News Release. The British Land Company PLC Half Year Results 16 November Highlights

Transcription

1 News Release The British Land Company PLC Half Year Results 16 November Highlights A strong first half of successful leasing activity: - 1.3m sq ft of lettings and renewals 6.8% ahead of ERV, securing 32m of additional future rent - At 98%, portfolio is effectively full on both sides of the business - Secured the largest West End pre-let in over 20 years at 1 Triton Square Good financial performance: - Profit maintained at 198m despite 1.5bn of sales since March NAV up 2.6% to 939p, with valuations up 1.4% - Half year dividend increase of 3% to 15.04p A balanced approach to development risk; well positioned for future growth: - Committed pipeline, representing 55m ERV, increased by 760,000 sq ft in the half - Speculative exposure at 4%, with 57% of committed pipeline pre-let or under offer - 1.8m sq ft of planning approvals including Paddington Gateway, Meadowhall Leisure extension Continued focus on capital discipline and further diversifying our sources of finance: - LTV reduced by 300 bps to 26.9% with WAIR at 3.0% - Successfully issued 300m Sterling Bond - 156m of 300m share buyback undertaken: on track for completion by end of financial year Chris Grigg, Chief Executive said: British Land has delivered a strong first half performance as a result of our high level of successful activity and firm capital discipline. Net asset value is up 2.6%; profit and EPS remain steady despite considerable recent disposals; and we ve increased the size of our committed development pipeline while reducing LTV further. Our strategic focus on creating outstanding environments is driving healthy demand for our space in a market that continues to polarise. Leasing activity was strong at good pricing, in spite of external uncertainty, and we secured the largest West End office pre-let in 22 years at 1 Triton Square. In development, we have maintained speculative exposure at 4% while extending the committed pipeline to 1.5 million sq ft, supported by continued leasing success. This pace is mirrored in our financing activity, where we reduced costs by another 12 million and further diversified our sources of debt. We further reduced LTV and extended average debt maturity to almost nine years. Our balance sheet is well positioned, providing flexibility as we create new lettable space through development. We have deliberately created a portfolio consisting of the high-quality assets and development opportunities required to succeed in today s environment. As a result we continue to achieve valuable leasing success and strong pricing, enabling us to increase the dividend by 3%, while progressing our unique development opportunities to create long-term value for shareholders. 1

2 Summary Balance sheet 31 March 17 Change Portfolio at valuation (proportionally consolidated) 13,940m 13,515m +1.4% 1 EPRA Net Asset Value per share² 915p 939p +2.6% IFRS net assets 9,476m 9,632m Loan to value ratio (proportionally consolidated) 29.9% 26.9% Income statement HY 2016/17 HY /18 Underlying profit 2 199m 198m -0.5% Diluted underlying earnings per share 2,3 19.3p 19.2p -0.5% IFRS (loss) / profit before tax (205)m 238m IFRS basic earnings per share (19.0)p 23.2p Dividend per share 14.60p 15.04p +3.0% Total accounting return ² (1.5)% 4.2% Operational Statistics HY 2016/17 HY /18 Leasing and renewals, sq ft 769, million Disposals 710m 992m Committed development, sq ft 838, million Sustainability Performance MSCI ESG AAA rating AAA rating GRESB 5* and Green Star 5* and Green Star 1 Valuation movement during the period (after taking account of capex) of properties held at the balance sheet date, including developments (classified by end use), purchases and sales 2 See Glossary on pages 69 to 75 for definition 2 See Note 2 to the condensed interim financial statements Results Presentation and Investor Conference Call A presentation of the results will take place at 9.30am today, 16 November, and will be broadcast live via webcast ( and conference call. The details for the conference call are as follows: UK Toll Free Number: 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: Passcode: # A video replay of the event will be available online at from 2pm on 16 November. For Information Contact Investor Relations Cressida Curtis, British Land Media Pip Wood, British Land Guy Lamming, Finsbury Gordon Simpson, Finsbury Forward-looking statements This Press Release contains certain forward-looking statements. Such statements reflect current views on, among other things, our markets, activities, projections, objectives and prospects. Such forward-looking 2

3 statements can sometimes, but not always, be identified by their reference to a date or point in the future or the use of forward-looking terminology, including terms such as believes, estimates, anticipates, expects, forecasts, intends, due, plans, projects, goal, outlook, schedule, target, aim, may, likely to, will, would, could, should or similar expressions or in each case their negative or other variations or comparable terminology. By their nature, forward-looking statements involve inherent risks, assumptions and uncertainties because they relate to future events and depend on circumstances which may or may not occur and may be beyond our ability to control or predict. Forward-looking statements should be regarded with caution as actual results may differ materially from those expressed in or implied by such statements. Important factors that could cause actual results, performance or achievements of British Land to differ materially from any outcomes or results expressed or implied by such forward-looking statements include, among other things: (a) general business and political, social and economic conditions globally, (b) the consequences of the referendum on Britain leaving the EU, (c) industry and market trends (including demand in the property investment market and property price volatility), (d) competition, (e) the behaviour of other market participants, (f) changes in government and other regulation, including in relation to the environment, health and safety and taxation (in particular, in respect of British Land s status as a Real Estate Investment Trust), (g) inflation and consumer confidence, (h) labour relations and work stoppages, (i) natural disasters and adverse weather conditions, (j) terrorism and acts of war, (k) British Land s overall business strategy, risk appetite and investment choices in its portfolio management, (l) legal or other proceedings against or affecting British Land, (m) reliable and secure IT infrastructure, (n) changes in occupier demand and tenant default, (o) changes in financial and equity markets including interest and exchange rate fluctuations, (p) changes in accounting practices and the interpretation of accounting standards and (q) the availability and cost of finance. The Company s principal risks are described in greater detail in the section of this Press Release headed Risk Management and Principal Risks. Forward-looking statements in this Press Release, or the British Land website or made subsequently, which are attributable to British Land or persons acting on its behalf should therefore be construed in light of all such factors. Information contained in this Press Release relating to British Land or its share price or the yield on its shares are not guarantees of, and should not be relied upon as an indicator of, future performance, and nothing in this Press Release should be construed as a profit forecast or profit estimate. Any forward-looking statements made by or on behalf of British Land speak only as of the date they are made. Such forward-looking statements are expressly qualified in their entirety by the factors referred to above and no representation, assurance, guarantee or warranty is given in relation to them (whether by British Land or any of its associates, directors, officers, employees or advisers), including as to their completeness, accuracy or the basis on which they were prepared. Other than in accordance with our legal and regulatory obligations (including under the UK Financial Conduct Authority s Listing Rules and Disclosure Rules, Transparency Rules, and the Market Abuse Regulation), British Land does not intend or undertake to update or revise forward-looking statements to reflect any changes in British Land s expectations with regard thereto or any changes in information, events, conditions or circumstances on which any such statement is based. This document shall not, under any circumstances, create any implication that there has been no change in the business or affairs of British Land since the date of this document or that the information contained herein is correct as at any time subsequent to this date. 3

4 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. Refer to the Financial Review for a discussion of the IFRS results. 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 18.1 billion (British Land share: 13.5 billion) as at 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 49% 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 46 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 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 4

5 CHIEF EXECUTIVE S REVIEW Our strong financial results for the first half of the year reflect the effectiveness of our Places People Prefer strategy. We focus on creating outstanding environments through investment, development and ongoing management, and these have proved attractive to a broad range of occupiers despite continued economic and political uncertainty. As a result of our portfolio s strong appeal, we secured an additional 32 million of future rent in the period by leasing 1.3 million sq ft of space at net effective rents 6.8% ahead of ERV. In the investment market, prime prices remain firm. We have used this continuing strong demand to dispose of 992 million of dry and offstrategy assets at an average premium to book value of 13%. The proceeds have been used initially to reduce LTV further, while we continue to invest in our own high-quality portfolio through a 300 million share buyback and progress the best opportunities in our committed development portfolio, 57% of which is pre-let or under offer. Our strong leasing performance, continued capital recycling and de-risking of significant mixed-use development opportunities have enabled us to create long-term shareholder value. Financial Results We maintained underlying profit for the six months at 198 million: a one-off surrender premium from Royal Bank of Scotland at 135 Bishopsgate partly off-set a reduction in income that resulted from recent disposals and lease expiries in our development pipeline. Diluted underlying EPS was also in line with the prior year, at 19.2 pence per share. As indicated previously, we have increased the second quarter dividend by 3.0% to 7.52 pence per share, reflecting the Board s confidence in the strategy and bringing the dividend for the half year to pence (2016: 14.6 pence). Our focus on capital discipline remains strong. During the period we reduced LTV by 300 bps to 26.9% through disposals, despite doubling our committed development programme to 1.5 million sq ft. This level of LTV enables us to create value through our de-risked development programme while retaining substantial headroom and operational optionality. The 300 million share buyback programme announced in July enables us to invest in our own high-quality portfolio at an attractive price and is aligned to our commitment to deploying resources in the way that creates best long-term value for shareholders. We are on course to complete the programme by the end of the financial year. The 2.6% increase in our EPRA net asset value to 939 pence per share reflects the resilience of our assets, as well as our actions to improve and manage our portfolio for growth. Valuations were up 1.4% overall at 30 September. London Offices were up 2.6%, driven by our leasing and capital activity, and Retail was up 0.3%, with ERV growth offsetting some yield expansion. London Offices British Land s continuing focus on three major London campuses has underpinned strong occupier demand during the period. In total, we signed 741,000 sq ft of leases and renewals, capturing an 8% market share of all Central London letting activity and securing 29 million of additional future rent, 2.8% ahead of ERV. This strong performance reflects the quality of space we create through our campus approach. By maintaining a campus rather than asset focus, we can combine retail and leisure brands, amenities and first class work space across a highly attractive environment. This approach creates a superior experience before, during and after the working day for employees, creating incremental occupier demand in turn. The resulting 2.6% uplift in valuation during the period meant that our office portfolio outperformed its IPD benchmark. We launched Storey this summer to capitalise on the trend toward flexible working. In contrast to co-working space, we have designed Storey to meet the needs of SMEs as well as larger businesses that require project or short-term space. The median headcount of Storey occupiers is approximately 50 people. 68% of Storey s 5

6 85,000 sq ft of space is now let or under offer, at terms in line with our business plan and we are now fitting out the next 50,000 sq ft across Paddington Central and Regent s Place, which will mean that Storey is operational across all three campuses. In the wider 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 leasing well in London, confident in its enduring ability to evolve with changing circumstances and attract talent from around the world. Retail In Retail, we saw strong demand for our space during the period, maintaining occupancy at 98% through 578,000 sq ft of lettings and renewals at an average net effective rent 11.9% ahead of ERV. This belies the pressure on rents we have seen in the wider market, driven by lower growth in retail sales as well as a structural shift in retailers models as they increasingly adopt an omni-channel approach. We have achieved this healthy performance by ensuring our assets remain directly relevant to consumers. Our success is evidenced by the continued growth of footfall at our centres, which outperformed the benchmark by 340 bps in the period. We also continued to outperform the retail sales benchmark by 50 bps, although in-store sales were down 1.1% overall. These figures exclude click & collect activity, instore browsing and the return of online purchases to physical locations, which are areas where we see increasing activity and growing symbiosis between physical and digital retail. Our data demonstrate that although digital shopping is changing the role of the store, physical retail remains core to most retailers propositions. As part of an omni-channel strategy, retailers need the store portfolio to perform three functions: a showroom where customers can discover which product they want to buy; a location for transactions; and as a site from which purchases can be fulfilled. At present, the industry only measures the quantity of transactions taking place in a particular store, but research shows that a quarter of all online purchases are first browsed in store, helping customers to narrow their range of options and become comfortable with a purchasing decision. In addition, 13% of online purchases are now fulfilled through in-store Click & Collect, and we see this reflected at our Local centres where 30% of shoppers use them to collect online purchases, up from 19% just three years ago. Importantly, 67% of these collectors make an additional purchase while doing so, on average spending twice as much as someone shopping through physical retail alone. 39% of unwanted online purchases are returned by consumers through a store, with 80% of these returners making an additional purchase at our centres while doing so. As landlord, our role is to drive the footfall that helps retailers maximise their margins in an omni-channel environment. The value of our Retail portfolio rose 0.3% during the period, with ERV growth of 1.0% across the portfolio, driven by multi-lets. With increasing focus on high-quality, well-located space that can function as showroom and fulfilment hub, some assets are unsuited to an omni-channel network. Consequently, over the last three years we have sold 1.7 billion of retail assets, 298 million of which transacted in the period. We expect to make additional disposals of approximately 500 million over the next 12 months to ensure our portfolio remains positioned to perform in this new environment. Among our core assets, we have continued to invest in improvements to ensure they remain modern and support the requirements of omni-channel retailing. An important example is Meadowhall, where we have just completed a 60 million refurbishment. Already, this has had a significant positive impact on the centre: 73 retailers have invested 38 million upgrading their stores to match the new contemporary feel; over the last 18 months, 30 new brands signed in anticipation of increased footfall and spend. We also built-in to the refurbishment programme measurable direct economic and social benefits for the Sheffield community. This optimisation of the project for regional benefit built a healthier economy for our shoppers and contributed to unanimous support from the Planning Committee for our 330,000 sq ft leisure extension, which subsequently received Resolution to Grant consent. Subject to completion of the process, we expect to start this step in Meadowhall s transformation during

7 Investment Activity Gross investment activity since the start of the year has been over 1.2 billion. Sales were on average 13% above book value, with 417 million of disposals in addition to our 575 million share of proceeds from the sale of the Leadenhall Building. Our 92 million of acquisitions in the period include the 49 million purchase of The Broadway, adjacent to our Local retail centre in Ealing, which provides a significant development opportunity to capitalise on the impact of Crossrail s arrival. Although we will continue to make acquisitions where we see potential for the right returns, we also expect to make further sales in the second half, and to be a net divestor overall. Development Activity Development is a key part of our value-creation strategy, which we approach in a highly considered manner. Our development pipeline amounts to 10.7 million sq ft overall and has been assembled in line with our focus on creating Places People Prefer. While prime pricing in the investment market has remained firm, we have been able to double our committed development pipeline from 0.7 million sq ft at 31 March to 1.5 million sq ft today, without a meaningful increase in speculative exposure. We have achieved this through significant progress in planning, with 1.8 million sq ft of consents secured during the period, and substantial pre-letting success, including the 310,000 sq ft agreement for lease of 1 Triton Square, the largest pre-let in the West End for 22 years. Risk is sensibly managed: 57% of the ERV within the committed pipeline is now pre-let or under offer. Therefore, despite this substantial increase in development activity during the period, we have only incurred a minor increase in speculative exposure, which now stands at 4.0% of the portfolio s GAV (March : 3.7%). 85% of committed construction costs are covered by residential receipts to come of 381 million and valuer estimates put future rent from this committed development pipeline at approximately 55 million. We have also progressed our near-term pipeline, adding 236,000 sq ft, ready for activation subject to progressing pre-lets. This pipeline currently totals 562,000 sq ft and has an ERV of 21 million, 21% of which is currently pre-let or under offer. To manage exposure, we will continue to secure substantial pre-lets before committing to opportunities. Looking further ahead, we have also achieved significant development milestones in our medium-term pipeline. In addition to the Leisure Hall extension at Meadowhall, which is held in joint venture and will create an additional 330,000 lettable sq ft, we have agreed Heads of Terms for a long-term partnership with London Borough of Southwark, simplifying the structure and bringing our combined landholdings together under a 500 year lease. We are now finalising designs for Phase 1 of Canada Water. This will create 1.8 million sq ft of mixed-use space next to a station in Zone 2 of London. We expect to submit a planning application seeking outline consent for the masterplan together with detailed consent for several buildings in the Spring, ahead of a potential start on site during The scale of our development pipeline is a significant advantage for British Land. Interest remains healthy in the type of space we create and we have a range of potential opportunities to progress. Sustainability Sustainability is integral to how we do business, and six indices now recognise British Land as an international leader in this field: for the second consecutive year we were awarded a five star rating by GRESB (the Global ESG Benchmark for Real Estate Assets); we remain AAA-rated by MSCI; we achieved a Gold Award from EPRA sbpr; we rank in the 98% percentile of Sustainalytics; and for the fourth consecutive year we rank in the top 10% of the DJSI World Index and the FTSE4Good. This solid external recognition reflects the significant effort and care we invest in maximising benefit for all our stakeholders. Alongside our focus on creating value for shareholders, I am proud that British Land has created a leading stance on sustainability, recognised by global ESG indices. The management of environmental, social and 7

8 governance issues directly supports our vision to create Places People Prefer and is embedded at the heart of our day to day operations. As demonstrated so clearly at Meadowhall during the period, this strengthens the economic foundations of the communities in which we work while creating long-term value for investors. People We recently announced that, after 6 years as Chief Financial Officer, Lucinda Bell intends to step down from the Board and leave British Land next April. Lucinda has been instrumental in strengthening the balance sheet and played a key role in the Company s transition into a modern, strategically-focused REIT. Equally important has been her leadership of our sustainability programme, to which she has brought unmatched focus, rigour and energy. We wish her well for the future and thank her for her considerable contribution. A search for her successor is underway. Outlook British Land is well positioned. Although the wider operating environment is uncertain, we are generating healthy leasing interest at good pricing across our portfolio, and prime capital values remain firm. We have deliberately built a portfolio of the high quality assets required to succeed in today s market. These closely reflect the evolving demands of our customers. We benefit from long-term, secure rental income, with 98% of our portfolio occupied. Our financial capacity, flexibility and optionality enable us to adjust quickly to evolving conditions. We have a resilient balance sheet, appropriate leverage and a well-funded, diverse development pipeline that will underpin future growth and returns. These strengths, combined with the marketleading expertise we maintain across our business, position us well to drive enduring value for shareholders. Chris Grigg Chief Executive 8

9 FINANCE REVIEW 6 months to 2016 Underlying Profit 1,2 199m 198m Underlying earnings per share p 19.2p IFRS profit before tax (205)m 238m Dividend per share 14.60p 15.04p Total accounting return 1,3-1.5% +4.2% As at 31 March EPRA net asset value per share 1,2 915p 939p IFRS net assets 9,476m 9,632m LTV 1,4,5 29.9% 26.9% Weighted average interest rate 5 3.1% 3.0% 1 See Glossary for definitions 2 See Table B within supplementary disclosure for reconciliations to IFRS metrics 3 See Note 2 within condensed interim financial statements for calculation 4 See Note 10 within condensed interim financial statements for calculation and reconciliation to IFRS metrics 5 On a proportionally consolidated basis including the Group s share of joint ventures and funds Overview Our strategy is designed to create enduring shareholder value and we have structured our finances to ensure this can be maximised. We have continued to take significant actions to increase our financial flexibility and capacity. We have maintained capital discipline, demonstrated by selling well and launching our share buyback programme, and we have enhanced our debt position by both diversifying our sources and extending the maturity of our facilities. The result is a robust balance sheet, even lower financing costs, improved interest cover and an LTV which is within our target range for the prevailing conditions. Our interim results are good with Underlying Profit maintained at 198 million and underlying earnings per share (EPS) at 19.2 pence. EPRA net asset value per share (NAV) increased by 2.6% reflecting a portfolio valuation gain of 1.4% on a proportionally consolidated basis. We have undertaken 1.2 billion of gross capital activity ( 0.8 billion of net capital activity) since 1 April. This comprises 1.0 billion of disposals of primarily single-let Retail assets and our 50% interest in The Leadenhall Building which exchanged last financial year, representing 7% of the total portfolio. Sales were made at an average yield of 4%. 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 comfortably over 6%, as well as through our 300 million share buyback programme, announced in July. In the current conditions, investing in our own shares represents an attractive use of funds and the programme is on course to complete by the end of the financial year. As at, we had purchased 65 million of shares which increased NAV by 4 pence and had a marginal impact on EPS. Based on share price at the period end, NAV would increase by a further 13 pence and EPS by around 0.3 pence for the full year to 31 March 2018 upon completion of the buyback. During the period we have also reinvested 0.1 billion in our developments and capital expenditure across the portfolio, and made 0.1 billion of acquisitions. The impact on profit of net sales and lease expiries ahead of development has been offset by like-for-like rental growth and financing activity, as well as a one-off surrender premium received from Royal Bank of Scotland. 9

10 IFRS profit before tax for the period of 238 million is higher than the prior period loss of 205 million, primarily due to the positive property valuation movement in the period. Our financial metrics are strong; we have reduced both the proportionally consolidated loan to value (LTV) and weighted average interest rate and improved interest cover. We have decreased LTV by a further 300 bps to 26.9% from 29.9% at 31 March, primarily through net disposals. This provides us with the financial capacity to progress the substantially de-risked development pipeline whilst retaining significant headroom to our covenants. Creating high and secure cash dividends for shareholders remains a priority. As indicated in the 2016/17 Full Year results, we intend to increase the dividend once again by 3% to pence for the year ending 31 March 2018, reflecting the Board s confidence in the strategy. In line with this intention, the second quarter dividend at 7.52 pence brings the total for the half year to pence. As announced in the annual report, we have introduced a valuer appointment policy which restricts the engagement of individual valuers on an asset to ten years. 45% of the portfolio was therefore subject to a change in valuer in the period, with no material impact on its performance at an overall or sector level. Details of our valuation policy can be found in the Governance section of our website. 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. 10

11 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 period 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: 6 months to Section 2016 Gross rental income Property operating expenses (15) (19) Net rental income Net fees and other income 8 8 Administrative expenses 1.2 (43) (41) Net financing costs 1.3 (78) (66) Underlying profit Non-controlling interests in Underlying Profit 7 6 EPRA adjustments 1 (411) 34 IFRS profit before tax 2 (205) 238 Underlying EPS p 19.2p IFRS basic EPS 2 (19.0)p 23.2p Dividend per share p 15.04p 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 Net rental income for the six months ended Net divestment (22) Expiries on developments (15) RBS surrender 15 Development lettings 2 Like-for-like rental growth 5 Net rental income for the six months ended 297 The 15 million decrease in net rental income during the period was the result of divestment activity and lease expiries partially offset by a one-off surrender premium, leasing of developments and like-for-like growth. Net income producing asset sales of 1.5 billion over the last 18 months have reduced rents by 22 million in the period. Lease expiries relating to properties in our development pipeline reduced net rents by 15 million, including 4 million at 100 Liverpool Street where we are on site and progressing well with development, 4 million at the substantially pre-let 1 Triton Square scheme and 3 million at 1 Finsbury Avenue where we started on site in August. Also included in this figure is 2 million at our near-term development 135 Bishopsgate; Royal Bank of Scotland surrendered their lease in June ahead of expiry in 2019 and we recognised a one-off surrender premium of 15 million in the period, the impact of which offsets the development lease expiries. 11

12 As well as development lettings at 4 Kingdom Street and Clarges contributing 2 million to rents, like-for-like rental income grew by 1.8% excluding the impact of surrender premia. Retail growth was 1.7% (4.0% including the impact of surrender premia). This was driven by asset management activities, such as splitting units, as well as leasing of vacant space. Office and Residential like-for-like growth was 1.9% 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 2 million this period as a result of lower variable pay. The Group s operating cost ratio increased by 120 bps to 16.2% (H1 2016/17: 15.0%). 1.3 Net financing costs Net financing costs for six months ended 2016 (78) Financing activity 8 Net divestment 7 Developments and other (3) Net financing costs for six months ended (66) We reduced financing costs by a further 12 million this half year. Debt transactions undertaken over the last 18 months reduced financing costs by 8 million in the period. This includes the early repayment of BLT debt following the net sales of five properties and exit from the joint venture in April, as well as repayment of our 6.75% 2020 debentures. Prior year activity includes the early repayment of the 295 million TBL Properties Limited secured loan and close-out of related swaps. Our liability management over the last six months, which is NPV positive, reduced EPRA NAV by 3 pence. In September, 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. Pricing in the Sterling bond market has moved considerably over the last year and we took advantage of this by issuing a debut 300 million unsecured Sterling bond for 12 years at a coupon of 2.375%. This is the lowest for UK real estate companies in this market and we were pleased with the level of support from a range of debt investors. As well as diversifying both our sources of funding and our maturity profile, it also established a benchmark in the Sterling market. Net divestment activity reduced costs by a further 7 million, the impact of which is partially offset by development spend. At we had interest rate hedging on 76% 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 was 19.2 pence (H1 2016/17: 19.3 pence) based on Underlying Profit after tax of 198 million (H1 2016/17: 199 million). The share buyback programme had a minimal impact on EPS in the period and is expected to have a 0.3 pence impact for the full year to 31 March 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 of 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. 12

13 The IFRS profit before tax for the period was 238 million, compared to a loss before tax for the prior period of 205 million. This reflects the positive valuation movement on the Group s properties which was 398 million more than the prior period and the valuation movement on the properties held in joint ventures and funds which was 231 million more than the prior period, in both cases resulting from stable yields and ERV growth of 1% in the current period. This was partially offset by higher capital financing costs of 159 million more than the prior period 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 liability management activity undertaken in the period leading to a 3 pence reduction in EPRA NAV per share. IFRS basic EPS was 23.2 pence per share, compared to negative 19.0 pence per share in the prior period, driven principally by positive property valuation movements. The basic weighted average number of shares in issue during the period was 1,028 million (H1 2016/17: 1,029 million). 3. Dividends As indicated in May, we increased the dividend by 3.0% for the 6 months to to pence and propose a full year dividend to 31 March 2018 of pence. The second interim dividend payment for the quarter ended will be 7.52 pence. Payment will be made on 9 February 2018 to shareholders on the register at close of business on 5 January The second interim dividend will be a Property Income Distribution and no SCRIP alternative will be offered. This results in a dividend pay-out ratio of 78% for the period (H1 2016/17: 76%). Balance sheet Section FY 2016/17 H1 /18 Properties at valuation 13,940 13,515 Other non-current assets ,096 13,677 Other net current liabilities (364) (340) Adjusted net debt 6 (4,223) (3,691) Other non-current liabilities (11) - EPRA net assets 9,498 9,646 EPRA NAV per share 4 915p 939p Non-controlling interests Other EPRA adjustments 1 (277) (268) IFRS net assets 5 9,476 9,632 1 EPRA net assets exclude the mark-to-market on effective cash flow hedges 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 valuation surplus on trading properties 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 Details of the EPRA adjustments are included in Table B within the supplementary disclosures. 13

14 4. EPRA net asset value per share pence EPRA NAV per share at 31 March 915 Valuation performance 18 Underlying Profit 19 Dividends (14) Liability management costs (3) Share buyback 4 EPRA NAV per share at 939 The 2.6% increase in EPRA NAV per share reflects a valuation increase of 1.4%. This is primarily due to stable yields and ERV growth of 1.0% 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. Retail valuations were up 0.3% with marginal outward yield movement of 5 bps and ERV growth of 1.0%: the multi-let portfolio, which accounts for 79% of our Retail assets, was down 0.4% but saw ERV growth of 1.1%. Further information on Retail valuation performance can be found on pages 25 and 26. Office and Residential valuations were up 2.6% driven by inward yield movement of 6 bps and ERV growth of 1.2%. The campuses account for 79% of the Offices portfolio and all delivered strong performance, reflecting the attractiveness of campus approach. Further information on Office & Residential valuation performance can be found on page 20. The 3 pence impact of liability management costs primarily relates to early repayment of debentures, term debt and termination of interest rate swaps. Included in this is the NAV impact of the redemption of the BLD debenture on which we gave notice to repay in the period and repaid on 3 rd October. Our share buyback programme has also contributed 4 pence to EPRA NAV. 5. IFRS net assets IFRS net assets at were 9,632 million, an increase of 156 million from 31 March. This was primarily due to IFRS profit before tax of 238 million and the other comprehensive profit of 134 million, partially offset by 150 million of dividends paid as well as 65 million of share purchases under the share buyback scheme. 14

15 Cash flow, net debt and financing 6. Adjusted net debt 1 Adjusted net debt at 31 March (4,223) Disposals 828 Acquisitions (92) Development and capex (118) Net cash from operations 183 Dividends (151) Share buyback (65) Other (53) Adjusted net debt at (3,691) 1 Adjusted net debt is a proportionally consolidated measure. It represents the Group net debt as disclosed in Note 10 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 divestment reduced debt by 0.7 billion in the period. Completed disposals during the period included the sale of The Leadenhall Building for 575 million (BL share) and, in line with our strategy of focusing on multi-let assets, 16 superstores totalling 242 million (BL share). Other investments included development expenditure of 84 million and capital expenditure of 34 million related to asset management on the standing portfolio. The value of committed developments is 810 million, with 446 million costs to come. Speculative development exposure is 4.0% of the portfolio after taking into account residential pre-sales. There are 562,000 sq ft of developments in our near term pipeline with anticipated cost of 218 million. As at, we had purchased 65 million of shares under our share buyback programme which was announced in July. 7. Financing 31 March Group Proportionally consolidated 31 March Net debt / adjusted net debt 1 3,094m 2,709m 4,223m 3,691m Principal amount of gross debt 3,069m 2,711m 4,520m 4,001m Loan to value 22.6% 20.1% 29.9% 26.9% Weighted average interest rate 2.4% 2.1% 3.1% 3.0% Interest cover Weighted average debt maturity 6.9 years 8.3 years 7.7 years 8.9 years 1 Group data as presented in note 10 of the condensed interim financial statements. The proportionally consolidated figures include the Group s share of joint venture and funds net debt and exclude the mark-tomarket on effective cash flow hedges and related debt adjustments and non-controlling interests. Our balance sheet remains resilient. LTV and weighted average interest on drawn debt have been reduced and interest cover improved during the period. At, our proportionally consolidated LTV was 26.9%, down 300 bps from 29.9% at 31 March due to disposals. This is positioned to support investment 15

16 into our development pipeline as well as maintain significant headroom. Note 10 of the condensed interim financial statements sets out the calculation of the Group and proportionally consolidated LTV. The strength of the Group s balance sheet is reflected in British Land s senior unsecured credit rating which continues to be rated by Fitch at A- with a Positive Outlook. We also maintain a sharp focus on ensuring our debt is cost effective. We reduced our proportionally consolidated weighted average interest rate to 3.0% at from 3.1% at 31 March and improved interest cover to 4.0x at from 3.6x at 31 March. Our weighted average debt maturity is almost 9 years following issuance of the 300 million unsecured Sterling bond. British Land has 1.7 billion of committed unsecured revolving banking facilities. These facilities have maturities of more than two years, of which 1.5 billion was undrawn at. Based on our current commitments, these facilities and debt maturities, we have no requirement to refinance until early 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. Summary After six years as CFO, I am proud that British Land s financial platform is structured to maximise value for shareholders. In this time, we have reduced LTV from 44.7% to 26.9% and WAIR by 1.9% to 3.0%, driving a 38% reduction in financing costs and almost doubling interest cover from 2.2x to 4.0x. This keen focus on capital discipline is most clearly illustrated by comparing the healthy 10% increase in net rental income we secured between September 2011 and September with the 50% increase in underlying profits we delivered over the same period. At the same time, dividend payout has improved from 89% to under 80% while the dividend has continued to grow. The extensive financial capacity and flexibility we have secured for British Land position the Company to deliver long-term value for shareholders. Our de-risked development pipeline and balance sheet strength enable us to unlock accretive opportunities and continue to grow the dividend while keeping risk at a sensible level. Lucinda Bell Chief Financial Officer 16

17 BUSINESS REVIEW Strategy and Market Our strategy is designed to create strong alignment between our portfolio and the evolution of our chosen markets. Across the business, our focus is on creating outstanding places; curating not just our buildings, but the spaces between them. Our investment is led by our understanding of the consumer, which is grounded in data and analysis. This enables us to design our places to fit changing lifestyles, driving enduring demand for, and value from, our space. Our focus on campuses and multi-let retail enables us to create attractive environments with a mix of uses, services and occupiers that enhance the experience. However, there remains a role for standalone properties, as these provide liquidity and enhance shareholder returns through opportunistic development and trading. We have also assembled substantial development opportunities, enabling us to enhance our portfolio to maintain and extend our advantage. The economic outperformance which followed the EU referendum has moderated. GDP growth has slowed and there is uncertainty regarding the level of future growth. Unemployment is now at its lowest level in more than 40 years, though inflation is running ahead of wage growth, impacting consumer spending. Despite this, areas of the real estate market aligned to long-term trends continue to perform, and IPD shows a total property return of 5.0% for the period. Portfolio performance As at: 31 March Portfolio valuation 13,940m 13,515m Occupancy 98.0% 97.6% Weighted average lease length to first break 8.3 yrs 8.0 yrs 6 months to: 31 March Total property return +3.8% +3.8% - Yield shift -5 bps 0 bps - ERV growth +0.6% +1.0% - Valuation movement +1.6% +1.4% Lettings/renewals (sq ft) 888,000 1,342,000 Lettings/renewals vs ERV +4.0% +6.8% Gross investment activity 1 499m 1,207m - Acquisitions 13m 92m - Disposals 1 (345)m (992)m - Capital investment 141m 123m Net investment/(divestment) (191)m (777)m On a proportionally consolidated basis including the Group s share of joint ventures and funds 1 Current period figures include 575 million Leadenhall Building disposal that exchanged during the year ended 31 March and completed this financial year 6 months to Valuation Valuation movement % ERV growth % Yield shift bps Total property return % Retail 6, Offices & Residential 6, (6) 4.8 Canada Water 270 (4.5) Total 13,