Interim Results Presentation

Transcription

1 Interim Results Presentation We are real estate investors and create value by actively managing, financing and developing prime commercial property to provide the environment in which modern business can thrive.

2 Interim Results Presentation Contents Introduction REIT Conversion 19 Financial Highlights 1 REIT Opportunity 20 Business Highlights 2 REITs & Strategy 21 Financial Review Market Conditions 22 A Strong Performance 3 Property Return Prospects still in Fair Value Zone 23 Attractive Rental Growth 4 Retail Underlying Profit before Tax up by 27% bn Retail Portfolio (BL Share 9.8bn) 24 Net Asset Value up 138p to 1624p (9%) 6 ERV Growth 1.7% (4.1% in Last 12 months) 25 Secure & Attractive Risk Profile 7 Retail Strategy & Activity 26 Proforma REIT Balance Sheet 8 Retail Outlook Investment Market 27 Proforma REIT Income Statement 9 Retail Outlook Occupier Market 28 Dividends Pre and Post REITs 10 Offices Strategy & Operational Review 5.6bn Office Portfolio 29 Delivering on our Promises 11 Office Capital Return 9.1%, ERV Growth 5.4% 30 Record of Value Creation Continues 13 Office Strategy & Activity 31 Capital Recycling 14 Carefully Timed & Customer Focused Development % Valuation Uplift in 6 Months 15 London Office Outlook Investment Market bn Total Properties 16 London Office Outlook Occupier Market 34 Positioned for Growth with Security 17 Summary Expanding in European Out of Town Retail 18 REIT Time. Right Place. British Land. 35

3 Introduction Stephen Hester Chief Executive

4 Introduction Financial Highlights NAV per share p up 11% underlying 2, 9% headline NAV 1 per share up 29% in 12 months Net assets 1 8.6bn Total return 3 of 12% Underlying pretax profit 4 up 27% to 130m, Headline profit 5 702m Underlying EPS 4 up 33% to 20p, Headline EPS 111p Interim dividend up 8% to 5.6p Strong portfolio valuation increase up 6.2% in 6 months Uplift led by London Offices and Out of Town Retail Valuation uplift in Q2 of 2.7% Comparable with IPD data Properties owned or managed up 7% to 19.8bn 1 EPRA (European Public Real Estate Association) basis see appendix for reconciliation 2 Before exceptional refinancing charge 3 Increase in EPRA NAV plus dividends paid, excluding refinancing charges 4 Underlying profits exclude refinancing charges, gains on asset revaluations & disposals and related tax, intangible asset movements, prior year tax items and the capital allowances effects of IAS 12 see appendix for reconciliation 5 With proportional consolidation of Funds and Joint Ventures 1

5 Introduction Business Highlights Delivering on our promises to renew and work the business hard 1.7bn (gross) of asset turnover in six months; tightening focus, recycling capital, improving growth prospects London office development programme is accelerating; customer focused with good prospects 1bn debenture refinancing overall interest rate lowered from 5.69% to 5.45% Pace of yield shift has slowed substantially, but like for like rental value growth of 2.8% (IPD 1.8%) underlines growth prospects for British Land s prime space On track for REIT conversion on 1 January First full year REIT dividends not less than 33p per share 94% higher than 2005/6 Board succession plans announced at AGM on 14 July 2006 Market leadership in prime London Offices and Out of Town Retail; a strong platform for outperformance 2

6 Financial Review Graham Roberts Finance Director

7 Financial Highlights A Strong Performance Sept 2006 Sept 2005 Change Underlying Profit before Tax 2 130m 102m 27% Underlying Diluted Earnings per Share 2 20p 15p 33% Dividend per Share 5.6p 5.2p 8% Gross Rental Income 1 353m 375m (6)% Net Interest Costs (188)m (218)m Profit before Tax 1 702m 759m 12% (14)% (8)% Total Return (6 months) 3 12% Sept 2006 March 2006 Change Net Assets 4 8,561m 7,802m 10% NAV per Share p 1486p 9% 1 With proportional consolidation of Funds and Joint Ventures 2 Underlying profits exclude debt refinancing costs, gains on asset revaluations & disposals and related tax, intangible asset movements, prior year tax items and the capital allowances effects of IAS 12 see appendix for reconciliation 3 Increase in EPRA NAV plus dividends paid, excluding refinancing charges 4 EPRA basis (principally to add back contingent CGT) see appendix for reconciliation 3

8 Financial Performance Attractive Rental Growth Gross rents lower due to significant sales programme over last 18 months Gross rental income Properties owned throughout 1 % Sept 2006 Sept % like for like rental growth: Retail +3.8% Retail uplift of 3.8% due to rent reviews and lettings, stripping out asset management voids Offices Other +1.8% +2.0% +3.0% Offices up 1.8% due to lettings Current ERV growth will impact cash rents over 5 year review cycle Acquisitions Disposals Other Market rental growth of 1% 4 Total Investment properties owned throughout the current and prior period (proportional consolidation of Funds & JVs) 2 Includes spreading of guaranteed uplifts, surrender premiums, asset management determinations, new approach to rent review recognition and realignment of JV year ends 3 Annualised accounting gross rental income at September 2006 is 688m 4 IPD Quarterly Index like for like income for six months to September 2006 compared to six months to September

9 Underlying Profit before Tax up by 27% Financial Performance Movement in Underlying Profit Rent reviews and new lettings 11 Net rental income Sept Sept Songbird dividend Pillar 2 Effect of other purchases and sales Interest saving due to refinancings Fees and other income Administrative expenses Net interest costs 34 3 (46) (188) 9 (40) (218) Lease determinations (7) Underlying profit before tax Admin expenses (excluding 4m relating to Pillar) (2) Debt refinancing costs (228) Other (3) Profit before tax Increase 28 Underlying EPS diluted 20p 15p 1 With proportional consolidation of Funds and Joint Ventures 2 Includes share of Funds underlying profits, management and performance fees, net of associated costs 3 Includes Songbird dividend of 18m and Fund management and performance fees of 11m 5

10 Net Asset Value up 138p to 1624p (9%) Financial Performance Movement in NAV per share 1 Pence Sept 2006 March 2006 Sept 2005 Net valuation gains 164 NAV per share p 1486p 1256p Underlying profit after tax 20 NNNAV per share 1259p 1139p 960p Gains on property disposals after tax 5 Net assets 1 8.6bn 7.8bn 6.6bn Debt refinancing charge after tax (30) IFRS net assets 6.6bn 6.0bn 5.3bn 2005/6 final dividend payment (12) Other (9) Total properties 15.9bn 14.4bn 14.7bn Increase since March Total properties under management 19.8bn 18.5bn 18.3bn 1 EPRA (European Public Real Estate Association) basis, principally to add back contingent CGT 6

11 Secure & Attractive Risk Profile Finance and Capital Structure Prudent financial ratios, especially given low income risk Leases average 14 yrs to first break Vacancy rate of 3.5% (1.9% underlying 3 ) LTV Group LTV inc. share of Funds & JVs Key Financial Ratios 1 Sept % 46% March % 46% Gearing constant at 46% LTV, interest cover improved to 1.7x Interest cover 2 Average interest rate 1.7x 5.45% 1.5x 5.69% Average interest rate reduced to 5.45%, as a result of 1bn debenture refinancing Weighted average debt maturity Cash and undrawn facilities Group 12.9 yrs 1,795m 13.4 yrs 2,415m Long average debt term at 13 yrs 1 With proportional consolidation of Funds and Joint Ventures (unless stated as Group) 2 Underlying profit before interest and tax (UPBIT) / net interest excluding refinancing charges 3 Underlying vacancy rate excluding asset management initiatives and units under offer 7

12 REITs Proforma REIT Balance Sheet Based on current interpretation of legislation and our target REIT structure 3 September 2006 Proforma Properties Ringfence 13,429 Non Ringfence Total 13,429 Entry charge on Sept 2006 values is 315m vs contingent tax released of 1.7bn Share of Funds/JV Properties 3 Other investments Gross fixed assets 2, , , ,335 Key points to note: JVs assumed in ringfence 3 Units Trust are semitax transparent with rental income taxfree but gains on units taxable Overseas investments are outside REIT ringfence, although qualify for balance of business tests Investment in Songbird will not qualify Net debt Entry charge (2% of property assets) Remaining deferred tax Other net liabilities Balance Sheet net assets NAV per share NNNAV per share 1 Gearing (LTV) Balance of Business Test 2 96% (7,384) (315) (230) (335) 8, p 1489p 47% By way of illustration, the above proforma balance sheet shows the effect of REIT conversion based on 30 September 2006 See detailed assumptions in appendix 1 REIT NAV per share less deferred tax on Funds & nonring fenced assets of 40p and mark to market of debt and derivatives (gross) of 28p 2 To meet REIT requirements, ringfenced assets must be at least 75% of the total 3 The target structure is not expected to be the opening position, which is not expected to include JVs see appendix for the key financial differences between the target and day 1 position 8

13 REITs Proforma REIT Income Statement Based on current interpretation of legislation and our target REIT structure 4 Minimum dividend declaration for 2007/8 of 33p is 58% higher than minimum requirement based on Sept 2006 (annualised) Over the last 5 years capital allowances have ranged from 15m to 35m 6 months to Sept 2006 Proforma 1 Net rental income Fees and other income Administrative expenses Net interest costs Interest on REIT entry charge Underlying profit before tax Tax on underlying profits Underlying profit after tax Capitalised interest Ringfence (6) (38) (181) (9) (14) Non Ringfence 1 40 (8) (7) 26 (3) 23 Total (46) (188) (9) 121 (3) 118 Non ringfence income includes: Overseas rents Fees from Funds and JVs Songbird dividends PID based on UK GAAP accounts for Company and its subsidiaries Capital allowances UK GAAP adjustment Profits for PID calculation Minimum PID (annualised) (90%) Earnings yield 2 Interest cover Balance of Business Test 3 (14) (6) m 1.37x 88% 110m 3.0% 1.61x By way of illustration, the above proforma income statement shows 3 To meet REIT requirements, net profit of the property rental the effect of REIT conversion based on six months ended 30 business must be at least 75% September 2006 See detailed list of assumptions in appendix 4 The target structure is not expected to be the opening position, 1 With proportional consolidation of Funds and Joint Ventures which is not expected to include JVs see appendix for the 2 Underlying earnings per share (annualised) \ share price at end of key financial differences between the target and day 1 position October 2006 of 1495p 9

14 REITs Dividends Pre and Post REITs 2006/7 Interim dividend 5.6p per share, up 8%, payable in February as before Thereafter British Land switching to quarterly dividends. Payments in May, August, November and February, each in respect of the quarters ending 31 December, 31 March, 30 June and 30 September respectively. Financial year end remains 31 March Last nonreit dividend of 6.5p per share for quarter to 31 December 2006 to be paid in May 2007 First REIT dividend of 8.25p per share for quarter to 31 March 2007 to be paid in August. PID/nonPID split will vary and be announced at the time of each dividend declaration Total dividend in respect of 2007/8 (first full REIT year) to be not less than 33p per share (8.25p per quarter), well in excess of minimum required and 94% up on 2005/6 Dividend policy remains progressive 10

15 Strategy & Operational Review Stephen Hester Chief Executive

16 Strategy & Positioning Delivering on our Promises Intensified Portfolio Reshaping Capital recycling to further improve risk adjusted returns Management and Culture Renewal Delivering the capability to outperform Proactive Asset Management Sweating the assets for outperformance Investor Friendly Positioning Helping to clarify and enhance valuation potential And focused on producing superior, sustained and secure longterm shareholder returns 11

17 Strategy & Positioning Delivering on our Promises Intensified Portfolio Reshaping 1.7bn (gross) asset turnover to date 849m disposals ( 523m net), 20% above valuation 846m attractive acquisitions ( 758m net) Sector focus sharpened, growth prospects improved Proactive Asset Management Over 880,000 sq ft lettings, 131 rent reviews concluded 6% over ERV Rents up ahead of market rental growth of 3% likeforlike 3.2bn 1 carefully timed and customer focused development programme Management and Culture Renewal Board succession plans announced Four new Board members in place (2 Executive to head up Retail and Offices; 2 NonExecutive) Management renewal continuing well at Executive level Investor Friendly Positioning Clear and focused strategy. Execution going well Delivering outperformance 94% increase in dividend for REITs 1 Committed and prospective projects current valuation plus costs to complete (including notional interest) 12

18 Delivering on our Promises Record of Value Creation Continues 30% 25% Profits Growth 1 Total Shareholder Return % 50% % 30% Total Return % 15% 10% 5% % 30% 20% 10% % 20% 15% 10% 5% % 5 YRS 3 YRS 1 YR Last 6 MTHS 0% YRS 3 YRS 1 YR Last 6 MTHS 0% 5 YRS 3 YRS 1 YR Last 6 MTHS British Land Major Peers 4 FTSE Real Estate Index 1 Underlying profits excludes exceptional items, profits on asset disposals and revaluation gains 2 Total shareholder return represents the growth in share price plus dividends per share (assuming reinvested) 3 Total return represents the growth in adjusted, diluted net asset value per share plus dividends per share 4 Average of major peers Land Securities, Hammerson, Liberty and Slough (some differences in year ends) 5 IFRS (previously numbers based on UK GAAP) Based on financial period ends Number represents British Land s ranking compared to our major peers 13

19 Portfolio Reshaping Capital Recycling Sales Price BL Share Purchases Price BL Share Retail: Gallions Reach Shopping Park Weston Favell Shopping Centre 6 bulky goods Retail Warehouses 11 High Street Shops Offices: Retail: BL Davidson JV buyout 9 B&Q Warehouses 5 Retail Parks in Europe Puerto Venecia Retail Park JV Giltbrook Retail Park, Nottingham Plumtree Court, EC Worcester Road, Evesham Houndsditch, EC3 51 Eastcheap, EC3 212 & 2021 Cornwall Terrace, NW1 Provincial Offices Others Offices & Other: BL Davidson JV buyout Others Total in six months to Sept Total in six months to Sept Average valuation gain on sales of 20% Average increase in value of purchases of 4% 14

20 Valuation 6.2% 1 Valuation Uplift in 6 Months All Retail Retail Warehouses Superstores Shopping Centres Department Stores High Street Shops All Offices City Offices West End Offices Business Parks & Provincial Development 4.9% 6.3% 5.0% 3.8% 3.5% 3.1% 7.6% 7.1% 2.1% 8.6% 15.1% Portfolio yields now 4.7% net equivalent 2, 4.4% gross initial yield 3 (4.6% adding back rent frees) and 5.1% gross reversionary yield 3 1 Includes valuation movements in developments, purchases and sales, net of capital expenditure (excluding Europe) 2 After purchaser s costs 3 Gross yields to British Land (without notional purchaser s costs) 15

21 15.9bn Total Properties 62% Retail: 35% Offices: 76% Out of Town 97% Central London Retail Warehouses 25% Superstores 12% 47% Meadowhall 10% In Town Shopping Centres 7% 15% Department Stores 6% Central London Offices 28% High Street 2% Office Development 6% Business Parks & Provincial 1% Other 3% Portfolio Positioning Proforma for developments at cost 1 56% Retail: 41% Offices: 76% Out of Town 95% Central London Out of Town Retail 43% In Town Retail 13% Other 3% Central London Investments 25% Office Development 15% Provincial Offices 1% 1 Proforma for costs to complete of committed and prospective development programme (including notional interest) 16

22 Positioned for Growth with Security PMA 1 Forecast Total Property Returns Next 5 Years Retail Warehouses Shopping Centres High Street Central London Offices Business Parks & Provincial Offices BL Weighting Sept % (inc. superstores) 17% (10% out of town) 8% (6% department stores) 34% 1% Portfolio Positioning British Land Portfolio Positioned for fundamental growth 47% 2 Out of Town retail Positioned for cyclical growth 34% Central London offices plus outstanding development pipeline leverage Protected against downside prime, low vacancy, long leases Industrial Total Average Total Return % pa 1% Strong rental hedge 1.8bn with rental uplift guarantees Extensive opportunities to sweat the assets Attractive income streams from Funds 1 Property Market Analysis (PMA), September Includes retail warehouses, superstores and Meadowhall Shopping Centre 17

23 Expanding in European Out of Town Retail Assets now owned or managed (including contracted) totals 1.4bn 1 Assets owned or committed in PREF 818m 1 (BL Share 40% 2 ) 540m 1 JV development at Puerto Venecia, Spain Increase of 833m over last 6 months Attractive capital value of 137 psf, gross initial yield of 5.9% and low average ERV of 8 psf Spain Italy France Portugal Belgium Switzerland Total Total 5 Sq ft 000 2,803 6,381 1,358 Attractive IRRs and building on UK expertise 858 1, ,381 Value 1 m BL Share 1 New Initiatives 1 Estimated end capital value when complete 5 sterling equivalent based on 30 September 2 When new equity fully contributed exchange rate of 1= Based on Retail Warehousing only 6 British Land hedges its European assets by borrowing in 4 Gross initial yield Euros. At current interest rates this increases the yield to BL 18 by c.1.3% m Average Capital Value psf Average ERV psf Average Initial Yield 4 %

24 REITs REIT Conversion EGM called for 20 December to effect REIT status from 1 January 2007 Legislation & regulations clear enough to operate successfully some tidying up still needed REITs are a tax election with light regulation Restore competitive fiscal position of UK quoted companies in the property market Provide investor reassurance on dividends, gearing and business focus without constraining existing business models NPV positive for shareholders in tax terms May improve industry capital efficiency a little as asset buy/sell decisions freer of fiscal distortion 19

25 REITs REIT Opportunity Opportunity to evangelise on behalf of UK quoted property sector and British Land Encourage investors to relook at allocations to property; and quoted vs unquoted/direct holdings Encourage investors to relook at valuations relative to NAV, free of historic fiscal drag and with higher dividend payouts Timely opportunity to increase dividends with capital growth reducing as yield shift ends Opportunity to exploit market situations where asset buy/sell had been inhibited for fiscal reasons Tax shield of debt is removed, but cost of debt remains below expected asset returns hence gearing policy presently unchanged 20

26 REITs REITs & Strategy Strategy reset in 2005 looking forward to Post Yield Shift environment Based on intense working of real estate assets to create value Complemented by adroit dealdoing and financial strategy Concentrated on sectors where British Land can build and sustain comparative advantage Focused on meeting customer needs in supply constrained markets. Majoring on prime assets and secure cash flows REITs support this property led strategy, focused on total return underpinned by secure, growing cash flows suited to increased dividend payments. Strategy not driven by tax rate British Land remains focused on this strategy driven by core business advantages but unafraid to change as market outlook or business opportunities unfold 21

27 Market Fundamentals Market Conditions Real estate markets put in another robust performance, again dominated by yield shift, although rental growth is becoming a more important factor in relative performance All Property Yield Shift As forecast, yield shift has slowed markedly Greater sectoral differentiation evident IPD Office net initial yields fell by 45bp to 4.7% 2 IPD Retail net initial yields fell by 23bp to 4.3% 2 Yield Impact % Dec05 Mar06 Jun06 Sep06 All Property Like for Like Yield Impact (LHS) Initial Yield % All Property Initial Yield (RHS) 1 IPD Quarterly Index 2 IPD Quarterly Index for six months to September

28 12 Market Fundamentals Property Return Prospects still in Fair Value Zone but more yield shift hard to justify Return Prospects Market Equivalent Yield Market Rental Growth 5.3% 3 2.3% Real Property Income Returns vs Other Asset Classes 1 Sept 2006 Real Income Return 2 20 Year Average 2.3% 3.4% 3.4% Total 7.6% % gearing & asset management expenses & depreciation Sept 2006 Property Income Returns Inflation (RPIX) Gilt Yield FTSE All Share Yield 1 IPD & ONS 2 Real income return based on property income return on IPD Quarterly Index less average RPIX January September 2006 (annualised) 3 IPD Quarterly Index to September 2006 All Property Net Nominal Equivalent Yield 4 Property Market Analysis (PMA), September 2006 All Property average rental growth forecast pa over next 5 years 23

29 Retail Andrew Jones CoHead of Asset Management

30 13.3bn Retail Portfolio (BL Share 9.8bn) British Land Assets In Town Retail 2.4bn (24%) Out of Town Retail 7.4bn (76%) 62% Retail 76% Out of Town Distinctive portfolio of over 30m sq ft with leadership positions in Retail parks Superstores Department stores psf average retail rent Retail parks 18 psf Superstores 21 psf Department stores 9 psf Shopping centres 34 psf Retail Warehouses 3.9bn (40%) Superstores 1.9bn (19%) Meadowhall 1.6bn (17%) In Town Shopping Centres 1.1bn (11%) Department Stores 0.9bn (9%) High Street Shops 0.4bn (4%) 1 Underlying retail vacancy rate excluding asset management initiatives and units under offer 76% of retail assets located Out of Town Over 80% of Out of Town schemes with Open A1 use Average lease length to first break of 16 years Low vacancy rate of 3% (1.9% underlying 1 ) 24

31 ERV Growth 1 1.7% (4.1% in Last 12 months) Retail Performance British Land % IPD % 6 Months 12 Months 6 Months 12 Months Retail Warehouses Open A Bulky goods Solus units Superstores N/A 3 N/A 3 Shopping Centres High Street All Retail Standing investments likeforlike ERV growth, IPD basis (excluding Europe) 2 IPD Index for Retail Warehouses in total as they do not separately analyse Open A1, bulky goods and solus units 3 IPD includes Superstores in High Street as there is no separate benchmark for Superstores Source: IPD British Land vs IPD for 6 months and 12 months to 30 September

32 Retail Asset Management Retail Strategy & Activity Strategy focused on 4 themes Concentration on supply/ demand imbalances Focus on Open A1 Out of Town Retail Occupier led strategy increasing focus on unit size & flexibility Active management to enhance retailer mix and environment and drive rental growth Active recycling of capital Focus on customer requirements through an occupier led strategy 1.2bn of asset turnover in retail portfolio Enhancing our Open A1 retail warehouse park profile Opportunisitic asset sales where prices may exceed prospects for future growth (e.g. Gallions Reach Shopping Park at 3.3% initial yield) Repositioning in town retail portfolio with further high street sales Expanding our investment in European out of town retail Increasing our investment in assets with long leases subject to fixed rental uplifts Active management to enhance retailer mix strong relationships with tenants 300,000 sq ft of lettings on retail parks, 79% to high street retailers including M&S, New Look, Debenhams and Shutopia Over 200,000 sq ft of lettings at Meadowhall including contracts recently exchanged with Next (66,000 sq ft) and Primark (73,000 sq ft) Healthy demand from retailers continuing with over 320,000 sq ft of lettings currently in solicitors hands across the retail portfolio 115 rent reviews at 3% pa CAGR 1 over last 5 years and 6% above ERV Significant superstore rent review determination at Sainsbury s, Chiswick at base rent of 30 psf, 20% above ERV at rent review date 1 Compound Average Growth Rate 26

33 Retail Market Outlook Outlook Investment Market Retail property investment market active, although signs of slowing, particularly for secondary which constitutes the majority of available supply Yield levels sustainable, particularly prime. Still not differentiating enough for lesser quality Prime yields c.3.75%, secondary 4.5% Over 1bn of bulky goods parks currently on market Retail warehouses (and superstores) still sought after, particularly Open A1. Investors pay increasing attention to occupational picture Market is overly simplistic on growth prospects for bulky goods vs Open A1 British Land will continue to exploit market inefficiencies, exiting individual assets which do not provide retailers with the right product 1 Savills 2 PMA, September 2006 Retail Warehouse Yields 1 % Shopping Park Prime Open A1 Prime Restricted Secondary Open A1 Secondary Restricted PMA Forecast Total Property Returns by Retail Sector 2 Solus Retail Warehouses Retail Parks Superstores Secondary Shopping Centres Prime Smaller Shopping Centres Big Shopping Centres High Street Smaller/Medium Towns High Street Big Towns % pa (next 5 years) 27

34 Retail Market Outlook Outlook Occupier Market Challenging retail environment retailers focused on margins and selective on locations and unit configurations. Letting incentives rising Open A1 supply/demand dynamics remain more favourable and still expected to outperform in town Diverse range of retailers expanding out of town, often with new trading formats, but demand from bulky operators has not disappeared Takeup on Retail Warehouses in 2006 (YTD) 1 Other Bulky Electrical DIY Furniture High Street Retailers Number of units Superstore operators (e.g. Tesco and Asda) to step up nonfood expansion Significant in town supply pipeline over next few years vs restricted out of town new supply Expect modest rental growth rates for retail sector as a whole but polarisation of rental growth expectations depending on tenant mix, size of asset and unit flexibility 1 PMA, November CCRE, Verdict Retail Development Pipeline m sq ft In Town Shopping Centres Out of Town Retail 28

35 Offices Tim Roberts CoHead of Asset Management

36 35% Offices 97% Central London 5.6bn Office Portfolio British Land Assets 6m sq ft of prime London office investments in City & West End 4m sq ft London office development programme London Offices 5.4bn (97%) City Offices 3.6bn (64%) West End Offices 0.8bn (14%) Office Developments 1.0bn (19%) Business Parks & Provincial 0.2bn (3%) 0.6bn (0.8m sq ft) lookthrough investment in Canary Wharf (10%) Positive outlook for rental growth and performance psf average contracted London office rent 1 Average lease length to first break of 10 years Continuing intensification of asset management and focus on customer services 1 Average contracted passing rent (post expiry of rent free periods) 29

37 Office Performance Office Capital Return 1 9.1%, ERV Growth 2 5.4% British Land % IPD % Capital Return 1 ERV Growth 2 Yield Impact 2 Capital Return 1 ERV Growth 2 Yield Impact 2 City West End Provincial & Business Parks All Offices All Benchmark assets, IPD basis (excluding Europe) 2 Standing investments likeforlike, IPD basis Source: IPD British Land vs IPD for six months to 30 September

38 Office Strategy & Activity Strategy focused on 5 themes Concentration on supply/ demand imbalances Focus on London offices Customer focus providing space to meet today s needs Office Asset Management Taking advantage of strong investment market to sell properties with low or riskier growth profiles 363m disposals ( 286m net), 29% above valuation Recycling capital into 2.6bn 1 London office development programme Committed to 490,000 sq ft development of Osnaburgh Street, Regent s Place following purchase of the Crown s freehold interest for 55m Proactive asset management Active recycling of capital Carefully timed and customer focused development programme Agreed take back of over 116,000 sq ft for reletting to establish new rental levels at Broadgate & Regent s Place Profitable take back of 66,000 sq ft at 6 Broadgate and back to back letting to UBS at headline rent of 45 psf Letting progress confirms increased rental levels in London 73,000 sq ft let or under offer at Plantation Place South, with latest letting agreed at 48 psf. Asking terms on remaining 28,000 sq ft increased to psf Broadgate 2020 master planning exercise to establish future development potential Potential total uplift in building area of over 1.2m sq ft 1 Committed and prospective London office projects current valuation plus costs to complete (including notional interest) 31

39 Carefully Timed & Customer Focused Development Accelerated programme now committed to develop 3m sq ft Carefully timed for delivery to market during Estimated development surplus of 542m 3 Key activities include: Purchased Crown s freehold interest at Osnaburgh Street 2, expect to start on site Q NEQ 2 planning application to be submitted in Q to facilitate delivery in 2012 York House (138,100 sq ft 1 ) Regent s Place (1,000,000 sq ft 1 ) Submitting revised application for 590,000 sq ft at Ropemaker Place, 17% increase in floor area over existing planning consent Leadenhall enabling works to commence Q to enable delivery in Including residential 2 Development potential at Regent s Place 3 See development prospective returns matrix in Appendix London Office Developments 35 Basinghall Street (199,000 sq ft) Ludgate West (127,000 sq ft) Ropemaker Place (590,000 sq ft) One Coleman Street (180,000 sq ft) The Broadgate Tower & 201 Bishopsgate (822,000 sq ft) The Leadenhall Building (601,000 sq ft) The Willis Building (475,000 sq ft) York House offices successfully completed and The Willis Building on track for completion Q Bishopsgate & The Broadgate Tower progressing on time and on budget 32

40 London Office Market Outlook Outlook Investment Market Growing stature of London as a place to do business in and live London GDP growth outstripping the UK average and employment set to rise % pa National and London GDP Strong liquid investment market with transactions likely to total over 16bn this year Favourable outlook for rental growth IPD net equivalent yield for London offices averages 5.0% BL net equivalent yield for City 4.8% and West End offices 5.0%. Yield on London 20 developments averages 6.5% 0 psf National GDP Central London Rental Growth London GDP CEBR 2 Average of City and West End based on Jones Lang LaSalle historic rents and Agents consensus forecast rents 33

41 London Office Market Outlook Outlook Occupier Market 26% reduction in yearonyear vacancy rates in Central London, with Grade A at 3.5% 1 City 26% reduction, Grade A 4.5% 1 Takeup healthy with 10.2m sq ft in Central London over last 12 months, of which 80% Grade A accommodation 1 City 5.3m sq ft, 77% Grade A 1 City development pipeline likely to be below average up to 2009 with healthy rental growth prospects Average development pipeline 2.7m sq ft pa since City supply likely to respond, weakening rental growth prospects from 2010 onwards City Office Speculative Development Pipeline 2 m sq ft Unlikely Possible Likely to proceed Under construction Completed excluding schemes that expect will not commence without a prelet of the whole or a major part 2 m sq ft Average speculative development completions 3 Average speculative development completions Jones Lang LaSalle 2 Knight Frank 3 Knight Frank Average speculative development completions of 2.7m sq ft pa since 1984 Unlikely Possible Likely to proceed Under construction Completed 34

42 Summary Stephen Hester Chief Executive

43 REIT Time. Right Place. British Land. Summary Property Distinctive leadership in the two sectors most favoured for growth over next 5 years London Offices Out of Town Open A1 Retail Capabilities Demonstrable added value from disciplined portfolio reshaping & proactive asset management Proven deal making credentials Greatest downside protection in the market Longest leases, most prime, advantaged portfolio Outstanding development programme Fund management skills enhance earnings and increases manoeuvrability Capability to add value in other sectors and geographies, building off core expertise 35

44 Appendix

45 Appendix Contents Financial Results 5.4m sq ft of Committed Projects 18 EPRA Balance Sheet (proportional consolidation) Reconciliation of EPRA Diluted Net Assets EPRA Triple Net Asset Value Income Statement (proportional consolidation) Reconciliation of Underlying Profit after Tax Gross Rental Income Sectoral Analysis Contracted Rental Increases Illustrative REIT Financials Assumptions Portfolio Activity 849m Disposals, 20% above March Valuation 846m Purchases, already Increased 4% in Value 7bn of Capital Recycling in the Last 2 Years Rents Reviews concluded at 6.2% higher than ERV 197 Lettings generating 14m pa of New Rent Broadgate 2020 Development Programme Development Prospective Returns m sq ft of Prospects > 60% with planning approval Portfolio Valuation & Markets Portfolio Valuation By Sector 128 Retail Warehouses 3,906m: Up 6.3% 71 Superstores 1,856m: Up 5.0% Meadowhall 1,613m: Up 3.0% (precapex 4.1%) In Town Retail 2,356m: Up 3.8% Broadgate 3,440m: Up 6.5% Regent s Place 608m: Up 4.8% Benchmarking of Performance Portfolio Rental Growth Prospects Portfolio Statistics Sustainable Income: Long Leases & Low Vacancy Yield Profile Strong Growth in Cash Rents in Prospect Annualised Net Rents and ERV Analysis Development Programme Summary 17 Reversionary Income: 110m 33

46 Financial Results EPRA Balance Sheet (proportional consolidation) Group JVs & Funds Sept 2006 March 2006 Total properties 13,429 2,468 15,897 14,414 Net debt (6,380) (1,004) (7,384) (6,684) Other net assets/liabilities EPRA Diluted Net Assets 7,079 1,482 8,561 7,802 EPRA Diluted NAV per share 1624p 1486p Loan to value ratio 46% 46% 1

47 Reconciliation of EPRA Diluted Net Assets Financial Results Sept 2006 March 2006 Balance sheet net assets Deferred tax on contingent gains IAS12 capital allowance effects Goodwill Mark to market on interest rate swaps (net of tax) External valuation surplus on trading & finance lease properties EPRA net assets Adjust to fully diluted on exercise of share options EPRA diluted net assets 6,627 1, (105) , ,561 6,016 1, , ,802 1 Goodwill arising on the acquisition in the six months of BL Davidson and B&Q portfolio, which largely relates to deferred tax and is written off in calculating EPRA NAV 2

48 Financial Results EPRA Triple Net Asset Value Pence per Share EPRA diluted NAV 8, Deferred tax arising on revaluation movements (1,820) (345) Mark to market of debt and derivatives (net of tax) (104) (20) EPRA NNNAV 6,

49 Financial Results Income Statement (proportional consolidation) Group JVs & Funds Sept 2006 Sept 2005 Net rental income Fees and other income Administrative expenses (42) (4) (46) (40) Net interest costs (157) (31) (188) (218) Underlying profit before tax Gains on asset disposals Net valuation gains Debt refinancing costs (228) (228) Amortisation of intangible asset (8) (8) (3) Impairment of goodwill (2) (2) Tax Tax charge relating to underlying profit Other tax arising (21) (71) (5) (27) (26) (98) (22) (135) Profit for the year after tax Underlying EPS 20p 15p 4

50 Reconciliation of Underlying Profit after Tax Financial Results Profit before tax Net valuation gains Gains on asset disposals Deferred and current taxation of joint ventures & funds Amortisation of intangible asset Impairment of goodwill Debt refinancing costs Underlying profit before tax Tax on underlying profit Underlying profit after tax Sept (746) (64) (26) 104 Sept (623) (37) (22) 80 5

51 Gross Rental Income Sectoral Analysis Financial Results Gross Rental Income 6 mths ended 30 Sept Annualised at 30 Sept Retail: Offices: Other: Total recurring Total nonrecurring items Total Retail Warehouses Superstores Shopping Centres Department Stores High Street Shops All Retail City Offices West End Offices Business Parks & Provincial All Offices Industrial and Distribution, Leisure Group JVs & Funds Total Group JVs & Funds Total Gross rental income per Income Statement under IFRS (proportionally consolidated) analysed by sector 2 Annualised contracted gross rental income under IFRS (proportionally consolidated) analysed by sector as at 30 September Includes surrender premiums and back rents 6

52 Financial Results Contracted Rental Increases From L Lettings with Rent Free Periods 1 6 mths to 6 mths to Year ending 31 March Contracted Accounting Gross Rental Income Sept 2006 March Offices Retail Other Total rent (accounting basis) Of which total cash flow Of which SIC 15 rent free adjustment Under IFRS contracted rent and cash flows will differ during rent free periods, IFRS requires rent to be recognised ahead of the related cash flow and allocated evenly over the lease term to the earliest termination date 7

53 Financial Results Contracted Rental Increases From Fixed and Minimum Uplifts 1 6 mths to 6 mths to Year ending 31 March Contracted Accounting Gross Sept March Rental Income Debenhams Spirit Pubs Other Total rent (accounting basis) Of which total cash flow Of which IAS 17 fixed uplift adjustment Under IFRS contracted rent and cash flows will differ IFRS requires the total rental income relating to fixed and minimum guaranteed rent reviews to be recognised ahead of the related cash flow and allocated evenly over the lease term to the earliest termination date 8

54 Illustrative REIT Financials Assumptions The proforma information is presented to provide an illustration of British Land s target REIT structure Although the Finance Act 2006 legislation and initial regulations have been formally ratified the understanding and interpretation of this entirely new fiscal structure is still evolving. In addition, guidance and further regulations remain outstanding and moreover, the custom and practice will develop over time. Key assumptions and calculations: The target structure is not the opening position but reflects our expectations of the outcome of ongoing and continuing discussions with third parties (including joint venture partners) as well as the anticipated but as yet unconfirmed application of the REIT regime to joint venture groups. The expected position on date of REIT entry in terms of the key measures (based on 30 September 2006 proforma) is: REITS Entry charge NAV NNNAV 288m 1562p 1463p Entry charge of 2% of the total value of the ringfenced portfolio. The amount of entry charge will depend upon the total value of properties qualifying for REIT status at the time of entry. The Property Income Dividend (PID) must be at least 90% of tax exempt profits prepared on an individual company by company (and therefore UK GAAP) basis. For illustration the allocation of interest payable for the ringfence is assumed to be the same as the interest charged in the individual companies. The Earnings yield is calculated by dividing the annualised underlying earnings per share by the British Land share price as at 31 October p. The legislation specifies that the interest cover test is calculated on profit for the PID calculation before capital allowances, interest payable and interest capitalised divided by gross interest payable relating to the UK component of ringfence business. Interest costs and administrative costs have been apportioned between the ringfenced and residual business on a reasonable and provisional basis. Interest payable net of interest receivable has been used in the proforma calculation. The balance of business tests which are measured on a worldwide basis require that 75% of activities, measured by asset value and net income, are property investment related. Wholly owned overseas investments count for the purposes of the balance of business tests even though outside the ringfence. 9

55 Portfolio Reshaping 849m Disposals, 20% above March Valuation Price BL Share Gain 1 % Retail: Gallions Reach Shopping Park, Beckton Weston Favell Shopping Centre, Northampton bulky goods Retail Warehouses High Street Shops Offices: Plumtree Court, EC Houndsditch, EC Eastcheap, EC & 2021 Cornwall Terrace, NW Provincial Offices Others Total in six months to Sept Sale price above last year end valuation (March 2006) 2 Hercules Unit Trust (HUT) 3 The Tesco British Land Property Partnership 4 City of London Office Unit Trust (CLOUT) 5 Contracted July 2006, completion expected July

56 Portfolio Reshaping 846m Purchases, already increased 4% in Value Retail: BL Davidson JV buyout 9 B&Q Warehouses 5 Retail Parks in Europe 3 50% share of Puerto Venecia Retail Park, Zaragoza 2 Giltbrook Retail Park, Nottingham Worcester Road, Evesham 4 Offices & Other: BL Davidson JV buyout Others Total in six months to Sept 2006 Price BL Share Value Uplift 1 % From purchase price on completion to 30 September Purchase of 50% interest from and joint venture development agreement with Copcisa Corp (a Spanish construction company) and private investors 3 PREF three parks in Portugal, one in Madrid and one in Belgium (completion of two parks expected September 2007) 4 Hercules Income Fund (HIF) 11

57 Portfolio Reshaping 7bn of Capital Recycling in the Last 2 Years 1 Disposals Acquisitions Development Total Spend Out of Town Retail (530) 2, ,633 In Town Retail (333) All Retail (863) 3, ,221 Central London (1,310) (563) Business Parks & Provincial (155) 3 15 (137) All Offices (1,465) (700) Residential (329) 73 (256) Industrial & Distribution; Leisure; and Other (147) Total (2,804) 3, ,393 1 Net property investment 1 October 2004 and 30 September Including European out of town retail assets 12

58 Proactive Asset Management Rent Reviews concluded at 6.2% higher than ERV Rent Reviews Number BL Increase Rent CAGR 1 pa over 5 years % New rent above ERV 2 % Retail Warehouses Superstores Shopping Centres High Street Central London Offices 8 Other Total Compound Average Growth Rate 2 ERV at valuation date prior to rent review date 13

59 Proactive Asset Management 197 Lettings generating 14m pa of New Rent Rent pa 1 New Lettings & Lease Renewals Number Sq ft 000 Total 2 BL Share of increase 3 Retail Warehouses Shopping Centres High Street Central London Offices Other Total Annual rent post expiry of rent free periods 2 Including 100% of JVs & Funds 3 Above previous passing rent 4 Includes lettings exchanged with Next (66,000 sq ft) and Primark (73,000 sq ft) at Meadowhall 14

60 Proactive Asset Management Broadgate 2020 Broadgate currently low rise and low density Buildings range from 713 floors Gross plot ratio of 5:1 Highest Redevelopment Potential Moderate Redevelopment Potential Low Redevelopment Potential Narrowing of view corridors will offer increased future redevelopment potential Masterplanning exercise examining longterm future potential to increase density Critical factors to be considered: Lease expiries View corridors Liverpool Street station/ Crossrail Conservation areas and Rights of light Potential total uplift in building area of over 1.2m sq ft 15

61 Development Prospective Returns Development Programme Developments September 2006 Valuation 1,224 Illustrative sensitivity of potential development surpluses 5 to yield shift and rental growth () Average valuation yield % Costs to Complete 1 2, bp 5.42% 25bp 50bp 75bp Tenant Incentives Estimated Rent 2 Development Yield 3 Estimated End Value % 4,265 Estimated headline rent pa 5% 231m +5% +10% , ,038 1, ,041 1,232 1,424 1,044 1,246 1,446 1,650 Estimated Future Profit % 1,033 1,209 1,402 1,615 1,851 1 Estimated construction costs to complete including notional interest during construction period to PC 2 Current estimated headline rent (before tenant incentives) 3 Yield on current valuation plus costs to complete, notional interest to PC and tenant incentives 4 London Office development prospective returns represent 542m of the total 687m 5 Estimated remaining valuation surpluses (after tenant incentives) on committed and prospective developments (excluding residential), based on valuers September 2006 assumptions (sensitised for movements in valuation yields and headline rents) 16

62 Development Programme Summary Development Programme Sq ft March 2006 Costs H Sept 2006 Costs to Notional Rent Sales Valuation Since Surplus Valuation Complete Interest m 1 2 Committed , Prospective Total ,224 1, Current estimated headline rent (before tenant incentives) 2 Developments (or parts) expected to be sold, no rent allocated 17

63 Development Programme 5.4m sq ft of Committed Projects Rent pa PC Sq ft 000 Sept 2006 Value Costs to Complete Notional Total 2 Let/ Sales 3 Interest 1 Prelet 2 London Offices: The Broadgate Tower & 201 Bishopsgate, EC2 Q Ropemaker Place, EC2 4 Q Osnaburgh Street 5 Q Willis Building, EC3 Q Basinghall Street, EC2 (CLOUT) 6 Q Coleman Street, EC2 (CLOUT) 6 Q York House, W1 7 Q Ludgate West, EC4 Q Total London Offices 3, Puerto Venecia Retail Park 8 Q , Giltbrook Retail Park Q Blythe Valley (Plot G2) Q Total 5,357 1, From Sept 2006 to estimated practical completion (PC) 2 Current estimated headline rent (before tenant incentives) 3 Developments (or parts) expected to be sold, no rent allocated 4 Subject to revised planning existing consent 505,000 sq ft 5 Includes residential (110,000 sq ft) expected to be sold 6 CLOUT BL Share 35.9% forward sold 7 c 40,000 sq ft to be occupied by British Land, includes residential (26,000 sq ft) expected to be retained 8 Joint Venture (Eurofond Investments Zaragoza) BL Share 50% 18

64 Development Programme 3.2m sq ft of Prospects > 60% with planning approval Sector Sq ft 000 Sept 2006 Value Costs to Complete Notional Interest 1 Rent 2 Sales 3 Planning The Leadenhall Buliding City Office Detailed NE Quadrant West End Office/Residential Pending Blythe Valley Park 4 Business Park Outline/ Detailed New Century Park Business Park/Distribution Detailed Meadowhall Casino Leisure Submitted Meadowhall Car Showrooms Pending Theale Residential Submitted Deepdale, Preston Retail Park Detailed Total 3 3, During construction to estimated practical completion (PC) 2 Current estimated headline rent (before tenant incentives) 3 Developments (or parts) expected to be sold, no rent allocated 4 Not including Phase 2, subject to a conditional development agreement 5 Value of these sites included in valuation of Meadowhall Shopping Centre 19

65 Portfolio Valuation Portfolio Valuation By Sector Group Funds/JVs Total Portfolio Uplift % % 1 Retail: Retail Warehouses 2,377 1,529 3, Superstores 1, , Shopping Centres 2, , Department Stores High Street All Retail 7,339 2,431 9, Offices: City 3,623 3, West End Business Parks & Provincial Development 1,053 1, All Offices 5, , Other: Industrial and Distribution, Leisure Total Valuation 13,429 2,468 15, Includes valuation movements in developments, purchases and sales, net of capital expenditure (excluding Europe) 20