be reflected in the execution of our strategy and our capital allocation plan. The Committee considers indicators such as margin between property yields and borrowing costs and property capital growth forecasts, which are considered alongside the Committee members' knowledge and experience of market activity and trends.


 


- We focus on prime assets and sectors which we believe will be less susceptible over the medium term to a reduction in occupier and investor demand.


 


- Strong relationships with agents and direct investors


active in the market.


 


- We stress test our business plan for the effect of a change in property yields.



Overall property transaction volumes held up relatively well in 2017, however, investors are becoming increasingly selective and market pricing polarised, with continued softening in demand for more secondary assets.


 


The historically wide gap between property yields and


interest rates has continued to underpin demand for UK


real estate, albeit interest rates are expected to rise slightly in the medium term.


 


In terms of our sectors:


- Office investment volumes continue to benefit from


demand from overseas investors, but investors are


increasingly selective in terms of their requirements, often seeking well-let, best-in-class stock or opportunities with an achievable growth story. Supply of high quality new space across both the West End and City markets is relatively constrained in the short term. London office prime yields have been stable throughout 2017.


 


- Retail investment volumes remain subdued, albeit


activity increased towards the end of 2017, particularly for retail parks. Investor demand for retail increasingly focused on smaller lot sizes with secure income streams. Retail prime yields remain stable, but secondary asset prices are expected to weaken further as polarisation in retail continues.


 


We have continued to be active and successfully sold £1.3 billion of assets, overall above valuation.


 



Occupier


demand


and tenant


default


Responsible


executives:


Charles Maudsley,


Tim Roberts



Underlying income,


rental growth and capital performance could be adversely affected by weakening occupier demand and occupier failures resulting from variations in the health of the UK economy and


corresponding weakening of consumer confidence, business activity and investment.


 


Changing consumer and business practices including the growth of internet retailing, flexible working practices and demand for energy efficient buildings, new technologies, new legislation and alternative locations may result in earlier than anticipated


obsolescence of our buildings if evolving occupier and regulatory requirements are not met.



- The Risk Committee reviews indicators of occupier demand quarterly including consumer


confidence surveys and employment and ERV growth forecasts, alongside the Committee members' knowledge and experience of occupier plans, trading performance and leasing activity in guiding execution of our strategy.


 


- We have a high quality, diversified occupier base and


monitor concentration of exposure to individual occupiers or sectors. We perform rigorous occupier covenant checks ahead of approving deals and on an ongoing basis so that we can be proactive in managing exposure to weaker occupiers.


 


- Ongoing engagement with our customers. Through our Key Occupier Account programme we work together with our occupiers to find ways to best meet their evolving requirements.


 


- Our sustainability strategy links action on occupier health and wellbeing, energy efficiency, community and sustainable design to our business strategy. Our social and environmental targets help us comply with new legislation and respond to customer demands; for example, we expect all our office developments to be BREEAM Excellent.



In the more uncertain environment, we are seeing


polarisation of occupier demand accelerating with an increasing focus on the best quality space. In this context, our leasing activity has been good, with 2.4 million sq ft of space let or renewed across the portfolio, at rates well ahead of ERV, and our portfolio remains virtually full with 97% occupancy.


 


In terms of our sectors:


- In the London office market, occupiers are more thoughtful about their requirements as a result of political and economic uncertainty. However, we continue to see both international and British


companies making commitments in London,


confident of its enduring status as a global city in which the world's leading organisations want to do business. Take-up has remained resilient partly


underpinned by strong demand for flexible workspace, demonstrating the changing occupier market, as well as good demand for Grade A space.


- With retailers facing economic and structural


challenges, the wider occupational market has been more cautious with polarisation of occupier demand continuing. Whilst more recently, we have seen a number of operators apply for company voluntary


arrangements, as some retailers struggle to compete


with the rise of online shopping and increased costs, there are many retailers which continue to trade well and grow sales. The growth in importance of online means the way in which occupiers and their customers are using physical space is changing. However the store and its value is still integral to


support retailers' omni-channel approach, and there remains demand for the best space, where retailers can grow sales with lower occupancy costs.


 



Availability


and cost


of finance


Responsible


executive:


Lucinda Bell


(until January 2018),


Chris Grigg


(after January 2018



Reduced availability of finance may adversely impact ability to refinance debt and/or drive up cost. These factors may also result in weaker investor demand for real estate.


 


Regulation and capital costs of lenders may


increase cost of finance.



- Market borrowing rates and real estate credit availability are monitored by the Risk Committee quarterly and reviewed regularly in order to guide our financing actions in executing our strategy.


 


- We monitor our projected LTV and our debt requirements using several internally generated reports focused on borrowing levels, debt maturity, available facilities and interest rate exposure.


 


- We maintain good long term relationships with our key financing partners.


 


- The scale and quality of our business enables us to


access a diverse range of sources of finance with a spread of repayment dates. We aim always to have a good level of undrawn, committed, unsecured


revolving facilities to ensure we have adequate financing availability to support business


requirements and opportunities.


 


- We work with industry bodies and other relevant organisations to participate in debate on emerging finance regulations where our interests and those of our industry are affected.


 



←→ Although there has continued to be market


volatility reacting to macro-economic and political


uncertainties, debt markets have remained open. There


continues to be good availability of finance in debt and capital markets (unsecured and secured) from a range of lenders for UK REITs and other good quality real estate investors. Development finance is more difficult to obtain with fewer lenders participating. Projects without pre-lets require strong sponsors.


 


Interest margins/spreads have been relatively stable,


but market/gilt rates have increased, pushing overall


debt pricing up (although still low by historical standards).


 


We have continued to access the debt markets and during the year raised £400 million of new finance including a £300 million unsecured Sterling bond, as well as extending £225 million of revolving credit facilities.



Catastrophic


business


event


Responsible


executive:


Chris Grigg



An external event such as a civil emergency,


including a large-scale terrorist attack, cyber


crime, extreme weather occurrence,


environmental disaster or power shortage could


severely disrupt global markets (including property and finance) and


cause significant damage and disruption to British Land's portfolio and operations.



- We maintain a comprehensive crisis response plan across all business units as well as a head office business continuity plan.


 


- The Risk Committee monitors the Home Office terrorism threat levels and we have access to security threat information services.


 


- Asset emergency procedures are regularly reviewed and scenario tested. Physical security measures are in place at properties and development sites.


 


- Our Sustainability Committee monitors environmental and climate change risks. Asset risk


assessments are carried out to assess a range of risks including security, flood, environmental, health and safety.


 


- We have implemented corporate cyber security


systems which are supplemented by incident


management, disaster recovery and business continuity plans, all of which are regularly reviewed to be able to respond to changes in the threat landscape and organisational requirements.


 


- We also have appropriate insurance in place across the portfolio.


 



←→The evaluation of the likely impact of this risk has not changed notably since the prior year. The Home Office threat level from international terrorism remains 'Severe'. During the year, we have carried out a crisis simulation exercise and enhanced our procedures where appropriate.


 


We are mindful of cyber security risks, particularly


following a number of recent high-profile hacks, and


have continued to enhance our security position and provide employee training and awareness on cyber security.



 


Internal risks
















































Risks and impacts



 



How we monitor and manage the risk



Change in risk assessment in the year



Investment


strategy


Responsible


executives:


Chris Grigg,


Charles Maudsley,


Tim Roberts



In order to meet our strategic objectives we


aim to invest in and exit from the right properties at the right time.


 


Underperformance could result from changes in market sentiment as well


as inappropriate


determination and execution of our


property investment


strategy, including:


- Sector selection and weighting


- Timing of investment and divestment


decisions


- Exposure to


developments


- Asset, tenant, region concentration


- Co-investment


arrangements



-Our investment strategy is determined to be consistent with


our target risk appetite and is based on the evaluation of the external environment.


 


- Progress against the strategy and continuing alignment with our risk appetite is discussed at each Risk Committee with reference to the property markets and the external


economic environment.


 


- The Board carries out an annual review of the overall corporate strategy including the current and prospective asset portfolio allocation.


 


- Individual investment decisions are subject to robust risk evaluation overseen by our Investment Committee including consideration of returns relative to risk adjusted hurdle rates.


 


- Review of prospective performance of individual assets and their business plans.


 


- We foster collaborative relationships with our co-investors and enter into ownership agreements which balance the interests of the parties.



←→ Our strategy is aligned to long term trends, and our high quality portfolio is


positioned to benefit from increasing polarisation and to attract a broader range of occupiers.


 


We have continued to be active in executing our


capital allocation plans and have sold £1.3 billion of asset disposals in the year overall ahead of valuation, primarily mature and off-strategy assets. The retail market faces structural challenges and we have continued to


reshape our Retail portfolio with £419 million of sales in the year; in total £2.3 billion over the last four years.


 


We have maintained strong capital discipline, and have focused resources on progressing our unique development programme, selective acquisitions and a £300 million share buyback.


Overall we were a net divestor of £0.8 billion of properties over the course of the year.


 



Development


strategy


Responsible


executives:


Chris Grigg,


Charles Maudsley,


Tim Roberts



Development provides an opportunity for


outperformance but usually brings with it elevated risk.


 


This is reflected in our decision-making process


around which schemes to


develop, the timing of the


development, as well as the execution of these


projects.


 


Development strategy addresses several


development risks that could adversely impact


underlying income and capital performance


including:


- Development letting exposure


- Construction timing and costs (including


construction cost


inflation)


- Major contractor failure


- Adverse planning judgements



- We manage our levels of total and speculative development


exposure as a proportion of the investment portfolio value


within a target range taking into account associated risks and the impact on key financial metrics. This is monitored quarterly by the Risk Committee along with progress of developments against plan.


 


- Prior to committing to a development a detailed appraisal is undertaken. This includes consideration of returns relative to risk adjusted hurdle rates and is overseen by our Investment Committee.


 


- Pre-lets are used to reduce development letting risk where considered appropriate.


 


- Competitive tendering of construction contracts and, where appropriate, fixed price contracts entered into.


 


- Detailed selection and close monitoring of contractors including covenant reviews.


 


- Experienced development management team closely monitors design, construction and overall delivery process.


 


- Early engagement and strong relationships with planning authorities.


 


- We also actively engage with the communities in which we operate, as detailed in our Local Charter, to ensure that our development activities consider the interests of all stakeholders.


 


- We manage environmental and social risks across our development supply chain by engaging with our suppliers, including through our Supplier Code of Conduct, Sustainability Brief for Developments and Health and Safety Policy.


 



←→ Development is an important part of our business and has delivered some of our strongest returns, but is inherently higher risk,


particularly when pursued on a speculative basis. We limit our development exposure to 15% of the total investment portfolio by value, with a maximum of 8% to be developed speculatively.


 


During the year, we have doubled our committed development pipeline, representing a total development exposure of 8.9%, whilst carefully managing the risk by securing substantial pre-lets; as such there has been only a minor increase in speculative exposure, which now stands at 4.5% of the portfolio GAV. Committed construction costs are substantially covered by residential receipts to come.



Capital structure


- leverage


Responsible


executives:


Lucinda Bell


(until January 2018),


Chris Grigg


(after January 2018)



Our capital structure recognises the balance between performance, risk and flexibility.


- Leverage magnifies capital returns, both


positive and negative


- An increase in leverage increases the risk of a breach of covenants on


borrowing facilities and may increase finance costs



- We manage our use of debt and equity finance to balance the benefits of leverage against the risks.


 


- We aim to manage our loan to value (LTV) through the property cycle such that our financial position would remain robust in the event of a significant fall in property values. This means we do not adjust our approach to leverage based on changes in property market yields.


 


- We manage our investment activity, the size and timing of which can be uneven, as well as our development commitments to ensure that our LTV level remains appropriate.


 


- We leverage our equity and achieve benefits of scale while


spreading risk through joint ventures and funds which are typically partly financed by debt without recourse to British Land.


 



Our balance sheet metrics remain strong; both the proportionally consolidated loan to value (LTV) and weighted average interest rate have been reduced alongside improved interest cover. We have decreased LTV by a further 150 bps to 28.4% from 29.9% at 31 March 2017, primarily through net disposals. This financial strength provides us with the capacity to progress opportunities including our development pipeline whilst retaining significant headroom to our covenants.



Finance


strategy


Responsible


executives:


Lucinda Bell


(until January 2018),


Chris Grigg


(after January 2018)



Finance strategy


addresses risks both to continuing solvency and profits generated.


 


Failure to manage


refinancing requirements


may result in a shortage of funds to sustain the


operations of the business or repay facilities as they fall due.



- Five key principles guide our financing, employed together to


manage the risks in this area: diversify our sources of finance, phase maturity of debt portfolio, maintain liquidity, maintain flexibility, and maintain strong balance sheet metrics.


 


- We monitor the period until financing is required, which is a key determinant of financing activity. Debt and capital market conditions are reviewed regularly to identify financing opportunities that meet our business requirements.


 


- Financial covenant headroom is evaluated regularly and in conjunction with transactions.


 


- We are committed to maintaining and enhancing relationships with our key financing partners.


 


- We are mindful of relevant emerging regulation which has the potential to impact the way that we finance the business.


 



←→ The scale of our business, quality of our


assets and security of our rental streams enable us to access a broad range of debt finance on attractive terms. Following issuance of the £300 million unsecured Sterling bond, our weighted average debt maturity is almost nine years, and based on current commitments and available debt facilities, we have no requirement to refinance until early 2021. Our committed bank facilities total £1.8 billion of which £1.2 billion were undrawn at 31 March 2018. The strength of our business is reflected in our senior unsecured credit rating which was upgraded by Fitch to A (from A-) during the year.



People


Responsible


executive:


Chris Grigg



A number of critical business processes and


decisions lie in the hands of a few people.


 


Failure to recruit, develop and retain staff and Directors with the right


skills and experience may


result in significant


underperformance or impact the effectiveness


of operations and decision making, in turn impacting


business performance.



- Our HR strategy is designed to minimise risk through:


 - informed and skilled recruitment processes;


 - talent performance management and succession planning for key roles;


-highly competitive compensation and benefits; and


- people development and training.


 


- The risk is measured through employee engagement surveys (including the 'Best Companies' survey), employee turnover and retention metrics. We monitor this through the number of unplanned executive departures in addition to conducting exit interviews.


 


- We engage with our employees and suppliers to make clear our requirements in managing key risks including health and safety, fraud and bribery and other social and


environmental risks, as detailed in our policies and codes of conduct.


 



←→ Expert People is one of the four core focus areas of our strategy and a key factor in our performance. We continue to empower our people to make the most of


their potential though training and development.


 


We are focused on building a supportive and inclusive culture for our people and we were the first listed property company to achieve the


National Equality Standard accreditation in the year.


 


During the year, staff turnover has remained relatively low at 15% and our high level of staff engagement was recognised by achieving a


Two Star rating in the Sunday Times Best Companies to Work For survey.



Income


sustainability


Responsible


executives:


Lucinda Bell


(until January 2018),


Chris Grigg


(after January 2018)


Charles Maudsley,


Tim Roberts



We are mindful of


maintaining sustainable


income streams which underpin a stable and


growing dividend and provide the platform from which to grow the business.


We consider sustainability


of our income streams in:


- Execution of


investment strategy


and capital recycling,


notably timing


of reinvestment of


sale proceeds


- Nature and structure


of leasing activity


- Nature and timing of asset management and


development activity



- We undertake comprehensive profit and cash flow forecasting incorporating scenario analysis to model the impact of proposed transactions.


 


- Pro-active asset management approach to maintain strong occupier line-up. We monitor our market letting exposure including vacancies, upcoming expiries and breaks and speculative development as well as our weighted average unexpired lease term.


 


- We have a high quality and diversified occupier base and monitor concentration of exposure to individual occupiers or sectors.


 


- We are proactive in addressing key lease breaks and expiries to minimise periods of vacancy.


 


- We actively engage with the communities in which we operate, as detailed in our Local Charter, to ensure we provide buildings that meet the needs of all relevant stakeholders.


                                      



We are mindful of the challenges facing the Retail market which has seen a number of operators apply for company voluntary arrangements. We continue to actively monitor our exposure to occupiers at risk of default and administration and are selective about the sectors and operators we target.


 


We also recognise that in delivering our investment strategy and selling some of our mature assets, we have had to be conscious of the impact on our income in the short term.


 


However, our income streams are underpinned by a high quality, diverse occupier base with high occupancy, and looking forward our development pipeline offers significant potential to generate future income.



 


Key


Change from last year




















Risk exposure has increased



←→



No significant change in risk exposure





Risk exposure has reduced



 


CONSOLIDATED INCOME STATEMENT


FOR THE YEAR ENDED 31 MARCH 2018


 


 






























































































































































































































































 



 



 



2018



 



2017



 



Notes



 



Underlying1


£m



Capital

and other

£m



Total

£m



 



Underlying1


£m



Capital

and other

£m



Total

£m



Revenue



3



 



561



78



639



 



556



33



589



Costs



3



 



(136)



(64)



(200)



 



(122)



(26)



(148)



 



3



 



425



14



439



 



434



7



441



Joint ventures and funds (see also below)



8



 



115



36



151



 



132



(80)



52



Administrative expenses



 



 



(82)



-



(82)



 



(84)



-



(84)



Valuation movement 



4



 



-



202



202



 



-



(144)



(144)



Profit (loss) on disposal of investment properties

and investments



 



 



-



18



18



 



-



(5)



(5)



Net financing costs



 



 



 



 



 



 



 



 



 



-      financing income



5



 



1



-



1



 



2



42



44



-      financing charges



5



 



(65)



(163)



(228)



 



(80)



(29)



(109) 



 



 



 



(64)



(163)



(227)



 



(78)



13



(65)



Profit on ordinary activities before taxation



 



 



394



107



501



 



404



(209)



195



Taxation 



6



 



-



6



6



 



 



1



1



Profit for the year after taxation



 



 



 



 



507



 



 



 



196



Attributable to non-controlling interests



 



 



14



-



14



 



14



(11)



3



Attributable to shareholders of the Company



 



 



380



113



493



 



390



(197)



193



Earnings per share:



 



 



 



 



 



 



 



 



 



-      basic



2



 



 



 



48.7p



 



 



 



18.8p



-      diluted



2



 



 



 



48.5p



 



 



 



14.7p



 


All results derive from continuing operations.














































































































 



 



 



2018



 



2017



 



Notes



 



Underlying1


£m



Capital 


and other

£m



Total

£m



 



Underlying1


£m



Capital 


and other

£m



Total

£m



Results of joint ventures and funds accounted

for using the equity method



 



 



 



 



 



 



 



 



 



Underlying Profit



 



 



115



-



115



 



132



-



132



Valuation movement



4



 



-



52



52



 



-



(93)



(93)



Capital financing costs



 



 



-



(13)



(13)



 



-



(6)



(6)



(Loss) profit on disposal of investment properties,

trading properties and investments



 



 



-



(3)



(3)



 



-



18



18



Taxation



 



 



-



-



-



 



-



1



1



 



 



 



115



36



151



 



132



(80)



52



 


1 See definition in note 2.


 


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME


FOR THE YEAR ENDED 31 MARCH 2018


 















































































































 



2018


£m



2017 


£m



Profit for the year after taxation



507



196



Other comprehensive income (loss):



 



 



Items that will not be reclassified subsequently to profit or loss:



 



 



Net actuarial gain (loss) on pension schemes



9



(12)



Valuation movements on owner-occupied properties



(3)



-



 



6



(12)



Items that may be reclassified subsequently to profit or loss:



 



 



Gains (losses) on cash flow hedges



 



 



-      Group



12



(21)



-      Joint ventures and funds



8



1



 



20



(20)



Transferred to the income statement (cash flow hedges)



 



 



-      Interest rate derivatives



120



16



 



 



 



Deferred tax on items of other comprehensive income 



(5)



-



 



 



 



Other comprehensive income (loss) for the year 



141



(16)



Total comprehensive income for the year



648



180



Attributable to non-controlling interests



16



3



Attributable to shareholders of the Company



632



177



 


CONSOLIDATED BALANCE SHEET


AS AT 31 MARCH 2018


 


























































































































































































































































































































 



Note



 



2018


£m



2017


£m



ASSETS



 



 



 



 



Non-current assets



 



 



 



 



Investment and development properties



7



 



9,507



9,073



Owner-occupied properties



7



 



90



94



 



 



 



9,597



9,167



Other non-current assets



 



 



 



 



Investments in joint ventures and funds



8



 



2,822



2,766



Other investments



9



 



174



154



Deferred tax assets



13



 



4



4



Interest rate and currency derivative assets



14



 



115



217



 



 



 



12,712



12,308



Current assets



 



 



 



 



Joint venture held for sale



 



 



-



540



Trading properties



7



 



328



334



Debtors



10



 



35



171



Cash and short term deposits



14



 



105



114



 



 



 



468



1,159



Total assets



 



 



13,180



13,467



LIABILITIES



 



 



 



 



Current liabilities



 



 



 



 



Short term borrowings and overdrafts



14



 



(27)



(464)



Creditors



11



 



(324)



(458)



Corporation tax



 



 



(22)



(30)



 



 



 



(373)



(952)



Non-current liabilities



 



 



 



 



Debentures and loans



14



 



(3,101)



(2,817)



Other non-current liabilities



12



 



(62)



(78)



Interest rate and currency derivative liabilities



14



 



(138)



(144)



 



 



 



(3,301)



(3,039)



Total liabilities



 



 



(3,674)



(3,991)



Net assets



 



 



9,506



9,476



EQUITY



 



 



 



 



Share capital



 



 



248



260



Share premium



 



 



1,300



1,298



Merger reserve



 



 



213



213



Other reserves



 



 



33



(97)



Retained earnings



 



 



7,458



7,547



Equity attributable to shareholders of the Company



 



 



9,252



9,221



Non-controlling interests



 



 



254



255



Total equity



 



 



9,506



9,476



 



 



 



 



 



 



 



 



 



 



EPRA NAV per share1



2



 



967p



915p



 


1  As defined in note 2.


 


CONSOLIDATED STATEMENT OF CASH FLOWS


FOR THE YEAR ENDED 31 MARCH 2018


 


























































































































































































































































































































 



Note



 



2018


£m



2017


£m



Rental income received from tenants



 



 



446



464



Fees and other income received



 



 



78



64



Operating expenses paid to suppliers and employees



 



 



(173)



(149)



Cash generated from operations



 



 



351



379



 



 



 



 



 



Interest paid



 



 



(73)



(92)



Interest received



 



 



4



8



Corporation taxation (payments) repayments



 



 



(7)



9



Distributions and other receivables from joint ventures and funds



8



 



78



59



Net cash inflow from operating activities



 



 



353



363



 



 



 



 



 



Cash flows from investing activities



 



 



 



 



Development and other capital expenditure



 



 



(190)



(225)



Purchase of investment properties



 



 



(165)



(87)



Sale of investment and trading properties



 



 



212



761



Payments received in respect of future trading property sales



 



 



8



8



Disposal of joint venture held-for-sale 



 



 



568



-



Disposal of Tesco joint venture



 



 



68



-



Purchase of investments



 



 



(9)



(19)



Indirect taxes paid in respect of investing activities 



 



 



(7)



(1)



Investment in and loans to joint ventures and funds



 



 



(175)



(50)



Capital distributions and loan repayments from joint ventures and funds



 



 



36



83



Net cash inflow from investing activities



 



 



346



470



 



 



 



 



 



Cash flows from financing activities



 



 



 



 



Issue of ordinary shares



 



 



2



3



Unit issues attributable to non-controlling interests



 



 



2



-



Purchase of own shares



 



 



(301)



(8)



Dividends paid



 



 



(304)



(295)



Dividends paid to non-controlling interests



 



 



(15)



(14)



Acquisition of units in Hercules Unit Trust



 



 



(4)



(11)



Payments on closeout of interest rate derivative liabilities



 



 



(18)



(13)



Receipts on closeout of interest rate derivative assets



 



 



27



-



Decrease in bank and other borrowings



 



 



(626)



(526)



Drawdowns on bank and other borrowings



 



 



529



31



Net cash outflow from financing activities



 



 



(708)



(833)



 



 



 



 



 



Net decrease in cash and cash equivalents



 



 



(9)



-



Cash and cash equivalents at 1 April



 



 



114



114



Cash and cash equivalents at 31 March



 



 



105



114



 



 



 



 



 



Cash and cash equivalents consists of:



 



 



 



 



Cash and short term deposits



14



 



105



114



 


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


FOR THE YEAR ENDED 31 MARCH 2018


 














































































































































































































































































































































































































































































 



Share


capital 


£m



Share


premium


£m



Hedging


and


translation


reserve1


£m



Re-


valuation


reserve


£m



Merger


reserve


£m



Retained


earnings


£m



Total 


£m



Non-controlling


interests


£m



Total 


equity 


£m



Balance at 1 April 2017



260



1,298



(112)



15



213



7,547



9,221



255



9,476



Profit for the year after taxation



-



-



-



-



-



493



493



14



507



Revaluation of owner-occupied property



-



-



-



(3)



-



-



(3)



-



(3)



Gains on cash flow hedges - group



-



-



10



-



-



-



10



2



12



Gains on cash flow hedges - joint ventures

and funds



-



-



-



8



-



-



8



-



8



Transferred to the income statement (cash flow hedges)



 



 



 



 



 



 



 



 



 



-      Interest rate derivatives



-



-



120



-



-



-



120



-



120



Net actuarial gain on pension schemes



-



-



-



-



-



9



9



-



9



Reserves transfer



-



-



(2)



2



-



-



-



-



-



Deferred tax on items of other comprehensive income



-



-



(5)



-



-



-



(5)



-



(5)



Other comprehensive income



-



-



123



7



-



9



139



2



141



Total comprehensive income for the year



-



-



123



7



-



502



632



16



648



Share issues



-



2



-



-



-



-



2



-



2



Unit issues attributable to non-controlling interests



-



-



-



-



-



-



-



2



2



Purchase of own shares



(12)



-



-



-



-



(289)



(301)



-



(301)



Purchase of units from non-controlling interests



-



-



-



-



-



-



-



(4)



(4)



Dividends payable in year (29.64p per share)



-



-



-



-



-



(302)



(302)



-



(302)



Dividends payable by subsidiaries 



-



-



-



-



-



-



-



(15)



(15)



Balance at 31 March 2018



248



1,300



11



22



213



7,458



9,252



254



9,506



 



 



 



 



 



 



 



 



 



 



Balance at 1 April 2016



260 



 1,295 



 (107)



 14



 213 



 7,667 



9,342



 277 



 9,619 



Profit for the year after taxation



-



-



-



-



-



 193 



193



3



 196 



Losses on cash flow hedges



-



-



(21)



-



-



-



(21)



-



(21)



Exchange and hedging movements in joint ventures

and funds



-



-



-



1



-



-



1



-



1



Reclassification of gains on cash flow hedges



 



 



 



 



 



 



 



 



 



-      Interest rate derivatives



-



-



16



-



-



-



16



-



16



Net actuarial loss on pension schemes



-



-



-



-



-



(12)



(12)



-



(12)



Other comprehensive (loss) income



-



-



(5)







(12)



(16)





(16)



Total comprehensive income for the year



-





(5)



 1 





181



177



 3 



180



Share issues





 3 









-



3





3



Fair value of share and share option awards



-



-



-



-



-



2



2





2



Purchase of own shares



-



-



-



-



-



(8)



(8)



-



(8)



Purchase of units from non-controlling interests













-



-



(11)



(11)



Gain on purchase of units from non-controlling interests













1



1



-



1



Dividends payable in year (28.78p per share)













(296)



(296)



-



(296)



Dividends payable by subsidiaries 













-



-



(14)



(14)



Balance at 31 March 2017



260



1,298 



(112)



15



213 



7,547 



9,221



255 



 9,476 



 


1 The balance at the beginning of the current year includes £15m in relation to translation and (£127)m in relation to hedging (2016/17: £9m and (£116m)).


 


NOTES TO THE ACCOUNTS


 


1 Basis of preparation, significant accounting policies and accounting judgements


The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2018 or 2017, but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the Company's Annual General Meeting. The auditor has reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) of Companies Act 2006 or equivalent preceding legislation. 


 


The financial statements for the year ended 31 March 2018 have been prepared on a historical cost basis, except for the revaluation of properties, investments held for trading and derivatives. The financial statements have also been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and therefore comply with Article 4 of the EU IAS Regulation.


 


While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs in June 2018.


 


A number of new standards and amendments to standards and interpretations have been issued but are not yet effective for the current accounting period. None of these are expected to have a material impact on the consolidated financial statements of the Group.


 


Certain standards which could be expected to have an impact on the consolidated financial statements are discussed in further detail below. The Group conducted an impact assessment of the new standards which are effective next year based on the Group's current activities and have quantified the impact. The results of the impact assessment confirm that the new standards will lead to limited changes to presentation and disclosure and will have an immaterial impact on the consolidated financial statements.


 


IFRS 9 - Financial instruments (effective year ending March 2019). 


-      The new standard addresses the classification and measurement of financial assets.


-      The alignment of the classification and measurement model under IFRS 9 will result in changes in the classification of all financial assets excluding derivatives. These changes will not have a quantitative impact on the financial statements. 


-      IFRS 9 introduces an expected credit loss model, requiring an expected credit loss to be recognised on all financial assets held at amortised cost. The quantitative impact based on balances as at 31 March 2018 will result in the recognition of an expected credit loss of £5m, with a corresponding reduction in financial assets held at amortised cost of £5m. The Group has previously provided for a materially similar balance against trade and other receivables and therefore the resulting reclassification of existing provisions will not have a material impact on the net assets of the Group.


-      IFRS 9 introduces changes to the qualifying criteria for hedge accounting and expands the financial and non-financial instruments which may be designated as hedged items and hedging instruments in order to align hedge accounting with business strategy. The changes to hedge accounting under IFRS 9 will result in qualitative enhancements to the interest rate and foreign currency risk management disclosures. The changes introduced by IFRS 9 will not have a quantitative impact on the consolidated financial statements of the Group.


 


IFRS 15 - Revenue from contracts with customers (effective year ending 31 March 2019).


-      The new standard combines a number of previous standards, setting out a five step model for the recognition of revenue and establishing principles for reporting useful information to users of financial statements about the nature, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. The new standard does not apply to rental income, which is in the scope of IAS 17, but does apply to service charge income, management and performance fees and trading property disposals. The changes introduced by IFRS 15 will result in minimal qualitative changes to the revenue disclosure and will not have a quantitative impact on the consolidated financial statements of the Group.


 


IFRS 16 - Leases (effective year ending 31 March 2020).


-      For lessees, IFRS 16 will result in almost all operating leases being brought on balance sheet, as the distinction between operating and finance leases will be removed. The accounting for lessors will however not significantly change. As a result, on adoption of the new standard, these changes will have an immaterial impact on the consolidated financial statements of the Group. 


 


Accounting judgements and estimates


In applying the Group's accounting policies, the Directors are required to make judgements and estimates that affect the financial statements. 


 


Significant areas of estimation are:


 


Valuation of properties and investments held for trading: The Group uses external professional valuers to determine the relevant amounts. The primary source of evidence for property valuations should be recent, comparable market transactions on an arms-length basis. However, the valuation of the Group's property portfolio and investments held for trading are inherently subjective, as they are made on the basis of assumptions made by the valuers which may not prove to be accurate.


 


Other less significant areas of estimation include the valuation of fixed rate debt and interest rate derivatives, the determination of share-based payment expense, the actuarial assumptions used in calculating the Group's retirement benefit obligations and taxation provisions.


 


The key areas of accounting judgement are:


 


REIT status: British Land is a Real Estate Investment Trust (REIT) and does not pay tax on its property income or gains on property sales, provided that at least 90% of the Group's property income is distributed as a dividend to shareholders, which becomes taxable in their hands. In addition, the Group has to meet certain conditions such as ensuring the property rental business represents more than 75% of total profits and assets. Any potential or proposed changes to the REIT legislation are monitored and discussed with HMRC. It is management's intention that the Group will continue as a REIT for the foreseeable future. 


 


Accounting for joint ventures and funds: In accordance with IFRS 10 'Consolidated financial statements', IFRS 11 'Joint arrangements', and IFRS 12 'Disclosures of interests in other entities' an assessment is required to determine the degree of control or influence the Group exercises and the form of any control to ensure that the financial statement treatment is appropriate. The assessment undertaken by management includes a consideration of the structure, legal form, contractual terms and other facts and circumstances in relation to the entity in question, prior to reaching a conclusion. This assessment is updated annually and there have been no changes in the judgement reached in relation to the degree of control the Group exercises within the current or prior year. Group shares in joint ventures and funds resulting from this process are disclosed in note 8 to the financial statements.


 


Interest in the Group's joint ventures is commonly driven by the terms of the partnership agreements which ensure that control is shared between the partners. All significant joint venture arrangements of the Group are held in structures in which the Group has 50% of the voting rights. Joint ventures are accounted for under the equity method, whereby the consolidated balance sheet incorporates the Group's share of the net assets of its joint ventures and associates. The consolidated income statement incorporates the Group's share of joint venture and associate profits after tax.


 


Accounting for transactions: Property transactions are complex in nature and can be material to the financial statements. Judgements made in relation to transactions include whether an acquisition is a business combination or an asset; whether held for sale criteria have been met for transactions not yet completed; and accounting for transaction costs and contingent consideration. Management consider each transaction separately in order to determine the most appropriate accounting treatment, and, when considered necessary, seek independent advice.


 


2 Performance measures 


 


Earnings per share


The Group measures financial performance with reference to underlying earnings per share, the European Public Real Estate Association (EPRA) earnings per share and IFRS earnings per share. The relevant earnings and weighted average number of shares (including dilution adjustments) for each performance measure are shown below, and a reconciliation between these is shown within the supplementary disclosures (Table B).


 


EPRA earnings per share is calculated using EPRA earnings, which is the IFRS profit after taxation attributable to shareholders of the Company excluding investment and development property revaluations, gains/losses on investing and trading property disposals, changes in the fair value of financial instruments and associated close-out costs and their related taxation. The 2012 convertible bond was repaid in the current year. In the prior year diluted EPRA earnings per share did not include the dilutive impact of the 2012 convertible bond, as the Group's share price was below the exchange price of 693 pence. IFRS diluted earnings per share included the dilutive impact as IAS 33 ignores this hurdle to conversion. In the current and prior year, both EPRA and IFRS measures exclude the dilutive impact of the 2015 convertible bond as the Company's share price had not exceeded the level required for the convertible conditions attached to the bond to trigger conversion into shares.


 


Underlying earnings per share is calculated using Underlying Profit adjusted for underlying taxation (see note 6). Underlying Profit is the pre-tax EPRA earnings measure, with additional Company adjustments. No Company adjustments were made in either the current or prior year.


 
















































































































 



2018



 



2017



Earnings per share



Relevant

earnings

£m



Relevant

number

of shares

million



Earnings


 per share


 pence



 



Relevant

earnings

£m



Relevant

number

of shares

million



Earnings


 per share

pence



Underlying



 



 



 



 



 



 



 



Underlying basic



380



1,013



37.5



 



390



1,029



37.9



Underlying diluted



380



1,016



37.4



 



390



1,033



37.8



EPRA



 



 



 



 



 



 



 



EPRA basic



380



1,013



37.5



 



390



1,029



37.9



EPRA diluted



380



1,016



37.4



 



390



1,033



37.8



IFRS



 



 



 



 



 



 



 



Basic



493



1,013



48.7



 



193



1,029



18.8



Diluted   



493



1,016



48.5



 



160



1,091



14.7



 


Net asset value


The Group measures financial position with reference to EPRA net asset value (NAV) per share and EPRA triple net asset value (NNNAV) per share. The net asset value and number of shares for each performance measure are shown below. A reconciliation between IFRS net assets and EPRA net assets, and the relevant number of shares for each performance measure, is shown within the supplementary disclosures (Table B). EPRA net assets is a proportionally consolidated measure that is based on IFRS net assets excluding the mark-to-market on derivatives and related debt adjustments, the mark-to-market on the convertible bonds as well as deferred taxation on property and derivative valuations. They include the valuation surplus on trading properties and are adjusted for the dilutive impact of share options.


 


The 2012 convertible bond was repaid in the current year. In the prior year EPRA NAV and EPRA NNNAV did not include the dilutive impact of the 2012 convertible bond, as the Group's share price was below the exchange price of 693 pence. In the current and prior year, both EPRA and IFRS measures exclude the dilutive impact of the 2015 convertible bond as the Company's share price had not exceeded the level required for the convertible conditions attached to the bond to trigger conversion into shares.


 


















































































 



2018



 



2017



Net asset value per share



Relevant

net assets

£m



Relevant

number

of shares

million



Net asset

value per

share

pence



 



Relevant

net assets

£m



Relevant

number

of shares

million



Net asset

value per

share

pence



EPRA



 



 



 



 



 



 



 



EPRA NAV



9,560



989



967



 



9,498



1,038



915



EPRA NNNAV



9,044



989



914



 



8,938



1,038



861



IFRS



 



 



 



 



 



 



 



Basic



9,506



983



967



 



9,476



1,029



921



Diluted



9,506



989



961



 



9,876



1,096



901



 


Total accounting return


The Group also measures financial performance with reference to total accounting return. This is calculated as the increase in EPRA net asset value per share and dividend paid in the year as a percentage of the EPRA net asset value per share at the start of the year.


 
































 



2018



 



2017



 



Increase in NAV per share


pence



Dividend per share paid


pence



Total

accounting

return



 



Decrease in NAV per share 


pence



Dividend per 


share paid


pence



Total

accounting

return



Total accounting return



52



29.64



8.9%



 



(4)



28.78



2.7%



 


3 Revenue and costs






















































































































































































 



2018



 



2017



 



Underlying

£m



Capital

and other

£m



Total

£m



 



Underlying

£m



Capital

and other

£m



Total

£m



Rent receivable



441



-



441



 



449



-



449



Spreading of tenant incentives and guaranteed rent increases



(6)



-



(6)



 



(9)



-



(9)



Surrender premia



6



-



6



 



2



-



2



Gross rental income



441



-



441



 



442



-



442



Trading property sales proceeds



-



78



78



 



-



33



33



Service charge income



66



-



66



 



62



-



62



Management and performance fees (from joint ventures and funds)



6



-



6



 



9



-



9



Other fees and commissions



48



-



48



 



43



-



43



Revenue



561



78



639



 



556



33



589



 



 



 



 



 



 



 



 



Trading property cost of sales



-



(64)



(64)



 



-



(26)



(26)



Service charge expenses



(66)



-



(66)



 



(62)



-



(62)



Property operating expenses



(29)



-



(29)



 



(25)



-



(25)



Other fees and commissions expenses



(41)



-



(41)



 



(35)



-



(35)



Costs



(136)



(64)



(200)



 



(122)



(26)



(148)



 



425



14



439



 



434



7



441



 


The cash element of net rental income recognised during the year ended 31 March 2018 from properties which were not subject to a security interest was £301m (2016/17: £276m). Property operating expenses relating to investment properties that did not generate any rental income were £2m (2016/17: £2m). Contingent rents of £4m (2016/17: £2m) were recognised in the year. 


 


4 Valuation movements on property














































 



2018


£m



2017


£m



Consolidated income statement



 



 



Revaluation of properties



202



(144)



Revaluation of properties held by joint ventures and funds accounted for using the equity method



52



(93)



 



254



(237)



Consolidated statement of comprehensive income



 



 



Revaluation of owner-occupied properties



(3)



-



 



251



(237)



 


5 Net financing costs































































































































































































 



2018


£m



2017


£m



Underlying



 



 



 



 



 



Financing charges



 



 



Bank loans and overdrafts



(21)



(26)



Derivatives



28



23



Other loans



(76)



(83)



Obligations under head leases



(2)



(2)



 



(71)



(88)



Development interest capitalised



6



8



 



(65)



(80)



Financing income



 



 



Deposits, securities and liquid investments



1



2



 



1



2



Net financing charges - underlying



(64)



(78)



 



 



 



Capital and other



 



 



 



 



 



Financing charges



 



 



Valuation movements on translation of foreign currency net assets



(1)



-



Hedging reserve recycling1



(106)



-



Valuation movements on fair value derivatives



(79)



51



Valuation movements on fair value debt



80



(48)



Recycling of fair value movement on close-out of derivatives



(14)



(10)



Capital financing costs2



(27)



(15)



Valuation movement on non-hedge accounted derivatives



(16)



(7)



 



(163)



(29)



Financing income



 



 



Fair value movement on convertible bonds



-



42



 



-



42



Net financing (charges) income - capital



(163)



13



 



 



 



 



 



 



Net financing costs



 



 



Total financing income



1



44



Total financing charges



(228)



(109)



Net financing costs



(227)



(65)



 


Interest payable on unsecured bank loans and related interest rate derivatives was £9m (2016/17: £13m). Interest on development expenditure is capitalised at the Group's weighted average interest rate of 2.0% (2016/17: 2.4%). The weighted average interest rate on a proportionately consolidated basis at 31 March 2018 was 2.8% (2016/17: 3.1%). 


 


1 Represents a reclassification of cumulative losses within the hedging and translation reserve to capital profit and loss, in relation to hedging instruments which have been closed out or are no longer hedge accounted. 


2 Primarily debenture bonds redemption and tender offer and purchase costs.


 


6 Taxation

























































































































 



2018

£m



2017

£m



Taxation income (expense) 



 



 



Current taxation:



 



 



UK corporation taxation: 19% (2016/17: 20%)



-



(3)



Adjustments in respect of prior years



1



4



Total current taxation income 



1



1



Deferred taxation on revaluations and derivatives



5



-



Group total taxation



6



1



Attributable to joint ventures and funds



-



1



Total taxation income 



6



2



 



 



 



 



 



 



Taxation reconciliation



 



 



Profit on ordinary activities before taxation



501



195



Less: profit attributable to joint ventures and funds1



(151)



(52)



Group profit on ordinary activities before taxation



350



143



Taxation on profit on ordinary activities at UK corporation taxation rate of 19% (2016/17: 20%)



(67)



(29)



Effects of:



 



 



REIT exempt income and gains



71



28



Taxation losses



(4)



(2)



Deferred taxation on revaluations and derivatives



5



-



Adjustments in respect of prior years



1



4



Group total taxation income 



6



1



 


1 A current taxation expense of £nil (2016/17: £nil) and a deferred taxation credit of £nil (2016/17: £1m) arose on profits attributable to joint ventures and funds. The low tax charge reflects the Group's REIT status. 


 


Taxation expense attributable to Underlying Profit for the year ended 31 March 2018 was £nil (2016/17: £nil). Corporation taxation payable at 31 March 2018 was £22m (2016/17: £30m) as shown on the balance sheet. During the year to 31 March 2018 various tax provisions in respect of historic taxation matters and current points of uncertainty in the UK have been released and provisions made. The net movement, which is included within the tax credit above, is not material.


 


7 Property


Property reconciliation for the year ended 31 March 2018


 










































































































































































































































 



Investment



 



 



 



 



 



 



 



Retail


Level 3

£m



Offices & residential

Level 3

£m



Canada


Water


Level 3


£m



Developments

Level 3

£m



Investment

and

development properties

Level 3

£m



Trading properties

£m



Owner-

occupied

Level 3

£m



Total

£m



Carrying value at 1 April 2017



5,021



3,616



286



150



9,073



334



94



9,501



Additions



 



 



 



 



 



 



 



 



-      property purchases



237



-



8



-



245



5



-



250



-      development expenditure



5



15



22



44



86



46



-



132



-      capitalised interest and staff costs



-



1



3



1



5



5



-



10



-      capital expenditure on asset

management initiatives



29



-



-



1



30



-



-



30



 



271



16



33



46



366



56



-



422



Depreciation



-



-



-



-



-



-



(1)



(1)



Disposals



(134)



(2)



-



-



(136)



(62)



-



(198)



Reclassifications



(4)



(137)



-



141



-



-



-



-



Revaluations included in income statement



40



165



(21)



18



202



-



-



202



Revaluations included in OCI



-



-



-



-



-



-



(3)



(3)



Movement in tenant incentives and contracted rent uplift balances



1



1



-



-



2



-



-



2



Carrying value at 31 March 2018



5,195



3,659



298



355



9,507



328



90



9,925



Head lease liabilities (note 12)



 



 



 



 



 



 



 



(62)



Valuation surplus on trading properties



 



 



 



 



 



 



 



134



Group property portfolio valuation at 31 March 2018



 



 



 



 



 



 



9,997



Non-controlling interests



 



 



 



 



 



 



 



(315)



Group property portfolio valuation at 31 March 2018 attributable to shareholders



 



 



 



 



 



 



9,682



 


Property valuation


The different valuation method levels are defined below:


 


Level 1:  Quoted prices (unadjusted) in active markets for identical assets or liabilities.


Level 2: 

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices)

or indirectly (i.e. derived from prices).


Level 3:  Inputs for the asset or liability that are not based on observable market data (unobservable inputs).


 


These levels are specified in accordance with IFRS 13 'Fair Value Measurement'. Property valuations are inherently subjective as they are made on the basis of assumptions made by the valuer which may not prove to be accurate. For these reasons, and consistent with EPRA's guidance, we have classified the valuations of our property portfolio as Level 3 as defined by IFRS 13. The inputs to the valuations are defined as 'unobservable' by IFRS 13 and these are analysed in a table on the following page. There were no transfers between levels in the period. 


 


The Group's total property portfolio was valued by external valuers on the basis of fair value, in accordance with the RICS Valuation - Professional Standards 2014, ninth edition, published by The Royal Institution of Chartered Surveyors. 


 


The information provided to the valuers, and the assumptions and valuation models used by the valuers, are reviewed by the property portfolio team, the Head of Offices, the Head of Retail and the Chief Financial Officer (Chief Executive Officer post January 2018). The valuers meet with the external auditors and also present directly to the Audit Committee at the interim and year end review of results.


 


Investment properties, excluding properties held for development, are valued by adopting the 'investment method' of valuation. This approach involves applying capitalisation yields to current and future rental streams net of income voids arising from vacancies or rent-free periods and associated running costs. These capitalisation yields and future rental values are based on comparable property and leasing transactions in the market using the valuers' professional judgement and market observation. Other factors taken into account in the valuations include the tenure of the property, tenancy details and ground and structural conditions.


 


In the case of ongoing developments, the approach applied is the 'residual method' of valuation, which is the investment method of valuation as described above, with a deduction for all costs necessary to complete the development, including a notional finance cost, together with a further allowance for remaining risk. Properties held for development are generally valued by adopting the higher of the residual method of  valuation, allowing for all associated risks, or the investment method of valuation for the existing asset.


 


Copies of the valuation certificates of Knight Frank LLP, CBRE, Jones Lang LaSalle and Cushman & Wakefield can be found at

www.britishland.com/reports


 


A breakdown of valuations split between the Group and its share of joint ventures and funds is shown below:


 




























































































 



2018



 



2017



 



Group

£m



Joint

ventures


and funds

£m



Total

£m



 



Group

£m



Joint

ventures


and funds

£m



Total

£m



Knight Frank LLP



1,674



2,680



4,354



 



7,031



2,883



9,914



CBRE



4,511



1,403



5,914



 



2,489



1,380



3,869



Jones Lang LaSalle



561



-



561



 



-



538



538



Cushman & Wakefield



3,251



19



3,270



 



-



-



-



Total property portfolio valuation



9,997



4,102



14,099



 



9,520



4,801



14,321



Non-controlling interests



(315)



(68)



(383)



 



(310)



(71)



(381)



Total property portfolio valuation attributable to shareholders



9,682



4,034



13,716



 



9,210



4,730



13,940



 


Information about fair value measurements using unobservable inputs (Level 3) for the year ended 31 March 2018
















































































































































































 



 



 



 



 



 



 



 



 



 



 



 



 



 



 



 



 



ERV per sq ft



 



Equivalent yield



 



Costs to complete per sq ft



Investment



Fair value at


31 March 2018


£m



Valuation technique



Min

£



Max

£



Average


£



 



Min

%



Max

%



Average


%



 



Min

£



Max

£



Average

£



Retail 



5,210



Investment methodology



2



84



24



 



3



9



5



 



-



51



2



Offices1



3,617



Investment methodology



8



117



58



 



4



5



4



 



-



323



53



Canada Water



283



Investment methodology



38



38



38



 



4



4



4



 



-



1



1



Residential



70



Investment methodology



15



29



22



 



2



6



4



 



-



2



(34)



Developments



355



Residual methodology



18



66



61



 



2



6



5



 



-



614



541



Total



9,535



 



 



 



 



 



 



 



 



 



 



 



 



Trading properties

at fair value



462



 



 



 



 



 



 



 



 



 



 



 



 



Group property portfolio valuation



9,997



 



 



 



 



 



 



 



 



 



 



 



 



 


1 Includes owner-occupied.


 


8 Joint ventures and funds


Summary movement for the year of the investments in joint ventures and funds


 










































































































 



Joint ventures

£m



Funds

£m



Total

£m



 



Equity

£m



Loans

£m



Total

£m



At 1 April 2017



2,525



241



2,766



 



2,412



354



2,766 



Additions



72



7



79



 



3



76



79



Share of profit on ordinary activities after taxation



149



2



151



 



151



-



151



Distributions and dividends:



 



 



 



 



 



 



 



-      Capital



(23)



(13)



(36)



 



(36)



-



(36)



-      Revenue



(63)



(15)



(78)



 



(78)



-



(78)



Hedging and exchange movements



8



-



8



 



8



-



8



Disposal of Tesco joint venture



(68)



-



(68)



 



(68)



-



(68)



At 31 March 2018



2,600



222



2,822



 



2,392



430



2,822



 


Additional investments in joint ventures and funds covenant information


At 31 March 2018 the investments in joint ventures included within the total investments in joint ventures and funds was £2,826m (2016/17: £3,299m), being the £2,822m total investment shown above, less the net investment of (£4m) (2016/17: £7m) in PREF, a property fund in Continental Europe.


 


The summarised income statements and balance sheets below and on the following page show 100% of the results, assets and liabilities of joint ventures and funds. Where necessary, these have been restated to the Group's accounting policies. 


 


Joint ventures' and funds' summary financial statements for the year ended 31 March 2018


 













































































































































































































































































































































































































































































 



Broadgate


REIT Ltd1



MSC Property


Intermediate


Holdings Ltd



BL Sainsbury


Superstores


Ltd



 



The SouthGate Limited Partnership



USS


joint


ventures2



Hercules Unit Trust


joint ventures


and sub-funds3



Other


joint ventures


and funds4



 


Total


2018



Total


Group share


2018



Partners



Euro Bluebell LLP


(GIC)



Norges Bank Investment


Management



J Sainsbury plc



 



Aviva

Investors



Universities Superannuation

Scheme Group


PLC



 



 



 



 



Property sector



City Offices


Broadgate



Shopping Centres


Meadowhall



Superstores



 



Shopping

Centres



Shopping

Centres



Retail


Parks



 



 



 



Group share



50%



50%



50%



 



50%



50%



Various



 



 



 



 



 



 



 



 



 



 



 



 



 



 



Summarised income statements



£m



£m



£m



 



£m



£m



£m



£m



£m



£m



Revenue5



255



102



39



 



18



13



36



6



469



235



Costs



(64)



(23)



-



 



(4)



(4)



(5)



(2)



(102)



(51)



 



191



79



39



 



14



9



31



4



367



184



Administrative expenses



(1)



-



-



 



(1)



-



-



-



(2)



(1)



Net interest payable



(82)



(33)



(16)



 



(1)



-



(4)



-



(136)



(68)



Underlying Profit



108



46



23



 



12



9



27



4



229



115



Net valuation movement



105



21



(3)



 



10



-



(28)



-



105



52



Capital financing costs



-



-



(26)



 



-



-



-



-



(26)



(13)



(Loss) profit on disposal of investment properties and investments



(18)



-



9



 



1



-



-



2



(6)



(3)



Profit (loss) on ordinary

activities before taxation



195



67



3



 



23



9



(1)



6



302



151



Taxation



-



-



-



 



-



-



-



-



-



-



Profit (loss) on ordinary activities after taxation



195



67



3



 



23



9



(1)



6



302



151



Other comprehensive income (expenditure)



13



3



-



 



-



-



-



-



16



8



Total comprehensive income



208



70



3



 



23



9



(1)



6



318



159



British Land share of total comprehensive income (expense)



104



35



2



 



11



5



(1)



3



159



 



British Land share of distributions payable



35



4



31



 



5



4



14



-



93



 



 



 



 



 



 



 



 



 



 



 



 



Summarised balance sheets



£m



£m



£m



 



£m



£m



£m



£m



£m



£m



Investment and trading properties



4,668



1,895



523



 



275



250



590



-



8,201



4,100



Current assets



6



6



-



 



1



1



4



42



60



31



Cash and deposits



291



39



90



 



9



7



10



8



454



227



Gross assets



4,965



1,940



613



 



285



258



604



50



8,715



4,358



Current liabilities



(107)



(41)



(24)



 



(4)



(5)



(11)



(15)



(207)



(105)



Bank and securitised debt



(1,744)



(641)



(251)



 



-



-



(140)



-



(2,776)



(1,388)



Loans from joint venture partners



(465)



(364)



-



 



-



(26)



-



(6)



(861)



(430)



Other non-current liabilities



(41)



(20)



-



 



(28)



-



(4)



5



(88)



(43)



Gross liabilities



(2,357)



(1,066)



(275)



 



(32)



(31)



(155)



(16)



(3,932)



(1,966)



Net assets



2,608



874



338



 



253



227



449



34



4,783



2,392



British Land share of net assets less shareholder loans



1,304



437



169



 



127



113



226



16



2,392



 



 


1 Included within the Broadgate REIT revenue is a £29m (£15m British Land share) payment received in June 2017 from the Royal Bank of Scotland in relation to their surrender of a lease at 135 Bishopsgate. 


2 USS joint ventures include the Eden Walk Shopping Centre Unit Trust and the Fareham Property Partnership.


3 Hercules Unit Trust joint ventures and sub-funds includes 50% of the results of Deepdale Co-Ownership Trust, Gibraltar Limited Partnership and Valentine Co-Ownership Trust and 41.25% of Birstall Co-Ownership Trust. The balance sheet shows 50% of the assets of these joint ventures and sub-funds.


4 Included in the column headed 'Other joint ventures and funds' are contributions from the following: BL Goodman Limited Partnership, The Aldgate Place Limited Partnership, Bluebutton Property Management UK Limited, City of London Office Unit Trust and Pillar Retail Europark Fund (PREF). The Group's ownership share of PREF is 65%, however as the Group is not able to exercise control over significant decisions of the fund, the Group equity accounts for its interest in PREF.


5 Revenue includes gross rental income at 100% share of £385m (2016/17: £437m).


The borrowings of joint ventures and funds and their subsidiaries are non-recourse to the Group. All joint ventures are incorporated in the United Kingdom, with the exception of Broadgate REIT Limited and the Eden Walk Shopping Centre Unit Trust which are incorporated in Jersey. Of the funds, the Hercules Unit Trust (HUT) joint ventures and sub-funds are incorporated in Jersey and PREF in Luxembourg.


 


These financial statements include the results and financial position of the Group's interest in the Fareham Property Partnership, the Aldgate Place Limited Partnership, the BL Goodman Limited Partnership, the Auchinlea Partnership and the Gibraltar Limited Partnership. Accordingly, advantage has been taken of the exemptions provided by Regulation 7 of the Partnership (Accounts) Regulations 2008 not to attach the partnership accounts to these financial statements.


 


Operating cash flows of joint ventures and funds (Group share)

















































































 



2018

£m



2017

£m



Rental income received from tenants



199



207



Fees and other income received



-



-



Operating expenses paid to suppliers and employees



(22)



(20)



Cash generated from operations



177



187



Interest paid



(73)



(84)



Interest received



1



1



UK corporation tax paid



(1)



(2)



Cash inflow from operating activities



104



102



Cash inflow from operating activities deployed as:



 



 



Surplus cash retained within joint ventures and funds



26



43



Revenue distributions per consolidated statement of cash flows



78



59



Revenue distributions split between controlling and non-controlling interests



 



 



Attributable to non-controlling interests



2



4



Attributable to shareholders of the Company



76



55



 


9 Other investments














































































































 



2018



 



2017



 



Investment

held for

trading

£m



Loans, receivables

and other

£m



Property, plant and equipment

£m



Intangible assets

£m



Total

£m



 



Investment

held for

trading

£m



Loans,

receivables

and other

£m



Property, plant and equipment

£m



Intangible assets


£m



Total

£m



At 1 April



93



41



11



9



154



 



101



26



12



3



142



Additions



-



-



15



4



19



 



-



14



1



7



22



Disposals



-



(2)



-



-



(2)



 



-



(2)



-



-



(2)



Revaluation



5



3



-



-



8



 



(8)



3



-



-



(5)



Depreciation/amortisation



-



-



(2)



(3)



(5)



 



-



-



(2)



(1)



(3)



At 31 March



98



42



24



10



174



 



93



41



11



9



154



 


The investment held for trading comprises interests as a trust beneficiary. The trust's assets comprise freehold reversions in a pool of commercial properties, comprising Sainsbury's superstores. The interest is categorised as Level 3 in the fair value hierarchy, is subject to the same inputs as those disclosed in note 7, and its fair value was determined by the Directors, supported by an external valuation. 


 


10 Debtors































 



2018

£m



2017

£m



Trade and other debtors



28



22



Deposits received relating to held for sale asset1



-



144



Prepayments and accrued income



7



5



 



35



171



 


1 Prior year balance relates to deposit received on held for sale joint venture transaction recognised as a financial asset, the realisation of which was conditional and not guaranteed as at the prior year balance sheet date.


 


Trade and other debtors are shown after deducting a provision for bad and doubtful debts of £14m (2016/17: £14m). The charge to the income statement in relation to bad and doubtful debts was £1m (2016/17: £1m).


 


The Directors consider that the carrying amount of trade and other debtors is approximate to their fair value. There is no concentration of credit risk with respect to trade debtors as the Group has a large number of customers who are paying their rent in advance.


 


As at 31 March, trade and other debtors outside their payment terms yet not provided for are as follows:


 




































 



 



 



Outside credit terms but not impaired



 



Total

£m



Within

credit terms £m



0-1


month

£m



1-2


months

£m



More than

2 months

£m



2018



28



18



6



4



-



2017



22



7



9



4



2



 


11 Creditors









































 



2018

£m



2017

£m



Trade creditors



146



127



Deposits received relating to held for sale asset1



-



144



Other taxation and social security



30



32



Accruals



73



83



Deferred income



75



72



 



324



458



 


1 Prior year balance relates to deposit received on held for sale joint venture transaction recognised as a financial liability, the realisation of which was conditional and not guaranteed as at the prior year balance sheet date.


 


Trade creditors are interest-free and have settlement dates within one year. The Directors consider that the carrying amount of trade and other creditors is approximate to their fair value.


 


12 Other non-current liabilities































 



2018

£m



2017

£m



Other creditors



-



1



Head leases



62



64



Net pension liabilities



-



13



 



62



78



 


 


13 Deferred tax


The movement on deferred tax is as shown below:


 


Deferred tax assets year ended 31 March 2018






































 



1 April

2017

£m



Credited to income 


£m



Debited


 to equity 


£m 



Transferred to joint ventures 


£m 



31 March

2018 


£m 



Interest rate and currency derivative revaluations



4



5



(5)



-



4



Other timing differences



7



-



-



-



7



 



11



5



(5)



-



11



 


Deferred tax liabilities year ended 31 March 2018














































 



£m



£m



£m



£m



£m



Property and investment revaluations



(7)



-



-



-



(7)



 



(7)



-



-



-



(7)



 



 



 



 



 



 



Net deferred tax assets



4



5



(5)



-



4



 


Deferred tax assets year ended 31 March 2017






































 



1 April

2016

£m



Credited to income 


£m



Debited


 to equity 


£m 



Transferred to joint ventures 


£m 



31 March

2017 


£m 



Interest rate and currency derivative revaluations



5



(1)



-



-



4



Other timing differences



6



1



-



-



7



 



11



-



-



-



11



 


Deferred tax liabilities year ended 31 March 2017






















































 



£m



£m



£m



£m



£m



Property and investment revaluations



(7)



-



-



-



(7)



Other timing differences



(1)



-



-



1



-



 



(8)



-



-



1



(7)



 



 



 



 



 



 



Net deferred tax assets



3



-



-



1



4



 


The following corporation tax rates have been substantively enacted: 19% effective from 1 April 2017 reducing to 17% effective from 1 April 2020. The deferred tax assets and liabilities have been calculated at the tax rate effective in the period that the tax is expected to crystallise.


 


The Group has recognised a deferred tax asset calculated at 17% (2016/17: 17%) of £7m (2016/17: £5m) in respect of capital losses from previous years available for offset against future capital profit. Further unrecognised deferred tax assets in respect of capital losses of £123m (2016/17: £129m) exist at 31 March 2018.


 


The Group has recognised deferred tax assets on derivative revaluations to the extent that future matching taxable profits are expected to arise.


 


At 31 March 2018, the Group had an unrecognised deferred tax asset calculated at 17% (2016/17: 17%) of £43m (2016/17: £50m) in respect of UK revenue tax losses from previous years.


 


Under the REIT regime, development properties which are sold within three years of completion do not benefit from tax exemption. At 31 March 2018, the value of such properties is £176m (2016/17: £176m) and if these properties were to be sold and no tax exemption was available, the tax arising would be £13m (2016/17: £13m).


 


14 Net debt




















































































































































































 



Footnote



2018

£m



2017

£m



Secured on the assets of the Group



 



 



 



9.125% First Mortgage Debenture Stock 2020



1.1



-



34



5.264% First Mortgage Debenture Bonds 2035



 



369



377



5.0055% First Mortgage Amortising Debentures 2035



 



95



99



5.357% First Mortgage Debenture Bonds 2028



 



255



348



Bank loans



1.2



512



475



Loan notes



 



2



2



 



 



1,233



1,335



Unsecured



 



 



 



5.50% Senior Notes 2027



 



100



102



3.895% Senior US Dollar Notes 2018



2



27



32



4.635% Senior US Dollar Notes 2021



2



156



181



4.766% Senior US Dollar Notes 2023



2



97



113



5.003% Senior US Dollar Notes 2026



2



63



73



3.81% Senior Notes 2026



 



110



114



3.97% Senior Notes 2026



 



112



117



1.5% Convertible Bond 2017



 



-



406



0% Convertible Bond 2020



 



337



331



2.375% Sterling Unsecured Bond 2029



 



298



-



Bank loans and overdrafts



 



595



477



 



 



1,895



1,946



Gross debt



3



3,128



3,281



 


Interest rate and currency derivative liabilities



 



138



144



Interest rate and currency derivative assets



 



(115)



(217)



Cash and short term deposits



4,5



(105)



(114)



Total net debt



 



3,046



3,094



Net debt attributable to non-controlling interests



 



(109)



(103)



Net debt attributable to shareholders of the Company



 



2,937



2,991



 


1 These are non-recourse borrowings with no recourse for repayment to other companies or assets in the Group:


 


























 



2018

£m



2017

£m



1.1 BLD Property Holdings Ltd



-



34



1.2 Hercules Unit Trust



512



475



 



512



509



 


2 Principal and interest on these borrowings were fully hedged into Sterling at a floating rate at the time of issue.


3 The principal amount of gross debt at 31 March 2018 was £3,007m (2016/17: £3,069m). Included in this is the principal amount of secured borrowings and other borrowings of non-recourse companies of £1,159m of which the borrowings of the partly-owned subsidiary, Hercules Unit Trust, not beneficially owned by the Group are £119m.


4 Included within cash and short term deposits is the cash and short term deposits of Hercules Unit Trust, of which £10m is the proportion not beneficially owned by the Group.


5 Cash and deposits not subject to a security interest amount to £91m (2016/17: £99m).


 


Maturity analysis of net debt


































































 



2018

£m



2017

£m



Repayable: within one year and on demand



27



464



Between:              one and two years



163



31



          two and five years



1,194



1,283



          five and ten years



803



783



          ten and fifteen years



305



332



          fifteen and twenty years



636



388



 



3,101



2,817



Gross debt



3,128



3,281



Interest rate and currency derivatives



23



(73)



Cash and short term deposits



(105)



(114)



Net debt



3,046



3,094



 


1.5% Convertible bond 2012 (maturity 2017)


On 10 September 2012, British Land (Jersey) Limited (the 2012 Issuer), a wholly-owned subsidiary of the Group, issued £400 million 1.5% guaranteed convertible bonds due 2017 (the 2012 bonds) at par. On 10 September 2017, the convertible bonds were redeemed at par.


 


0% Convertible bond 2015 (maturity 2020)


On 9 June 2015, British Land (White) 2015 Limited (the 2015 Issuer), a wholly-owned subsidiary of the Group, issued £350 million zero coupon guaranteed convertible bonds due 2020 (the 2015 bonds) at par. The 2015 Issuer is fully guaranteed by the Company in respect of the 2015 bonds.


 


Subject to their terms, the 2015 bonds are convertible into preference shares of the 2015 Issuer which are automatically transferred to the Company in exchange for ordinary shares in the Company or, at the Company's election, any combination of ordinary shares and cash. From 20 July 2015 up to and including 29 June 2018, a bondholder may exercise its conversion right if the share price has traded at a level exceeding 130% of the exchange price for a specified period. Thereafter, and up to but excluding the 7th dealing day before 9 June 2020 (the maturity date), a bondholder may convert at any time.


 


The initial exchange price was 1103.32 pence per ordinary share. The exchange price is adjusted based on certain events (such as the Company paying dividends in any quarter above 3.418 pence per ordinary share). As at 31 March 2018 the exchange price was 1036.52 pence per ordinary share.


 


From 30 June 2018, the Company has the option to redeem the 2015 bonds at par if the Company's share price has traded above 130% of the exchange price for a specified period, or at any time once 85% by nominal value of the 2015 bonds have been converted, redeemed, or purchased and cancelled. The 2015 bonds will be redeemed at par on 9 June 2020 (the maturity date) if they have not already been converted, redeemed or purchased and cancelled.


 


Fair value and book value of net debt


























































































































 



2018



 



2017



 



Fair value

£m



Book value

£m



Difference

£m



 



Fair value

£m



Book value

£m



Difference

£m



Debentures and unsecured bonds



1,783



1,682



101



 



1,682



1,590



92



Convertible bonds



337



337



-



 



737



737



-



Bank debt and other floating rate debt



1,116



1,109



7



 



963



954



9



Gross debt



3,236



3,128



108



 



3,382



3,281



101



Interest rate and currency derivative liabilities



138



138



-



 



144



144



-



Interest rate and currency derivative assets



(115)



(115)



-



 



(217)



(217)



-



Cash and short term deposits



(105)



(105)



-



 



(114)



(114)



-



Net debt



3,154



3,046



108



 



3,195



3,094



101



Net debt attributable to non-controlling interests



(110)



(109)



(1)



 



(105)



(103)



(2)



Net debt attributable to shareholders of the Company



3,044



2,937



107



 



3,090



2,991



99



 


The fair values of debentures, unsecured bonds and the convertible bond have been established by obtaining quoted market prices from brokers. The bank debt and other floating rate debt has been valued assuming it could be renegotiated at contracted margins. The derivatives have been valued by calculating the present value of expected future cash flows, using appropriate market discount rates, by an independent treasury advisor.


 


Short term debtors and creditors and other investments have been excluded from the disclosures on the basis that the fair value is equivalent to the book value. The fair value hierarchy level of debt held at amortised cost is level 2 (as defined in note 7).


 


 


Group loan to value (LTV)












































































 



2018

£m



2017

£m



Group loan to value (LTV)



22.1%



22.6%



 



 



 



Principal amount of gross debt



3,007



3,069



Less debt attributable to non-controlling interests



(119)



(112)



Less cash and short term deposits (balance sheet)



(105)



(114)



Plus cash attributable to non-controlling interests



10



9



Total net debt for LTV calculation



2,793



2,852



Group property portfolio valuation (note 7)



9,997



9,520 



Investments in joint ventures and funds (note 8)



2,822



2,766 



Joint venture held for sale



-



540



Other investments (note 9)



174



154 



Less property and investments attributable to non-controlling interests



(366)



(364)



Total assets for LTV calculation



12,627



12,616



 


Proportionally consolidated loan to value (LTV)












































































 



2018

£m



2017

£m



Proportionally consolidated loan to value (LTV)



28.4%



29.9%



 



 



 



Principal amount of gross debt



4,399



4,649



Less debt attributable to non-controlling interests



(135)



(128)



Less cash and short term deposits



(331)



(323)



Plus cash attributable to non-controlling interests



10



9



Total net debt for proportional LTV calculation



3,943



4,207



Group property portfolio valuation (note 7)



9,997



9,520



Share of property of joint ventures and funds (note 7)



4,102



4,801



Other investments (note 9)



174



154



Less other investments attributable to joint ventures and funds



(2)



(3)



Less property attributable to non-controlling interests



(383)



(381)



Total assets for proportional LTV calculation



13,888



14,091



 


British Land Unsecured Financial Covenants


The two financial covenants applicable to the Group unsecured debt including convertible bonds are shown below:

















































































 



2018

£m



2017

£m



Net Borrowings not to exceed 175% of Adjusted Capital and Reserves



29%



29%



 



 



 



Principal amount of gross debt



3,007



3,069 



Less the relevant proportion of borrowings of the partly-owned subsidiary/non-controlling interests



(119)



(112)



Less cash and deposits (balance sheet)



(105)



(114)



Plus the relevant proportion of cash and deposits of the partly-owned subsidiary/non-controlling interests



10





Net Borrowings



2,793



2,852 



Share capital and reserves (balance sheet)



9,506



9,476 



EPRA deferred tax adjustment (EPRA Table A)



5



3



Trading property surpluses (EPRA Table A)



134



83 



Exceptional refinancing charges (see below)



233



274 



Fair value adjustments of financial instruments (EPRA Table A)



137



155 



Less reserves attributable to non-controlling interests (balance sheet)



(254)



(255)



Adjusted Capital and Reserves



9,761



9,736 



 


In calculating Adjusted Capital and Reserves for the purpose of the unsecured debt financial covenants, there is an adjustment of £233m (2016/17: £274m) to reflect the cumulative net amortised exceptional items relating to the refinancings in the years ended 31 March 2005, 2006 and 2007.


 












































































 



2018

£m



2017

£m



Net Unsecured Borrowings not to exceed 70% of Unencumbered Assets



23%



26%



 



 



 



Principal amount of gross debt



3,007



3,069 



Less cash and deposits not subject to a security interest (being £91m less the relevant proportion of cash and deposits of the partly-owned subsidiary/non-controlling interests of £7m)



(84)



(96)



Less principal amount of secured and non-recourse borrowings



(1,159)



(1,238)



Net Unsecured Borrowings



1,764



1,735 



Group property portfolio valuation (note 7)



9,997



9,520



Investments in joint ventures and funds (note 8)



2,822



2,766



Joint venture held for sale



-



540



Other investments (note 9)



174



154



Less investments in joint ventures and joint venture held for sale (note 8)



(2,822)



(3,299)



Less encumbered assets (note 7)



(2,447)



(3,040)



Unencumbered Assets



7,724



6,641



 


Reconciliation of movement in Group net debt for the year ended 31 March 2018












































































 



2017



Cash flows



Transfers3



Foreign exchange



Fair value



Arrangement

costs

amortisation



2018



Short term borrowings



464



(458)



27



-



(6)



-



27



Long term borrowings



2,817



361



(27)



(40)



(10)



-



3,101



Derivatives1



(73)



29



 -



40



27



-



23



Total liabilities from financing activities4



3,208



(68)



-



-



11



-



3,151



Cash and cash equivalents



(114)



9



-



-



-



-



(105)



Net debt



3,094



(59)



-



-



11



-



3,046



 


Reconciliation of movement in Group net debt for the year ended 31 March 2017












































































 



2016



Cash flows



Transfers3



Foreign exchange



Fair value



Arrangement

costs

amortisation



2017



Short term borrowings



74



(74)



464



-



-



-



464



Long term borrowings



3,687



(423)



(464)



49



(36)



4



2,817



Derivatives2



(30)



1



-



(48)



4



-



(73)



Total liabilities from financing activities



3,731



(496)



-



1



(32)



4



3,208



Cash and cash equivalents



(114)



-



-



-



-



-



(114)



Net debt



3,617



(496)



-



1



(32)



4



3,094



 


1 Cash flows on derivatives include £20m of net receipts on derivative interest.


2 Cash flows on derivatives include £14m of net receipts on derivative interest.


3 Transfers comprises debt maturing from long term to short term borrowings.


4 Cash flows of £68m shown above represents net cash flows on interest rate derivative closeouts of £9m, decrease of bank and other borrowings of £626m and drawdowns on bank and other borrowings of £529m shown in the consolidated statement of cash flows, along with £20m of net receipts on derivative interest.


 


Fair value hierarchy


The table below provides an analysis of financial instruments carried at fair value, by the valuation method. The fair value hierarchy levels are defined in note 7.
























































































































 



2018



 



2017



 



Level 1

£m



Level 2

£m



Level 3

£m



Total

£m



 



Level 1

£m



Level 2

£m



Level 3

£m



Total

£m



Interest rate and currency derivative assets



-



(115)



-



(115)



 



-



(217)



-



(217)



Other investments - available for sale



(14)



-



-



(14)



 



(14)



-



-



(14)



Other investments - held for trading



-



-



98



98



 



-



-



(93)



(93)



Assets



(14)



(115)



98



(31)



 



(14)



(217)



(93)



(324)



Interest rate and currency derivative liabilities



-



138



-



138



 



-



144



-



144



Convertible bonds



337



-



-



337



 



737



-



-



737



Liabilities



337



138



-



475



 



737



144



-



881



Total



323



23



98



444



 



723



(73)



(93)



557



 


Categories of financial instruments








































































































































 



2018

£m



2017

£m



Financial assets



 



 



Fair value through income statement



 



 



Other investments - held for trading



98



93



 



 



 



Derivatives in designated hedge accounting relationships



110



215



Derivatives not in designated hedge accounting relationships



5



2



 



 



 



Loans and receivables



 



 



Trade and other debtors



28



166



Cash and short term deposits



105



114



Other investments - loans and receivables



42



61



 



388



651



Financial liabilities



 



 



Fair value through income statement



 



 



Convertible bonds



(337)



(737)



 



 



 



Derivatives in designated hedge accounting relationships



(5)



(143)



Derivatives not in designated accounting relationships



(133)



(1)



Amortised cost



 



 



Gross debt



(2,791)



(2,544)



Head leases payable



(62)



(64)



 



 



 



Creditors



(237)



(373)



 



(3,565)



(3,862)



Total



(3,177)



(3,211)



 


Gains and losses on financial instruments, as classed above, are disclosed in note 5 (net financing costs), note 10 (debtors), the consolidated income statement and the consolidated statement of comprehensive income. The Directors consider that the carrying amounts of other investments and head leases payable are approximate to their fair value, and that the carrying amounts are recoverable.


 


Maturity of committed undrawn borrowing facilities


 
























































 



2018

£m



2017

£m



Maturity date:        over five years



60



125



                         between four and five years



90



1,110



                         between three and four years



1,010



58



Total facilities available for more than three years



1,160



1,293



 



 



 



Between two and three years



85



149



Between one and two years



86



-



Within one year



-



2



Total



1,331



1,444



 


The above facilities are comprised of British Land undrawn facilities of £1,245m excluding the extension of the £735m facility, plus undrawn facilities of Hercules Unit Trust totalling £86m.


 


15 Dividend


The fourth quarter interim dividend of 7.52 pence per share, totalling £74m (2016/17: 7.30 pence per share, totalling £75m), was approved by the Board on 16 May 2018 and is payable on 3 August 2018 to shareholders on the register at the close of business on 29 June 2018.


 


The Board will announce the availability of the Scrip Dividend Alternative, if available, via the Regulatory News Service and on its website (www.britishland.com/dividends), no later than four business days before the ex-dividend date of 28 June 2018. The Board expects to announce the split between Property Income Distributions (PID) and non-PID income at that time. Any Scrip Dividend Alternative will not be enhanced. PID dividends are paid, as required by REIT legislation, after deduction of withholding tax at the basic rate (currently 20%), where appropriate. Certain classes of shareholders may be able to elect to receive dividends gross. Please refer to our website www.britishland.com/dividends for details.


 

























































































































































Payment date



Dividend



Pence per share



2018

£m



2017

£m



Current year dividends



 



 



 



 



03.08.2018



2018 4th interim



7.52



 



 



04.05.2018



2018 3rd interim



7.52



 



 



09.02.2018



2018 2nd interim



7.52



75



 



10.11.2017



2018 1st interim



7.52



77



 



 



 



30.08



 



 



Prior year dividends



 



 



 



 



04.08.2017



2017 4th interim



7.30



75



 



05.05.2017



2017 3rd interim



7.30



75



 



10.02.2017



2017 2nd interim



7.30



 



75



11.11.2016



2017 1st interim



7.30



 



75



 



 



29.20 



 



 



 



 



 



 



 



05.08.2016



2016 4th interim



7.091



 



73



06.05.2016



2016 3rd interim



7.09



 



73



Dividends in consolidated statement

of changes in equity



 



 



302



296



Dividends settled in shares



 



 



-



-



Dividends settled in cash



 



 



302



296



Timing difference relating to payment

of withholding tax



 



 



2



(1)



Dividends in cash flow statement



 



 



304



295



 


1 Dividend split half PID, half non-PID.


 


16 Share capital and reserves































 



2018



2017



Number of ordinary shares in issue at 1 April



1,041,035,058



1,040,562,323



Share issues



429,206



472,735



Repurchased and cancelled



(47,607,139)



-



At 31 March



993,857,125



1, 041,035,058



 


Of the issued 25p ordinary shares, 7,376 shares were held in the ESOP trust (2016/17: 7,783), 11,266,245 shares were held as treasury shares (2016/17: 11,266,245) and 982,583,504 shares were in free issue (2016/17: 1,029,761,030). No treasury shares were acquired by the ESOP trust during the year. All issued shares are fully paid. In the year ended 31 March 2018 the Company repurchased and cancelled 47,607,139 ordinary shares at a weighted average price of 630 pence.


 


17 Segment information


The Group allocates resources to investment and asset management according to the sectors it expects to perform over the medium term. Its three principal sectors are Offices, Retail and Canada Water. The Retail sector includes leisure, as this is often incorporated into Retail schemes. Residential properties were included within Offices in the prior year, but have been reclassified within Other/unallocated in the current year, with the prior year comparatives represented.


 


The relevant gross rental income, net rental income, operating result and property assets, being the measures of segment revenue, segment result and segment assets used by the management of the business, are set out below. Management reviews the performance of the business principally on a proportionally consolidated basis, which includes the Group's share of joint ventures and funds on a line-by-line basis and excludes non-controlling interests in the Group's subsidiaries. The chief operating decision maker for the purpose of segment information is the Executive Committee.


 


Gross rental income is derived from the rental of buildings. Operating result is the net of net rental income, fee income and administrative expenses. No customer exceeded 10% of the Group's revenues in either year.


 


Segment result















































































































































































































































































































































































































































































































 



Offices



 



Retail



 



Canada Water



 



Other/unallocated



 



Total



 



2018


£m



2017


£m



 



2018


£m



2017


£m



 



2018


£m



2017


£m



 



2018


£m



2017


£m



 



2018


£m



2017


£m



Gross rental income



 



 



 



 



 



 



 



 



 



 



 



 



 



 



 



British Land Group



139



139



 



273



276



 



8



9



 



4



3



 



424



427



 



Share of joint ventures and funds



102



116



 



87



100



 



-



-



 



-



-



 



189



216



 



Total



241



255



 



360



376



 



8



9



 



4



3



 



613



643



 



 



 



 



 



 



 



 



 



 



 



 



 



 



 



 



 



Net rental income



 



 



 



 



 



 



 



 



 



 



 



 



 



 



 



British Land Group



131



131



 



254



262



 



7



8



 



4



2



 



396



403



 



Share of joint ventures and funds



98



112



 



82



95



 



-



-



 



-



-



 



180



207



 



Total



229



243



 



336



357



 



7



8



 



4



2



 



576



610



 



 



 



 



 



 



 



 



 



 



 



 



 



 



 



 



 



Operating result



 



 



 



 



 



 



 



 



 



 



 



 



 



 



 



British Land Group



126



127



 



248



252



 



4



5



 



(42)



(47)



 



336



337



 



Share of joint ventures and funds



95



109



 



79



96



 



-



-



 



(2)



(1)



 



172



204



 



Total



221



236



 



327



348



 



4



5



 



(44)



(48)



 



508



541



 



 



 



 



 



 



 



 



 



 



 



 



 



 



 



 



 



Reconciliation to Underlying Profit



 



 



 



 



 



 



 



 



 



 



 



 



2018


£m



2017


£m



 



Operating result



 



 



 



 



 



 



 



 



 



 



 



 



508



541



 



Net financing costs



 



 



 



 



 



 



 



 



 



 



 



 



(128)



(151)



 



Underlying Profit



 



 



 



 



 



 



 



 



 



 



 



 



380



390



 



Reconciliation to profit on ordinary activities before taxation



 



 



 



 



 



 



 



 



 



 



 



 



 



 



 



Underlying Profit



 



 



 



 



 



 



 



 



 



 



 



 



380



390



 



Capital and other



 



 



 



 



 



 



 



 



 



 



 



 



107



(209)



 



Underlying Profit attributable to non-controlling interests



 



 



 



 



 



 



 



 



 



 



 



 



14



14



 



Profit on ordinary activities before taxation



 



 



 



 



 



 



 



 



 



 



 



 



501



195



 


                                                   

 


 


























































Gross rental income per operating segment result



613



643



Less share of gross rental income of joint ventures and funds



(189)



(216)



Plus share of gross rental income attributable to non-controlling interests



17



15



Gross rental income (note 3)



441



442



Trading property sales proceeds



78



33



Service charge income



66



62



Management and performance fees (from joint ventures and funds)



6



9



Other fees and commissions



48



43



Revenue (Consolidated Income Statement)



 



639



589


       

 


 


A reconciliation between net financing costs in the consolidated income statement and net financing costs of £128m (2016/17: £151m) in the segmental disclosures above can be found within Table A in the supplementary disclosures. Of the total revenues above, £nil (2016/17: £nil) was derived from outside the UK.


 


Segment assets 







































































































 



Offices



 



Retail



 



Canada Water



 



Other/unallocated



 



Total



 



2018


£m



2017


£m



 



2018


£m



2017


£m



 



2018


£m



2017


£m



 



2018


£m



2017


£m



 



2018


£m



2017


£m



Property assets



 



 



 



 



 



 



 



 



 



 



 



 



 



 



British Land Group



4,371



4,069



 



4,915



4,716



 



283



271



 



113



154



 



9,682



9,210



Share of joint ventures and funds



2,334



2,776



 



1,681



1,938



 



-



-



 



19



16



 



4,034



4,730



Total



6,705



6,845



 



6,596



6,654



 



283



271



 



132



170



 



13,716



13,940



 


Reconciliation to net assets


































































British Land Group



2018


£m



2017


£m



Property assets



13,716



13,940



Other non-current assets



185



156



Non-current assets



13,901



14,096



 



 



 



Other net current liabilities



(368)



(364)



Adjusted net debt



(3,973)



(4,223)



Other non-current liabilities



-



(11)



EPRA net assets (diluted)



9,560



9,498



Non-controlling interests



254



255



EPRA adjustments



(308)



(277)



Net assets



9,506



9,476



 


SUPPLEMENTARY DISCLOSURES


UNAUDITED UNLESS OTHERWISE STATED


 


Table A: Summary income statement and balance sheet (Unaudited)


Summary income statement based on proportional consolidation for the year ended 31 March 2018


The following pro forma information is unaudited and does not form part of the consolidated primary statements or the notes thereto. It presents the results of the Group, with its share of the results of joint ventures and funds included on a line-by-line basis and excluding non-controlling interests. 


 


 
























































































































































































































 



Year ended 31 March 2018



 



Year ended 31 March 2017



 



Group


£m



Joint


ventures


and funds


£m



Less

non-controlling interests


£m



Proportionally consolidated


£m



 



Group


£m



Joint ventures


and funds


£m



Less

non-controlling interests


£m



Proportionally consolidated


£m



Gross rental income



441



193



(21)



613



 



442



220



(19)



643



Property operating expenses



(29)



(9)



1



(37)



 



(25)



(10)



2



(33)



Net rental income



412



184



(20)



576



 



417



210



(17)



610



 



 



 



 



 



 



 



 



 



 



Administrative expenses



(82)



(1)



-



(83)



 



(84)



(2)



-



(86)



Net fees and other income



13



-



2



15



 



17



-



-



17



Ungeared income return



343



183



(18)



508



 



350



208



(17)



541



 



 



 



 



 



 



 



 



 



 



Net financing costs



(64)



(68)



4



(128)



 



(78)



(76)



3



(151)



Underlying Profit



279



115



(14)



380



 



272



132



(14)



390



Underlying taxation



-



-



-



-



 



-



-



-



-



Underlying Profit after taxation



279



115



(14)



380



 



272



132



(14)



390



Valuation movement



 



 



 



254



 



 



 



 



(237)



Other capital and taxation (net)1



 



 



 



31



 



 



 



 



(433)



Capital and other



 



 



 



285



 



 



 



 



(670)



Total return



 



 



 



665



 



 



 



 



(280)



 


1 Includes other comprehensive income, movement in dilution of share options and the movement in items excluded for EPRA NAV.


 


Summary balance sheet based on proportional consolidation as at 31 March 2018


The following pro forma information is unaudited and does not form part of the consolidated primary statements or the notes thereto. It presents the composition of the EPRA net assets of the Group, with its share of the net assets of the joint venture and fund assets and liabilities included on a line-by-line basis, and excluding non-controlling interests, and assuming full dilution.


 


































































































































































 



Group


£m



Share of joint ventures

& funds


£m



Less non-controlling interests


£m



Share

options


£m



Deferred

tax


£m



Mark-to-market on derivatives and related debt adjustments


£m



Head

leases


£m



Valuation surplus on trading properties


£m



EPRA Net assets 


31 March 2018


£m



EPRA Net assets 


31 March


2017


£m



Retail properties



5,262



1,759



(383)



-



-



-



(42)



-



6,596



6,654



Office properties



4,265



2,334



-



-



-



-



(15)



121



6,705



7,015



Canada Water properties



298



-



-



-



-



-



(15)



-



283



271



Other properties



100



19



-



-



-



-



-



13



132



-



Total properties



9,925



4,112



(383)



-



-



-



(72)



134



13,716



13,940



Investments in joint ventures and funds



2,822



(2,822)



-



-



-



-



-



-



-



-



Other investments



174



(2)



-



-



-



-



-



-



172



151



Other net (liabilities) assets



(369)



(99)



4



32



5



-



72



-



(355)



(370)



Net debt



(3,046)



(1,189)



125



-



-



137



-



-



(3,973)



(4,223)



Net assets



9,506



-



(254)



32



5



137



-



134



9,560



9,498



EPRA NAV per share (note 2)



 



 



 



 



 



 



 



 



967p



915p



 


EPRA Net assets movement




































































 



Year ended

31 March 2018



 



Year ended

31 March 2017



 



£m



Pence per share



 



£m



Pence per share



Opening EPRA NAV



9,498



915



 



10,074



919



Income return



380



37



 



390



36



Capital return



285



29



 



(670)



(13)



Dividend paid



(302)



(29)



 



(296)



(27)



Purchase of own shares



(301)



15



 



-



-



Closing EPRA NAV



9,560



967



 



9,498



915



 


Table B: PRA Performance measures


 


EPRA Performance measures summary table



































































 



 



2018



 



2017



 



 



£m



Pence per share



 



£m



Pence per share



EPRA Earnings      - basic



 



380



37.5



 



390



37.9



                              - diluted



 



380



37.4



 



390



37.8



EPRA Net Initial Yield



 



4.3%



 



 



4.3%



 



EPRA 'topped-up' Net Initial Yield 



 



4.6%



 



 



4.5%



 



EPRA Vacancy Rate 



 



3.2%



 



 



4.8%



 



 




































 



2018



 



2017



 



Net assets



Net asset

value per share pence



 



Net assets



Net asset

value per share pence



EPRA NAV



9,560



967



 



9,498



915



EPRA NNNAV



9,044



914



 



8,938



861



 


Calculation and reconciliation of EPRA/IFRS earnings and EPRA/IFRS earnings per share (Audited)




















































































































 



2018


£m



2017


£m



Profit attributable to the shareholders of the Company



493



193



Exclude:



 



 



Group - current taxation



(1)



(1)



Group - deferred taxation



(5)



-



Joint ventures and funds - deferred taxation



-



 (1) 



Group - valuation movement



(202)



 144



Group - (profit) loss on disposal of investment properties and investments



(18)



5



Group - profit on disposal of trading properties



(14)



 (7)



Joint ventures and funds - net valuation movement (including result on disposals) 



(49)



 75



Joint ventures and funds - capital financing costs



13



6



Changes in fair value of financial instruments and associated close-out costs



163



 (13)



Non-controlling interests in respect of the above



-



 (11)



Underlying Profit



380



390



Group - underlying current taxation



-



-



EPRA earnings - basic



380



390



Dilutive effect of 2012 convertible bond



-



-



EPRA earnings - diluted



380



390



 



 



 



Profit attributable to the shareholders of the Company



493



193



Dilutive effect of 2012 convertible bond



-



(33)



IFRS earnings - diluted



493



160



 
























































 



2018


Number


million



2017


Number


million



Weighted average number of shares



1,024



1,040



Adjustment for treasury shares



(11)



(11)



IFRS/EPRA Weighted average number of shares (basic)



1,013



1,029



Dilutive effect of share options



1



1



Dilutive effect of ESOP shares



2



3



Dilutive effect of 2012 convertible bond



-



58



IFRS Weighted average number of shares (diluted)



1,016



1,091



Dilutive effect of 2012 convertible bond



-



(58)



EPRA Weighted average number of shares (diluted)



1,016



1,033



 


Net assets per share (Audited)












































































































 



2018



 



2017



 



£m



Pence

per share



 



£m



Pence

per share



Balance sheet net assets



9,506



 



 



9,476



 



Deferred tax arising on revaluation movements



5



 



 



3



 



Mark-to-market on derivatives and related debt adjustments



137



 



 



155



 



Dilution effect of share options



32



 



 



36



 



Surplus on trading properties



134



 



 



83



 



Less non-controlling interests



(254)



 



 



(255)



 



EPRA NAV



9,560



967



 



9,498



915



Deferred tax arising on revaluation movements



(31)



 



 



(19)



 



Mark-to-market on derivatives and related debt adjustments



(137)



 



 



(155)



 



Mark-to-market on debt



(348)



 



 



(386)



 



EPRA NNNAV



9,044



914



 



8,938



861



 


EPRA NNNAV is the EPRA NAV adjusted to reflect the fair value of the debt and derivatives and to include the deferred taxation on revaluations and derivatives.
























































 



2018


Number


million



2017


Number


million



Number of shares at year end



994



1,040



Adjustment for treasury shares



(11)



(11)



IFRS/EPRA number of shares (basic)



983



1,029



Dilutive effect of share options



1



3



Dilutive effect of ESOP shares



5



6



Dilutive effect of 2012 convertible bond



-



58



IFRS number of shares (diluted)



989



1,096



Dilutive effect of 2012 convertible bond



-



(58)



EPRA number of shares (diluted)



989



1,038



 


EPRA Net Initial Yield and 'topped-up' Net Initial Yield (Unaudited)




















































































































 



2018

£m



2017

£m



Investment property - wholly-owned



9,682



9,210 



Investment property - share of joint ventures and funds



4,034



4,730 



Less developments, residential and land



(1,315)



(798)



Completed property portfolio



12,401



13,142 



Allowance for estimated purchasers' costs



799



897 



Gross up completed property portfolio valuation (A)



13,200



14,039



Annualised cash passing rental income



584



607 



Property outgoings



(11)



(9)



Annualised net rents (B)



573



598



Rent expiration of rent-free periods and fixed uplifts1



28



30



'Topped-up' net annualised rent (C)



601



628



EPRA Net Initial Yield (B/A)



4.3%



4.3%



EPRA 'topped-up' Net Initial Yield (C/A)



4.6%



4.5%



Including fixed/minimum uplifts received in lieu of rental growth



11



11



Total 'topped-up' net rents (D)



612



639



Overall 'topped-up' Net Initial Yield (D/A)



4.6%



4.6%



'Topped-up' net annualised rent



601



628



ERV vacant space



21



34 



Reversions



32



38



Total ERV (E)



654



700 



Net Reversionary Yield (E/A)



5.0%



5.0%



 


1 The weighted average period over which rent-free periods expire is 1 year (2016/17: 1 year).


 


EPRA Net Initial Yield (NIY) basis of calculation


EPRA NIY is calculated as the annualised net rent (on a cash flow basis), divided by the gross value of the completed property portfolio. The valuation of our completed property portfolio is determined by our external valuers as at 31 March 2018, plus an allowance for estimated purchaser's costs. Estimated purchaser's costs are determined by the relevant stamp duty liability, plus an estimate by our valuers of agent and legal fees on notional acquisition. The net rent deduction allowed for property outgoings is based on our valuers' assumptions on future recurring non-recoverable revenue expenditure. 


 


In calculating the EPRA 'topped-up' NIY, the annualised net rent is increased by the total contracted rent from expiry of rent-free periods and future contracted rental uplifts where defined as not in lieu of growth. Overall 'topped-up' NIY is calculated by adding any other contracted future uplift to the 'topped-up' net annualised rent.


 


The net reversionary yield is calculated by dividing the total estimated rental value (ERV) for the completed property portfolio, as determined by our external valuers, by the gross completed property portfolio valuation.


 


The EPRA vacancy rate is calculated as the ERV of the unrented, lettable space as a proportion of the total rental value of the completed property portfolio.


 


EPRA Vacancy Rate


























 



2018


£m



2017


£m



Annualised potential rental value of vacant premises



21



34 



Annualised potential rental value for the completed property portfolio



664



710



EPRA Vacancy Rate



3.2%



4.8%



 


The above is stated for the UK portfolio only.


 


EPRA Cost Ratios (Unaudited)
































































































 



2018


£m



2017


£m



Property operating expenses



28



23



Administrative expenses



82



84



Share of joint ventures and funds expenses



10



12



Less:      Performance and management fees (from joint ventures and funds)



(8)



(9)



               Net other fees and commissions



(7)



(8)



               Ground rent costs



(2)



(2)



EPRA Costs (including direct vacancy costs) (A)



103



100



Direct vacancy costs



(12)



(12)



EPRA Costs (excluding direct vacancy costs) (B)



91



88



Gross Rental Income less ground rent costs



422



412



Share of joint ventures and funds (GRI less ground rent costs)



189



229



Total Gross Rental Income less ground rent costs (C)



611



641



 



 



 



EPRA Cost Ratio (including direct vacancy costs) (A/C)



16.9%



15.6%



EPRA Cost Ratio (excluding direct vacancy costs) (B/C)



14.9%



13.7%



 



 



 



Overhead and operating expenses capitalised (including share of joint ventures and funds)



5



5



 


In the current year, employee costs in relation to staff time on development projects have been capitalised into the base cost of relevant development assets. 


 


Table C: Gross rental income































 



2018


£m



2017


£m



Rent receivable



604



633



Spreading of tenant incentives and guaranteed rent increases



(12)



8



Surrender premia



21



2



Gross rental income



613



643



 


The current and prior year information is presented on a proportionally consolidated basis, excluding non-controlling interests.


 


Table D: Property related capital expenditure








































































 



2018



 



2017



 



Group



Joint

ventures

and funds



Total



 



Group



Joint

ventures

and funds



Total



Acquisitions



250



-



250



 



88



-



88



Development



132



52



184



 



131



14



145



Like-for-like portfolio



23



27



50



 



67



47



114



Other



17



5



22



 



20



2



22



Total property related capex



422



84



506



 



306



63



369



 


The above is presented on a proportionally consolidated basis, excluding non-controlling interests and business combinations. The 'Other' category contains amounts owing to tenant incentives of £10m (2016/17: £10m), capitalised staff costs of £5m (2016/17: £5m) and capitalised interest of £7m (2016/17: £7m).


 

 


 


SUPPLEMENTARY TABLES


(Data includes Group's share of Joint Ventures and Funds)


 


















































































Since 1 April 2017



 



Price (100%)



Price      


(BL Share)



Annual Passing Rent



Purchases



Sector



£m



£m



£m2



Completed



 



 



 



 



Tesco, Brislington - Tesco exchange transaction1



Retail



46



23



2



Harlech, Newport - Tesco exchange transaction1



Retail



41



20



1



10 - 40 The Broadway, Ealing



Retail



49



49



2



Hercules Unit Trust units3



Retail



4



4



-



The Woolwich Estate



Retail



103



103



4



Rotherhithe Police Station



Canada Water



7



7



-



Total



 



250



206



9



1 Part of a Tesco JV swap transaction resulting in a net £73m disposal of superstore assets



2 BL share of annualised rent topped up for rent frees


 



3 Units purchased representing £4m purchased GAV


 






























































































































Since 1 April 2017



 



Price


(100%)



Price     


  (BL Share)



Annual Passing Rent



Sales



Sector



£m



£m



£m5



Completed



 



 



 



 



The Leadenhall Building1



Offices



1,150



575



17



Superstores2



Retail



545



302



18



B&Q, Bury & Grimsby



Retail



56



56



4



Virgin Actives, Sunderland & Coventry



Retail



8



8



1



Richmond Homebase3



Retail



45



45



1



Other



Retail/Offices



10



10



1



The Hempel Collection



Residential



52



52



-



Clarges, Mayfair4



Residential



193



193



-



Aldgate Place



Residential



2



1



-



Exchanged



 



 



 



 



Clarges, Mayfair



Residential



66



66



-



Total



 



2,127



1,308



42



1 Exchanged during the year ended 31 March 2017



2 Of which £116m (BL share) was part of a Tesco JV swap transaction resulting in a net £73m disposal of superstore assets



3 Exchanged in year and completed post year end



4 Exchanged prior to FY18. Of which £168m completed post period end



5 BL share of annualised rent topped up for rent frees



 


Portfolio Valuation by Sector





































































































































































At 31 March 2018



Group



JVs &

Funds



Total



 



Change %1



 



 



£m



£m



£m



H1



H2



FY



Regional



1,132



1,898



3,030



0.1



0.2



0.2



Local



1,840



458



2,298



(0.9)



(0.6)



(1.5)



Multi-let



2,972



2,356



5,328



(0.4)



(0.2)



(0.5)



Department Stores and Leisure



593



1



594



2.4



2.6



5.1



Superstores



99



261



360



0.8



(1.5)



(0.3)



Solus and Other



314



-



314



5.8



0.7



6.5



Retail



3,978



2,618



6,596



0.3



-



0.3



West End



4,255



-



4,255



3.2



2.6



5.8



City



116



2,334



2,450



1.7



1.3



2.8



Offices



4,371



2,334



6,705



2.6



2.1



4.5



Residential2



113



19



132



3.6



(2.6)



1.6



Canada Water



283



-



283



(4.5)



(3.0)



(7.0)



Total



8,745



4,971



13,716



1.4



0.9



2.2



Standing Investments



8,349



4,583



12,932



1.2



0.4



1.6



Developments



396



388



784



3.3



6.4



9.6



1 Valuation movement during the year (after taking account of capital expenditure) of properties held at the balance sheet date, including developments (classified by end use), purchases and sales



2 Stand-alone residential



 

























































































































































 


 


Gross Rental Income1



Accounting Basis £m



12 months to 31 March 2018



Annualised as at 31 March 2018



 



Group



JVs &

Funds



Total



Group



JVs &

Funds



Total



Regional



62



89



151



61



88



149



Local



92



29



121



90



26



116



Multi-let



154



118



272



151



114



265



Department Stores and Leisure



43



-



43



40



-



40



Superstores



4



22



26



4



18



22



Solus and Other



19



-



19



17



-



17



Retail



220



140



360



212



132



344



West End



133



-



133



134



-



134



City



6



102



108



5



80



85



Offices



139



102



241



139



80



219



Residential2



4



-



4



5



-



5



Canada Water3



8



-



8



8



-



8



Total



371



242



613



364



212



576



1 Gross rental income will differ from annualised rents due to accounting adjustments for fixed & minimum contracted rental uplifts and lease incentives



2 Stand-alone residential



 



 



3 Reflects standing investment only



 



 



 

 



































































































































































































Portfolio Yield & ERV Movements1


 

At 31 March 2018



NEY



ERV Growth %2,4



NEY Yield Movement bps3,4


 

 



%



H1



H2



FY



H1



H2



FY


 

Regional



5.0



1.2



1.1



2.3



4



3



7


 

Local



5.5



1.1



0.1



1.2



11



2



13


 

Multi-let



5.2



1.1



0.7



1.9



7



2



9


 

Department Stores and Leisure



5.7



5.9



0.3



6.2



(11)



4



(7)


 

Superstores



5.4



(1.2)



(1.1)



(2.3)



(7)



(3)



(9)


 

Solus and Other



5.2



(5.8)



(0.0)



(5.8)



16



(9)



7


 

Retail



5.3



1.0



0.5



1.6



5



2



6


 

West End



4.3



1.0



1.5



2.5



(11)



(2)



(13)


 

City



4.5



1.3



0.2



1.5



1



1



2


 

Offices



4.4



1.2



1.0



2.1



(6)



(1)



(7)


 

Canada Water5



3.9



(1.1)



0.0



(1.1)



11



26



37


 

Total



4.8



1.0



0.7



1.8



(0)



1



1


 

1 Excluding developments under construction, assets held for development and residential assets



 



 


 

2 As calculated by IPD



 



 



 



 



 



 



 


 

3 Including notional purchaser's costs



 



 



 



 



 



 



 


 

4 Excludes Euston Tower; as we move closer to tenant break in 2021, valuation now reflects refurbishment assumption which, if included, would distort these movements


 
 

  5 Reflects standing investment only


 





























































































































Retail Portfolio Valuation - Previous Classification Basis



At 31 March 2018



Valuation1



Change %²



ERV Growth %3



NEY Yield Movement

bps4



 



£m



H1



H2



FY



H1



H2



FY



H1



H2



FY



Shopping Parks



3,180



(0.1)



0.3



0.2



0.8



0.2



0.9



11



(0)



10



Shopping Centres



2,359



0.2



(0.5)



(0.3)



0.7



1.4



2.1



3



4



7



Superstores



360



0.8



(1.5)



(0.3)



(1.2)



(1.1)



(2.3)



(7)



(3)



(9)



Department Stores



269



2.1



(0.8)



0.5



(0.0)



1.4



1.4



(10)



8



(2)



Leisure



428



2.5



3.5



6.2



7.7



(0.0)



7.7



(15)



2



(9)



Retail



6,596



0.3



-



0.3



1.0



0.5



1.6



5



2



6



1 Group's share of properties in joint ventures and funds including HUT at ownership share



2 Valuation movement during the year (after taking account of capital expenditure) of properties held at the balance sheet date, including developments (classified by end use), purchases and sales



3As calculated by IPD


4Including notional purchaser's costs



 



 



 



 



 



 



 



 



 



 



































































































































Portfolio Net Yields1,2



At 31 March 2018



EPRA net initial yield %



EPRA topped up net initial yield %3



Overall topped up net initial yield %4



Net equivalent yield %



Net reversionary yield %



Regional



4.5



4.7



4.7



5.0



5.0



Local



5.0



5.1



5.2



5.5



5.5



Multi-let



4.7



4.9



4.9



5.2



5.3



Department Stores & Leisure



5.7



5.7



6.8



5.7



4.5



Superstores



5.7



5.7



5.7



5.4



5.2



Solus & Other



5.1



5.1



5.1



5.2



4.2



Retail



4.9



5.0



5.2



5.3



5.1



West End



3.5



4.0



4.0



4.3



4.7



City



4.2



4.2



4.2



4.5



4.9



Offices



3.8



4.1



4.1



4.4



4.8



Canada Water5



3.1



3.2



3.2



3.9



3.9



Total



4.3



4.6



4.6



4.8



5.0



On a proportionally consolidated basis including the Group's share of joint ventures and funds



1 Including notional purchaser's costs



2 Excluding committed developments, assets held for development and residential assets



3 Including rent contracted from expiry of rent-free periods and fixed uplifts not in lieu of rental growth



4 Including fixed/minimum uplifts (excluded from EPRA definition)



5 Reflects standing investment only



 








































































Total Property Return (as calculated by IPD)



Full Year to 31 March 2018



Retail



Offices



Total



%



British Land



IPD



British Land



IPD



British Land



IPD



Capital Return



0.4



1.1



5.2



4.2



2.5



5.3



 - ERV Growth



1.6



0.9



2.1



1.1



1.8



2.0



 - Yield Movement1



6 bps



-11 bps



-7 bps



-21 bps



1 bps



-26 bps



Income Return



5.3



5.0



3.6



3.9



4.4



4.6



Total Property Return



5.7



6.2



9.0



8.3



7.0



10.1



On a proportionally consolidated basis including the Group's share of joint ventures and funds


1 Net equivalent yield movement



 










































































































































































Occupiers Representing over 0.5% of Total Contracted Rent



At 31 March 2018



% of total rent



 



 



% of total rent



Tesco1



4.3



 



Asda Group



1.0



J Sainsbury



3.8



 



Microsoft



1.0



Debenhams



3.5



 



JD Sports



1.0



UBS AG



3.3



 



Sports Direct



0.9



HM Government



2.8



 



Virgin Active



0.9



Next



2.5



 



Deutsche Bank



0.8



Kingfisher



2.5



 



Reed Smith



0.8



Facebook



1.9



 



Steinhoff



0.7



Dentsu Aegis2



1.8



 



Mayer Brown



0.7



Marks & Spencer



1.8



 



H&M



0.7



Spirit Group



1.7



 



TGI Fridays



0.7



Wesfarmers (Homebase/Bunnings)



1.7



 



River Island



0.7



Visa Inc



1.6



 



Mothercare



0.6



Alliance Boots



1.6



 



NEX Group



0.6



Dixons Carphone



1.5



 



Primark



0.6



Arcadia Group



1.4



 



Credit Agricole



0.6



Herbert Smith



1.3



 



Pets at Home



0.6



TK Maxx



1.2



 



Henderson



0.5



Gazprom



1.1



 



Hutchison



0.5



Vodafone



1.0



 



Aramco



0.5



David Lloyd



1.0



 



Misys



0.5



New Look3



1.0



 



 



 



1Includes £3.1m at Surrey Quays Shopping Centre


2Represents current occupation of 10 Triton Street covering 118,000 sq ft of space. Taking into account their pre-let of 310,000 sq ft at 1 Triton Square, % of contracted rent would rise to 5.2%. As part of this new letting, Dentsu Aegis have an option to return their existing space at 10 Triton Street in 2021. If this option is exercised, there is an adjustment to the rent free period in respect of the letting at 1 Triton Square to compensate British Land.


3 Taking into account rent adjustments following CVA


 























































































































































Major Holdings



At 31 March 2018



BL Share



Sq ft



Rent



Occupancy



Lease



 



%



'000



£m pa1



rate %2,4



Length


 yrs3,4



Broadgate



50



4,850



176



97.2



7.9



Regent's Place



100



1,740



75



98.1



7.4



Paddington Central



100



958



44



97.0



6.2



Meadowhall, Sheffield



50



1,500



89



97.9



6.3



Teesside, Stockton



100



569



17



95.4



5.1



Drake's Circus, Plymouth



100



1,082



21



98.5



9.1



Ealing Broadway



100



540



15



95.2



5.2



Glasgow Fort



77



510



21



99.1



6.0



Sainsbury's Superstores5



51



1,457



34



100.0



8.8



10 Portman Square



100



134



10



100.0



7.1



1 Annualised EPRA contracted rent including 100% of Joint Ventures & Funds



 



 



 



2 Including accommodation under offer or subject to asset management



3 Weighted average to first break



 



 



 



 



 



4 Excludes committed and near term developments



 



 



 



 



 



5 Comprises stand-alone stores



 



 



 



 



 


                     

 



















































































































































































































































































Lease Length & Occupancy



At 31 March 2018



Average lease length yrs



Occupancy rate %1



 



To expiry



To break



EPRA Occupancy



Occupancy2,4



Regional



7.7



6.6



96.8



97.1



Local



7.4



6.3



97.4



98.1



Multi-let



7.6



6.5



97.1



97.6



Department Stores and Leisure



16.4



16.4



99.8



99.8



Superstores



9.4



9.4



100.0



100.0



Solus and Other



11.6



11.6



100.0



100.0



Retail



8.8



7.9



97.6



98.0



West End



8.6



7.0



96.2



96.4



City



8.9



7.9



97.1



97.1



Offices



8.7



7.3



96.5



96.7



Canada Water3



6.1



6.0



97.4



98.0



Total



8.7



7.7



97.1



97.4



1 Space allocated to Storey is shown as occupied where there is a Storey tenant in place otherwise it is shown as vacant. Offices occupancy would rise from 96.7% to 97.1% and total occupancy would rise from 97.4% to 97.7% if Storey space were assumed to be fully let.



2 Includes accommodation under offer or subject to asset management


3 Reflects standing investment only


4 If units let to occupiers who have entered liquidation post 31 March 18 are treated as vacant, then the occupancy rate for Retail would reduce from 98.0% to 97.5%, and total occupancy would reduce from 97.4% to 97.2%


 



Portfolio Weighting



 



At 31 March



2017



2018



2018



2018



 



 



 



(current)



(current)



(pro-forma1)



 



 



%



%



£m



%



 



Regional



22.1



3,030



21.3



 



Local



15.4



16.7



2,298



15.9



 



Multi-let



36.7



38.8



5,328



37.2



 



Department Stores & Leisure



4.1



4.3



594



4.1



 



Superstores



4.5



2.6



360



2.5



 



Solus & Other



2.5



2.3



314



2.2



 



Retail



47.8



48.0



6,596



46.0



 



West End



28.4



31.0



4,255



31.6



 



City



20.7



17.9



2,450



19.5



 



Offices



49.1



48.9



6,705



51.1



 



Residential2



1.2



1.0



132



0.9



 



Canada Water



1.9



2.1



283



2.0



 



Total



100.0



100.0



13,716



100.0



 



London Weighting



58%



59%



8,037



60%



 



On a proportionally consolidated basis including the Group's share of joint ventures and funds



 



1 Pro forma for developments under construction at estimated end value (as determined by the Group's external valuers)



 



2 Stand-alone residential



 


                   

 


 











































































































































































Annualised Rent & Estimated Rental Value (ERV)



At 31 March 2018



Annualised rent

(valuation basis) £m1



ERV £m



Average rent £psf



Group



JVs & Funds



Total



Total



Contracted2



ERV



Regional



63



88



151



168



32.2



34.2



Local



98



26



124



137



24.1



25.9



Multi-let



161



114



275



305



28.0



29.9



Department Stores & Leisure



36



-



36



29



16.4



13.0



Superstores



5



16



21



19



22.7



20.6



Solus & Other



17



-



17



14



20.9



17.1



Retail



219



130



349



367



25.4



25.9



West End3



133



-



133



179



58.2



67.1



City3



5



88



93



108



51.1



57.1



Offices3



138



88



226



287



55.2



62.9



Residential4



5



-



5



4



-



-



Canada Water5



8



-



8



10



17.2



21.7



Total



370



218



588



668



31.4



33.9



On a proportionally consolidated basis including the Group's share of joint ventures and funds



 



1 Gross rents plus, where rent reviews are outstanding, any increases to ERV (as determined by the Group's external valuers), less any ground rents payable under head leases, excludes contracted rent subject to rent free and future uplift



2 Annualised rent, plus rent subject to rent free



 



 



3 £psf metrics shown for office space only



 



 



 



 



 



 



4 Stand-alone residential



 



 



5 Reflects standing investment only



 



 



 





















































































































































Rent Subject to Open Market Rent Review



For period to 31 March



2019



2020



2021



2022



2023



2019-21



2019-23



At 31 March 2018



£m



£m



£m



£m



£m



£m



£m



Regional



19



11



18



14



11



48



73



Local



18



11



12



6



18



41



65



Multi-let



37



22



30



20



29



89



138



Department Stores and Leisure



7



-



-



-



-



7



7



Superstores



3



8



6



1



1



17



19



Solus and Other



-



-



-



-



-



-



-



Retail



47



30



36



21



30



113



164



West End



27



15



10



9



13



52



74



City



15



4



9



-



-



28



28



Offices



42



19



19



9



13



80



102



Canada Water1



1



-



-



-



-



1



1



Total



90



49



55



30



43



194



267



On a proportionally consolidated basis including the Group's share of joint ventures and funds


1 Reflects standing investment only


 







































































































Rent Subject to Lease Break or Expiry



For period to 31 March



2019



2020



2021



2022



2023



2019-21



2019-23



At 31 March 2018



£m



£m



£m



£m



£m



£m



£m



Regional



14



14



9



14



20



37



71



Local



12



10



10



12



13



32



57



Multi-let



26



24



19



26



33



69



128



Department Stores and Leisure



-



-



-



-



-



-



-



Superstores



-



-



-



-



2



-



2



Solus and Other



-



-



1



-



-



1



1



Retail



26



24



20



26



35



70



131



West End



5



4



18