Final Results - Part 1

British Land Co PLC 25 May 2004 25 May 2004 PRELIMINARY ANNOUNCEMENT BY THE BRITISH LAND COMPANY PLC RESULTS FOR THE YEAR ENDED 31 MARCH 2004 â€¢ Net asset value per share up 12.5% to 966 pence* (2003: 859 pence+) on an adjusted and diluted basis. Adjusted undiluted net assets per share 999 pence* (2003: 883 pence+). â€¢ Net assets up Â£570 million to Â£5,035 million* (2003: Â£4,465 million+) on an adjusted and diluted basis; adjusted undiluted net assets Â£4,877.3 million (2003: Â£4,312.5 million). Shareholders' funds are Â£4,669.4 million (2003: Â£4,123.3 million). â€¢ Earnings per share up 33% to 36.3 pence* (2003: 27.3 pence+) on an adjusted and diluted basis. Adjusted undiluted earnings per share 37.0 pence* (2003: 27.6 pence+). â€¢ Profit before tax up 6.7% to Â£186.0 million (2003: Â£174.3 million+), including gains of Â£38.9 million on property disposals. Underlying profit before tax Â£147.1 million (2003: Â£147.6 million+). â€¢ Property sales of Â£371 million achieved 12% above March 2003 valuation. â€¢ Net rents increased to Â£523.0 million (2003: Â£513.7 million+). â€¢ Final Dividend lifted 8.3% to 10.07 pence per share. Total distribution for the year up 8.2% to 14.5 pence (2003: 13.4 pence). â€¢ Total return (adjusted diluted net asset value per share growth plus dividend) for the year 14.1%. â€¢ Portfolio valuation up 4.7% to Â£10,639.4 million, achieved mainly in the second half of the year. Total funds under British Land management now Â£11,900 million. John Ritblat, Chairman, says in his Statement: "Our long-term strategy is to focus on prime assets, mainly in the office and out-of-town retail sectors, where we create exceptional investments with strong tenants, long lease profiles and growth potential. We raise returns by active management and development. The distinctive British Land hallmark is opportunistic pursuit of these objectives, including innovative financing and the use of joint ventures. We also engage in the often complex processes of unlocking real estate holdings contained in corporate and other structures." * adjusted to exclude the capital allowance effects of FRS19 and to include, in calculating NAV, the external valuation surplus on development and trading properties (Notes 7 and 18), and diluted for the potential conversion of the Convertible Bonds and outstanding share options and share awards + restated for FRS 17 Retirement Benefits (Note 1) All figures include British Land's share of joint ventures unless stated otherwise. cont.... Post year-end events: Canary Wharf: involvement in the Songbird offer (now unconditional) provides British Land with up to 16.4% of Canary Wharf's equity and created the route to acquire 50% of Canary Wharf's retail assets. 1 Plantation Place, EC3: completed on time, on budget; 540,000 sq ft, substantially pre-let to Accenture. 10 Exchange Square, Broadgate, EC2: completed on time, on budget; significant letting to Herbert Smith. 51 Lime Street, EC3: heads of terms agreed for a 420,000 sq ft pre-let with Willis Group for its London office headquarters. CONTACTS The British Land Company PLC John Ritblat, Chairman ) 020 7467 2831/2829 John Weston Smith, Chief Operating Officer ) 020 7467 2899 Graham Roberts, Finance Director ) 020 7467 2948 Finsbury Limited Edward Orlebar ) 020 7251 3801 Faeth Birch ) Nomination Committee Announcement The following announcement was made on 13 May 2004: "The Nominations Committee of The British Land Company PLC has been conducting an extensive search, with the help of consultants Whitehead Mann, to select a new Chief Executive. The Board had identified a suitable candidate and thought that it had settled detailed terms with him but, very much to the Board's regret, he yesterday informed us that he had decided to withdraw for reasons not connected with British Land. The Nominations Committee has already reinstigated the search and British Land will make an announcement when the process is complete. Chris Gibson-Smith Chairman, Nominations Committee, The British Land Company PLC" STATEMENT BY THE CHAIRMAN, JOHN RITBLAT This was a record year on every count, and once again the strength of British Land's long-term business model and strategy is clear from the signal results. In the less certain and more testing market conditions which prevailed in the first half of the year the Company was still growing and remained highly profitable: in the improving climate which has later developed it was able to increase shareholders' funds more rapidly. For the full year adjusted fully diluted net assets rose Â£570 million to Â£5,035 million. We have accumulated a portfolio of unique quality and diversity, coupled with tightly controlled and innovative debt management, driving fully diluted net assets per share up 107p to 966p, a rise of 12.5%. Profits before tax at Â£186 million are ahead again, up 6.7% and we are raising the final dividend by 8.3% to 10.07p per share. The total distribution for the year is 14.5p, up 8.2%. This is the 25th consecutive year of dividend increases: the dividend payout has virtually doubled over the past decade alone. The total return for the year was 14.1% on a fully diluted basis. At the half year, asset values overall had risen just 0.2%. Six months later, values had risen 4.7% for the full year. This means that there was an annualised rate of growth of some 9% in the second half. The retail sector of the portfolio, focused primarily on out-of-town retail warehouse parks, major superstores and shopping centres, has performed particularly well, being up 12.4% for the year. After a quieter period our City of London investments have stabilised and are now poised to resume growth. The merits of property for investors have once more been widely appreciated since the stock market shakeout following the dotcom frenzy. Building up a property portfolio under management amounting to some Â£12 billion of British Land's quality is not easy. The management has to buy astutely and must then take the time to manage its purchases actively to maximise value - negotiating leases, optimising rent reviews, acquiring adjacent interests, buying out ground leases, adapting properties to suit changing tenant demand and co-operating with nearby owners and local communities to achieve a better outcome for them too. Then you have to add in the specific skills for development, such as planning, design, efficient and sustainable construction on time and on cost, allied to financing, judging the market's prospects and forecasting demand in the context of prospective economic verities. It is clear that the overall mix of expertise needed for success in our business is far removed from conventional investment. Property's rewards are real, the risks can be managed, but instant fulfilment is rare except in the fraught late stages of a boom. Development Focus Our view of the market has directed the development programme to the City of London, where we felt confident that prospects would continue to improve. Apparent availability of total space is often a false indicator in the City, as much of it is in secondary locations and of inferior quality, offering little to tenants who seek first class premises, designed for modern needs, and attractive to work in. Tenants seeking efficiency and good working conditions will pay proper rents, eschewing cheaper but less suitable second-hand buildings. Highlights of our 2,760,000 sq ft City development programme at a construction cost of Â£945 million are: â€¢ Completion of the 540,000 sq ft 1 Plantation Place, substantially pre-let to Accenture, within both timetable and budget. This is one of the largest buildings recently built in the City and, with the 161,000 sq ft at 2 Plantation Place nearing completion, adds one million sq ft gross to the portfolio. â€¢ Completion - also within time and budget - of 10 Exchange Square on the site of the former Hamilton House, a 163,000 sq ft addition to Broadgate. A substantial pre-lease has been contracted with law firm Herbert Smith, and a bridge will link to that firm's existing premises at Exchange House, one of the largest buildings in our 4 million sq ft Broadgate Estate. â€¢ Heads of terms agreed for a 420,000 sq ft pre-let with Willis for its London headquarters, on the site of the old Lloyd's of London building at 51 Lime Street, EC3. â€¢ A detailed planning consent already exists to expand Broadgate with a 747,000 sq ft building at 201 Bishopsgate, where a structural raft foundation over the railway lines is in place. Currently we are working on an improved two building design, attuned both to the City Corporation's forward-looking approach, and to evolving tenant demand for greater flexibility. â€¢ A detailed planning application has been submitted for a spectacular 735 ft tower designed by Richard Rogers Partnership at 122 Leadenhall Street, EC3 providing 600,000 sq ft of iconic space. With its imaginative sloping facade and extensive ground level public space, the building's concept was exhibited and much admired at the 2002 Biennale in Venice and can now be seen at the New City Architecture Exhibition at Broadgate. â€¢ Planning consent is in place for a 126,000 sq ft building at Ludgate West, Farringdon Street, London EC4, adjoining our Ludgate estate. Demolition of the existing building has commenced. Joint Ventures We have repositioned some of our joint venture investments, buying out our partners GUS from BL Universal and taking full control of Blythe Valley, the Midlands business park development, from our partners Prologis. A succession of highly profitable individual pub unit sales has reduced the Public House Company, our joint venture with Scottish & Newcastle, to small proportions with only 19 pubs still to go, having started with over 300. We sold our participation in the Cherrywood development outside Dublin, and have been preparing the ILAC Shopping Centre for a radical renewal scheme in that City's heart. An innovation has been the new Scottish Retail Property Limited Partnership, in which Land Securities and ourselves have pooled our shopping centre interests at East Kilbride and Aberdeen, gaining for both owners larger scale operations and for our tenants and the public much more extensive retail choice. Canary Wharf Our Canary Wharf foray provides an opportunity to acquire up to 16.4% of that Company's equity, the exact percentage depending on the level of acceptances to our Songbird consortium's offer, now declared unconditional, to Canary Wharf's shareholders. Participation in the consortium has created the way for British Land to obtain a 50% interest in Canary Wharf's attractive retail assets. Nearby, British Land has been selected by the London Borough of Southwark to masterplan a 40 acre Docklands site, mainly for residential use, around Canada Water underground station in partnership with Canada Quays Limited. Property Purchases and Sales We had refined our holdings earlier and so we were not big sellers of property last year, in the expectation of the market's improvement. Sales, including those of joint ventures, realised Â£371 million, at 12% above the 31 March 2003 independent professional valuation. Disposal of the last 27% of St. Stephen's Green Shopping Centre in Dublin (Â£44.8 million) and the mixed development at Cherrywood near Dublin (Â£48.1 million) were the largest elements. Purchases were considerably higher at Â£562 million which reflected our positive view. The major item was the purchase of the half we did not own of BL Universal (Â£364 million). Residential Portfolio British Land has continued to be a net investor in residential property throughout the year, with new purchases contracted or agreed on over 350 units in excess of Â£60 million. We have concentrated on acquiring new property (mostly flats) from well known housebuilders prior to completion. These purchases are at a discount to open market value, and are in mostly provincial locations that provide good prospects for capital growth and a satisfactory yield as well. Sales have been mainly of older or non-performing stock, taking advantage of increased prices, with sales completed on some 80 units at over Â£15 million. The total return from the residential portfolio has averaged more than 12% per annum over the last five years. Finance To pay for our enterprises we are dependent on Group financing initiatives, and our Treasury has been busy both in reorganising funding arrangements and in raising further finance. In the first quarter of the year we completed negotiations with the fifty or so principal banks with which we deal. Part of the process was the introduction of new banking covenants which are mutually advantageous. The covenants no longer restrict the amount of securitisations and secured debt and, for its part, the Group has covenanted to limit to a standardised 70% the ratio of unsecured debt to unencumbered assets. This covenant will apply equally to bank borrowing and to bonds, providing a level playing field for all our unsecured lenders. Capital markets were utilised in three different ways. Â£98 million was raised through a private placement to seven US institutions on an unsecured basis for a twelve year period. The new US private placement lifted to over $300 million the amount of US medium-term institutional lending to the Group. We tapped both the Meadowhall and the Werretown (Sainsbury) securitisations to raise a further Â£51 million and Â£84 million respectively. The Meadowhall securitisation now represents 80% of the original net purchase price, and in the case of the Sainsbury stores over 100%, so that we enjoy total ownership with only nominal capital committed, making the return on shareholders' funds exemplary. New Group bank facilities completed amounted to Â£615 million with an additional Â£143 million of renewals. The total bank book is Â£1,976 million, with current undrawn availability of Â£965 million. Further funds have been raised through joint ventures, including distributions out of BL Universal and BL Fraser, sales from PubCo, and refinancing of two of the Tesco joint ventures. In total Â£169 million was raised from joint ventures in the year. Group debt now has a weighted average life of 16.9 years at 6.38%. 82% of debt is at fixed rates of interest, 2% capped and 16% at variable rates. Broadgate Estates Broadgate Estates Limited, our property management company, continues to grow its business, with over Â£60 million per annum of service charges under management. Just over 40% of revenue arises from managing the Group's major multi-let London properties including Broadgate, Regent's Place and Fleet Place. The balance of almost 60% is earned from third parties. In the year BEL has taken almost 1 million sq ft net of new assets under management, all for third parties. Meadowhall Meadowhall's performance remained strong with visitor numbers up 424,000 to 24.6 million last year. The Centre has expanded its retail mix with the emphasis on fashion. New additions on the malls include Bank, Faith, Jane Shilton, Mamas and Papas, and the UK's first Build-A-Bear Workshop. We completely renovated The Oasis Food Court in an Â£8 million scheme which gave it a fresh, modern look, as well as over 350 additional seats in a new upper level seating area, easing the pressure at peak times and providing a more relaxed setting. Meadowhall's initiatives to help retailers meet customers' growing demands were developed further during the year. The interactive GO SHOP loyalty scheme gives retailers access to customer data and allows them to incentivise their loyal customers, and Meadowhall's own e-commerce gift service, Surprise Someone, offers Centre retailers an additional route to market. The ARC, an onsite warehousing facility, provides extra storage space for retailers away from but near to their shops. The Source is Meadowhall's leisure and educational facility which opened in March 2003 and has already attracted over 60,000 local users to its IT Learning Centre, conference and interview rooms, classrooms, gym, cafe, employment advice centre and creche. Near Meadowhall, we have assembled a 66 acre landbank, and we are working with Sheffield City Council on a masterplanning exercise including this strategic site. British Land has already announced a venture for an MGM Mirage Resort Casino, and we are looking for further initiatives there. Corporate Responsibility Recently we published our second Corporate Responsibility Report. British Land's approach to its social and environmental responsibilities reflects the fact that the business is capital intensive but relatively small in staff numbers; in this sense, for us small is beautiful and efficient. We must ensure that the developments we construct and the buildings in which we invest attain the highest standards. Most of our energy and implementation will be where it matters - on the ground, at our properties around the UK. Staff on-site make the decisions relating to their sites, because they know what their local communities want and what makes sense for their part of the business. Reflecting this belief, we have set up an Award Scheme for on-site initiatives to encourage the involvement of all staff. External Issues British Land has for some time responded to the Government's wish that landlords should offer more flexible terms to tenants, including alternatives to upwards only rent reviews. Our experience has been - and it may be in part a reflection of the high quality of our portfolio and its target market - that few tenants are takers of the alternatives. In larger transactions they almost always insist on longer leases, and they do not want to pay the higher rents involved in the upwards and downwards option. Recently we arranged the surrender of a particular 63 year lease we had acquired, and granted a new one for the same term at the same rent. In return for an upfront cash contribution for building improvements, the tenant swapped seven yearly upwards or downwards rent reviews in the old lease for upwards only five yearly reviews in the new lease. This flexible re-arrangement suits both parties and shows how the free market works today. What is interesting is that the tenant is no less than HM Government, and there is nothing new in upwards and downwards reviews as this lease was granted in 1973. We sense that increasing numbers of tenants are wary of government intervention. It forces artificial changes, but the results may not be what advocates of tilting the table expect. Could it be that removing upwards only rent reviews might increase rather than decrease occupancy costs? It is the nature of markets to compensate, and there is one law which no government can repeal - the law of unintended consequences - which I might say has in the past inadvertently produced some interesting opportunities for us! On a promising note, the proposal to establish Real Estate Investment Trusts in the UK must be welcomed and should be beneficial. For savers and investors to have an easy method of putting their money into property is highly desirable - provided of course that the Trusts are not required to carry uneconomic burdens, for example in funding residential in prime commercial locations. If REITS are unduly burdened or over-complicated, the saving and investing public will shun them, and that would be a great disappointment. Prospects What next for the property industry? Given a reasonable economic climate, property will benefit because capitalisation rates are having the long overdue correction I forecast, and REITS also are likely to increase demand for high quality assets. Property is going to continue to make money for its investors, largely the repository for savings and the providers of pensions especially here in the UK. At British Land we provide space for millions of shoppers, and the workplace for large numbers of retail and office staff throughout the country. Nowadays we are offering our customers, our tenants, a range of ancillary services, such as our widely used Vicinitee website which provides both information for occupiers' employees and property management services. We have been leaders too in PISCES, pioneering electronic data interchange to modernise the paperchase of conveyancing. It is worth restating here what our long-term strategy is. We focus on prime assets, mainly in the office and out-of-town retail sectors, where we create exceptional investments with strong tenants, long lease profiles and growth potential. We raise returns by active management and development. The distinctive British Land hallmark is opportunistic pursuit of these objectives, including innovative financing and the use of joint ventures. We also engage in the often complex processes of unlocking real estate holdings contained in corporate and other structures. What matters most is that we build or buy well-located buildings that suit tenants' needs with good prospects for rental growth. Though it has not been easy in the current strong market to acquire good assets, we were able to buy out some of our joint venture partners and acquire the outstanding 50% of properties for which we already have pre-emption arrangements, an advantage of the joint venture partnerships we have employed extensively. We believe that our own particular entrepreneurial culture and approach remain effective, and will continue to serve our shareholders well in both income and capital terms. Board and Management My warm thanks go to my colleagues on the Board. The Company is fortunate to have such well-qualified and experienced directors, capable of asserting their views from a wide range of activities and disciplines. Our talented and energetic executives, a blend of ages and aptitudes, have made strenuous and incisive contributions to a productive year. I thank them, all our staff, and our agents and professional advisers throughout the Group for what has been accomplished by our team. FINANCIAL HIGHLIGHTS Profit and Loss Account Year ended Year ended 31 March 2004 31 March 2003+ Net rental income Â£523.0m Â£513.7m Net rental income (Group) Â£450.3m Â£418.6m Net interest payable Â£336.2m Â£326.1m Profit on property trading and disposal of fixed assets Â£38.9m Â£26.7m Underlying profit before taxation* Â£147.1m Â£147.6m Profit before taxation Â£186.0m Â£174.3m Tax charge Â£14.5m Â£33.7m Adjusted diluted earnings per share 36.3 pence 27.3 pence Diluted earnings per share 34.5 pence 27.1 pence Dividend per share 14.5 pence 13.4 pence * profit before taxation less profit on property trading and disposal of fixed assets Balance Sheet 31 March 2004 31 March 2003+ Total properties* Â£10,639.4m Â£9,645.6m Adjusted net assets+ Â£4,877.3m Â£4,312.5m Net assets Â£4,669.4m Â£4,123.3m Adjusted diluted net asset value per share+ 966p 859p Diluted net asset value per share 944p 839p Group: Debt / equity ratio 100% 101% Mortgage ratio (debt / property & investments) 48% 49% * pre adjustments for UITF 28 + adjusted to exclude the capital allowance effects of FRS 19 and to include the external valuation surplus on development and trading properties, and diluted for the potential conversion of the Convertible Bonds and outstanding share options and share awards Total Return (adjusted diluted net asset value per share growth plus dividend) for the year 14.1%. 31 March 2004 31 March 2003+ Financing statistics (Group) Net debt Â£4,866.8m Â£4,361.4m Weighted average debt maturity 16.9 years 18.0 years Weighted average interest rate 6.38% 6.31% % of net debt at fixed / capped interest rates 84% 83% % of debt ringfenced with no recourse to other Group 64% 64% companies/assets Interest cover (net rents / net interest) 1.55x 1.61x Cash and available committed facilities Â£2,149.6m Â£1,635.4m - of which drawn Â£1,011.0m Â£899.0m + restated for FRS 17 Retirement Benefits All figures include British Land's share of joint ventures unless stated otherwise. FINANCIAL REVIEW Financial Highlights Adjusted diluted net asset value per share up 12.5% Portfolio valuation up 4.7% Progressive dividend up 8.2% for the year Adjusted diluted earnings per share up 33.0% Total return on adjusted diluted net assets per share for year 14.1% Operating Performance Gross rental income, including our share of joint ventures, increased by 2.5% (Â£14.0 million) to Â£565.6 million (2003: Â£551.6 million). Rents from properties wholly owned by the Group increased by Â£37.3 million, whereas our share of joint ventures' gross rents reduced by Â£23.3 million following the buyout of GUS's interest in BL Universal and taking full control of BVP Developments. Group net rental income increased by 7.6% (Â£31.7 million) to Â£450.3 million (2003: Â£418.6 million). Factors increasing net rental income included rent reviews and new lettings (Â£36.9 million), the consolidation of former joint ventures (Â£29.4 million) and purchases (Â£10.9 million). Reductions in net rental income arose from the restructured European Bank for Reconstruction and Development lease (Â£5.9 million) reflecting commencement of their rent free period, UITF 28 adjustments (Â£10.6 million), reduced back rents (Â£7.1 million) and sales of properties (Â£10.4 million). British Land's share of joint venture operating profits decreased by 26.9% to Â£67.5 million (2003: Â£92.3 million). This reflects the active property disposal programme in the joint ventures, and the consolidation of former joint ventures. Profit before tax increased by Â£11.7 million (6.7%) to Â£186.0 million (2003: Â£174.3 million). Profits on disposal of fixed assets and property trading increased by Â£12.2 million (45.7%) to Â£38.9 million (2003: Â£26.7 million). Excluding these items underlying profits before tax decreased slightly to Â£147.1 million (2003: Â£147.6 million). Adjusted earnings per share have increased by 9.4 pence per share to 37.0 pence per share (2003: 27.6 pence per share) and on a diluted basis by 9.0 pence per share to 36.3 pence per share (2003: 27.3 pence per share). Earnings per share were 35.1 pence per share (2003: 27.4 pence per share) and on a diluted basis 34.5 pence per share (2003: 27.1 pence per share). Taxation The Group taxation charge comprises a current year corporation tax charge of Â£17.5 million, deferred tax of Â£5.7 million and Â£9.2 million attributable to joint ventures, equivalent to a current year charge of 17.4% (2003: 15.3%) compared to a prevailing corporation tax rate of 30%. The total charge has been decreased by Â£17.9 million in respect of items relating to earlier periods (2003: increased by Â£7.0 million). The overall tax charge of Â£14.5 million (2003: Â£33.7 million) represents a tax rate of 7.8% (2003: 19.3%). The tax which would arise on the disposal of properties and investments at the amount at which they are carried in the balance sheet, and including trading and development surpluses, is estimated at Â£570 million (2003: Â£470 million), after taking account of available losses and provisions. Adjusted Net Assets Adjusted net asset value includes the revaluation surplus on trading and development properties and excludes deferred taxes provided on capital allowances where no tax payment is expected to crystallise. Adjusted net asset value increased by Â£564.8 million (13.1%) to Â£4,877.3 million (2003: Â£4,312.5 million) reflecting the Â£467.9 million valuation surplus in the year and Â£100.7 million retained earnings. Adjusted net asset value per share (diluted) increased by 12.5% (107 pence). The key drivers in the increase in adjusted diluted net assets per share included retained earnings (19 pence) and revaluation surpluses (90 pence). Finance and Capital Structure Approximately 50% of the value of the Group's property and investments is financed by borrowings. British Land uses debt as a means of maximising equity returns and minimising tax leakage. The Group mortgage ratio at 31 March 2004 was 48% (2003: 49%). The mortgage ratio including our share of joint ventures net debt (which totals Â£529.8 million, without recourse to the Group) is 51% (2003: 52%). British Land uses a variety of methods to finance property assets with the aim of employing the most capital efficient method for each asset's particular characteristics. Financing is raised through a mixture of securitisations, public and private debt issues, convertible bonds and bank borrowings. The Group's financial risk management policy is to maintain approximately 85% of debt at fixed and capped rates and debt is taken out under long term facilities to balance the Group's income profile from long lease lengths. These policies concentrate economic exposure to the property market and our portfolio's performance and minimise exposure to short to medium term interest rate movements. The Group borrows fixed and floating rate debt and uses derivatives to produce the desired interest rate profile. At 31 March 2004 net debt is Â£4,866.8 million (2003: Â£4,361.4 million). The joint ventures are separately financed with no recourse to British Land (2003: guarantees totalling Â£12 million). The Group's weighted average interest cost is 6.38% (2003: 6.31%). At 31 March 2004 84% of debt was at fixed or capped rates of interest (2003: 83%) with a weighted average debt maturity of 16.9 years (2003: 18.0 years). Interest cover is 1.55 times (net rents/net interest) (2003: 1.61 times). The market value of net debt and derivatives (including British Land's share of joint ventures) was Â£499.2 million (before tax relief) greater than their book values. This compares to Â£527.3 million (before tax relief) last year, the reduction resulting principally from a combination of higher underlying market interest rates and lower credit spreads. The Group continues to maintain a significant level of committed undrawn bank facilities to enable it to respond rapidly to opportunities in the market and to fund developments without the need for project specific financing. Changes in Financing Securitisations On 14 April 2003 the Group issued a further Â£50 million of Notes securitising the rental income stream from Meadowhall. This is in addition to the Â£825 million of Notes issued in December 2001. The weighted average interest rate of the issues is 5.5% per annum and the weighted average maturity is currently 19.4 years. On 7 July 2003 the Group paid Â£73.5 million to redeem the outstanding Class D Fixed/Floating Rate Unsecured Notes 2014 issued as part of the Broadgate Securitisation. These Notes, which had a coupon of 7.1107% and a weighted average maturity of less than two years, were redeemed at a premium of Â£1.7 million. On 6 October 2003 the Group issued a further Â£75.5 million of Notes securitising the rental income stream of certain Sainsbury's Supermarkets raising proceeds of Â£84 million at an effective rate of 5.8% per annum. The weighted average interest rate of the total issue is 6.77% per annum. The current weighted average maturity is 14.7 years. US Dollar Private Placement 2015 On 3 October 2003 British Land issued US$154 million 6.30% Senior Notes due 2015 as a further US private placement to institutional debt investors. A cross-currency swap was simultaneously executed, effectively converting the issue into Sterling at a fixed rate of 5.999% per annum for the term. Dividends The Directors propose a final dividend of 10.07 pence per share, making a total dividend of 14.5 pence, an increase of 8.2% over 2003. This increase is in line with our continuing policy of dividend growth. The total dividend is covered 2.4 times by profits for the year. Cash Flow Profits after interest, tax and working capital movements, generated a positive operating cash flow for the year of Â£163.1 million (2003: Â£95.0 million). Property and investment disposals by the Group and cash returns from joint ventures realised cash of Â£281.3 million. Property acquisitions, developments and investment expenditure by the Group amounted to Â£466.9 million. REITs On 17 March 2004 the Government issued a consultation paper related to the potential introduction of a tax transparent property vehicle (REIT) in the UK. The Group is actively involved in this consultation process both directly with the Government and also through industry bodies such as the BPF. In principle the Group supports the introduction of a tax transparent property vehicle and believes such a vehicle would be beneficial to investors in property. Whilst the consultation process takes place the Group is seeking to be as flexible as possible in respect of its financing policy. Accounting Issues International Accounting Standards (IAS) will be applied, as required for all European Union listed companies, for our financial year ending 31 March 2006. The Group continues its preparations, which include changes to systems and methodologies, and will give further guidance on the accounting impact in due course. The underlying performance of the business including cash flows will, of course, be unaffected. The reported results will however look significantly different and the net asset value will be significantly lower than that shown under the Group's existing accounting policies. The five major areas identified to date where IAS differs from UK GAAP affecting British Land are as follows: â€¢ UK GAAP does not permit deferred tax to be recognised where a business is not obliged to pay more tax at a future date. IAS on the other hand requires provision for all taxable and deductible differences between book values for tax purposes and accounting book values that are not 'permanent' timing differences. The effect of this change will be to reduce net assets. The most significant such difference for British Land are the base costs for tax purposes of its properties and investments, including shares in joint ventures, and the accounting book values which include material revaluation adjustments. Tax payments will arise only if British Land sells those assets and the amount of tax crystallised will reflect the price received at the time, the structure of the transaction, any tax benefits available such as loss relief and benefits derived from the tax position of the purchaser or of the Group at that time. None of these mitigating factors are accurately quantifiable where no transaction is in contemplation and negotiation, accordingly the provision to be booked under IAS will not represent an amount which the Company expects to pay. IAS does not permit the deferred tax provision to be discounted to present value. The disclosures in note 5 show the calculation of the tax payable assuming all properties and investments are sold at the amount at which they are carried in the balance sheet (including trading and development surpluses) but without regard to future events or tax planning. â€¢ The definitions of finance and operating leases are different between UK GAAP and IAS. Most of the Group's leases will be unaffected. In the case of head leases on the Group's leasehold properties, IAS will require a financial liability and corresponding asset to be recognised in the balance sheet. Currently the financial effect of head leases is reflected by our valuers as a reduction from their valuations. The net asset effect of this change is not expected to be material. â€¢ British Land uses derivatives to manage its interest rate risk. In accordance with UK GAAP British Land's derivatives are not valued when they are hedges and any income or costs are recognised in the profit and loss account consistently with the underlying hedged transaction. IAS requires all derivatives to be carried at their fair values in the balance sheet and, where the related debt is not carried at market value, this could reduce or increase reported net assets. Hedge accounting whereby profits and losses are matched with those of the underlying (instrument or) cash flow is subject to restrictive tests under IAS and as a result there may be more earnings volatility. The European Union has yet to ratify the use of the International Financial Reporting Standard covering hedge accounting (IAS39) and there is uncertainty whether amendments may arise to IAS39 as a result of the ratification process. â€¢ Unlike UK GAAP which requires proposed final dividends to be accrued, IAS only permits recognition of the liability to pay a final dividend when this has been approved by the shareholders. This will lead to an increase in net asset value. â€¢ IAS will require a portion of the Group's irredeemable convertible bonds to be recognised as equity. This will lead to an increase in net asset value. In preparation for IAS the Group has fully adopted Financial Reporting Standard (FRS 17) 'Retirement Benefits' and chosen early adoption of Financial Reporting Standard (FRS 20) 'Share-based payments'. Adoption of these UK Accounting Standards is expected to result in substantially the same accounting treatment as that which will be required upon adoption of IAS. The impact of the adoption of FRS 17 is to decrease profit before tax by Â£1.0 million (2003: increase Â£1.9 million). The Group has recorded a net pension asset of Â£0.1 million at 31 March 2004 (2003: liability Â£6.0 million) which represents only 0.002% of the Group's adjusted net assets, reflecting the Group's small employee numbers and payroll costs. FRS 20 requires the fair value of equity-settled share based payments to be determined at the date of grant and for this fair value to be expensed over the vesting period. The impact of the adoption of FRS 20 is immaterial and hence no prior year adjustment is necessary. Canary Wharf The Group is a member of the consortium which has formed Songbird Estates PLC (' Songbird') to acquire Canary Wharf Group PLC ('Canary'). On 21 May 2004 Songbird declared its offer for Canary unconditional in all respects having received valid acceptances from, or contracted to acquire, 60.9% of Canary's existing issued share capital. British Land will own between 14.1% and 16.4% of Songbird (assuming 100% acceptances) - the exact percentage is dependent upon the eventual level of acceptances by Canary shareholders and whether they accept any of their consideration in the form of Songbird shares. On completion the investment in Songbird will be accounted for as a fixed asset investment at Directors' valuation in accordance with the Group's accounting policies. PORTFOLIO HIGHLIGHTS Portfolio Valuation by Use Group JVs+ Total Portfolio Change* Â£m Â£m Â£m % % Offices City 2,894.5 184.2 3,078.7 28.9 -5.2 West End 640.2 30.9 671.1 6.3 1.5 Business parks & Provincial 235.9 8.2 244.1 2.3 8.2 Development 621.3 4.3 625.6 5.9 -1.8 All offices 4,391.9 227.6 4,619.5 43.4 -3.2 Retail Shopping centres 1,693.8 365.7 2,059.5 19.4 8.3 Supermarkets 1,320.1 175.1 1,495.2 14.0 15.1 Retail warehouses 1,159.2 234.0 1,393.2 13.1 15.1 Shops 390.1 151.3 541.4 5.1 14.9 Development 19.9 0.2 20.1 0.2 3.0 All retail 4,583.1 926.3 5,509.4 51.8 12.4 Industrial and distribution 159.9 17.8 177.7 1.7 8.3 Residential 224.5 4.4 228.9 2.1 3.5 Leisure 53.7 21.4 75.1 0.7 3.1 Other development 28.8 28.8 0.3 4.8 Total 9,413.1 1,226.3 10,639.4 100.0 4.7 + British Land's share * including developments, purchases and capital expenditure, and excluding sales Total funds under British Land management Â£11.9 billion, including partners' shares of joint ventures. Portfolio Valuation by Location Total Portfolio Â£m % London: City 3,719.4 35.0 West End 730.0 6.9 Greater London 628.2 5.9 Total London 5,077.6 47.8 South East England 1,047.6 9.8 Wales & South West England 579.5 5.4 Midlands & East Anglia 1,016.1 9.6 North of England 2,352.3 22.1 Scotland & Northern Ireland 524.5 4.9 Republic of Ireland 41.8 0.4 5,561.8 52.2 Total 10,639.4 100 Long Lease Profile Weighted average lease term, years (excluding residential* & developments) to expiry to first break Offices City 14.1 12.0 West End 12.2 10.1 Business parks & Provincial 13.7 9.0 All offices 13.8 11.5 Retail Shopping centres 16.4 16.0 Supermarkets 22.7 22.7 Retail warehouses 17.1 17.0 Shops 26.5 24.7 All retail 19.3 18.9 Industrial and distribution 13.3 11.6 Leisure 39.9 39.0 Total 17.0 15.8 * predominantly let on short leases Vacancy rate only 3.1% of total portfolio ERV. Security of Income - sensitivity analysis % of income remaining at: (from 31 March 2004) expiry first break 5 years 93.3 90.8 10 years 79.2 72.1 15 years 57.7 51.3 includes joint ventures assumes no re-letting after first break or expiry Tenant Risk Profile: British Land IPD Dun & Bradstreet Stress Score % Benchmark %* Rental income rated: Negligible, low and low / medium risk 91.8 81.5 Medium / high risk 4.3 10.8 High risk 2.1 5.2 Unmatched 1.8 2.5 100 100 * Tenant Income Credit rating Covenant Strength (TICCS) Annualised Net Reversionary Current Reversionary Current Reversions Rents Â£m income net yield net yield (5 years) Â£m % (5 years) % (excluding developments) Offices City 182.8 24.7 5.9 6.7 West End 39.0 4.7 5.8 6.5 Business parks & Provincial 18.7 0.8 7.7 8.0 All offices 240.5 30.2 6.0 6.8 Retail Shopping centres 111.4 11.4 5.4 6.0 Supermarkets 83.1 3.7 5.6 5.8 Retail warehouses 74.1 10.1 5.3 6.0 Shops 29.8 3.5 5.5 6.2 All retail 298.4 28.7 5.4 6.0 Industrial and distribution 11.3 2.1 6.3 7.5 Residential 12.3 0.1 5.4 5.5 Leisure 5.2 0.5 6.9 7.6 Total 567.7 61.6 5.7 6.3 Development Programme Net Area Rent Construction cost Cost to As at 31 March 2004 sq m (est) pa Complete Completed Total 8,680 Â£1.0m Â£5.2m - British Land Share Â£1.0m Â£5.2m - Committed Total 104,170 Â£42.5m Â£324.2m Â£67.7m British Land Share Â£41.5m Â£319.6m Â£64.3m Development prospects Total 612,880 Â£179.7m Â£1,392.2m Â£1,354.1m British Land Share Â£175.1m Â£1,360.8m Â£1,325.7m Further rent Contracted Not Contracted Total Â£m Â£m Â£m Annualised net rents, 31 March 2004 567.7 567.7 Reversions*, within 5 years 27.7 33.9 61.6 Committed developments 21.4 20.1 41.5 Development prospects 175.1 175.1 Total 616.8 229.1 845.9 * includes rent reviews, letting of vacant space and expiry of rent free periods (as determined by independent valuers) PROPERTY REVIEW The investment market has continued to be strong, with a considerable weight of funds competing for prime assets in limited supply. This has resulted in firmer yields which have contributed to improving values, particularly in the retail sector. Purchases: Â£562 million (including joint venture properties), 69% retail We have been net investors this year, adding to the portfolio in our preferred sectors, primarily through off-market transactions (where costs associated with acquisitions are generally lower). Significant purchases during the year were: â€¢ the 50% share in BL Universal PLC held by GUS plc; with a portfolio of some Â£728 million, we effectively purchased Â£364 million of prime property in this transaction. The BL Universal joint venture was established in 1997 when it acquired 982 properties, mainly high street shops with an average lot size of Â£900,000 from the Great Universal Stores group. Since then, the joint venture portfolio has been repositioned: some 894 properties were sold for a total of Â£768 million; the proceeds were reinvested in 13 properties, primarily retail warehouses, at a cost of Â£357 million; further funds were utilised to repay debt and return cash to the joint venture shareholders; redevelopments and refurbishments were carried out to improve retained assets. The resulting portfolio comprises close to 100 properties with an average lot size of over Â£7 million, being 83% retail and 17% offices. The portfolio has been managed and selected by us over the last six years and we were pleased to have the well-timed opportunity to own it outright; â€¢ the outstanding 60% interest in the St Nicholas Centre, a shopping mall in Aberdeen with a strong tenant mix of mainly national multiple retailers, for Â£31 million. BL Universal owned the 40% interest, so the property was acquired in full. At the same time, we purchased the long leaseholds of a further two prime shops in the centre for Â£11.6 million. This assembly of interests assisted us in contributing the centre to the new joint venture with Land Securities, commented on below; â€¢ Priory Retail Park, Merton, for Â£34.7 million, fully let to national multiple retailers, consistent with our continuing strategy to invest in such retail parks; â€¢ the majority interest in BVP Developments Limited, the former joint venture company which has developed and let Blythe Valley Park, Solihull, providing some 36,200 sq m (390,000 sq ft) of primarily B1 office space in a landscaped park. The site has outline planning consent for development of a further 76,080 sq m (819,000 sq ft) of business space. The half-share in the property was valued at Â£50.5 million; â€¢ 146 residential units, for Â£20 million. This is a sector where we are increasing our investment. We have concentrated on acquiring new property (mostly flats) from well known house builders prior to completion. These purchases are at a discount to open market value, and provide good prospects for capital growth with a satisfactory yield. The total return from the residential portfolio has averaged more than 12% per annum over the last 5 years; â€¢ in a new 50/50 joint venture with Rosemound Developments, 74 acres at Daventry International Rail Freight Terminal with outline planning consent for distribution warehouse facilities were acquired for Â£28 million. Sales: Â£371 million (including joint venture properties), Â£38 million above valuation Sales this year have been focused on continuing to take advantage of high market prices for assets in Ireland and for mainly smaller lot sizes in the UK. Transactions, overall at some 12% above valuation, have involved 83 commercial properties and 80 residential units, including: â€¢ our remaining 27% interest in St Stephen's Green, Dublin for Â£44.8 million and our 50% share in the Cherrywood Properties joint venture for Â£48.1 million; â€¢ 19 retail units in BL Universal for a total of Â£80.5 million; â€¢ 30 pubs (at auction) for Â£40.8 million. Since the year end we have sold the City office properties at 100 New Bridge Street and Watling House, Cannon Street, EC2 from the BL West joint venture for Â£151 million. These London sales are for reasons of stock selection and do not reflect any change in strategy; we remain confident in the City office market. New Scottish Joint Venture: with Land Securities In addition to the purchases and sales reported above, a new 50/50 joint venture has been created in respect of shopping centre assets in Scotland of British Land and Land Securities. The joint venture partners have each contributed assets to The Scottish Retail Property Limited Partnership which now owns the combined portfolio of over 130,000 sq m (1.4 million sq ft) of retail space, producing gross rents of more than Â£30 million per annum. In Aberdeen, the principal retail centre for north-east Scotland, British Land's St Nicholas Centre and the Land Securities Bon Accord Centre make up the prime retail pitch between the John Lewis store and Union Street. In East Kilbride, British Land has contributed the Plaza Centre and the recently completed Centre West with retailers such as Debenhams, Next, Zara, French Connection and HMV. Land Securities added the adjoining malls, The Olympia and Princes Mall containing a strong mix of tenants together with a multi-screen cinema, library and ice rink. By pooling our property assets and our expertise we will create improved retail environments for both tenants and shoppers, and maximise long term values. Property Asset Management: annualised net rents up to Â£567.7 million A considerable number of transactions are managed within the portfolio each year. This year, across the entire portfolio (including joint ventures) 216 rent reviews produced an increase in rents of some Â£13.5 million per annum, a 31% increase on the previous passing rents. A total of 71 lease renewals and 218 new leases granted generated additional rent of Â£17.5 million per annum. At 350 Euston Road, Regent's Place, all office space is now let or under offer. The previously reported agreement reached in April 2003 with the European Bank for Reconstruction and Development at Broadgate resulted in an extension of the lease term and removal of the tenant's break clause in exchange for a nil rent period. This reduces rents passing by Â£18.975 million per annum until November 2006 when EBRD rent payment will recommence. In the supermarket portfolio we have again made good progress with rent reviews. At Milton Keynes, for a Tesco superstore of 12,630 sq m (136,000 sq ft) on a high quality retail warehouse park, an independent expert awarded a rent of Â£21.50 per sq ft per annum on an "unfitted" basis, the highest third-party award for a supermarket achieved to date. This represented a 62% increase over the previous passing rent of Â£13.25 per sq ft. As part of the renewal and refinancing of the BLT Properties Limited joint venture, all the leases to Tesco were extended for an additional 10 years to expire after 2030. At Meadowhall, rents have been increased by Â£2.1 million per annum, primarily due to settlement of 13 rent reviews and agreement of 28 new leases with existing and new tenants. Further management initiatives to relocate tenants and reconfigure shop units have improved the focus of certain areas of the Centre. In Dublin we have a 50% interest in the ILAC shopping centre where terms have been agreed with the anchor tenant for a lease of a new store in a fully refurbished and extended scheme. We have made a planning application and are awaiting consent. Vacancy rates in the portfolio remain very low, at 3.1% of rental value. Within the next 5 years further rents of Â£61.6 million per annum are expected from the existing investment portfolio, including Â£27.7 million already committed as a result of expiry of rent free periods and contracted minimum rental uplifts. Additional income will be generated from the expanding development programme, details of which are set out below. Further rent Contracted Not Contracted Total Â£m Â£m Â£m Annualised net rents, 31 March 2004 567.7 567.7 Reversions*, within 5 years 27.7 33.9 61.6 Committed developments 21.4 20.1 41.5 Development prospects 175.1 175.1 Total 616.8 229.1 845.9 * includes rent reviews, letting of vacant space and expiry of rent free periods (as determined by independent valuers) The Portfolio: principal sectors Retail is 52% of the total portfolio by value, with 78% of this being out of town investments and the balance 22% in high street locations and town centre shopping schemes. Out of town shopping is continuing to take an increasing share of total retail spend. Retailers continue to seek space in these locations which, coupled with a restrictive planning regime, maintains upward pressure on rents and hence values. While we have sold many high street shops, we have retained a significant investment of Â£541 million, mainly in provincial towns in the best locations, where we believe long term prospects to be sound. Supermarkets, retail warehouses and shops have all performed very well, each with value growth of some 15%; coupled with income this gives a total return of just over 20% this year. There is strong competition from investors to acquire these assets. We calculate that we are the largest owner of UK supermarket properties, other than the operators themselves. The retail warehouse space is flexible, with 58% having the sought after open A1 planning consent which permits the widest range of goods to be sold and therefore attracts the best mix of potential tenants. Meadowhall, one of the largest and most successful shopping centres in the UK, continues to be in demand from tenants and popular with shoppers. During the year we have brought more fashion retailers to the centre and have continued to improve the overall tenant mix and offer to shoppers. Offices represent 43% of the portfolio, of which 94% is in Central London, where we believe the market is at the beginning of an upturn. There is limited new supply, and recruiting starting again in both the financial and business services sectors has led to increased demand from prospective tenants. Tenants are withdrawing surplus space from the market and take up is improving from previous years. Overall, sentiment in the City is improving. Our view is that vacancy rates will begin to fall this year and continue to fall through 2005/6, so we should see rental growth for good quality space returning at the end of this year. British Land's office portfolio, with high quality buildings in the best locations, and long leases with contracted rents from strong covenants, is well placed to benefit from these expected improvements. Development Programme: building up Committed Projects, as at 31 March 2004 Project Prime Use Size Rent Cost1 PC2 Pre-lettings sq m (est) pa (est) (sq m) 1 Plantation Accenture Place, EC3 Offices 50,340 Â£26.5m Â£201.6m Q2 2004 (34,840) 10 Exchange Herbert Smith Square, EC2 Offices 15,180 Â£7.0m Â£53.2m Q2 2004 (4,100) 2 Plantation Place, EC3 Offices 14,960 Â£7.1m Â£60.2m Q2 2004 Thatcham, Distrib- Berkshire3 ution 23,690 Â£1.9m Â£9.2m Q2 2004 Â£21.4m pa 104,170 Â£42.5m Â£324.2m (50%) Cost to complete: Â£67.7m British Land share: Â£41.5m Â£64.3m Â£21.4m 1 Construction cost 2 Practical completion of construction 3 BL Gazeley joint venture During the year, we completed the final phase of Heathrow Gateway (Phase 3), an 8,680 sq m (93,400 sq ft) distribution unit. Since March 2004, the buildings at 1 Plantation Place and 10 Exchange Square have completed, both on time and within budget. Part of each building is pre-let and there is considerable interest in the remaining available space. In these early stages of an improving office market, the development programme is being moved up a gear, to add quality assets to the portfolio and to be ready to provide for anticipated demand. Development prospects are those sites and properties where we have identified opportunities and are progressing design and planning applications. Development prospects, as at 31 March 2004 Project Principal Use Size Planning status sq m Lime Street, EC3 Offices 39,020 - 201 Bishopsgate, EC2 Offices 69,360 Detailed 122 Leadenhall Street, EC3 Offices 55,870 Submitted Ludgate West, EC4 Offices 11,710 Detailed Regent's Place, NW1 (North-East quadrant) Offices/Residential 61,150 - (West site) Offices/Residential 50,720 Submitted York House, W1 Offices/Residential 12,830 Detailed Daventry International Rail Distribution 119,050 Outline/ Freight Terminal 1 detailed Blythe Valley Park, Solihull Business Park 76,080 Outline/ detailed Theale, Reading2 Residential 26,260 Submitted Redditch, Worcestershire3 Distribution 48,730 Outline Meadowhall Casino Complex Retail/Leisure 40,240 - Dumbarton Retail 1,860 Detailed 612,880 Total: Rent (est) Â£179.7m Cost4 Â£1,392.2m British Land share: Â£175.1m Â£1,360.8m 1 BL Rosemound joint venture 2 Countryside Properties has a participation through a Development Agreement 3 BL Gazeley joint venture 4 Construction cost Lime Street is subject to a conditional agreement for lease with Willis Group, the major insurance broker. We will be submitting a revised planning application for a 39,020 sq m (420,000 sq ft) office building. Demolition of the existing buildings has commenced. At Regent's Place, a detailed planning application has been submitted for 37,160 sq m (400,000 sq ft) of office and 13,560 sq m (146,000 sq ft) of residential accommodation for the West site. The proposals are being pursued in partnership with the Crown Estate. At 122 Leadenhall Street an application has been submitted for a new 47 storey office tower, designed by the Richard Rogers Partnership. At Ludgate West, demolition has begun to clear the site for a new office building, adjoining our holdings in the BL West joint venture. Outside London, we are pleased to have acquired, in joint venture with Rosemound Developments, 74 acres at Daventry on which to develop distribution warehouse accommodation on a phased basis in response to market demand. Working with Countryside Properties, we are pursuing a residential project at Theale, for which a detailed planning application has been submitted recently. Valuation All the properties owned by British Land and the joint ventures were valued by independent valuers, principally ATIS REAL Weatheralls, whose commentary on the commercial property market follows this review. The portfolio, including British Land's share of joint ventures, was valued at Â£10,639.4 million, an increase of 4.7% (Â£482 million) (including developments, purchases and capital expenditure, and excluding sales). This valuation, which suffers overall from the increases in stamp duty introduced over the last few years, has benefited this year from stamp duty relief provided in the April 2003 budget in respect of properties in defined "disadvantaged areas" to the extent of some Â£133 million. The portfolio valuations by use and by location are shown on the highlights at the front of this section. Performance benchmarking For several years the Group has used Investment Property Databank ('IPD') to provide independent benchmarking of property returns as one tool in assessing portfolio performance. The statistics provided below relate to ungeared total property returns of the Group, including our share of joint venture properties and excluding overseas properties, in comparison to the index of fund performance. British Land* IPD** Ungeared total returns %pa %pa 10 years to 31 March 2004 10.8 10.7 Year to 31 March 2004 10.9 12.4 Year to 31 March 2004 British Land* IPD** %pa %pa Offices 2.4 6.1 Retail 18.8 16.4 Industrial 16.8 12.2 Other commercial 9.2 12.8 Total portfolio 10.9 12.4 *British Land and share of joint ventures ** IPD December Universe (extrapolated to March 2004) unfrozen Source: IPD Over the one year period to 31 March 2004 British Land has underperformed the benchmark primarily due to its higher weighting in Central London office properties compared with the benchmark. British Land's long term ungeared total returns for the 10 years to 31 March 2004 have outperformed IPD. Outlook There continues to be increased demand for property from investors, resulting in a significant weight of money seeking assets in the market with little available stock. This has led to a yield shift and, together with rental value growth in our retail assets, has increased the value of our portfolio. In these times of low inflation and relatively low market interest rates, property investment with an average yield of 6.4% and average total return over the last 10 years of 10.7% per annum is showing good value compared to other asset classes. With retail sales forecast to increase over the next 5 years at 3.9% per annum in town and 5.2% per annum out of town, and the Central London office market sentiment improving, British Land's balanced portfolio of quality assets with growing rents is well positioned for continued performance. We remain keen to make new acquisitions, selectively and opportunistically, across the sectors. ATIS REAL WEATHERALLS - COMMERCIAL PROPERTY MARKET SUMMARY The comments below reflect our views as at 31 March 2004 and underlie our approach to the valuation of the portfolio. They reflect conditions up to the valuation date only. The commentary focuses on the prime commercial property markets where the Company has significant holdings. General UK commercial property investments have performed well in the year to March 2004. Capital values for "All Property" increased by 5.5% according to IPD (Investment Property Databank), an independent benchmarking agency. Most of the increase has come from yields sharpening as demand from a wide range of investors has far outstripped the available supply. Institutional funds, in particular, have reviewed their portfolio weightings in favour of increased exposure to property. Many have concluded that it represents a good compromise between the low but predictable performance of gilts and the more volatile but higher potential returns of equities. Recent indications by government ministers that REITS (a new tax efficient investment vehicle) are finally to be introduced in the UK have added further to the weight of demand. Consequently, differentials between property sectors have narrowed and purchasers have tended to make less allowance for factors that would usually warrant some discount. City of London Offices Take-up, supply and vacancy levels in the City have all been disappointing (but within market expectations), however, there is a general consensus that we are now at, or near, the low point of the occupational cycle. As interest rates have risen, debt financed purchasers have been replaced by UK funds and others who consider that rents will increase soon. This is reflected in stronger demand for investments with short-term incomes, which offer redevelopment, refurbishment or other asset management opportunities. At the other extreme, long let investments with strong covenants remain popular. Our valuation of Broadgate has remained broadly the same as at September 2003. It provides a combination of the features referred to above. Much of the current income secured is against financially strong tenants on long term leases incorporating upward only rent reviews. The capital value of the Estate has therefore been maintained despite the fact that we have reduced our estimated rental values to an average of Â£37.50 per sq ft. West End Offices Tenant demand in the West End of London has also remained low since our last valuation. Rents have continued to fall but market sentiment is that this decline has now halted. There has even been competitive bidding amongst tenants for the very limited number of top quality buildings that have been available. There is, however, still a surplus of secondary or average space for which demand is presently limited. Yields have fallen, especially where purchasers see opportunities to take advantage of rents rising in the near future. Similarly, properties with immediate redevelopment potential have also been much in demand. Purchasers have had to adopt rent forecasts reflecting record levels within their appraisals. Retail Warehousing Performance from properties in this sector has been remarkable over recent years and interest from both investors and occupiers has once again grown even stronger. This is based on the continuing and fundamental imbalance between demand and supply. Many retailers who already trade from out of town units are looking to expand their presence. Others who have previously stayed in "high street" locations, are going "out of town" for the first time. This has resulted in significant rent increases in many areas. On the supply side, the planning regime has remained very restrictive. Investors and tenants are therefore competing intensely for a finite stock of an asset that is seen as increasingly valuable. In many cases, investors are projecting rental values in order to justify purchase prices. With demand from a wide variety of sources, including cash rich funds, low initial and reversionary yields have become common across every category of out of town investment. The very best prices have tended to be for parks (as opposed to single units), especially those with "open A1" retail planning consent. Less profitable tenants can be replaced with new occupiers. The higher rents achieved can then be applied at rent review to the remaining units. Buildings can be extended and reconfigured, and there are opportunities to generally upgrade and "re-brand". High Street Shops. High street spending has remained unaffected by recent interest rate rises or concerns over the sustainability of current prices in the UK housing market. Consumer confidence remains high. Retailers, however, have experienced mixed fortunes. Profits, from which rent is paid, are under pressure in some cases. Further corporate restructuring seems likely. Elsewhere, demand from the more successful traders, has produced rental growth in many locations, after several years of stagnation. The very keenest investment yields have been paid where buyers see strong growth prospects. This has produced an inward movement of around 50 basis points, to approximately 4.5% equivalent yield for prime stock. Yields for more secondary properties have improved even more in absolute and relative terms. Here, improvements of 100 basis points or more are not unusual. Shopping Centres These have also shown large increases in value. The rental growth already referred to has fed through to many centres. For investors, shopping centres combine the appeal of retail with the scope to add value through active estate management. They have the added attraction for funds keen to spend cash, of being large "lot" sizes. Yields have sharpened by around 100-150 basis points for typical town centre schemes, so that initial yields of close to 6% have become common. A major centre such as Meadowhall is sold only rarely but is subject to the same considerations. Department stores Department store investments have benefited from the positive investor attitude towards retail. They typically offer long leases, low rents from which growth can be expected, strong covenants and underlying redevelopment opportunities. Foodstores Many of these characteristics are shared by foodstores. In addition, the restrictive planning environment, and the willingness of tenants to extend leases, all appeal to investors. Yields for prime properties have improved to around 5.25%. Purchasers will have been encouraged by evidence of rents increasing for top quality stores, with several reviews settled well in excess of Â£20 per sq ft. In conclusion, there is strong demand for all property types from a range of buyers. This is combined with the beginning of recovery and rental growth in a number of occupational markets. ATIS REAL Weatheralls Norfolk House 31 St James's Square London SW1Y 4JR PRINCIPAL INVESTMENT PROPERTIES The Broadgate Centre, London EC2 Value Â£2.7bn Broadgate is the premier City of London office estate. The assembly 360,000 sq m (3.9m sq ft) of the entire estate into British Land's ownership was completed by office, retail and leisure the acquisition in March 2003 of the virtual freehold interest at 1 accommodation Appold Street. Since then, we have continued to invest in the 13 hectare (34 acre) site development of the Estate. Works to enhance the public spaces Adjoins Liverpool Street station providing new landscaped areas, retail amenities, improved lighting (mainline and underground) and signage in Broadgate Circle, the Octagon and Finsbury Avenue Distinctive environment for some Square are complete. The lighting scheme at Finsbury Avenue Square of the world's largest has won three international awards. corporations and leading professional practices Approximately 30,000 employees based at Broadgate Construction of 10 Exchange Square, adding a further 15,180 sq m Community website (163,400 sq ft) to the Estate has recently completed (May 2004). As www.vicinitee.com for all other buildings at Broadgate, its frame and mechanical and Tenants include: electrical services are designed to permit ongoing flexible updating ABN AMRO Holdings of tenants' space as technology and operating requirements change. Allianz Dresdner Broadgate Estates Limited, a wholly owned subsidiary of British Ashurst Morris Crisp Land, manages the estate and maintains the external and common Barclays Bank areas. Baring Investment Services Credit Lyonnais Deutsche Bank European Bank for Reconstruction In April 2003, the lease to EBRD of the 34,100 sq m (367,000 sq ft) & Development (EBRD) building at One Exchange Square was restructured. The tenant's F&C Management break clause in 2006 was removed and the new lease extended from Henderson Administration 2016 to December 2022. The office rent has been maintained at Herbert Smith Â£18,975,000 (Â£52.50 per sq ft) per annum with upward only rent ICAP reviews, next in 2006 and every 5 years thereafter. EBRD were Lehman Brothers granted a 3 years and 5 months nil rent period from June 2003, with Norinchukin rent to be paid again from November 2006. Prebon Marshall Yamane Royal Bank of Scotland Societe Generale Sumitomo Trust Rents increased by Â£2.14 million pa over the year as a result of Tokyo Mitsubishi rent reviews and leasing activity on a total of 44,200 sq m (476,000 UBS sq ft) of office and retail accommodation. The total rent passing Williams de Broe of Â£151.7 million per annum a will revert to Â£170.7 million per The Broadgate Club annum upon expiry of the EBRD's nil rent period in November 2006. Freehold/virtual freehold Rents will further increase upon: rent reviews (with minimum 100% owned uplifts); the letting of the 4,650 sq m (50,000 sq ft) of vacant Rent passing Â£151.7m pa accommodation at 6 Broadgate and 155 Bishopsgate (3,590 sq m/38,600 Average office passing rent sq ft under offer); and letting of the 15,180 sq m (163,400 sq ft) Â£46.15 per sq ft becoming available at 10 Exchange Square, of which 4,110 sq m/44,200 Weighted average lease term sq ft is agreed with Herbert Smith, solicitors. including breaks 12.5 years, to expiry 14.8 years Meadowhall Shopping Centre, Sheffield Value Â£1.4bn Meadowhall is one of the largest and most successful shopping centres in the UK. 132,800 sq m (1,430,000 sq ft) retail Site area 68 hectares The two level, fully enclosed mall with excellent transport links continues to be attractive to both retailers and their customers. (167.3 acres, 57.7 acres For multiple retailers at Meadowhall, 80% of the units are in the undeveloped) top 10 performing outlets of their company, and for 26% they are the retailers' best performing outlet in the country. 195 shop units, 11 anchor stores, 11 screen Warner Village cinema, 26 speciality kiosks, 21 mall kiosks Initiatives to reach retailers and consumers include: an on-line gift buying service; advances in the centre's interactive customer 28 restaurants and cafes loyalty scheme, now with 92,000 subscribers; and the development of (including Oasis food court) the latest technology to communicate effectively with both customers seating for some 3,300 and retailers, setting the industry standard (and being successfully marketed to other shopping centres throughout the UK). The Up to 800,000 visitors per week accelerated response centre (ARC), provides on-site warehousing and at peak time stock replenishment facilities and is being expanded during 2004. In just over a year since the opening of The Source, a new training Direct access to junction 34 of and development centre, over 60,000 people have benefited from the M1 motorway facilities. Free parking for over 12,000 vehicles The refurbishment of the 'Oasis' food court was completed in On site transport interchange October, with the new first floor area creating additional seating. with bus, train and supertram The all new design and finishes provide a pleasing environment for services customers. www.meadowhall.co.uk Anchor stores: Meadowhall and its management have received more awards this year, including British Council of Shopping Centres (BCSC) and Allders Home International Council of Shopping Centres (ICSC) marketing awards and the Severnside award for commitment to recycling. BHS Boots Rents have increased by Â£2.1 million over the year following Debenhams settlement of 41 rent reviews and new leases. The rents passing are expected to increase further to approximately Â£71.2 million per H&M annum when the outstanding rent reviews and lettings have been completed. House of Fraser Marks & Spencer Next Sainsbury's Sports Soccer WH Smith Freehold 100% owned Rent passing Â£70.1m pa Average rent (excl M&S) Â£54.83 per sq ft Weighted average lease term including breaks 17.6 years, to expiry 17.9 years Supermarkets Portfolio Total value Â£1.67bn British Land's investment in supermarkets now represents 14% of the total portfolio. British Land's share Â£1.5bn 88 supermarkets located across England, Wales and Northern We calculate that we are the largest owner of UK supermarket Ireland properties, other than the occupiers themselves. Total floor area 457,000 sq m (4.9m sq ft) In an increasingly restrictive planning environment and with limited Total site area 166 hectares new supply, the retailers continue to require more and larger stores (410 acres) and are prepared to commit to full lease lengths of over 20 years. Total car spaces c.30,000 Tenants: These investments, acquired over some 15 years, have been enlarged by 42 extensions adding a total of 59,700 sq m (637,000 sq ft), of Sainsbury's (43 stores) which 2,600 sq m (28,000 sq ft) has been completed during the year. Superstores of above 2,320 sq m (25,000 sq ft) now comprise 96% by Somerfield (26 stores) value of this supermarkets portfolio. Tesco (14 stores) Safeway (3 stores) In addition to these, British Land also owns, directly or 50% in joint ventures, a further 23 supermarkets which are included in Waitrose (1 store) other sectors of the portfolio (such as retail warehouse parks), and total a further 135,000 sq m (1,435,000 sq ft). Co-op (1 store) 82 freeholds, 6 long leaseholds Six rent reviews were concluded during the year, adding some Â£2 73 stores 100% owned million rent per annum. The most significant was the determination on the Tesco store at Milton Keynes. The store is 12,630 sq m 15 stores owned 50% in joint (136,000 sq ft) and of modern design on a retail warehouse park. ventures The independent expert's award, at Â£21.50 per sq ft, is the highest such award achieved to date. Total rent passing Â£93.7m pa, British Land's share Â£83.1m pa Average rent Â£19.05 per sq ft Weighted average lease term to break and expiry 22.7 years Out of Town Retail Warehouses Portfolio Total value Â£1.6bn British Land's retail warehouse investments represent 13% of the total portfolio. British Land's share Â£1.4bn 66 retail warehouse properties, Included in these investments are: of which: 40 retail parks with total 339 Teesside Retail Park, Stockton on Tees units; and 26 solus units This freehold property is located at the intersection of the A66 and A19 trunk roads between Stockton on Tees and Middlesbrough. Total floor area 527,800 sq m (5.7m sq ft) 58% with open A1 use Phase 1: purchased in 1992 and extended in 1998, provides 31,500 sq m (340,000 sq ft) of open A1 retail space arranged in 29 units, on a site of 19 hectares (47 acres). Total site area 211 hectares (521 acres) Phase 2: a 3.3 hectare (8.1 acre) site, purchased in 1998 and located on the Park's principal access, comprises two retail units occupied by Comet and Office World totalling 3,900 sq m (42,000 sq Tenants include: ft) and three restaurant units totalling 1,090 sq m (11,700 sq ft). Phase 3: an 11 hectare (27 acre) site, surrounding an existing Asda leisure development (not in the Company's ownership), which may be considered for future development for commercial uses. A planning consent in respect of part of the site for a 100 bedroom hotel and a B&Q public house is in place. The adjacent Pets at Home unit comprising 740 sq m (8,000 sq ft) and Carpetright the reversionary interest in the adjoining Toys R Us unit are also in the Company's ownership. Comet Total passing rent from Teesside is Â£7.5 million per annum. Courts Dixons Group Greyhound Retail Park, Chester Focus Group This freehold retail park investment is located to the west of the town centre close to other areas of retail warehousing. The Park Homebase extends to 19,100 sq m (205,000 sq ft) of mainly retail floor space. There are also two leisure units (cinema and bowling alley) where the rents are based on retail values. Tenants include Carpetright, Homestyle Group Rosebys, DFS, Pets at Home and Dunelm. Almost all the retail units have a valuable open A1 non food planning consent. JJB Sports The total passing rent is Â£3.6 million per annum. Matalan PRG Powerhouse Homebase DIY Stores Sainsbury's The portfolio of stand alone Homebase stores is now 18 properties located mainly in the South East of England. Annual rents total Tesco Â£10.7 million which averages Â£151.25 per sq m (Â£14.05 per sq ft) and all are let on 20 year leases from December 2000. Total floor area is 70,745 sq m (761,500 sq ft). TK Maxx Toys R Us Predominantly freehold Total rent passing Â£86.7m pa, British Land's share Â£73.6m pa Average rent Â£15.79 per sq ft Weighted average lease term including breaks 17.0 years, to expiry 17.1 years The Kingston Centre, Kingston, Milton Keynes (50% owned in joint venture) The Kingston Centre was constructed in 1992 on a freehold 14 hectare (35 acre) site, close to junctions 13 and 14 of the M1 motorway and provides a total of 21,200 sq m (228,000 sq ft) of open A1 retail space. The Centre includes a 12,630 sq m (136,000 sq ft) Tesco Extra superstore with a petrol filling station and five retail warehouses totalling 7,400 sq m (79,300 sq ft). There is a covered shopping mall with 12 units totalling a further 1,150 sq m (12,400 sq ft), a drive-thru McDonalds, a pub and a car showroom. Tesco has an overriding lease covering the superstore and mall units. Tenants of the retail warehouses are Boots, Mothercare, Benson's Bed Centre, Focus DIY and Holiday Hypermarket. The former car wash site is being redeveloped to provide a retail unit and a restaurant. Planning consent exists for a further two retail warehouse units. The total current rent is Â£5.0 million per annum. Orbital Shopping Park, Swindon This retail park adjoins a 13,935 sq m (150,000 sq ft) Asda superstore and comprises 18,950 sq m (204,000 sq ft) in 6 retail warehouse units let to Homebase, Comet, Next, Borders, JJB Sports and Boots and 7 shop units let to a variety of retailers including Blockbuster, Lunn Poly and Carphone Warehouse, together with a health club. Rental income is Â£3.6 million per annum. The Beehive Centre, Coldhams Lane, Cambridge The site extends to 7 hectares (17 acres) with a frontage to Coldhams Lane, off Newmarket Road, where other major retailers are represented. Accommodation includes 14 non-food retail units totalling 14,700 sq m (158,200 sq ft) and a supermarket of 6,500 sq m (70,000 sq ft) let to Asda. Other tenants include Carpetright, JJB Sports, Pets at Home, Maplin Electronics, TK Maxx and Toys R Us. Rental income is Â£3.0 million per annum. Priory Retail Park, Merton Acquired in January 2004, this scheme on 2.3 hectares (5.6 acres) is prominently located at the junction of the A24 and A238. The 7 units, totalling 6,520 sq m (70,200 sq ft) are fully let to tenants including Currys, PC World, Carpetright, Harveys and Carphone Warehouse. The total passing rent is Â£1.6 million per annum. Regent's Place, London NW1 Value Â£531m This thriving West End business quarter has a major Euston Road frontage and excellent transport links. 114,100 sq m (1.3m sq ft) office, retail, leisure and residential accommodation Passing rents increased from Â£17.7 million to Â£28.9 million per 4.2 hectare (10.4 acre) site, annum over the course of the year as a result of the completion of West End of London rent reviews on 13,200 sq m (142,000 sq ft) of office accommodation and the expiry of rent free periods on recently leased offices. Close to Euston mainline and 4 Shortly after the year end, the letting of a further 4,740 sq m underground stations (51,000 sq ft) in 350 Euston Road to the General Medical Council was completed at a rent equating to Â£39.00 per sq ft pa, and the last 2.0 hectares (4.9 acres) for available office floor in 350 Euston Road is now under offer. further development at the North-East quadrant and site to the West of the estate A conditional Development Agreement has been entered into with The Community website Crown Estate to explore the development potential of a 1 hectare www.vicinitee.com (2.5 acre) site to the West of the Regent's Place estate. A detailed planning application has been submitted to the London Tenants include: Borough of Camden for 50,720 sq m (546,000 sq ft) offices and residential floor space. Additionally, proposals are being Abbey progressed for the North-East Quadrant of Regent's Place, comprising a further one hectare (2.4 acres) to provide up to 61,150 sq m Bank One (658,000 sq ft) of offices and residential. As part of these schemes, it has been agreed that the University of Westminster will Capital One leave the estate no later than December 2005 (which had the effect of reducing the current average lease term to 15.1 years). Elexon General Medical Council Retail offers within Regent's Place enhance the estate, including a HM Government Sainsbury's convenience supermarket, Holmes Place Health Club, Starbucks and Pret a Manger, a wine bar, hairdressers and a large Hodder Headline creche. 350 Euston Road incorporates further retail units which are available for letting to a mix of tenants. Sema WS Atkins Based on the Regent's Place Travel Plan, the transport initiatives Mainly freehold at Regent's Place are featured in Government best practice guidance documents on travel plans. 100% owned Rent passing Â£28.9m pa In June 2003 350 Euston Road won an award in the "Large Commercial" Average office passing rent category of the London Borough of Camden Built in Quality Awards Â£31.87 per sq ft 2003, part of a national scheme to promote good building practice. Weighted average lease term including breaks 12.3 years, to expiry 15.1 years Triton Square, a large public open space in the heart of Regent's Place, with a diverse collection of art, has recently won a Civic Trust Award. Broadgate Estates Limited continues to manage the external and common areas. Ludgate, London EC4 32,255 sq m (347,193 sq ft) The Ludgate Estate: 1 Fleet Place and 10 Fleet Place. offices 560 sq m (6,023 sq ft) retail Near Blackfriars and Farringdon The development of 1 and 10 Fleet Place, completed in 1992, was an mainline and underground urban regeneration of land previously occupied by railway lines stations which are now re-sited below ground. The standards of construction, www.vicinitee.com finish and services are similar to those found at Broadgate. Tenants include: Babcock & Brown BTG Clydesdale Bank Denton Wilde Sapte Dow Jones Kroll Buchler Phillips MCI WorldCom Scottish Widows Virtual freehold 50% owned in joint venture Rent passing Â£13.0m pa 122 Leadenhall Street, London EC3 16,650 sq m (179,150 sq ft) Situated opposite the Lloyds of London building in the City, the offices building was first constructed in 1969 and substantially rebuilt in 1996. It is located in an area of the City designated as suitable 812 sq m (8,740 sq ft) retail for high rise buildings. 0.4 hectare (1 acre) site www.vicinitee.com The majority of the leases are due to expire in 2008 and the opportunity for a tower redevelopment is being explored. Following Tenants include: extensive discussions with the City Corporation, a planning application for the 224 m high, 48 storey Leadenhall Building Banca Monte Dei Paschi Di Siena designed by the Richard Rogers Partnership was submitted in February 2004. The proposed building would provide 55,870 sq m (600,000 sq Credit Agricole ft) of office floor space. Marks & Spencer Freehold 100% owned Rent passing Â£6.9m pa Blythe Valley Park, Solihull 36,200 sq m (390,000 sq ft) Since acquisition in 1999 (then in a joint venture, now majority offices owned) some 36,200 sq m (390,000 sq ft) of primarily B1 office space has been successfully developed and let. The landscaped park also 69 hectares (170 acres) business has ancillary retail, day nursery and Virgin health and fitness park facilities. Development of further areas of the park are being planned and will be undertaken in response to market demand. Planning consent for 111,500 sq m (1.2m sq ft) www.blythevalleypark.co.uk The 2,350 sq m (25,500 sq ft) Innovation Centre, managed by University of Warwick Science Parks, was developed and is owned Tenants include: jointly with Solihull Metropolitan Borough Council. It provides facilities to assist new small businesses. Centrica Logica Rent passing will increase to Â£6.3 million per annum on expiry of Ove Arup current rent free periods. Virgin Predominantly freehold 100% owned Rent passing Â£6.2m pa Centre West, The Plaza Centre, The Olympia, Princes Mall and Plaza Tower, East Kilbride Centre West: 26,000 sq m The new Centre West and the established Plaza Centre, The Olympia (280,000 sq ft) retail, and Princes Mall together create a prime retail destination at East Kilbride, serving the town and a wider south Glasgow catchment. 49 units Plaza Centre: 28,000 sq m (300,000 sq ft) retail, Centre West was completed and opened in March 2003 and has 45 units established itself as the principal fashion location. The centre The Olympia: 32,500 sq m trades on two levels, including an upper level food cluster. The (350,000 sq ft) retail, recently refurbished Plaza Centre links directly into Centre West and its car parking. 58 units Princes Mall: 14,000 sq m (150,000 sq ft) retail, The Olympia, opened in 1989, includes an ice rink, multi-screen 40 units cinema and food court in addition to the retail units. Princes Mall Plaza Tower: 15,000 sq m was refurbished in 1994 and provides the key value offer. This mall (161,000 sq ft) offices links with the bus station, which is being redeveloped. Multi-storey and level car parks Tenants include: Centre West: Debenhams Total rental income will increase to Â£17.9 million per annum on French Connection expiry of rent free periods at Centre West. HMV Next River Island Superdrug The recent establishment of the joint venture with Land Securities USC to manage and develop these malls will create an improved retail Zara environment and maximise long-term value. Plaza Centre: BHS Boots Marks & Spencer Mothercare Primark WH Smith The Olympia: Adams All Sports Etam H&M Safeway Princes Mall: Argos Mark One Woolworths Plaza Tower: Inland Revenue Pearl Assurance Plaza, Olympia and Princes: feuhold Centre West: long leasehold 50% owned in joint venture Rent passing Â£16.3m pa Bon Accord Centre and St Nicholas Centre, Aberdeen Bon Accord: 23,700 sq m (255,000 Aberdeen is the principal retail centre for north-east Scotland. sq ft) retail, The Bon Accord Centre is Aberdeen's largest shopping centre. Its main entrance faces the St Nicholas Centre which is on a prime pitch 60 units linking the two centres to Union Street. Marks & Spencer and the 7,300 sq m (78,600 sq ft) John Lewis Partnership adjoin the centres. leisure and offices St Nicholas: 10,450 sq m (112,000 sq ft) retail, The management of the two centres in the new joint venture with Land 26 units Securities will enable proposals to progress their linking and 1,300 sq m (14,100 sq ft) further development to present the combined centres as the prime offices location for retailers in Aberdeen. Multi-storey car parks Major tenants: Bon Accord: Boots Primark Woolworths St Nicholas: Dixons Miss Selfridge Next River Island WH Smith Bon Accord: feuhold and long leasehold St Nicholas: long leasehold 50% owned in joint venture Rents passing Â£13.1m pa Eastgate Shopping Centre, Basildon 56,300 sq m (605,750 sq ft) The Eastgate Centre represents a major part of Basildon Town Centre retail and receives over 13 million customer visits a year. 3 office buildings 11,800 sq m (127,000 sq ft) The retail mall contains 3 anchor stores and 116 units. The Centre Multi-storey car park has continued to attract new tenants including First Choice, Icon and Blue Inc. Savacentre have assigned their lease to Asda Walmart Major stores: who are carrying out a scheme of major refurbishment which will benefit the centre. Allders Asda Walmart Eastgate has received a "Purple Apple Merit Award" from the British HMV Council of Shopping Centres for its community work, and an Investors in People award. New Look Next The office buildings are let to tenants which include CGNU and the Primark Secretary of State. Superdrug Freehold 100% owned Rent passing Â£9.3m pa The Peacocks Centre, Woking 29,700 sq m (320,000 sq ft) Completed in 1992, this fully enclosed Centre is the prime shopping retail scheme in Woking on three principal trading levels. 73 units plus 5 anchor stores Major stores: Planning consent has been obtained for the creation of a new 1,300 sq m (14,000 sq ft) unit fronting Town Mall. It is anticipated that Allders the development will commence later in the year with a key pre-let in place. Marks & Spencer Miss Selfridge The food court has been increased to provide 540 seats and the Next tenant mix enhanced, including major multiples. Primark TK Maxx There is a direct link to the 2 theatres and multiplex cinema and secure parking for 2,500 cars (not within the Company's ownership). Woolworths Long leasehold 100% owned Rent passing Â£5.8m pa Serpentine Green Shopping Centre, Hampton, Peterborough 27,700 sq m (298,000 sq ft) Serpentine Green is located in a prominent position on the southern retail outskirts of Peterborough. 2,100 car spaces Major stores: The covered Centre, opened in 1998, comprises a Tesco Extra superstore of 12,100 sq m (130,000 sq ft) plus a further 15,600 sq m Tesco Extra (168,000 sq ft) including 26 retail units and a dedicated catering area. Boots H & M The Centre also has a petrol station, operated by Tesco. Carphone Warehouse New Look The surrounding area has been designated for a major expansion, with Gap over 5,000 new houses planned. Next WH Smith Freehold 50% owned Rent passing Â£5.3m pa JOINT VENTURES Introduction British Land has 12 active joint ventures which hold Â£2.4 billion (2003: Â£2.8 billion) of properties in the principal areas of retail, office and development. British Land's share of Â£1.2 billion (2003: Â£1.4 billion), is financed to the extent of Â£530 million (2003: Â£632 million) by external net debt, without recourse to British Land (2003: Â£12 million guaranteed). The net investment in joint ventures at the year end is Â£658 million (2003: Â£700 million). Joint venture model All British Land's joint ventures share a common framework: â€¢ the separate joint venture entity is controlled on a 50:50 basis by a board on which each partner is equally represented (with no casting votes); â€¢ the joint venture is established with a specific term, at the expiry of which, unless otherwise agreed, it will terminate in accordance with the terms agreed at the outset. There are, however, provisions for early termination if the partners reach deadlock; and â€¢ the joint venture is funded by a varying combination of equity and subordinated loans from the joint venture partners and external debt. British Land has proven its sustained ability to work constructively with other major companies, and its reputation enables it to continue to attract new ventures. Joint venture rationale Joint ventures benefit British Land because: â€¢ they have provided access to desirable properties that were not on the market and enhance negotiations with tenants across a greater number of locations; â€¢ they are able to raise finance on the strength of their own balance sheets with minimal or no support from either partner, thereby significantly lowering the initial equity investments and enhancing the returns on capital; â€¢ they restrict the risks associated with a specific property investment or development by sharing the investment with a partner; and â€¢ British Land earns fees from services provided to joint ventures. Joint venture activity The key activities of the joint ventures during the year were: â€¢ the establishment in March 2004 of the Scottish Retail Property Limited Partnership, a new joint venture with Land Securities PLC, to encompass the principal shopping centres in both Aberdeen and East Kilbride; â€¢ the creation of BL Rosemound Limited Partnership in March 2004, a new joint venture with Rosemound Developments, which will develop distribution and warehouse accommodation on land acquired at Daventry International Rail Freight Terminal, adjacent to the M1 motorway; â€¢ the renewal and refinancing of BLT Properties Limited, and the extension to at least 2030 of all the leases to Tesco, as well as the financing of The Tesco British Land Property Partnership; â€¢ the acquisition in November 2003 of the 50% interest in BL Universal from the joint venture partner, GUS plc. BL Universal is now a wholly owned subsidiary of British Land; â€¢ British Land acquired a majority controlling interest in the BVP Developments joint venture, from ProLogis Developments in December 2003; â€¢ The Public House Company continued with its programme of auction sales, in which 30 public houses were profitably sold in the year, raising Â£41 million; and â€¢ British Land's interest in the Cherrywood joint venture, comprising the Dublin mixed use development, was sold in April 2003 to Dunloe Ewart the joint venture partner. The outline profit and loss account and balance sheet information for the major joint ventures is set out later in this report. Summary of British Land's share in joint ventures 2004 2003 Change Â£m Â£m Â£m Profit and loss account Gross rental income 78.9 102.2 (23.3) Operating profit 67.5 92.3 (24.8) Disposal of fixed assets 7.4 20.4 (13.0) Net interest - external (40.0) (56.4) 16.4 Net interest - shareholders (6.6) (8.9) 2.3 Profit before tax 28.3 47.4 (19.1) Balance sheet Gross assets 1,299.8 1,470.3 (170.5) Gross liabilities (641.6) (770.1) 128.5 Net investment 658.2 700.2 (42.0) Number of active joint ventures 12 12 The Scottish Retail Property Limited Partnership JV Partner: Land Securities Group PLC Date Established: March 2004 Portfolio value: Â£487m, comprising shopping centres in Aberdeen and East Kilbride. Annualised net rent: Â£30m Finance: No external finance Value of British Land net investment: Â£252m The joint venture properties comprise over 130,000 sq m (1.4 million sq ft) of retail space in major shopping centres: St Nicholas Centre and Bon Accord Centre, Aberdeen and Centre West, Plaza Centre, The Olympia and Princes Mall, East Kilbride. The Partnership will produce a joint development plan for the centres to provide an enhanced environment for both shoppers and retailers. The partners will increase their ability to attract and service high quality tenants and maximise the long term value of the centres. Joint ventures with Tesco PLC British Land has 3 joint ventures with Tesco PLC, which together own Â£798 million of retail properties, comprising 13 superstores, 4 retail parks and 4 shopping centres anchored by Tesco stores. BLT Properties JV Partner: Tesco PLC Date Established: November 1996 Portfolio value: Â£254m, comprising 2 retail parks and 8 Tesco superstores Annualised net rent: Â£15m Finance: Â£185m loan provided by a syndicate of banks, without recourse to the joint venture partners Value of British Land net investment: Â£44m One of the first joint ventures, BLT has been active in extending the properties, increasing the investment by making capital contributions to the cost of development, and achieving increases in rental income. During the year, the extension programme has continued; it is anticipated that the extension at Formby will be completed shortly. Extension and development options are being evaluated on 4 further stores. In November 2003, the joint venture reached the end of its initial 7 year term and was renewed for a further 7 years. The leases to Tesco were all extended by an additional 10 years, now to expire after 2030. The joint venture was also refinanced with a new term loan of Â£185 million to repay the previous bank loan of Â£110 million and the surplus was returned to the shareholders. Tesco British Land Property Partnership JV Partner: Tesco PLC Date Established: February 1998 Portfolio value: Â£129m, being 2 shopping centres anchored by Tesco Annualised net rent: Â£9m Finance: Â£87m loan from Danske Bank A/S, with recourse only to the partnership assets Value of British Land net investment: Â£15m The partnership with Tesco was originally established to acquire 12 retail properties from the partners, and in November 1999 it sold 9 properties to the newly formed Tesco BL Holdings, retaining 3 properties, one of which was sold in 2001. The remaining 2 properties are now undergoing a significant programme of refurbishment. At Weston Favell, Northampton, an extension adding 6,000 sq m (65,000 sq ft) has recently been completed and is almost all let or under offer. Following completion of the successful extension at Beaumont Leys, Leicester, a redevelopment of one of the malls is now under construction and will become a new purpose-built Wilkinson store. During the year the Partnership also funded a small extension of 240 sq m (2,600 sq ft) to the Tesco store. In March 2004, the Partnership raised a new bank loan of Â£87.2 million, enabling the partners to extract these funds in repayment of their capital (see note 20). Tesco BL Holdings JV Partner: Tesco PLC Date Established: November 1999 Portfolio value: Â£415m, comprising 2 retail parks and 2 shopping centres each anchored by Tesco, and 5 Tesco supermarkets Annualised net rent: Â£25m Finance: Â£210m loan provided by a syndicate of banks, lead by WestLB; without recourse to the joint venture partners Value of British Land net investment: Â£103m This joint venture was established to acquire 9 properties from The Tesco British Land Property Partnership in November 1999. The properties are actively managed and the joint venture is currently funding a 230 sq m (2,500 sq ft) extension to the Tesco store in Bury. During the year rent reviews have been successfully settled by agreement on the stores at Bury and Maidstone. Additionally, the rent review of the Tesco store at Milton Keynes was determined by an independent expert and achieved a 62% increase over the previous rent. BL Davidson JV Partner: Manny Davidson, his family and family trusts Date Established: September 2001 Portfolio value: Â£496m, comprising circa 80 properties, principally retail warehouses and Central London offices Annualised net rent: Â£29m Finance: Â£114m investment, development and working capital loan facilities provided by Royal Bank of Scotland, without recourse to the joint venture partners. The joint venture also has debentures of Â£124m, and other bank loans totalling Â£23m Value of British Land net investment: Â£103m This joint venture was established to acquire Asda Property Holdings plc, which owned a portfolio of properties, principally retail warehousing and Central London offices. During the year, the office and retail development programme has been completed (funded from the RBS facility) and sales with proceeds totalling Â£5 million have completed at above valuation. The joint venture has recently commenced a mixed use development in Leeds. BL West companies JV Partners: WestLB, WestImmo and Provinzial (together 50%) Date Established: September 2000 Portfolio value: Â£314m, comprising 4 city office buildings Annualised net rent: Â£24m Finance: Â£235m bank loan provided by a syndicate, lead by WestLB, without recourse to the joint venture partners Value of British Land net investment: Â£38m In September 2000, British Land sold a 50% interest in 4 prime city offices to a joint venture with WestLB, WestImmo and Provinzial. British Land retains a 50% interest in the venture. The properties, all located in London EC4, comprised 3 office buildings developed in 1992: 1 Fleet Place, 10 Fleet Place, 100 New Bridge Street, and Watling House, Cannon Street EC4, an office building constructed in 1998. During the year, further rent reviews on 3,800 sq m (41,000 sq ft) resulted in a net increase in rent of Â£0.2 million per annum. Lettings, lease regearings and extensions were completed on a further 18,200 sq m (196,000 sq ft) which improved the property valuation. In April 2004, the properties at 100 New Bridge Street and Watling House were sold for total consideration of Â£151 million, and the related bank debt was repaid. BL Fraser JV Partner: House of Fraser PLC Date Established: July 1999 Portfolio value: Â£256m, comprising 13 department stores Annualised net rent: Â£13m Finance: Â£140m loan provided by a syndicate of banks, lead by Eurohypo, without recourse to the joint venture partners Value of British Land net investment: Â£56m This joint venture was established to acquire and leaseback 15 House of Fraser freehold and long leasehold department stores, mostly in major provincial towns and cities. The joint venture purchased a further store in Bristol from Bentalls, funded a significant redevelopment of the Guildford store resulting in higher rental income for the joint venture, and profitably sold the stores in Doncaster and Perth. All properties are let on 40 year full repairing and insuring leases to House of Fraser with minimum guaranteed uplifts for the first 2 rent reviews, based on the higher of 3% per annum uplift (since 1999) or open market value. The first of these reviews occurs in July 2004. During the year, the store in Darlington was sold significantly above valuation and funds were returned to the shareholders. The Public House Company JV Partner: Scottish & Newcastle plc Date Established: April 1995 Portfolio value: Â£23m, comprising 19 public houses Annualised net rent Â£1.5m Finance: Repaid in full Value of British Land net investment: Â£22m During the year, a further 30 public houses were sold at auction, realising Â£41 million, well above valuation. G. E. H. Properties Limited JV Partners: Conran Holdings Limited and Wyndham International Date Established: November 1999 Portfolio value: Â£20m, comprising the Great Eastern Hotel Annualised net rent: Â£1m Finance: No external finance Value of British Land net investment: Â£10m The joint venture retains a 125 year head lease in the recently refurbished 267 bedroom hotel and restaurants complex at Broadgate. Blythe Valley Innovation Centre Limited JV Partners: Solihull Metropolitan Borough Council Date Established: June 1999 Portfolio value: Â£5m Annualised net rent: Â£0.3m Finance: Â£1m loan provided by Lloyds Bank, without recourse to the joint venture partners Value of British Land net investment: Â£1m The joint venture owns the Innovation Centre, run by Warwick University, at Blythe Valley business park. The centre offers facilities for start-up businesses. BL Gazeley JV Partner: Gazeley Properties Date Established: January 2001 Portfolio: Â£19m, comprising 2 development properties Annualised net rent: Â£nil Finance: No external finance Value of British Land net investment: Â£7m This joint venture, funded by the shareholders, has acquired development sites at Thatcham, Redditch and Enfield, providing principally distribution warehouse accommodation. Following the successful development and sale of the first phase at Thatcham (a 33,070 sq m/356,000 sq ft distribution unit pre-let to Scottish & Newcastle), the joint venture has now commenced the development of the remaining site to provide a distribution warehouse of 23,690 sq m (255,000 sq ft), due for completion in September 2004. At Enfield, the joint venture has completed and let over 36,880 sq m (397,000 sq ft) of distribution units and subsequently sold the investment. At Redditch, the company has agreed terms for the sale of 2 small plots. BL Rosemound Limited Partnership JV Partner: Rosemound Developments Date Established: March 2004 Portfolio: Â£29m, comprising development land Annualised net rent: Â£nil Finance: Â£20m loan facility provided by Bank of Scotland; without recourse to the joint venture partners Value of British Land net investment: Â£7m This joint venture was set up to acquire and develop 30 hectares (74 acres) of land at Daventry International Rail Freight Terminal, at junction 18 of the M1 motorway. The land has outline planning consent for 130,000 sq m (1.4 million sq ft) of distribution warehouse accommodation over four sites. Detailed planning consent has subsequently been obtained for a 67,350 sq m (725,000 sq ft) distribution unit on the central site. This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOW FR USSURSKRVUUR

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Wednesday, 4th December 2024

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