1st Quarter Results
British Land Co PLC
15 August 2006
15 August 2006
THE BRITISH LAND COMPANY PLC
FIRST QUARTER REPORT - TO 30 JUNE 2006
Highlights
• Net Asset Value (1) per share up 7.1% (106 pence) in three months to 1592
pence
- EPRA Net Assets (1) £8.4 billion
- Net Assets £6.5 billion
• Underlying pre-tax profit (2) £73 million, up 33% on Q4
- Headline pre-tax profit (3) £522 million
- Profit on ordinary activities before tax £500 million
• Underlying earnings per share (2) 11 pence
- Headline earnings per share 80 pence
• Portfolio valuation increase of 3.5% for the quarter
- Comparable with IPD data
- Valuation uplift led by London Offices and Retail Warehouse parks
• Properties owned or managed £19.4 billion
• Activity levels remain high
- 3.5 million sq ft London Office development projects progressing well -
on time and on budget
- First £50 per sq ft headline new letting in Broadgate this cycle
- Over £500 million (gross) value enhancing disposals announced since
March 2006 (£68 million in quarter), with more to come
- Attractive acquisitions of retail warehouses in UK & Europe
- £1 billion debenture refinancing announced, reducing future interest
expense
- Board succession plans announced at AGM on 14 July 2006
- On track for REIT conversion in January 2007
Sir John Ritblat, Chairman comments:
"The year has started well for both British Land and the property markets. We
continue to be active on both sides of the balance sheet and remain confident of
our prospects. These results again highlight the appeal of our business model,
built on the bedrock of growing rental income of exceptional quality and
security from our outstanding portfolio - features that bode well for the future
and for the REIT format."
(1) EPRA (European Public Real Estate Association) basis - Note 2
(2) see Note 2 to the accounts
(3) with proportional consolidation of Funds and Joint Ventures - Table A
Prior periods have not been restated/revalued on a quarterly basis, hence
comparative data will only be available from December 2006
Review by the Chief Executive, Stephen Hester
We are pleased to be reporting another strong quarter. This was characterised by
good financial results and continued high levels of activity to reinforce our
business positioning and growth prospects.
Markets
Real estate markets are still showing robust performance, again dominated by
yield shift. Although it remains our forecast that this will slow markedly, good
money will still be made by those best positioned to exploit sectoral trends and
work development and other assets hard.
Greater sectoral differentiation is evident this quarter as Office yields -
particularly in London - continue their sharp downward movement in anticipation
of cyclical acceleration of rental growth. Retail property returns, while still
strong, are slowing after their outperformance of recent years. The underlying
occupational markets show largely unchanged trends versus previous quarters.
London office vacancy rates continue to tighten resulting in rental growth and
reduction of letting incentives which are now clearly evident. British Land's
strong development programme remains well placed to profit from this cycle. The
retailing occupancy picture is more differentiated. While showing growth
overall, the market reflects the mixed fortunes of specific retailers/locations.
This underlines the positioning benefit of our sub-sector focus on Open A1
retail warehousing and our growing portfolio of fixed rental uplift leases.
REITs Update
We announced in May the intention to convert to REIT status assuming
satisfactory passage of the relevant regulatory changes. Royal Assent was duly
received to the Finance Bill on 19 July and we are well on course for a target
January 2007 conversion, though this is subject to publication of further
detailed regulations in time and a fourth quarter EGM (date to be confirmed
later in the year). Meanwhile we are engaged in sorting through aspects of
internal structuring and detailed property strategy to ensure we make the most
effective use of REIT status.
Portfolio Reshaping
We continue to improve the already good risk adjusted returns and associated
growth prospects for our assets through sales and purchases, while having regard
for the REITs timetable in considering strategy, structure and timing. This
activity also increases focus on our primary areas of competitive advantage in
London Offices and Open A1 out of town retail.
Following on from some £2.0 billion of assets acquired and £2.2 billion sold in
2005/6, we have bought or sold over £1 billion of property since March 2006,
with more to come.
The tables below set out activity during the first quarter and in the year to
date.
-------------------------------------------------------------------------
Sales Price BL Share Gain
£m £m % (1)
-------------------------------------------------------------------------
3 months to 30 June 2006
B&Q Warehouse, Stockton-on-Tees 29 29 0.5
4 High Street Shops 15 14 8.6
Others 24 14 27.5
------- ------- -------
68 57 8.1
-------------------------------------------------------------------------
Since 30 June 2006 (exchanged/completed)
Weston Favell Shopping Centre, 122 61 22.0
Northampton (2)
Plumtree Court, EC4 (3) 120 43 18.8
51 Eastcheap, EC3 55 55 7.1
2-12 & 20-21 Cornwall Terrace, 50 50 59.8
Regent's Park, NW1
4 Retail Warehouses 43 33 9.2
4 High Street Shops 26 26 5.6
Orchard Brae House, Edinburgh 24 24 9.1
Others 1 1 2.2
------- ------- -------
441 293 18.9
-------------------------------------------------------------------------
Total 509 350 17.0
(1) sale price above latest year end valuation (March 2006)
(2) Tesco British Land Property Partnership
(3) City of London Office Unit Trust (CLOUT)
------------------------------------------------------------------------
Purchases Price BL Share
£m £m
------------------------------------------------------------------------
3 months to 30 June 2006
50% share of Puerto Venecia Retail Park, 69 69
Zaragoza(1)
2 B&Q Warehouses 32 23
Others 29 23
------- -------
130 115
------------------------------------------------------------------------
Since 30 June 2006 (exchanged/completed)
50% share of BL Davidson 363 363
7 B&Q Warehouses 198 198
5 Retail Parks in Europe(2) 88 30
Giltbrook Retail Park, Nottingham 35 35
66 Wilson Street, EC2 6 6
690 632
------- -------
Total 820 747
------------------------------------------------------------------------
(1) purchase of 50% interest from and joint venture development agreement
with Copcisa Corp (a Spanish construction company) and private investors
(2) PREF - three parks in Portugal, one in Madrid and one in Belgium
The tables also show the continued tightening of our sectoral focus with more
exits from high street retail and provincial offices whilst recycling our
capital within 'advantaged sectors' to reinforce our leadership positions and
improve growth prospects.
In London Offices expansion lies primarily through our development programme
with the strong investment market providing good opportunities to exit
properties with riskier growth profiles. In addition to the sale of the final
investment held by CLOUT at Plumtree Court, EC4 for £120 million, we have just
exchanged contracts for the disposal of the offices at 51 Eastcheap, EC3 for
£55 million.
In Retail, we are focused on three themes:
- improving our Open A1 retail warehouse profile through sales of bulky
goods parks or slower growth assets and reinvestment in those Open A1 parks
where we see good rental growth continuing
- repositioning the in town retail portfolio through disposals, selective
acquisitions and continuing asset management to take advantage of ongoing
retailer requirements for larger floor plates at lower occupancy costs
- increasing our European retail out of town portfolio via the PREF Fund
and our major development JV in Zaragoza, Spain.
Across the sectors we are also selectively increasing our holdings of long,
fixed uplift or indexed leases, offering assured real returns which we expect to
be more sought after as yield shift slows.
In April 2006, British Land acquired for £33 million additional units in the
Hercules Unit Trust (HUT), which owns the largest specialist UK retail park
portfolio at £3.3 billion, increasing our ownership of the Fund from 34.6% to
36.3%.
Pro-active Asset Management
Across the business, the process of adding value to our real estate holdings
continues, driven by our focus on customer needs and service.
In Out of Town retail, we have built a market leading portfolio and are thereby
benefiting from deeper relationships with our customers. We have continued to
create value through customer focus, implementing a wide range of letting,
tenancy changes, lease restructurings, planning improvements and scheme
refurbishments.
During the quarter, in our owned and managed retail warehouse portfolio we have
undertaken 33 new lettings comprising 214,700 sq ft, including at the Kingston
Centre, Milton Keynes where new top rents of up to £45 per sq ft have been
achieved on lettings to Lilley and Skinner and Blacks Leisure Group. Also at
Westside Retail Park, Guiseley we have let 5,000 sq ft to Carpetright at
£25 per sq ft, an increase of over 50% on the previous rent for this unit and
contributing to a 11% capital uplift on this scheme over the quarter.
At Springfield Retail Park, Elgin we achieved an Open A1 planning consent for an
existing 30,000 sq ft terrace which previously had a bulky goods consent, and
have planning consent to improve the remainder of the scheme (97,500 sq ft).
We have been working with bulky goods occupiers to relet Open A1 space at higher
rents. Units formerly occupied by PC World and Currys at the Deepdale Shopping
Park, Preston have been redeveloped to provide 50,000 sq ft which has now been
let to Marks & Spencer, New Look, Mamas & Papas, Carphone Warehouse and Clarks,
all due to open in Autumn 2006.
Works are progressing well at the Great Malvern Retail Park to relocate Focus,
enabling lettings to Marks & Spencer and New Look, 20,000 sq ft and 10,000 sq ft
respectively. The New Look letting has now exchanged at £33.40 per sq ft, an
increase of 28% above the previous rent.
At Broughton Shopping Park, Chester, Monsoon, River Island, Pavers and Game have
all taken new units and New Look has doubled the size of its existing store,
firmly establishing the scheme as a fashion destination. These lettings follow
on from the planning permission to build a 200,000 sq ft extension, including a
90,000 sq ft Marks & Spencer store.
In the Superstores portfolio, we have again made good progress with rent reviews
and since 30 June 2006 achieved a significant rent review determination on the
Sainsbury's store at Chiswick (75,600 sq ft). The arbitrator's award was £30 per
sq ft as a base rent which equated to £33 per sq ft after adjustment for
fixtures and fittings. This represented a 42% increase above the previous
passing rent of £21.05 per sq ft which, while in line with our own rent
expectations, exceeded by over 20% the external valuer's estimated rental value
at the review date.
In London, our first-class office development programme is accelerating and, we
believe, well timed. In the West End, construction of York House will complete
in the third quarter, on time and on budget, part of which we will occupy as our
new head office. Although we have not yet formally marketed space in the
building, tenant interest is already very encouraging.
We expect to be on site with the next phase of Regent's Place (490,000 sq ft
net) in early 2007 allowing this major development prospect to move forward on a
timely basis. On this estate we have completed two regears to extend lease terms
by an average of seven years on over 90,000 sq ft of office accommodation let to
JP Morgan Chase Bank and BT. At 338 Euston Road we have recently accepted a
surrender of 12,700 sq ft which is being marketed in anticipation of benefiting
from improved demand and rental growth in the West End, and to establish new
rental levels at Regent's Place which is otherwise fully let.
In the City, our development at 51 Lime Street (475,000 sq ft) pre-let to Willis
is on track for completion early next year and will create a new City landmark.
The Ludgate development of 127,000 sq ft will also complete in 2007. Our 822,000
sq ft development at 201 Bishopsgate/Broadgate Tower is now going up for
delivery in 2008. Work on the Basinghall and Coleman Street (pre-let & forward
sold) developments within CLOUT also continue to plan. At Ropemaker Place
(548,000 sq ft) enabling works have commenced for building completion mid 2009.
Design work is progressing on the Leadenhall Building (601,000 sq ft) to
facilitate demolition of the existing building at the beginning of 2007 for
delivery in 2010.
Also in the City, we have completed two lettings at Plantation Place South and
10 Exchange Square at rental levels and terms that reflect the growing
improvement in the City occupational market. Broadgate, the pre-eminent location
in the City for financial and professional services, is experiencing increased
demand and falling availability. As a result at 10 Exchange Square we have now
achieved a headline rent of £50 per sq ft with a reduced rent free period; 10
Exchange Square is now 90% let. Similarly we have let another 28,000 sq ft at
Plantation Place South and are encouraged by demand, with quoting rents on the
remaining 86,600 sq ft increased to £49.50 per sq ft.
Valuation
The table below shows the principal valuation movements for the three month
period to 30 June 2006.
The 3.5% portfolio uplift for the quarter was comparable with that reported by
the IPD statistics for the same period (3.6%). Contributing to this was like for
like growth in rental value (ERV) for the portfolio ahead of the market at 1.3%,
driven by a 2.7% increase in office ERV, and yield shift. The net equivalent
yield (including purchasers' costs) on the portfolio has tightened by 11 bps to
4.8% during the three months on a like for like basis.
The main sector drivers of the valuation increase over the quarter were:
•London offices (including developments) at 35% of the portfolio rose by
5.0%, driven by yield shift and improvements in market rental values.
•Retail warehouse parks at 22% of the portfolio, up 3.6% led by further
yield compression and rental growth on Open A1 parks. The HUT Trust return
was 11.5% for the first six months of its calendar year, 9.0% ungeared,
compared to the IPD Quarterly Retail Warehouse benchmark (excluding HUT) of
8.6%.
Vacancy rates remain very low.
Valuation Group Funds/JVs(1) Total Portfolio Uplift (2)
by Sector £m £m £m % %
---------------- ------- --------- ------- -------- --------
Retail
Retail warehouses 1,624 1,753 3,377 22.3 3.6
Superstores 1,545 262 1,807 11.9 2.3
Shopping centres (3) 2,173 532 2,705 17.9 2.8
Department Stores 776 145 921 6.1 2.3
High street 329 36 365 2.4 1.2
---------------- ------- --------- ------- -------- --------
All retail 6,447 2,728 9,175 60.6 2.9
Offices
City (4) 3,668 43 3,711 24.5 4.8
West End (5) 671 44 715 4.7 4.0
Business parks & 171 7 178 1.2 0.3
provincial
Development 910 1 911 6.0 6.4
---------------- ------- --------- ------- -------- --------
All offices 5,420 95 5,515 36.4 4.8
Industrial, 397 64 461 3.0 1.1
distribution, leisure, ------- --------- ------- -------- --------
other
----------------
Total(6) 12,264 2,887 15,151 100.0 3.5
---------------- ------- --------- ------- -------- --------
(1)Group's share of properties in Funds and Joint Ventures
(2) increase in value for three months, includes valuation movement in
developments, purchases and capital expenditure, and excludes sales
(3) Meadowhall valuation up 2.6% to £1,600 million (up 3.2% pre cap-ex);
ERV £82.3 million; net equivalent yield 4.65% (true equivalent yield 4.8%)
(4) Broadgate valuation up 4.2% to £3,363 million; headline ERV range £37.50 -
£50.00 per sq ft (average headline ERV has risen 3.8% to £41.90 psf); net
initial yield 5.10% (assuming top up of rent free periods and guaranteed
minimum uplifts to first review)
(5) Regent's Place valuation up 3.0% to £597 million; headline ERV range
£23.50 - £45.00 per sq ft; net initial yield 4.95% (assuming top up of rent
free periods and guaranteed minimum uplifts to first review)
(6) annualised net rents £628 million (excluding developments) (net rental
income under IFRS differs from annualised net rents which are cash based,
due to accounting items such as spreading lease incentives and contracted
future rental uplifts, as well as direct property costs); portfolio current
yield (gross to British Land, without deduction of purchaser's costs) 4.4%;
current yield adding back rent frees 4.7%; reversionary yield (gross,
five years) 5.2%
Balance Sheet
Total properties as at 30 June 2006 were £15.2 billion, £19.4 billion including
assets under management.
EPRA net assets rose in the quarter by 7.3% (£570 million) to £8.4 billion
(balance sheet net assets £6.5 billion after deducting, inter alia, contingent
capital gains tax). EPRA NAV per share was up 7.1% to 1592 pence (31 March 2006:
1486 pence) and NNNAV (triple net) up 8.5% to 1236 pence (31 March 2006: 1139
pence).
Gearing fell as a result of asset sales and valuation growth. The Loan to Value
ratio was 40% (44% proportionally consolidated). In the current quarter, gearing
will be affected (inter alia) by revaluation movements, the proceeds of sales,
acquisition and development expenditure, payment of the final dividend and the
charge to be incurred on the £1 billion debenture refinancing (see below).
Income Statement
Gross rental and related income for the quarter was £155 million. Gross rental
income proportionally consolidated was £176 million. Other income, principally
Fund Management fees and investment income in the quarter was £24 million mainly
due to receipt of an £18 million dividend from Songbird Estates (such dividends
are not declared on a regular basis). Fee income (third party) from the Unit
Trusts was £4 million. The performance fee element (£2 million booked in the
quarter) is comparatively volatile and for calendar 2006 will be finalised in
the fourth quarter after the benchmark is published.
Net financing costs for the quarter were £75 million for the Group - £92 million
proportionally consolidated. Interest cover improved from the previous period
with underlying profits before interest and tax representing 1.8 times the net
interest charge, reflecting the Songbird dividend and lower gearing and
administrative expenses. The average interest rate for the Group was 5.7% as at
30 June 2006. This rate is expected to fall by approximately 30 bps to 5.4% as a
result of the £1 billion debenture refinancing announced last month. The
transaction is expected to reduce annual interest costs by up to £11 million,
with an exceptional financing charge estimated at £250 million to be taken in
the current quarter. The actual figures will depend on the percentage of
debenture holders electing to recoupon and market rates at completion.
Underlying pre-tax profits for the quarter were £73 million boosted by the
Songbird dividend (excluding this item underlying pre-tax profits would be some
£55 million). On a headline basis, pre-tax profits (proportionally consolidated)
were £522 million for the quarter including £455 million of unrealised valuation
and disposal gains.
Headline earnings per share were 80 pence. Underlying earnings per share were
11 pence. The Songbird dividend is not taxable, so the overall tax rate on
underlying profits is 19% for the quarter.
A proportionally consolidated income statement and balance sheet have been
prepared and attached as Table A to view the results of British Land's interests
in Funds and Joint Ventures on a 'look through' basis.
Consolidated Income Statement for the three month period ended 30 June 2006
Three months ended
30 June 2006
Unaudited
Year ended ---------------------
31 March 2006 Underlying Capital,
Restated + pre tax * tax & other Total
£m Note £m £m £m
--- --- --- ---
--- --- --- ---
690 Gross rental and related income 3 155 155
------------ ---- ------------------------ ----- ---------- ---------- ------
589 Net rent and related income 3 136 136
50 Fees and other income 4 24 24
(10) Amortisation of intangible asset (4) (4)
311 Funds and joint ventures 7 9 69 78
(see also below)
(81) Administrative expenses (21) (21)
1,370 Net valuation gains (includes 5 362 362
profits on disposals)
(240) Goodwill impairment
Net financing costs
50 financing income 31 31
(419) financing charges (106) (106)
(122) refinancing charges
------------ ---------- ---------- ------
(491) (75) (75)
------------ ---------- ---------- ------
1,498 Profit on ordinary activities 73 427 500
before taxation
----------
Taxation (expense) credit
(7) current (5) (5)
(307) deferred (80) (80)
------------ ---------- ------
(314) 6 (85)
------------ ----
------------------------ ----- ---------- ---------- ------
Profit for the period after
taxation attributable
1,184 to shareholders of the Company 415
------------ ---- ------------------------ ----- ---------- ---------- ------
228 p Earnings per share: basic 2 80 p
------------ ------
227 p diluted 2 80 p
------------ ------
------------ ---- ---------- ---------------- ----- ---------- ---------- ------
Share of results of funds and joint ventures
39 Underlying profit pre-tax 7 9 9
378 Net valuation gains (includes 7 93 93
profits on disposals)
Goodwill impairment 7 (2) (2)
(9) Current tax 7 (2) (2)
(97) Deferred tax 7 (20) (20)
------------ ---- ---------- ---------------- ----- ---------- ---------- ------
311 9 69 78
------------ ---- ---------- ---------------- ----- ---------- ---------- ------
------------ ---- ---------- ---------------- ----- ---------- ---------- ------
+ As described in note 1.
* As defined in note 2.
Consolidated Balance Sheet as at 30 June 2006
30 June 31 March
2006 2006
Unaudited Restated +
Note £m £m
---- ----
Assets
Non-current assets
Investment properties 8 11,492 11,081
Development properties 8 693 597
-------- ---- -------
12,185 11,678
Other non-current assets
Investments in funds and joint ventures 7 1,402 1,234
Other investments 247 248
Intangible assets 61 65
-------- ---- -------
13,895 13,225
-------- ---- -------
Current assets
Trading properties (at cost) 8 36 36
Debtors 111 118
Cash and short-term deposits 9 204 133
-------- ---- -------
351 287
------------------- -------- -------- ----- -------- ---- -------
Total assets 14,246 13,512
------------------ -------- -------- ----- -------- ---- -------
Liabilities
Current liabilities
Short-term borrowings and overdrafts 9 (124) (129)
Creditors (456) (417)
-------- ---- -------
(580) (546)
-------- ---- -------
Non-current liabilities
Debentures and loans 9 (5,682) (5,575)
Other non-current liabilities (38) (44)
Deferred tax liabilities (1,447) (1,331)
-------- ---- -------
(7,167) (6,950)
-------- ---- -------
Total liabilities (7,747) (7,496)
-------------- -------- -------- ----- -------- ---- -------
Net assets 6,499 6,016
-------------- -------- -------- ----- -------- ---- -------
Equity
Share capital 130 130
Share premium 1,253 1,253
Other reserves 243 176
Retained earnings 4,873 4,457
----------------------------- -------- ---- -------
Total equity attributable to shareholders of 6,499 6,016
the Company -------- ---- -------
-----------------------------
EPRA NAV per share: 2 1592 p 1486 p
-------- ---- -------
(The EPRA Net Asset Value (NAV) per share includes the external
valuation surplus on trading properties but excludes the fair value
adjustments for debt and related derivatives and deferred taxation on
revaluations and capital allowances, calculated on a fully diluted
basis.)
+ As described in note 1.
Consolidated Cash Flow Statement for the three month period ended 30 June 2006
Three months
Year ended ended
31 March 30 June
2006 2006
Audited Unaudited
£m Note £m
---- ----
--- ---
455 Cash generated from operations 10 127
(392) Interest paid (58)
13 Interest received 4
(10) UK corporation tax received (paid) 9
(3) Foreign tax paid
25 Dividends funds and joint ventures 16
received:
16 other investments 18
-----------
-------------
104 Net cash inflow from operating activities 116
----------- -------------
Cash flows from investing activities
Purchase of investment properties
(402) and development expenditure (123)
1,889 Sale of investment properties 46
(8) Foreign tax paid on property sales
(3) Purchase of investments
(21) Investment in and loans to funds and joint (98)
ventures
277 Capital distributions received from funds and joint 5
ventures
69 Amounts repaid by funds and joint ventures
(815) Purchase of subsidiary companies (net of cash
acquired)
----------- -------------
986 Net cash (outflow) inflow from investing activities (170)
----------- -------------
Cash flows from financing activities
4 Issue of ordinary shares
(10) Purchase of ESOP shares (4)
(84) Dividends paid
753 Issue of BL Superstores Finance PLC securitised debt
(705) Redemption of BLSSP (Funding) PLC securitised debt
(398) Repayment of debt acquired with subsidiary companies
(669) Increase (decrease) in bank and other borrowings 130
-----------
-------------
(1,109) Net cash inflow (outflow) from financing activities 126
----------- -------------
(19) Net increase (decrease) in cash and cash equivalents 72
147 Cash and cash equivalents at 1 April 2006 128
----------- --- ----------------------------------- -------------
128 Cash and cash equivalents at 30 June 2006 200
----------- --- ----------------------------------- -------------
Cash and cash equivalents consists of:
133 Cash and short-term deposits 204
(5) Overdrafts (4)
----------- -------------
128 200
----------- -------------
Consolidated statement of changes in equity (unaudited)
for the three month period ended 30 June 2006
Share Share Other Retained
capital premium reserves earnings Total
£m £m £m £m £m
---- ---- ---- ---- ----
At 1 April 2006 - as previously 130 1,253 79 4,554 6,016
published
------ -------- ------- ------- -------
Restatement (note 1) 97 (97)
------ -------- ------- ------- -------
Restated position at 1 April 2006 130 1,253 176 4,457 6,016
Profit for the period after taxation 415 415
------ -------- ------- ------- -------
Revaluation of development properties 48 48
Gains (losses) on cash flow hedges
- group 34 34
- funds and joint ventures 6 6
Actuarial gain on pension scheme 3 3
Tax on items taken direct to equity (33) (33)
------ -------- ------- ------- -------
Net income recognised directly in equity 55 3 58
Transferred to the income statement
Foreign currency derivatives 10 10
Cash flow hedges 2 2
------ -------- ------- ------- -------
Total recognised income and expense
for the period 67 418 485
Purchase of ESOP shares (4) (4)
Share option awards 2 2
-------------------------- ------ -------- ------- ------- -------
At 30 June 2006 130 1,253 243 4,873 6,499
-------------------------- ------ -------- ------- ------- -------
Notes to the accounts (unaudited)
1. Basis of preparation
The financial information contained in this report does not constitute statutory
accounts within the meaning of section 240 of the Companies Act 1985. The full
accounts for the year ended 31 March 2006, which were prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted for use in the
European Union and which received an unqualified report from the auditors, and did
not contain a statement under s237 (2) or (3) of the Companies Act 1985, have been
filed with the Registrar of Companies.
The current period financial information presented in this document is unaudited. It
has been prepared using accounting policies consistent with IFRS and the accounting
policies set out in the Group's audited results for the year ended 31 March 2006,
consistently applied in all material respects, with the exception that following an
amendment to IAS 39 the surplus or deficit arising on the revaluation of other
investments is now taken to equity rather than recognised directly in the income
statement. This change has no impact on the group's net assets and the comparative
income statement has been restated on a consistent basis.
This is the first quarterly report for the three months ended 30 June prepared by
British Land. A retrospective valuation was not carried out at 30 June 2005, due to
the additional costs and limited benefits involved; accordingly, restated IFRS
comparatives at 30 June 2005 are not presented.
The quarterly financial information was approved by the Board on 14 August 2006.
2. Performance measures
3 months ended Year ended
30 June 2006 31 March 2006
Earnings per share (diluted) Earnings Pence per share Earnings Pence per share
£m £m
---- -------------- ---- ------------
Underlying pre-tax profit - 73 228
income statement
Tax charge relating to underlying (14) (43)
profit -------- ------------ ---- -------- ---- ------------
----------------------
Underlying earnings per share 59 11 p 185 36 p
---------------------- -------- ------------ ---- -------- ---- ------------
Debt refinancings (net of tax) (85)
Prior year tax movements 1 8
Other items, including property 3 (1)
trading profits -------- ------------ ---- -------- ---- ------------
----------------------
EPRA earnings per share 63 12 p 107 21 p
---------------------- -------- ------------ ---- -------- ---- ------------
Profit for the period after 415 80 p 1,184 227 p
taxation (prior year restated) -------- ------------ ---- -------- ---- ------------
----------------------
The European Public Real Estate Association (EPRA) issued Best Practices Policy Recommendations
in January 2006, which gives guidelines for earnings and net asset value performance measures.
The EPRA earnings measure excludes gains on property disposals and investment revaluations and
their related taxation, intangible asset movements and the capital allowance effects of IAS 12
where applicable, less taxation arising on these items.
Underlying earnings consists of the EPRA earnings measure, with additional company adjustments.
Adjustments have been made to exclude profits from property trading and to reverse the effects
of the prior year refinancing charges (£85m) and prior year tax items.
The weighted average number of shares in issue for the period was: basic: 519m (year ended 31
March 2006: 519m); diluted: 522m (year ended 31 March 2006: 521m). Basic earnings per share (undiluted)
for the period were 80p (year ended 31 March 2006: 228p).
Net asset value (NAV) 30 June 31 March
2006 2006
£m £m
---- ----
Balance sheet net assets 6,499 6,016
Deferred tax arising on revaluation movements,
capital allowances and derivatives 1,765 1,636
Mark to market on interest rate swaps (22) 33
Surplus arising on trading properties 77 74
Dilution effect - options 53 43
--------------------------- ------------ ---- -------- ---- ------------
EPRA NAV 8,372 7,802
--------------------------- ------------ ---- -------- ---- ------------
EPRA NAV per share 1592 p 1486 p
--------------------------- ------------ ---- -------- ---- ------------
The EPRA NAV per share includes the external valuation surplus on trading properties but
excludes the fair value adjustments for debt and related derivatives and deferred taxation on
revaluations and capital allowances, calculated on a fully diluted basis.
At 30 June 2006, the number of shares and potential shares in issue (on a fully diluted basis)
was 526m (31 March 2006: 525m).
Total return per share of 7.1% represents the growth per share in diluted EPRA NAV (106p).
Total return per share for the year ended 31 March 2006 was 34.6% (excluding refinancing
charges).
3. Gross and net rental income
Year ended Three months ended
31 March 2006 30 June 2006
£m £m
---- ----
571 Rent receivable 129
54 Spreading of tenant incentives and guaranteed rent 11
increases
10 Surrender premiums 5
55 Service charge income 10
-------------- ----------------
690 Gross rental and related income 155
(57) Service charge expense (11)
(44) Property operating expenses (8)
-------------- ------------------------------- ----------------
589 Net rental and related income 136
-------------- ------------------------------- ----------------
4. Fees and other income
Three months
Year ended ended
31 March 2006 30 June 2006
£m £m
---- ----
29 Performance and management fees 4
16 Dividend received from Songbird Estates PLC 18
5 Other fees and commission 2
-------------- ------------------------------- ----------------
50 24
-------------- ------------------------------- ----------------
5. Net revaluation gains on property and investments
Year ended Three months ended
31 March 2006 30 June 2006
Restated
£m £m
---- ----
In income statement
1,203 Revaluation of properties 362
167 Gains on property disposals
-------------- ----------------
1,370 362
378 Share of profits of funds and joint ventures (note 7) 93
-------------- ----------------
1,748 455
In consolidated statement of changes in equity
92 Revaluation of investments
102 Revaluation of development properties 48
-------------- ----------------
1,942 503
-------------- ------------------------------- ----------------
6. Taxation
Year ended Three months
31 March 2006 ended
Restated 30 June 2006
£m £m
---- ----
Tax charge
Current tax
(3) UK corporation tax (30%) 4
11 Foreign tax 1
----------- -----------
8 5
(1) Adjustments in respect of prior
years
7 Total current tax charge (credit) 5
307 Deferred tax on income and 80
revaluations
314 Group total taxation 85
(net)
106 Attributable to funds and joint 22
----------- ventures
--------------- -----------
420 Total taxation 107
----------- --------------- -----------
Tax attributable to underlying profits for the three month period ended 30 June 2006 is £14m
(year ended 31 March 2006: £43m).
7. Funds and Joint Ventures
British Land's share of profits of funds and joint ventures
Three months
Year ended ended
31 March 2006 30 June 2006
£m £m
---- ----
123 Gross rental income 31
----------- ------------------- -----------
112 Net rental income 28
(6) Other income and expenditure (2)
(67) Net financing costs (17)
----------- -----------
39 Underlying profit before taxation 9
378 Net valuation gains on property and investments (includes 93
profits on disposals)
Goodwill impairment (2)
----------- -----------
417 Profit on ordinary activities before 100
taxation
(9) Current tax (2)
(97) Deferred tax (20)
-----------------------------------------------------------------------------------------
311 Profit on ordinary activities after taxation 78
-----------------------------------------------------------------------------------------
Summary of British Land's share of investments in funds and joint ventures at 30 June 2006
Underlying Gross Gross Net
profits assets liabilities investment
£m £m £m £m
---- ---- ---- ----
Share of funds 4 1,411 (709) 702
Share of joint ventures 5 1,706 (1,006) 700
---------- ---------- ---------- -----------
Total share of investments 9 3,117 (1,715) 1,402
---------- ---------- ---------- -----------
The total investment in joint ventures is £747m, which also incorporates £47m being City of
London Office Unit Trust (CLOUT) and its associated ventures, which is included within share
of funds.
8. Investment, development and trading properties
Investment, development and trading properties were valued on the basis of open market
value, supported by market evidence, in accordance with the Appraisal and Valuation Manual
published by The Royal Institution of Chartered Surveyors.
30 June 31 March
2006 2006
£m £m
---- ----
Investment properties 11,492 11,081
Development properties 693 597
Trading properties at cost 36 36
-------- -----------------
Carrying value of properties on balance sheet 12,221 11,714
External valuation surplus on trading properties 69 67
Head lease liabilities (26) (28)
-------- -----------------
Total British Land Group property portfolio valuation 12,264 11,753
-------- -----------------
Share of funds and joint ventures
Investment properties 2,798 2,651
Development properties 78
Trading properties at cost 4 4
Finance lease properties 7 7
External valuation surplus on trading properties 3 3
External valuation surplus on finance lease properties 5 4
Head lease liabilities (8) (8)
-------- -----------------
2,887 2,661
--------------------------------------------------------------------------------------------
Total property portfolio valuation 15,151 14,414
--------------------------------------------------------------------------------------------
Group properties valued at £7,981m (31 March 2006: £7,709m) were subject to a security
interest and other properties of non-recourse companies amounted to £185m (31 March 2006:
£196m).
9. Net Debt
30 June 31 March
2006 2006
£m £m
---- ----
Securitisations 3,663 3,683
Debentures 784 785
Bank loans and overdrafts 1,183 1,049
Other bonds and loan notes 176 187
-------- -----------------
Gross debt (includes £124m due within one year at 30 June 5,806 5,704
2006; 31 March 2006: £129m) -------- -----------------
Interest rate derivatives (liabilities) 39 48
Interest rate derivatives (assets) (36) (26)
-------- -----------------
5,809 5,726
Cash and short-term deposits (204) (133)
-------------------------------------- -------- -----------------
Net debt 5,605 5,593
-------------------------------------- -------- -----------------
On 21 July 2006 British Land announced its intention to restructure its existing Group
debentures to create a multi-tranche £1 billion debenture with a common security pool and
covenants.
10. Reconciliation of profit on ordinary activities before tax to cash generated from operations
Year ended Three months ended
31 March 2006 30 June 2006
Restated
£m £m
---- ----
1,498 Profit on ordinary activities before 500
tax
11 Depreciation and amortisation 4
(1,369) Net valuation gains on investment (362)
properties and investments
(311) Share of profits after tax of funds and (78)
joint ventures
369 Net financing costs 75
122 Refinancing charges
135 Other cash flow items (12)
----------- -------------------------- ------------------------
455 Cash generated from operations 127
----------- -------------------------- ------------------------
Table A
---------
Summary income statement based on proportional consolidation
for the three month period ended 30 June 2006
The following pro forma information is unaudited and does not form part of the consolidated
primary statements or the notes thereto. It presents the results of the Group, with funds
and joint ventures consolidated on a line by line, i.e. proportional basis. The underlying
profit before tax (£73m) and total profit after tax (£415m) are the same as presented in the
financial statements.
Year ended Three months ended
31 March 2006 30 June 2006
Restated
£m £m
---- ----
751 Gross rental income 176
----------- -------------------
701 Net rental income 164
51 Fees and other income 24
(88) Administrative expenses (23)
(436) Net interest costs (92)
----------- -------------------
228 Underlying profit before tax 73
(122) Debt refinancing costs
1,566 Net valuation gains 452
182 Gains on property disposals 3
(10) Amortisation of intangible asset (4)
(240) Impairment of goodwill (2)
----------- -------------------
1,604 Profit on ordinary activities before 522
tax
(43) Tax charge relating to underlying (14)
profit
(377) Other taxation (mainly deferred tax (93)
----------- on revaluations) -------------------
(420) (107)
----------------------------------------------------------------------------------
1,184 Profit for the period after taxation 415
-----------------------------------------------------------------------------------
36 p Underlying earnings per share - diluted basis 11 P
-----------------------------------------------------------------------------------
The underlying earnings per share is calculated on underlying pre-tax profit of £73m
(year ended 31 March 2006: £228m), tax attributable to underlying profits of £14m
(year ended 31 March 2006: £43m) and fully diluted shares numbering 522m (year ended
31 March 2006: 521m). Gross rental income excludes service charge receivable.
Table A (continued)
---------------------
Pro forma summary balance sheets based on proportional consolidation
The following pro forma information is unaudited and does not form part of the
consolidated primary statements or the notes thereto. It presents the composition of the
EPRA net assets of the Group, with share of funds and joint venture assets and
liabilities included on a line by line, i.e. proportional basis and assuming full
dilution.
30 June 2006 31 March 2006
£m £m
---- ----
Retail properties 9,174 8,775
Office properties 5,515 5,200
Other properties 462 439
--------------------------------------------------
Total properties 15,151 14,414
Other investments 248 250
Intangible assets 61 65
Other net liabilities (299) (243)
Net debt (6,789) (6,684)
--------------------------------------------------
EPRA NAV 8,372 7,802
EPRA NAV per share 1592 p 1486 P
----------------------- --------------------------------------------------
Calculation of EPRA NNNAV per share
EPRA net assets 8,372 7,802
Deferred tax arising on (1,670) (1,530)
revaluation movements
Mark-to-market on interest rate 22 (33)
swaps
Mark-to-market on debt (313) (386)
Tax relief arising thereon 88 125
----------------------------------------------------------------------------------------
EPRA NNNAV 6,499 5,978
----------------------------------------------------------------------------------------
EPRA NNNAV per share 1236 p 1139 P
----------------------------------------------------------------------------------------
EPRA NNNAV is the EPRA NAV less fair value adjustments for debt and derivatives and the
deferred taxation on revaluations and capital allowances.
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