Credit Suisse Annual Real Estate Conference Thursday, 6 April 2006
Agenda British Land at a Glance UK REITS UK Market Fundamentals Strategy & Positioning Activity in 2005/6 Out of Town Retail & London Office Assets & Markets 2
What We Are UK quoted property company, largest by assets 14.6bn Market capitalisation 6.3bn 1 Total assets under management 18.3bn About Growth, Quality and Security Highest quality assets in prime locations with strong tenants Actively and successfully Adding Value to real estate Focused with good portfolio positioning and active portfolio management 57% retail of which 73% out of town 37% offices of which 94% Central London Long leases providing sustainable, assured cash flows Average lease term of 15 years Low risk profile with balanced asset and liability model 1 As at 28 February 2006 British Land at a Glance 3
REITs New Rules, Same Underlying Assets & Markets Draft legislation expected early April, regulations early May with final legislation in July, and conversion available from 1 January 2007 REIT regime applies to listed, UK resident companies Positive response from Government on key features of REIT structure - Conversion charge 2% of market value of properties - Requirement to distribute 90% (formerly 95%) of taxable profits - Interest cover test improved from 2.5x to 1.25x - 10% shareholding restriction softened - Corporate JVs eligible BL a clear beneficiary of HMT s chosen conversion charge basis and relaxation of interest cover test If we convert, confident British Land will make a great REIT - Outstanding property portfolio offering quality, security and growth - Strong brand name - Record of outperformance - Excellent prospects REITs 4
British Land at a Glance Strong Record of Value Creation Profits Growth 1 Total Shareholder Return 2 Total Return 3 42% 24% 16% 8% 1 2 2 1 30% 25% 20% 15% 10% 3 2 2 1 18% 14% 10% 1 1 2 2 0% 5 YRS 3 YRS 1 YR Last 6 MTHS 5% 6% 5 YRS 3 YRS 1 YR Last 6 MTHS British Land Major Peers FTSE Real Estate 5 YRS 3 YRS 1 YR Last 6 MTHS 5 5 5 4 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 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 Interim IFRS Results(previously numbers based on UK GAAP) Number represents British Land s ranking compared to our major peers 5
Market Fundamentals Market Conditions Yield shift dominating investment returns, supported by fundamentals overall however process seems likely to be in later phases Parts of investment market overpricing property with income risk or without good growth prospects Secondary yield compression versus prime becoming vulnerable to setbacks Underlying challenges in real economy continue to restrain rental growth and take up of space overall Outperformance requires intense focus on meeting customer needs with prime modern, well located and efficient space Our key sector themes - Open A1 Out of Town Retail and Prime London Offices performing well with every prospect of continuing when yield shift fades 6
Market Fundamentals Property Yields Around Fair Value 20 15 Current Spot Real Income Return (Feb 2006) 2.8% 2005 Real Income Return 3.4% 20 Year Average 3.3% % 10 5 0 1980 1985 1990 1995 2000 2005 Property Income Returns Inflation (RPIX) Gilt Yield FTSE All Share Yield Source: IPD & ONS 7
Range in Equivalent Yields Lower to Upper Quartile Spreads Market Fundamentals IPD: Yield Compression Discounts Risk Factors Retail Warehouses Shopping Centres 2005 spread 2002 spread 2000 spread Standard Retail City Offices West End Offices Industrial 0 0.5 1 1.5 2 2.5 Spread of equivalent yields % Source: IPD 8
Market Fundamentals Rents Represent Good Value Overall to Occupiers 450 400 350 300 Index 250 200 150 100 50 0 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1991 1993 1995 1997 1999 2001 2003 2005 ERV RPI Source: Jones Lang LaSalle 9
Market Fundamentals PMA Rental Growth Forecasts 11 10 9 Central London Offices 5.8% pa 1 % ERV Growth pa 8 7 6 5 4 3 2 1 0-1 2005 2006 2007 2008 2009 Retail Warehouses 3.3% pa 1 Provincial Offices 1.9% pa 1 Industrial 0.7% pa 1 Shopping Centres 0.8% pa 1 High Street 0.5% pa 1 1 Average ERV growth pa over next 5 years Source: Property Market Analysis (PMA), September 2005 10
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 Industrial Total BL Weighting Sept 2005 32% (inc. superstores) 17% 8% 35% 2% 2% British Land at a Glance British Land Portfolio Protected against downside prime, low voids, long leases fully underpinning gearing Positioned for fundamental growth 42% 2 Out of Town retail Positioned for cyclical growth 35% Central London offices plus development pipeline leverage Strong rental hedge 1.6bn with rental uplift guarantees Extensive opportunities to sweat the assets 0 3 6 9 12 Average Total Return % pa Attractive new income streams from Funds 1 Property Market Analysis (PMA), September 2005 2 Includes retail warehouses, superstores and Meadowhall Shopping Centre 11
Strong Growth in Cash Rents in Prospect British Land at a Glance Sept 2005 m Of which contracted m Annualised Net Rents 696 696 Net Reversions 1 109 62 Committed Developments 40 28 Increase 149 90 Total 845 786 Development prospects 159 - Plus ERV Growth 1 Reversions include rent reviews, expiry of rent free periods ( 45m), lease break/expiry and letting of vacant space at ERV ( 29m) over next 5 years (as determined by independent valuers). 12
British Land at a Glance Sustainable Income: Long Leases & Low Vacancy Average lease term to Vacancy Rate As at 30 Sept 2005 first break, years 1,2 % 1 Total Portfolio 15.4 2.4 Retail Warehouses 14.8 Superstores 21.5 Shopping Centres 13.8 Department Stores 31.6 High Street 12.9 All retail 17.7 City Offices 11.6 West End Offices 9.9 Business Parks & Provincial 8.2 All offices 11.2 1.0-2.2-0.6 1.1 5.2 0.6 1.8 4.3 1 Excludes developments and residential (predominantly let on short leases) 2 Vacancy excluding space taken back in shopping centres and retail warehouses under asset management initiatives 13
Strategy & Positioning Delivering on our Promises Intensified Portfolio Reshaping Capital recycling to further improve risk adjusted returns Pro-active Asset Management Sweating the assets for outperformance Management and Culture Renewal Delivering the capability to outperform Investor Friendly Positioning Helping to clarify and enhance valuation potential And by so doing, produce superior, sustained and secure long-term shareholder returns 14
High Levels of Activity in 2005/6 1 Intensified portfolio re-shaping 2.2bn of value enhancing property disposals, 11.2% in excess of valuation 2 2.0bn of attractive property acquisitions (including Pillar), already increased in value by 8.0% 3 More disposals or Fund injections to come 911m acquisition of Pillar Property Plc completed in July 2005 Adding value through pro-active asset management 207 rent reviews, 5.2% above ERV 1m sq ft of new lettings generating 16m pa of additional rent Tightened sectoral focus on Open A1 Out of Town Retail and Prime London Offices Greater customer focus Pillar s customer focused model now being extended to broader BL portfolio Accelerating development programme in London 4.1m sq ft of well timed committed and prospective developments Delivering on our Promises 3.9bn of securitisations at an average interest rate of 5% and term of 16 years Average interest rate 4 reduced from 6.0% (March 2005) to 5.7% 1 The financial year from April 2005 to date 2 Sale price above latest year end valuation (March 2005)/fair value on acquisition 3 From purchase price on completion to 31 December 2005 4 Group and share of Joint Ventures and Funds 15
Pillar - 1.5bn 1 of Top Quality Real Estate Pillar Acquisition Acquisition rationale validated - 1.3bn 1 of the best retail warehouse assets (76% Open A1), expected to offer the most attractive continuing growth in the retail sector and benefits of creating largest out of town retail portfolio - Strong management team - Attractive Fund Management business (strategic options for other assets) Deal closed & going well - Integration gone well with no significant Pillar management losses - HUT fund increased by annualised rate of 35% March Dec 2005 and 2.5% higher than IPD 4 for calendar year - Rental growth (ERV) in HUT 10.2% for 2005, double the sector 4 average - Revenue & cost synergies in place - Fund activity continues apace - European expansion plans via PREF 3.4bn Assets Under Management HUT 2 3,002m CLOUT 2 102m PREF 3 265m HIF 3 145m Confident that Pillar will enhance shareholder value and support accelerated change at BL Six months ended 30 September 2005 1 Direct and share of indirect gross asset value at date of acquisition 2 As at February 2006 3 As at December 2005 4 IPD Retail Warehouse Index 16
2001 2002 2003 2004 2005 9MTHS TO DEC 05 2001 2003 2004 9MTHS TO DEC 05 2002 2004 2005 Financial Performance Strong Record of Performance Underlying Profit Before Tax 1 ( m) Net Asset Value per share 2 (p) Dividends per share (p) 200 1600 18 180 1400 16 160 140 120 100 1200 1000 800 14 12 10 80 60 40 600 400 8 6 4 20 0 200 0 2002 2005 2 0 2001 2003 1 Underlying profits exclude gains on asset revaluations & disposals and related tax, and the capital allowances effects of IAS 12 2 Adjusted, diluted 2001/4 stated under UK GAAP accounting standards, 2005/6 stated under IFRS 17
Secure & Attractive Risk Profile Finance and Capital Structure Prudent financial ratios, especially given low income risk Leases average 15 yrs to first break Vacancy rate remains low Key Financial Ratios 1 Dec 2005 Sept 2005 LTV Group 46% 51% Gearing fell as a result of asset sales and valuation growth (LTV 59% post Pillar 3, now 50%) LTV inc. share of JVs & Funds Interest cover 2 50% 1.6x 54% 1.6x Average interest rate 5.9%, reduced to 5.7% following completion of 753m Average interest rate 5.9% 5.9% superstores refinancing Weighted average debt maturity 12.2 yrs 11.8 yrs Long average debt term 12.2 yrs and significant undrawn committed facilities Cash and undrawn facilities - Group 1,879m 1,215m 1 Proportional consolidation of JVs & Funds (unless stated as Group) 2 Net rents/net interest 3 Proforma 18
Positioned for Growth with Security - 14.6bn of Assets 57% Retail: 37% Offices: 73% Out of Town 94% Central London Assets Retail Warehouses 21% Central London offices 33% Superstores 11% Out of Town Shopping Centres 10% In Town Shopping Centres 7% High Department Street Stores 3% 5% Other 6% Business Parks & Provincial 2% Office Development 2% 19
Retail 11.6bn Retail Portfolio (BL Share 8.4bn) Largest UK portfolio 27m sq ft of retail accommodation 57% of BL portfolio 0.5m sq ft development pipeline out of town 64 Retail Parks 38 Solus units 69 Superstores Retail Warehouses 36% 26% Out In of Town 73% High Street 5% Department Stores 10% In Town Shopping Centres 12% Superstores 19% Out of Town Shopping Centres 18% An advantaged portfolio with distinctive leadership positions 10 Shopping Centres 39 Department stores 84 High Street shops 20
Out of Town Retail Why we like Out of Town Retail Growing share of consumer spending Over next 5 years, Out of Town sales predicted to grow at 4.3% pa vs 2.4% pa In Town 1 BL Superstores BL Retail Warehouses Cost/accommodation advantages for retailers Healthy retailer demand as migration from High Street continues Increasingly constrained supply of new space Defensive lease and property characteristics EQUALS Continuing prospect of superior risk adjusted returns 1 Verdict Sept 2005 21
Out of Town Retail Outlook Out of Town: Growing Share of Consumer Spending Growth % 12 10 8 6 4 2 0 Out of Town vs. Total Retail Sales 36 34 32 30 28 26 24 22 20 % OOT Share of Total Sales In Town Growth pa Out of Town Growth pa 1994 2004 3.8% 7.2% H1 2005 1.4% 2.4% Next 5 year 2.4% 4.3% 1995 1997 1999 2001 2003 2005 2007 2009 Out of Town (left hand axis) Total (left hand axis) Out of Town % Share of Total Sales (right hand axis) Source: Verdict Sept 2005 22
Out of Town Rents more Affordable Out of Town Retail Outlook In Town Prime rent psf 1 Edinburgh 74 Prime rent psf 2 Out of Town 49.5 As a % of In Town Rent 67% Glasgow 77 40 52% Leeds 82 53 65% Newcastle 84 34 40% Speke, Liverpool 79 42 53% Watford 80 52.5 66% Average 79 45 57% Out of Town sales densities for fashion retailers reaching c.80% of In Town 3 1 CCRE Prime rent psf based on a 5,000 sq ft store (ground & first floors trading 2,500 sq ft each; store width 30 ft; 1/3 of first floor as storage; 20 ft zones except Edinburgh & Glasgow based on 30ft zones) 2 BL & Funds top rents on retail warehouse units of 10,000 sq ft 3 Verdict Sept 2005 23
Market Summary Out of Town Retail 11.6bn Retail portfolio (BL Share 8.4bn): 57% of total portfolio, 73% Out of Town Retail trading a challenge but far from doom & gloom Property basics re-asserting themselves Location, quality, planning, supply/demand UK trends favour Open A1 Out of Town retail Asset management skills create distinctive extra value British Land retail portfolio has leadership in the most advantaged sector Outlook remains positive for rental growth underpinned by scarcity and investment demand 1 IPD Monthly Index for Retail Warehouse 24
3.4bn Assets Under Management in Funds Fund Management HUT ( 3,002m; BL Share 1,040m) 1 HIF ( 145m; BL Share 38m) 2 PREF ( 265m; BL Share 96m) 2 Largest specialist UK retail park portfolio Focus on Open A1 parks in excess of 100,000 sq ft 22 retail parks covering 5.3m sq ft Focus on smaller UK retail parks and clusters with an emphasis on higher distributable yield 13 properties covering 500,000 sq ft 45% with Open A1 consent Invests in out of town retail parks in the Eurozone Over 1.2m sq ft of European retail park space Target portfolio size 1bn by end 2006 2005 Ungeared Total Return 24.1% 2005 Geared Total Return 35.5% 2005 Ungeared Total Return 24.2% 2005 Geared Total Return 26.8% 2005 Ungeared Total Return 14.5% 3 2005 Geared Total Return 19.2% 3 1 As at February 2006 2 As at December 2005 3 Provisional (unaudited) 25
Offices 5.9bn Office Portfolio (BL Share 5.5bn) 8m sq ft of office accommodation 37% of BL portfolio Exceptional development pipeline Broadgate (4m sq ft) Plantation Place (0.7m sq ft) Business Parks & Provincial Office Development 6% 6% West End 13% 95% Central Central London London 94% City 75% 4.1m sq ft of London office developments 1 Regent s Place (1.3m sq ft) 1 Committed and prospective London office development pipeline 26
City Supply vs. Demand Improving London Office Outlook Take Up (Rolling Annual) Vacant Space Vs Take Up 10 8 14 12 10 BL Forecast m sq ft 6 4 m sq ft 8 6 4 2 2 0 1Q91 4Q91 3Q92 2Q93 1Q94 4Q94 3Q95 2Q96 1Q97 4Q97 3Q98 2Q99 1Q00 4Q00 3Q01 2Q02 1Q03 4Q03 3Q04 2Q05 Source: Jones Lang LaSalle and BL Forecast 0 2003 2004 2005 2006 2007 2008 Vacant Space Total Take Up Take Up excluding Pre-lets 27
London Office Outlook Upturn in City Rents Predicted 80 70 60 Headline and Effective Rents 1 Agents Consensus Range Average psf Increase BL City Rent Reviews % of Rent Roll psf 50 40 30 20 10 2006 47.30-50.60 5.7% 20% 2007 52.00-55.40 8.0% 15% 2008 56.90-62.40 9.7% 16% 2009 59.30-67.10 6.6% 32% 0 80 84 88 92 96 00 04 08 2010 60.90-69.10 7.3% 15% Headline Effective 1 Property Market Analysis (PMA), September 2005 28
4.1m sq ft of London Office Developments Developments 7 79 5 6 2 3 4 1 88 1 The Willis Building 4 One Coleman Street 7 Regent s Place 2 Ludgate West 5 The Broadgate Tower & 201 Bishopsgate 8 The Leadenhall Building 3 35 Basinghall Street 6 The York Building 9 Ropemaker Place 29
The Broadgate Tower & 201 Bishopsgate (822,000 sq ft) Committed Developments 1.8m sq ft of Committed London Office Developments The Willis Building (475,000 sq ft) Under construction delivery to market in 2008 Two buildings, to form the next phase of Broadgate Designed to offer a wide choice to tenants and meet the needs of both financial and professional occupiers 465,000 sq ft pre-let to Willis for 25 years, without breaks Contracted rental income 21m pa Construction on time and on budget for target completion Q1 2007 30
Ropemaker Place (511,000 sq ft) Regent s Place (1m sq ft planned) Prospective Developments 2.3m sq ft of Prospective London Office Developments The Leadenhall Building (601,000 sq ft) Consent for 511,000 sq ft office space Construction will start later this year for delivery to market in Q1 2009 Consent for 490,000 sq ft office and residential accommodation Further 450,000 sq ft pending Negotiations to secure vacant possession Consent for 47-storey Tower - triple existing floorspace Negotiations progressing to facilitate development start Q1 2007 31
Market Summary London Offices 5.9bn Office portfolio (BL Share 5.5bn): 37% of total portfolio, 94% in London London office cycle is now in up phase Falling Grade A vacancy and lack of new supply looking out to 2008 mean rents & incentives hardening Outlook is for acceleration of these trends from currently modest start But supply will awaken and there is not a leasing bonanza so product and timing remain crucial BL actively recycling capital through sales, together with increased development where timed for early delivery 32
Summary Delivering on our Promises Intensified Portfolio Reshaping Capital recycling to further improve risk adjusted returns Pro-active Asset Management Sweating the assets for outperformance Management and Culture Renewal Delivering the capability to outperform Investor Friendly Positioning Helping to clarify and enhance valuation potential And by so doing, produce superior, sustained and secure long-term shareholder returns 33
Disclaimer The information contained in this presentation has been extracted largely from the Interim Results Statement for the six months ended 30 September 2005. General property market data has been extracted from Jones Lang LaSalle, PMA, Verdict and other agents reports (please note that their definitions may differ slightly). Data includes share of Funds and Joint Ventures, unless otherwise stated. Group excludes share of Funds and Joint Ventures. Underlying profit and EPS excludes gains on disposals of assets and revaluation. Adjusted NAV includes the external valuation surplus on trading and finance lease properties and excludes the contingent tax provision, any related goodwill, the fair value of debt and derivatives and the capital allowance effects of IAS12. This presentation may contain certain forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and results may differ materially from any outcomes or results expressed or implied by such forward-looking statements. Any forward-looking statements made by or on behalf of British Land speak only as of the date they are made and no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. British Land does not undertake to update forward-looking statements to reflect any changes in British Land s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. This presentation is published solely for information purposes. This presentation does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy any security, nor a solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of the securities referred to in this presentation in any jurisdiction in contravention of applicable law. In particular, the information presented here is not an offer for sale within the United States of any ordinary shares or any other security of British Land. Securities of British Land, including any offering of ordinary shares, may not be offered or sold in the United States absent registration under U.S. securities laws or unless exempt from registration under such laws. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. The distribution of this presentation in jurisdictions other than the UK may be restricted by law and therefore any persons who are subject to the laws of any jurisdiction other than the UK should inform themselves about, and observe, any applicable requirements. All opinions expressed in this presentation are subject to change without notice and may differ from opinions expressed elsewhere. 34