Final Results - Part 1

RNS Number : 0966M

British Land Co PLC

18 May 2010

THE BRITISH LAND COMPANY PLC

FULL YEAR RESULTS FOR THE YEAR TO 31 MARCH 2010

Strong valuation and NAV growth underpin strong balance sheet

· Portfolio valuation up 13.5%: lettings & ERV growth contributed to 7.5% increase in Q4

· NAV per share up 27% to 504p benefiting from leverage

· IFRS Net Assets of £4.2 billion (2009: £3.2 billion)

· Total return of 33.5% (16.6% in Q4)

Good financial performance

· Results affected by significant portfolio reshaping and March 2009 rights issue

· Underlying profit before tax down 7% to £249 million, impacted by disposals and development completions

· Underlying diluted EPS down to 28.4p (2009: 41.0p) also reflecting rights issue impact

· IFRS profit before tax £1,128 million (2009: loss of £3,928 million)

· Dividend per share of 26.0p for the year: maintained dividend proposed for 2010/11

Rental income benefits from new office lettings and resilient retail performance

· Like-for-like rental income growth +1.4% (Retail: +2.1%, Office: -0.4%)

· Occupancy rate up to 97%; 99% in retail and 93% in offices

· £35 million pa of rent from lettings of new London office space completed in 2009/10

Capital recycling to reshape portfolio

· £1.1 billion sale of 50% of the Broadgate Estate into a JV with Blackstone to reduce exposure to large single assets and share future development projects

· £247 million investment spend on selected retail and office assets

Nearly £500 million committed to develop 1.2 million sq ft of prime offices

· Non-binding agreement to create new 700,000 sq ft office for UBS at Broadgate

· Final 500,000 sq ft phase to complete Regent's Place estate

· 139,000 sq ft at 2-14 Baker Street in a prime West End location

Year ended 31 March	2010	2009	Change
Net Asset Value¹ per share	504p	398p	27%
Underlying profit before tax²	£249m	£268m	(7)%
IFRS profit/(loss) before tax	£1,128m	£(3,928)m
Underlying diluted EPS²	28.4p	41.0p	(31)%
Basic EPS	133p	(616)p
Dividends per share	26.0p	29.8p	(13)%

¹ EPRA (European Public Real Estate Association) basis

² see Note 2 to the accounts

Chris Gibson-Smith, Chairman comments: "British Land has scale, focus and outstanding experience and expertise. Against the background of the economic downturn, we have delivered strong valuation and NAV growth which are underpinned by a strong balance sheet. We are well positioned as we emerge from the challenges of the last year and look forward to the opportunities that lie ahead."

Chris Grigg, Chief Executive comments: "In a year of real volatility, we have performed well, reflecting the quality and strength of our portfolio and the actions we've undertaken to improve it. We are focused on the right assets in the right sectors and outperformed versus almost every measure tracked by the IPD, a key indicator of our achievement."

Investor Presentation

British Land will host a results presentation at 9.30 am today, 18 May 2010, which will be webcast at http://www.britishland.com/resultsday.htm.

British Land contacts:

Sally Jones	(Investors)	0207 467 2942
Pip Wood	(Media)	0207 467 2838

Finsbury:

Guy Lamming/Gordon Simpson

0207 251 3801

Forward-Looking Statements

This report contains certain "forward-looking" statements reflecting current views on our markets, activities and prospects. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and results may differ materially from any outcomes or results expressed or implied by such forward-looking statements. Any forward-looking statements made by or on behalf of British Land speak only as of the date they are made and no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. British Land does not undertake to update forward-looking statements to reflect any changes in British Land's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

Notes to Editors:

British Land is one of the UK's largest Real Estate Investment Trusts with total assets, owned or under management, valued at £13.5 billion (British Land share £8.5 billion), as at 31 March 2010. The hallmark of the business is a focus on customers, based on a portfolio in prime locations in the UK and more recently in Western Europe. Active management of these assets, purchases and sales and new development activity, tailor the property holdings to meet the needs of occupiers.

The portfolio, focused on the out-of-town retail and London office sectors, has the longest leases at average 13 years and occupancy rates at 97%, among the highest of the major UK REITs. Retail assets account for 66% of the portfolio, 85% of which is located at prime out-of-town sites. Central London offices comprise 32% of the portfolio. New office and retail developments complement these holdings.

Sustainability is at the core of the business - from community involvement in the planning process, through development, refurbishment and management, the aim is to provide attractive buildings that minimise resource use and meet the needs of occupiers today and tomorrow.

REVIEW BY THE CHIEF EXECUTIVE

2009/10 HIGHLIGHTS

2009/10 was a good year for British Land in a market which remained challenging and volatile for much of the year. This reflects the high quality of our portfolio, our considerable asset management skills and the actions we have taken over the last few years. We made further progress during the year repositioning the business to be able to deliver sustainable total returns for our shareholders through a balanced mix of dividends and capital value growth. The key highlights of the year include:

· Strong portfolio outperformance. Our portfolio performed strongly, with the value of our portfolio rising 13.5% in the year reflecting our greater weighting in prime out-of-town retail and London office assets which generate strong and growing income flows. Our portfolio outperformed IPD capital returns by 4.3% on a comparable basis. While initial yield compression of 75 bps drove the increase in value for the year as a whole, new lettings were a significant factor contributing to a 1.2% growth in ERV in the fourth quarter.

· Income profile remains strong and secure with occupancy up to 97%. The income profile of our portfolio continued to be one of the strongest in the sector reflecting the quality of our assets and the focus on providing buildings with enduring occupier appeal. Occupancy increased from 96% to 97%, an excellent result given we completed significant new office space during the period. The average lease length was maintained at 13 years to first break which compares with an average of 10 years for the market as a whole according to IPD.

· Successful letting of recently developed offices. We completed 1 million sq ft of new developments during the year at Ropemaker in the City and at Regent's Place in the West End. 77% of the new office space was let by the year end at rental values on average 9% ahead of ERV with an average lease unexpired length of 16 years and adding £35 million of annualised contracted rental income. Combined with other successful lettings, our office occupancy is now 93% and virtually all of the available space is brand new.

· Retail occupancy ahead with improving rental performance. Retail occupancy rose to 99% (from 98%), helped by successful lettings in the fourth quarter. New lettings in Q4 were ahead of most recent rental values with 37 long term deals 7.1% ahead of ERV. Our occupiers in administration have reduced from 2.2% to 0.6% since March 2009.

· Portfolio refocus to reduce asset concentration and dispose of mature assets. We continued to reshape our portfolio on those sectors and locations which we believe will deliver the best mix of income and capital returns. The most significant move during the year was the sale of a 50% stake in the Broadgate estate. This further reduced our exposure to large single asset classes and allows us to share the refurbishment and redevelopment projects at this major City estate with an experienced joint venture partner, Blackstone. We also sold a further £246 million (British Land share) high street retail and other assets which in our view are mature and/or low growth.

· Selective £247 million investment in core retail and office assets. After a difficult first half, we began to see a significant increase in investor demand for UK commercial property assets, particularly prime. While quality assets at the right price have been scarce, we started to invest selectively where we believed we could add value either through asset management or development, investing £247 million in core retail and office properties. The most significant of these were a 50% share in Surrey Quays, a shopping centre in Southwark, south London and 39, Victoria Street, SW1. After the year end, we acquired 2‑14 Baker Street, W1, a development site in the heart of London's West End for £29 million.

· Nearly £500 million committed to London office developments. Toward the end of the year, strengthening demand and asset prices in the Central London office market saw the economics of development improving significantly. As a result, we took the decision to commit nearly £500 million to developing three office schemes in Central London with an aggregate floorspace of over 1.2 million sq ft:

- £232 million to complete our Regent's Place estate with the construction of new office and residential buildings with a combined floorspace of 500,000 sq ft

- £65 million to redevelop a new 139,000 sq ft office at 2-14 Baker Street, acquired just after the year end

- c.£175 million (our 50% share) at Broadgate, to construct a c.700,000 sq ft new building for UBS on the site of 4 and 6 Broadgate. We have agreed non-binding heads of terms with UBS for a pre-let on the entire building.

We expect to complete the buildings during 2013 and 2014, when we expect market demand for Grade A London office space to be strong and supply limited.

· Strengthened management team. During the year, we strengthened our management team at executive Board level through the appointment of Stephen Smith as Chief Investment Officer and Charles Maudsley as Head of Retail and Business Development. Both bring significant property skills and expertise into the business.

RESULTS SUMMARY

During 2008/9 and 2009/10, the Group made significant asset disposals with an aggregate value of £3.0 billion for our share and in March 2009, we raised £740 million through a rights issue. These factors have had a significant impact on the results for the year to 31 March 2010.

Our portfolio was valued at £8.5 billion at the 31 March 2010 balance sheet date. Excluding the impact of disposals, our portfolio value rose by 13.5% over the year. We outperformed the IPD capital return by 4.3% on a comparable basis reflecting our greater weighting in prime retail and London office assets. The valuation of our retail portfolio rose by 13.4% to £5.6 billion and our office portfolio by 13.9% to £2.7 billion. Both our retail and office portfolios outperformed IPD capital return by 4.8% and 3.8% respectively.

Net Asset Value (NAV) per share at 31 March 2010 was 504 pence, a rise of 27%. This was significantly ahead of the 13.5% rise in our portfolio valuation reflecting the impact of gearing. Our proportionally consolidated loan to value ratio was 47% at the year end, compared with 57% a year ago.

Gross rental income for the year fell by 14% from £650 million to £561 million on a proportionally consolidated basis. Disposals net of acquisitions reduced gross rental income by £102 million. On a like-for-like basis, rental income rose by 1.4%.

Underlying pre-tax profits for the year were £249 million, a reduction of 7% on 2008/9. Asset disposals reduced pre-tax profits by £33 million or 12%. On a statutory IFRS basis, reported pre-tax profits were £1.1 billion compared with a loss of £3.9 billion for the prior year reflecting the impact of revaluations.

Underlying earnings per share fell to 28.4 pence from 41.0 pence principally reflecting the impact of the March 2009 rights issue. The Board is proposing a dividend for the fourth quarter of 6.5 pence bringing the total for the year to 26.0 pence.

MARKET AND GROUP OUTLOOK

We have entered the new financial year with greater optimism and are particularly encouraged by the recent strengthening of the London office occupier market. However, the economic recovery remains fragile and unemployment continues to rise. In addition, we remain alert to the possibility of further market dislocation given the uncertain economic backdrop and the potential impact of the fiscal actions needed to reduce the budget deficit in the UK. We will therefore continue to act with caution over the coming period.

Given the rapid rise in capital values in the second half of 2009/10, we expect overall real estate performance in 2011 to be relatively muted. We believe the market will continue to polarise between prime and secondary assets both in terms of the occupational and investment markets. Our expectation is that prime yields will remain around current levels for the foreseeable future and in some areas may compress further, while secondary values are more likely to drift downwards. Capital for the majority of developments is likely to remain constrained.

In London offices, there is likely to be an upturn in structural demand for Grade A space due to the high percentage of occupiers, especially in the City, who have lease expiries around 2013/14. At the same time, Grade A supply is expected to remain limited with relatively little new space completed over the next four years. As a result, rental values, which started to rise in the fourth quarter of last financial year, are expected to continue to rise over the next year. We expect our portfolio, which is focused on modern Grade A space, to perform well in this environment.

In retail, we believe there will continue to be robust retailer demand for modern space in prime locations and we expect to see wide differences in performances between the best locations and less well located secondary assets. There is a real risk of further rental deflation particularly given the level of lease expiries across the retail sector in 2010/11. However, we feel well placed with our high quality portfolio which is focused on those sectors of the retail industry which are expected to remain relatively resilient.

We expect to become more active in investment markets in 2010/11 as the real estate market continues to restructure. We do not expect to make any major asset allocation shifts, however we will continue to invest selectively in assets in our core office and retail sectors. We will also seek to deploy our expertise to re-engineer near-prime and secondary assets to create new prime properties.

The economics of development have become more favourable, particularly in Central London offices where we expect the development of over 1.2 million sq ft of new space at Regent's Place, Broadgate and Baker Street will enable us to deliver high quality properties at attractive prices. In addition, we are considering restarting the development of our 610,000 sq ft Leadenhall building in the City and are exploring interest from potential partners. In retail, we have 750,000 sq ft of consented space for development on our existing retail parks and are currently considering activating a number of the schemes in the coming year.

In Europe, we continue to monitor real estate markets and the performance of local economies. New initiatives are likely to be focused on out-of-town and big box retail investment in markets where we have local knowledge and locally based expertise.

CONCLUSION

British Land's objective is to deliver superior and sustainable shareholder value through a balanced mix of dividend distribution and increases in capital value. Over the last two years, the Group has been significantly reshaped. The moves we have made in recent years have further strengthened our business and put us in a stronger position to deliver sustainable growth for our shareholders. Our portfolio is weighted toward those sectors and locations which are predicted to outperform the market over the next five years. We have a secure, high quality income stream which we expect to benefit from a combination of organic growth in our existing portfolio and our newly activated development programme, as well as future acquisitions. We have a strong balance sheet and are well placed to benefit from the ongoing restructuring of the UK property market over the coming years.

In view of our confidence in the business going forward, the Board is recommending that the dividend for 2010/2011 is maintained at 26.0 pence per share.

Chris Grigg

Chief Executive

BUSINESS REVIEW

Our income profile is among the strongest in the sector and has continued to benefit from our customer-focused approach to active asset management.

	Retail	Offices	Total Portfolio
Occupancy rate¹	99%	93%	97%
Average lease length²	13.9 years	9.6 years	12.6 years
% of rent subject to break or expiry over next 3 years	5%	10%	7%

¹underlying occupancy including accommodation subject to asset management and under offer

²weighted average lease length to first break

PORTFOLIO VALUATION

After falling 30% in the year to March 2009, UK commercial real estate prices continued to fall in the first half of 2009/10, although at a reduced rate, then started to rebound sharply, rising 7.9% in the third quarter and 4.3% in the fourth, as investor demand increased while supply, particularly of prime, remained limited. The valuation increases were principally driven by yield compression: initial yields across the property sector fell from 7.5% to 6.5% according to IPD.

The table below shows the principal valuation movements of British Land's portfolio by sector for the three and twelve month periods to 31 March 2010, totalling 7.5% increase for the quarter and 13.5% increase for the year. The valuation uplift for the year was driven by an inward initial yield shift of 75 bps, offset by ERV decline of 6.2%. In the fourth quarter, the inward initial yield shift was 33 bps and ERV growth 1.2%, benefitting from lettings agreed in excess of the valuers' expectations.

Valuation by sector	Group	Funds/JVs	Total	Portfolio	Change %²
	£m	£m¹	£m	%	3 mths	12 mths
Retail:
Retail warehouses	1,676	999	2,675	31.4	7.7	14.8
Superstores	166	1,136	1,302	15.2	3.4	18.4
Shopping centres	199	990	1,189	13.9	5.8	3.2
Department stores³	436		436	5.1	4.0	21.5
All retail	2,477	3,125	5,602	65.6	6.0	13.4
Offices⁴:
City	493	1,242	1,735	20.3	10.2	13.3
West End	967		967	11.3	11.5	15.8
Provincial	27	7	34	0.4	1.8	(2.3)
All offices	1,487	1,249	2,736	32.0	10.6	13.9
Other⁵	188	13	201	2.4	7.6	12.8
Total	4,152	4,387	8,539	100.0	7.5	13.5

¹ Group's share of properties in Funds and Joint Ventures

²valuation movement during the period (after taking account of capital expenditure) of properties held at the balance sheet date, including developments (classified by end use) and purchases

³includes High Street: total value £20m, 0.2% of Portfolio, 4.8% decrease for the 12 months

⁴includes developments: total value £144 million, 1.7% of Portfolio, 6.5% increase for the 12 months

⁵Industrial, distribution and leisure

The valuation movements across our largest sectors were:

· Retail warehouses accounted for 31.4% of the portfolio at the year end with the valuation rising by 14.8% in the full year and 7.7% in the fourth quarter. The valuation uplift for the full year was driven by inward initial yield shift of 122 bps, offset by an ERV decline of 3.7%. In the fourth quarter, inward initial shift was 50 bps with ERV growth positive at 0.2%.

· Shopping centres accounted for 13.9% of the portfolio at the year end with the valuation rising by 3.2% for the year and 5.8% for the fourth quarter. On a like-for-like basis, for the full year, the initial yield shifted inwards by 15 bps and ERV fell by 5.7%. On the same basis, the initial yield shifted inwards by 35 bps in the fourth quarter and ERV fell by 1.6%.

· Superstores accounted for 15.2% of the portfolio at the year end with the valuation rising by 18.4% in the year and 3.4% in the fourth quarter. The valuation uplift for the year was driven by an 87 bps inward initial yield shift and ERV growth of 1.2%. For the quarter to March 2010, the inward initial yield shift was 12 bps and ERV growth 0.6%.

· City offices accounted for 20.3% of the portfolio at the year end with the valuation rising by 10.2% in the fourth quarter and 13.3% for the year as a whole. Over the year we saw inward initial yield shift of 29 bps on the investments which, coupled with the decrease in ERV of 9.3% and additional lettings, resulted in an overall uplift in valuation of 13.3%. In the fourth quarter inward yield shift and ERV growth were 29 bps and 3.0% respectively.

· West End offices accounted for 11.3% of the portfolio at the year end with the valuation rising 15.8% in the year and 11.5% in the fourth quarter. The valuation uplift in the year was driven by lettings of newly completed buildings, an inward initial yield shift of 51 bps and a decrease in ERV of 8.0%. In the fourth quarter, inward yield shift and ERV growth were 27 bps and 5.2% respectively.

The capital return from the portfolio was 14.4% for the 12 months to 31 March 2010, and 7.8% for the fourth quarter, as measured by IPD (calculated for our UK assets on average capital employed and excluding capitalised interest). This compares with the IPD Benchmark which was 9.7% and 4.3% for the full year and fourth quarter respectively.

Our outperformance of IPD reflects the combination of our higher exposure to stronger performing sectors and our portfolio's greater income security and longevity as compared with the market average.

Year ended 31 March 2010¹	Retail	Offices	Total	IPD
Capital Return	17.6%	11.6%	14.4%	9.7%
ERV Growth	(3.7)%	(8.0)%	(6.2)%	(5.5)%

¹as calculated by IPD

The net equivalent yield (after notional purchaser's costs) on the portfolio at 6.0% has moved in 49 bps over the quarter and 125 bps for the year. For the year to March 2010, like-for-like ERV growth for the portfolio was down 6.2% (IPD down 5.5%), but was ahead 1.2% in the fourth quarter (IPD Benchmark -0.4%).

Portfolio Yields (excluding developments)	Annualised rent £m¹	Reversionary income (5 years) £m²	Initial Yield %³	Top up Initial Yield %^3,4	Reversionary yield (5 years) %³	Net Equivalent Yield %⁵
Retail:
Retail Warehouses	160	14	6.1	6.3	6.7	6.0
Superstores	72	1	5.5	5.5	5.6	5.2
Shopping Centres	79	9	6.7	7.0	7.4	6.4
Department Stores	27	4	6.1	6.9	7.0	6.7
All retail	338	28	6.1	6.3	6.6	6.0
Offices:
City	86	21	5.2	7.3	6.5	6.1
West End	45	18	4.8	6.1	6.7	5.7
All offices	131	39	5.1	6.9	6.5	5.9
Other	16	3	8.6	9.4	10.3	9.8
Total	485	70⁴	5.8	6.6	6.7	6.0

Data for Group and its share of Funds and Joint Ventures

¹ gross rents plus, where rent reviews are outstanding, any increases to ERV (as determined by external valuers), less any ground rents payable under head leases

² includes rent reviews and lease break/expiry and letting of vacant space at current ERV (as determined by external valuers) within 5 years, plus expiry of rent free periods

³ gross yield to British Land (without notional purchaser's costs)

⁴ including £61m contracted under expiry of rent free periods and contracted rental increases

⁵ after purchaser's costs

At current market values, and without projecting any growth or inflation, achievement of the reversionary income in the investment portfolio would add £70 million per annum to our annual passing rent. Included in this are contracted increases of £61 million per annum due from expiry of rent free periods and contracted fixed/minimum uplifts. (It should be noted that accounting policies under IFRS require that portions of these contracted rents are anticipated in the Group's income statement.)

SECTOR AND ASSET ALLOCATION

We regularly review our property portfolio to ensure that the Group's capital is optimally allocated both in terms of long-term sectoral trends and shorter-term market movements. Our aim is to focus our investment in sectors and properties with positive medium to long-term supply/demand dynamics which will enable the Group to generate superior total returns through a combination of secure and growing income streams and real growth in capital value. We recycle capital, disposing of assets with limited growth potential, to re-invest in assets with greater short or long-term upside.

Sales	Price	BL Share
Year ended 31 March 2010	£m	£m
Retail:
18 Department Stores	209	139
9 Retail Warehouses	252	84
2 High Street Shops	5	5
	466	228
Offices:
Broadgate (50% share), London EC2	1,066	1,066
8-10 Throgmorton Avenue, London EC2	7	7
	1,073	1,073
Others	14	11
Total	1,553	1,312

Purchases	Price	BL Share
Year ended 31 March 2010	£m	£m
Retail:
Surrey Quays Shopping Centre, London, SE16	98	49
Clifton Moor Retail Park, York	77	39
Sainsbury's, Macclesfield	32	32
Hylton Riverside Retail Park, Sunderland	19	7
Additional PREF Units	35	35
HUT Convertible Bonds	43	43
Other	2	2
	306	207
Offices:
39 Victoria Street London SW1	40	40
	40	40
Total	346	247
Completed since 31st March 2010:
2-14 Baker Street, London, W1	29	29

During the year, we continued to reshape our portfolio, completing property disposals of £1.3 billion (British Land share) and acquisitions of £247 million (British Land share). Our asset allocation strategy remained focused on high quality offices in Central London and principally out-of-town retail locations which we believe are well placed to benefit from future growth.

The disposals reduced our exposure to large single assets and properties with lower growth potential. The most significant disposal was that of a 50% interest in our Broadgate estate to Blackstone Group in November. The transaction reduced our exposure to a mature City office asset which will demand significant re-investment in the coming years and shifted the weighting of Broadgate within our portfolio from 26% to 15%. The sale will enable us to share the significant risks and rewards associated with revitalising the Broadgate estate, the majority of which is now around 20 years old. During the year, we also reduced our exposure to department stores in non-core locations.

We expected to see significant investment opportunities during the year as a result of distressed portfolio sales and the scarcity and cost of bank debt finance for development. Accordingly, we actively monitored a range of opportunities in our core office and retail markets, and also in alternative asset classes where we believed high returning investment opportunities could arise. In actual fact, the flow of investment opportunities during the year was limited, of generally disappointing quality and at prices which were difficult to justify on any fundamental view of future performance prospects. The scale of our investment programme during the year was relatively modest as a result, the most notable acquisition being the 50% interest in Surrey Quays shopping centre in Southwark.

RETAIL PERFORMANCE

Year ended 31 March	2010	2009
Portfolio value	£5,602m	£4,867m
Valuation movement	13.4%	(26.4)%
Net rental income	£349m	£350m
Like-for-like rental income growth	2.1%	2.9%
ERV growth/(decline)	(3.7)%	0.8%
Gross top-up yield	6.3%	7.3%
Occupancy rate¹	99%	98%
Average lease length²	13.9 years	15.3 years
% of rent subject to break or expiry over next 3 years	5%	4%

Data for Group and its share of Funds and Joint Ventures

¹underlying occupancy including accommodation subject to asset management and under offer

²weighted average lease length to first break

While the economic environment over the last 12 months has remained challenging, lower interest rates have had a beneficial impact on consumer spending. The retail sector as a whole has been more robust than expected although the performance of individual retailers has been mixed with demand for large discretionary items remaining weak.

The retail property market continued to see declines in rental values during the year. This was more pronounced in secondary assets where the supply/demand tension is weakest. Large bulky goods retail parks with restrictive planning consents were particularly weak. In addition, many town centre schemes which have limited scope for flexible retail formats also suffered rental weakness, with further risk of rental decline as retailers review their occupational requirements. In contrast, British Land's prime assets benefitted from a number of retailers beginning to be more acquisitive.

Our key focus during the past year has been to:

· maintain our high levels of occupancy at 99% at 31 March 2010;

· work with retailers to provide flexible, well configured accommodation to facilitate higher sales volumes thereby driving improved property performance; and

· retain our prime assets with strong underlying retailer performance and to dispose of those with limited potential.

Year ended 31 March 2010	Capital Return %		ERV %
	BL	IPD	BL	IPD
Retail Warehousing	21.5	20.5	(3.7)	(4.4)
Shopping Centres	6.6	2.5	(5.7)	(5.4)
Superstores	18.8	n/a	1.2	n/a
Department Stores¹	21.2	n/a	(9.0)	n/a
All Retail	17.6	12.2	(3.7)	(4.9)

¹includes High Street

The capital return for the retail portfolio was 17.6%, compared with the IPD All Retail Index of 12.2%. Retail warehousing, superstores and department stores all significantly outperformed the index. While shopping centres underperformed the retail market overall, our shopping centres outperformed the shopping centre subsector with Meadowhall generating a capital return of 8.3%.

ERV on the portfolio fell by 3.7% compared to a fall of 4.9% for the market as a whole. Superstores were the largest contributor with ERV growth of 1.2% in the year. Shopping centres saw one of the largest falls with ERV falling by 5.7%. Meadowhall showed a stronger performance albeit down by 4.8%. Retail warehouses saw a wide divergence in ERV performance with better quality Open A1 planning consented schemes, which dominate our retail warehouse portfolio, down 3.0% while poorer quality restricted planning consented schemes were down 7.6%. Overall, our retail warehouses ERV decreased by 3.7%.

The year was very active with 600 lettings, lease renewals and rent reviews compared to 466 last year. The second half of the year saw an increase of 35% of long term lettings across the portfolio. We also saw improving trends with 191,000 sq ft of lettings in the last quarter agreed at an average 6.1% above ERV.

During the year, 2% of our retail portfolio by passing rent fell into administration. Of the 75 units affected by administration, 40 were re-let by the end of the year at rents in line with the previous passing rent. The assignment or re-let of a further 11 units is in solicitors' hands. As at March 2010, only 0.6% of retail rent related to occupiers in administration.

Like-for-like income growth for the year was 2.1%, with retail warehousing growing by 3.7%, superstores by 3.1% and shopping centres falling by 2.2%. Our rental levels continue to be sustainable and with an average retail rent of £21 per sq ft, we believe there is continued scope for rental income growth.

We are also encouraged by improving trends in footfall. Over the 12 months footfall has increased by 4.2% at our retail parks, whilst down 0.6% at Meadowhall and 1.0% at our other shopping centres. These compare with an industry average of 1.0%, as measured by Experian. We continue to monitor footfall as a leading indicator of performance.

Occupier Market

Over the 12 months, retailers continued to contend with the difficult trading conditions. As consumers look for value for money, it is the lower end 'fast fashion' and value stores which, along with the major foodstore operators, have remained the most resilient. Retailers such as New Look, Peacocks and Poundland have all reported strong growth and are continuing to expand.

Trading improved more than expected by most commentators in the second half. Many retailers reported positive like-for-like revenue growth, albeit from low bases and margins were maintained.

Our retail occupiers remain cautious about the prospects for the year ahead given the potential impact of fiscal measures that will be required to tackle the UK's budget deficit which could adversely impact consumer spending

Asset Management

Maintaining high occupancy in a weak occupational market demonstrates the quality of the retail portfolio and we continued to pro-actively manage the retail portfolio. We signed 255 new lettings, renewed 121 leases, and settled 224 rent reviews. We continue to discuss opportunities across our portfolio offering a range of high quality locations to retailers.

New lettings and lease renewals (including Funds & Joint Ventures)

Year ended 31 March 2010			Rent £m pa¹
	Number	'000 sq ft	New total²	BL share of increase³
Retail Warehouses	144	1,386	24.9	0.8
Shopping Centres	229	440	17.6	3.0
High Street	3	14	0.2	0.2
Retail Total	376	1,840	42.7	4.0

Rent reviews (including Funds and Joint Ventures)

Year ended 31 March 2010			Rent £m pa
	Number	'000 sq ft	New Total²	BL share of increase
Retail Warehouses	109	1,608	44.2	5.2
Shopping Centres	87	420	16.2	0.8
Superstores	20	964	17.6	1.3
High Street	8	601	5.0	0.4
Retail Total	224	3,593	83.0	7.7

¹ Net effective rent (taking into account tenants' incentives)

² includes 100% share of Funds & Joint Ventures

³ Increase above previous rent. Includes lettings of two years to first break or less contributing £0.2 million of increase

High occupancy has led to increased supply/demand tension and as a result in a small number of cases we have seen competitive bidding return on available units creating rental tension and leading to new rental levels being achieved on lettings.

Major asset management highlights during the year included:

· 28 long term lettings at Meadowhall taking the occupancy level from 96% to 98%;

· 20 rent reviews settled across the superstore portfolio increasing the Group's share of passing rent by £1.3 million;

· 10 long term lettings at Glasgow Fort on average 4.1% above ERV; and

· strengthening retailer relationships with, for example, 22 deals with Next, Dreams, and Arcadia totalling in excess of 250,000 sq ft.

Investment Market

Investor sentiment improved during the year, particularly in the second half, with strong demand for prime retail assets and an improvement in investment values.

In recent months, values for more secondary retail assets have stabilised and improved in certain instances. However, we believe that a number of transactions for secondary assets have been completed at levels which are difficult to justify on a fundamental view of future rental performance. So while we expect that prime will stabilise at current levels, and in some instances could appreciate slightly, we expect some further decline in the value of secondary assets.

The purchase of Surrey Quays Shopping Centre in south London is a good example of our strategy for investments, offeringattractive asset management opportunities to improve the retail mix and enhance footfall over the short and medium term. In addition, we will be working with our JV partner on the long-term future development of this important suburb of London.

Hylton Riverside Retail Park, Sunderland, is an 118,000 sq ft Open A1 scheme comprising nine units with planning consent for a further 10,000 sq ft unit. The tenant mix is dominated by bulky goods retailers providing an opportunity to actively manage and introduce more new retailers to the scheme.

The 75,000 sq ft superstore in Macclesfield is leased to Sainsbury's for 29 years. It is the town's main food store and is subject to annual RPI reviews with a floor of 2% and ceiling of 4% per annum.

Development

We continue to progress development and extension opportunities. Across the retail portfolio, we now have 747,000 sq ft of retail development with planning consent available to implement, adding potentially valuable accommodation for retailers.

We continually review the viability of our schemes and will selectively look to implement development plans when we feel that the demand/supply balance is right, delivering accommodation most desirable to the retailers. We are currently reviewing a number of potential schemes with a view to activating them during the coming year.

As at 31 March 2010	BL Share	'000 sq ft	Planning
Whiteley Village, Fareham	50%	322	Outline/Detailed
Glasgow Fort, Glasgow	36%	175	Detailed
Broughton Park, Chester	36%	140	Detailed
Fort Kinnaird, Edinburgh	18%	110	Detailed

OFFICE PERFORMANCE

Year ended 31 March	2010	2009
Portfolio value	£2,736m	£3,570m
Valuation movement	13.9%	(30.4)%
Net rental income	£177m	£230m
Like-for-like rental income growth/(decline)	(0.4)%	2.5%
ERV growth/(decline)	(8.0)%	(14.6)%
Gross top-up yield	6.9%	7.8%
Occupancy rate¹	93%	94%
Average lease length²	9.6 years	9.1 years
% of rent subject to break or expiry over next 3 years	10%	9%

Data for Group and its share of Funds and Joint Ventures

¹underlying occupancy including accommodation subject to asset management and under offer

²weighted average lease length to first break

The Group's London offices performed well during the year, driven by a pick up in investor demand and an improvement in the occupier market. The capital return on our office portfolio over the year was 11.6% significantly outperforming the IPD All Offices capital return of 7.5%. Significantly, while the full year suffered an estimated rental value (ERV) decline of 8.0%, recent lettings suggest that we have seen the bottom of the rental cycle: across our office portfolio in Q4, rents stopped falling and ERV grew by 3.8% compared with IPD All Offices of 0.3%.

Year ended 31 March 2010	Capital Return %		ERV %
	BL	IPD	BL	IPD
City offices	9.8	9.7	(9.3)	(8.4)
West End offices	18.3	15.3	(8.0)	(10.1)
All Office	11.6	7.5	(8.0)	(7.9)

Managing our portfolio balance effectively is key to our strategy. Our medium term objective has been to make the Office portfolio more balanced between the City and the West End and to reduce the dominance of the 4.4 million sq ft Broadgate Estate in the City, which we fully owned until recently. The transfer of Broadgate into a 50:50 JV with Blackstone in November 2009 was a significant step in achieving our objectives. During the year, we invested capital in two new acquisitions in the West End, one in Victoria Street and the other on the corner of Baker Street and Portman Square. As a result, our Central London office weighting between City and West End has moved from 74% and 26% to 64% and 36% respectively.

Occupier market

After the severe downturn of 2009, we saw a significant improvement in outlook for the businesses we serve in London in early 2010. There are clear signs that occupiers now have the confidence to make decisions and to commit to space. As a result, occupier take up of office accommodation in London during the final quarter of our financial year was the strongest since the beginning of the decade. Across London, the 12 month rolling total for take up of 9.7 million sq ft was close to a ten year average. Take up in the City was particularly strong: these are all encouraging signs for the health of the London office occupier market.

Asset Management

We secured more than our fair share of new lettings, owing mainly to our customer focus. We attracted a number of high profile new occupiers to our portfolio, including Macquarie Group, Markit, Gazprom and Aegis. In total we let 710,000 sq ft, generating additional income of £23.0 million per annum, all on terms that beat our valuers' expectations, with the lettings significantly accretive to performance as a result. With average lease lengths to first break of 13 years, these lettings have also improved the office portfolio's security of income.

New lettings and lease renewals (including Funds and Joint Ventures)

Year ended 31 March 2010			Rent, £m pa¹
	Number	'000 sq ft	New total²	BL share of increase³
City	47	476	16.1	14.4
West End	22	234	9.4	8.6
Office Total	69	710	25.5	23.0
- of which recently completed developments	23	644	23.1	21.8

Rent reviews (including Funds and Joint Ventures)

Year ended March 2010			Rent, £m pa
	Number	'000 sq ft	New Total²	BL share of increase
City	16	389	17.1	0.3
West End	7	73	2.9	0.5
Other	3	45	1.2	0.0
Office Total	26	507	21.2	0.8

¹ Net effective rent (taking into account tenants' incentives)

² includes 100% share of Funds & Joint Ventures

³ Increase above previous rent

We have successfully let over 80% of the space created by our developments in the last two years in the City (Broadgate Tower and 201 Bishopsgate on the Broadgate estate, as well as Ropemaker Place) and in the West End (10 and 20 Triton Street on the Regent's Place estate). As a result of the high level of successful lettings, occupancy at the end of year was 93%. More detail is provided in the development section below.

	Occupancy rate, %¹	Lease length, years²
As at 31 March 2009	94	9.1
- new space completed in 09/10	(15)	(1.0)
- disposals and acquisitions	(6)	(0.2)
- new lettings on buildings completed in the last 2 years	20	1.7
As at 31 March 2010	93	9.6

¹underlying occupancy including accommodation subject to asset management and under offer

²weighted average lease length to first break

Importantly, 91% (325,000 sq ft) of our vacant accommodation is modern Grade A space and we are confident that we will continue to attract new occupiers and that we can exceed our valuer's average assumptions on letting voids of 45 months and rent of £41.50 psf. If we are successful in doing this we can add significant value and income to the portfolio.

Investment market

The investment market also saw a marked improvement through the year. In the first half, investor demand was primarily focused on prime, well-let buildings and tended to be dominated by overseas buyers attracted by the relatively attractive income returns on offer, and the weakness of sterling. The second half of the year saw a wider range of investor demand, including UK institutions and REIT's, looking to invest in a more diverse range of property.

As the signs of an improving occupier market became more evident, investors were prepared to take on more risk and look at properties with shorter leases. Consequently, yields improved on most office properties with average IPD office yields improved over the year by around 100 bps, although yields on some prime London offices have moved in by as much as 150 bps. The 12 month rolling total of nearly £9 billion investment in the capital, which is only marginally down on the 10 year average of £10.6 billion, shows the relative liquidity that the London office investment market currently enjoys.

We believe that we are at the start of a cyclical upturn in the London office market and our investment strategy is aimed at acquiring properties which will benefit from this upturn. The quality and security of income that our existing portfolio benefits from, also allows us to look at higher risk and return projects. Consequently, the two recent West End acquisitions in Victoria Street and Baker Street both involve refurbishment and redevelopment.

39 Victoria Street is a 76,000 sq ft office building based near the important Victoria train station terminus. The offices are fully let to the Bank of America until July 2012 at an average rent of £47 per square foot. The building offers regular, good quality floor plates and therefore there is the opportunity for refurbishment on lease expiry and re-letting in 2013.

The Baker Street building is situated in a prime location on the corner of Portman Square, just north of Oxford Street. The existing 93,000 sq ft property was built in the 1950s and is largely vacant. Planning consent was granted in 2009 for a new 139,000 sq ft office with retail units at ground floor level. Redevelopment is planned to start during the course of this year with completion in 2013. The total cost of development including land and notional interest is expected to be £114 million.

Developments

In the first half, development activity was subdued across the market as rental values continued to decline and financing for speculative developments remained tightly constrained. Activity began to improve in the second half, notably in Central London, as office rents began to harden and values improve. A number of new developments were announced. The hardening of rents in London office was primarily driven by prospective tenants whose existing rental agreements were close to expiry and were looking to move into better quality, more modern space. We believe that the trigger for these decisions was an awareness by tenants that there were only a handful of good-quality buildings in the City and the West End.

Completed developments

As at 31 March 2010	'000 sq ft¹	% Let¹	March 2010 Value	Completed Sales	Rent pa²
	'000 sq ft¹	% Let¹	March 2010 Value	Completed Sales	Total £m	Let £m
Offices:
Ropemaker Place	594	91	352		27.0	24.9
10 Triton Street (Regent's Place)	121	99	76		5.6	5.5
20 Triton Street (Regent's Place)	255	39	146		11.4	4.4
Total offices	970	77	574		44.0	34.8
Residential:
One Osnaburgh Street	110			58
Total	1,080		574	58	44.0	34.8

¹Includes office retail and ancillary space

² Estimated headline rent on unlet space plus contracted rents (excludes provision for tenants' incentives)

Our strategy of developing prime assets has proven to be robust. During the year we completed four new buildings totalling 970,000 sq ft of office and 110,000 sq ft of residential accommodation and completed 644,000 sq ft of lettings on our recently completed developments.

Practical completion was achieved in early May 2009 on our 594,000 sq ft prime City office development at Ropemaker Place, London EC2. The offices at this 20 storey building, designed by Arup Associates, are now 91% let with a weighted average lease length of 16 years. Recent lettings have seen Macquarie Group, Markit, Mint Equities and Liberum Capital added to our initial letting to The Bank of Tokyo-Mitsubishi UFJ, Ltd and Mitsubishi UFJ Securities International plc.

At Regent's Place, our 13 acre West End office campus, we achieved practical completion of our two office buildings (10 and 20 Triton Street) totalling 376,000 sq ft and our 110,000 sq ft residential development (One Osnaburgh Street), by December. The development, designed by Terry Farrell and Partners, has provided a new 'front door' to the estate and enhanced the facilities with the introduction of a community theatre and additional retail provision around the new public square. The entire office space at 10 Triton Street (117,000 sq ft) has been let to Aegis Group plc on a 20 year lease without breaks and at 20 Triton Street, 89,000 sq ft has been let to Gazprom Marketing & Trading Limited with strong occupier interest in the remaining space. All the residential units at One Osnaburgh Street were pre-sold last year ahead of our expectations, with market prices on the private units proving to be buoyant throughout the market uncertainty of the last two years.

Looking ahead, market conditions are looking more favourable towards new development projects, particularly in London offices. This is expected to coincide with a peak of lease-break expiries in 2013-2014, with a significant number of tenants potentially looking to move into modern, well-located space.

Committed and Agreed Office Developments

	Sq ft '000	Development Cost £m^1,2	Total Cost £m^1,2,3	ERV £psf⁴
NEQ, Regent's Place, NW1	500	232	294	47
2 -14 Baker Street, W1	139	65	114	68
4 and 6 Broadgate, EC2	c.700	c.175	c.250	-⁵

¹ includes residential

² British Land share

³ includes land and notional interest

⁴ estimated current headline rent on unlet space plus contracted rents (excludes provision for tenants' incentives)

⁵ non-binding Heads of Terms agreed with UBS for a pre-let of the entire building

North East Quadrant (NEQ), Regent's Place, London, NW1

We have detailed planning consent for 380,000 sq ft of offices and 120,000 sq ft of residential accommodation. The office design, by Wilkinson Eyre, will provide a variety of floor plates in a well configured and flexible building. The residential apartments, designed by Stephen Marshall Architects, will offer a mixed of unit sizes adding further residential to the Regent's Place estate following the successful development at One Osnaburgh Street.

2-14 Baker Street, London, W1

Following the purchase of the building in April 2010 we have entered into a joint development agreement with McAleer & Rushe to redevelop the prime island site on the corner of Baker Street and Portman Square where planning consent was granted in 2009 for a new 139,000 sq ft office with retail units at ground floor level. Redevelopment is planned to start during the course of 2010 with completion programmed for 2013.

4 and 6 Broadgate, London, EC2

We have also agreed non binding Heads of Terms with UBS to develop a building of approximately 700,000 sq ft of office space on the site of 4 and 6 Broadgate, and in so doing retaining UBS as an anchor tenant, and upgrading the estate.

Prospective developments

We are currently reviewing other prospective development opportunities within our office portfolio.

The Leadenhall Building London, EC3

We are considering the restart of the Leadenhall development in the City in anticipation of occupier demand for this iconic building, improving rental outlook and interest from potential partners. Designed by Rogers Stirk Harbour + Partners, the proposed 47-storey building will be 736 ft high, providing 610,000 sq ft with varying floorplate sizes. Demolition and preliminary basement works have been completed.

Colmore Row, Birmingham

Planning consent was secured in September 2008 for a landmark 35-storey tower to provide 280,000 sq ft of office space in central Birmingham's prime office location. The building will incorporate a range of sustainable measures and will provide a 30% overall reduction in energy use compared with current standards. It will also accommodate biodiversity enhancement measures such as green/brown roofs and wildlife boxes.

JOINT VENTURES AND FUNDS

British Land's net investment in Funds and Joint Ventures at 31 March 2010 is £1,594 million (2009: £952 million). This investment is principally in three funds and sixteen joint ventures, which hold in total £9.1 billion (2009: £6.2 billion) of properties in retail, offices and development projects. Our share of the property assets held in funds and joint ventures accounted for 51.4% of the total portfolio valuation at 31 March 2010.

Each fund and joint venture is individually financed; the total of £6.1 billion (2009: £4.1 billion) of external debt is without recourse to British Land.

Joint ventures

Joint ventures provide British Land with access to desirable properties (often off market) or introduce third party investors to assets we own, enabling us to create further opportunities. We benefit from working with a variety of partners with complementary expertise and interests. Each joint venture is a separate entity for the purpose, controlled by a board carrying equal representation from each partner. The entities are able to raise finance on the strength of their assets, with no recourse to the partners, thereby significantly lowering the initial equity investments. The enterprise is shared by the partners, over an agreed lifetime for the venture.

Significant transactions during the year since March 2009 included the formation in November 2009 of a strategic partnership with Blackstone in respect of the 30 acre City of London offices estate at Broadgate. The transaction brought together experienced investors to invest in and maintain Broadgate's status as the pre-eminent City office campus. British Land is the asset manager and administrator for this joint venture. Together with the establishment in early 2009 of the joint venture in respect of the Meadowhall Shopping Centre, this transaction realised our strategic objective of reducing exposure to large single asset concentrations, and increased our financial flexibility and capacity to take new market opportunities as they arise.

In December 2009 we purchased a 50% interest in Shopping Centres Ltd, a joint venture with Tesco, which owns Surrey Quays Shopping Centre and Clifton Moor Retail Park, York, both anchored by Tesco superstores. These retail locations offer attractive opportunities for our asset management to add value over time.

The Tesco BL Holdings joint venture was renewed, extended and refinanced on the scheduled maturity date of the existing bank loan, with a new 5 year loan facility.

BL Fraser Limited, the joint venture with House of Fraser, sold all the department stores in its portfolio during 2009.

Summary details of the principal joint ventures in which we have a 50% share are shown in the table below.

Joint Venture	JV Partner	Portfolio Value £m	Rent¹ £m	Finance £m
Bluebutton Properties Ltd Broadgate, City offices	Blackstone Group L.P. funds	2,483	160	2,160

MSC Property Intermediate Holdings Ltd Meadowhall, shopping centre, Sheffield	LSP Green Park Property Trust	1,271	77	832

BL Sainsbury Superstores Ltd 38 Sainsbury superstores, 1 Waitrose superstore	J Sainsbury plc	1,188	66	678

Tesco BL Holdings Ltd 2 retail parks, 2 shopping centres each anchored by Tesco, 5 Tesco superstores	Tesco plc	570	33	315

Tesco Aqua Limited Partnership 21 Tesco superstores	Tesco plc	575	30	487

BLT Properties Ltd 1 retail park, 8 Tesco superstores	Tesco plc	318	17	185

Shopping Centres Limited 1 shopping centre, 1 retail park	Tesco plc	184	11	119

Tesco British Land Property Partnership district shopping centre anchored by Tesco	Tesco plc	107	7	45

The Scottish Retail Property Limited Partnership shopping centre, Aberdeen	Land Securities Group PLC	195	14	119

Eurofund Investments Zaragoza SL Puerto Venecia, shopping scheme², Spain	Private Investors and Copcisa Corp	125	4	70

Whiteley Co-Ownership Fareham, factory outlet shopping centre	Universities Superannuation Scheme	25	2	0

¹ Annualised rent

² Development project

Funds

The Funds provide British Land with interests in further properties in our key sectors. British Land acts as property adviser to the funds and receives performance and management fees.

Fund	Value¹ £m	Rent² £m	Finance £m	BL share %
Hercules Unit Trust ('HUT')	1,528	90	794	36.0
Pillar Retail Europark Fund ('PREF')	385	29	261	65.3
Hercules Income Fund ('HIF')	80	5	15	26.1

¹HUT share where assets held in joint arangements

²Annualised rent

Hercules Unit Trust ('HUT')

HUT is a Jersey based closed-ended property unit trust with a fixed life which has been extended to 2020, and is subject to further extension with unitholder consent. HUT's primary investment focus is major retail warehouse or shopping park properties with a value in excess of £20 million in the United Kingdom, and in particular, those properties that dominate their catchment area, offering a critical mass of retailing and, where possible, have the benefit of Open A1 planning consent. As at 31 March 2010 the Trust owned and managed 21 retail warehouse and shopping parks together with 1 neighbourhood shopping centre, providing in excess of 4.5 million sq ft. British Land is HUT's property adviser, and Schroder Property Managers (Jersey) Ltd is the Fund Manager.

The Trust's objective is to provide an annual total return on the portfolio in excess of the IPD Retail Warehouse Quarterly Universe excluding HUT over the life of the Trust.

The strategy to achieve the outperformance objective is to actively manage the properties with a view to optimising income and capital appreciation including disposal of the whole or any part of the properties in response to changing market conditions.

Pillar Retail Europark Fund ('PREF')

PREF is a Luxembourg based closed-ended Fonds Commun de Placement with a fixed life which has been extended to 2014, and is subject to further extension with unitholder consent. PREF's aim is to acquire out-of-town retail property in western Europe, and as at 31 March 2010, PREF owned and managed 10 retail warehouse parks and 1 shopping centre in Spain, France, Portugal and Italy.

During the year, following a vote by unitholders, PREF's duration was extended by three years to 2014. British Land funded PREF to permit the buyout of those unitholders who voted against extension, thereby increasing its ownership of PREF from 35.2% to 65.3%.

Hercules Income Fund ('HIF')

HIF is a Jersey based closed-ended property unit trust with a fixed life to 2014, subject to extension with unitholder consent. HIF's investment strategy is to acquire and own retail warehouse assets with values between £3m and £25m throughout the United Kingdom where it is able to exploit asset management opportunities. British Land is HIF's property adviser, and Pillar Property Management (Jersey) Ltd is the Fund Manager.

FINANCIAL REVIEW

The results for the financial year saw an overall recovery in investment property values, with the pace of valuation decline slowing markedly in the first quarter and then reversing significantly in the next three quarters giving a total valuation increase of 13.5% for the year ended 31 March 2010.

The Group's underlying profits and cash flows during the financial year reflect the completion of our reshaping of the property portfolio through disposals.

The Group's total return for the year was 33.5% (compared with a negative 61.6% in the previous year) driven by the recovery in property values in the last nine months.

Proportionally consolidated Income Statements and Balance Sheets are included in Table A to the financial statements for the benefit of stakeholders who wish to see the results of British Land's interests in Funds and Joint Ventures on a 'look-through' basis. The following commentary refers to the financial information of the Group as reported under IFRS where the after tax results of Funds and Joint Ventures are shown as a single line on the Income Statement and the net investment in Funds and Joint Ventures is shown as a single line on the Balance Sheet, unless stated otherwise.

Summary Income Statement

	Year to 31 March 2010			Year to 31 March 2009
	Group	Funds & JVs	Prop Consol	Group	Funds & JVs	Prop Consol
	£m	£m	£m	£m	£m	£m
Gross rental income	342	219	561	497	153	650
Property outgoings	(5)	(11)	(16)	(44)	(8)	(52)
Net rental income	337	208	545	453	145	598
Other income	13	2	15	18	2	20
Funds & JVs underlying profit	81			55
Administrative expenses	(55)	(10)	(65)	(51)	(7)	(58)
Net financing costs	(127)	(119)	(246)	(207)	(85)	(292)
Funds & JVs underlying profit		81			55
Group Underlying Profit	249		249	268		268

The Group's gross rental income for the year ended 31 March 2010 at £342 million has reduced by 31% compared to last year, due to the property disposals that the Group has undertaken over the last two years. Proportionally consolidated gross rental income reduced by 14% to £561 million, with the retained portfolio generating £14 million of additional income in the year from rent reviews and new lettings, whereas lease determinations and expiries reduced rental income by £7 million.

For properties held at 31 March 2010, the annualised gross rental income (including the spreading of tenant incentives and guaranteed rent increases) for the portfolio is £524 million per annum on a proportionally consolidated basis, comprising £254 million per annum for Group properties and £270 million per annum for British Land's share of properties held in Funds and Joint Ventures.

Like-for-like income growth for the financial year was up 1.4% overall compared with the year ended March 2009. Retail increased 2.1% driven by retail warehouses and superstores. Office like-for-like income growth was flat, where a 1.2% decline in the City was offset by an increase of 2.1% in the West End.

Gross Rental Income (£m)

Year ended 31 March¹	2010	2009	Change
Properties owned throughout²
Retail ²	275	270	2.1%
Offices ²	110	111	(0.4)%
Other	5	4	2.6%
Total - like-for-like²	390	385	1.4%
Acquisitions	22	4
Disposals	63	183
Developments	19	11
Fixed & minimum uplifts³	63	63
Other⁴	4	4
Total	561	650	(13.7)%

¹ With proportional consolidation

² Investment properties subject to open market reviews and owned throughout the current and comparative periods

³ rental income from fixed and minimum guaranteed rent reviews is recognised on a straight line basis

⁴ Includes surrender premiums, asset management determinations, back rents and other accounting adjustments

The movement in property outgoings year on year has been impacted by the accrual of a credit risk provision against income recognised on leases with contract fixed uplifts of £17 million in the prior year, of which £16 million has been released this year due to the improvement of credit conditions compared to last year.

Property outgoings as a percentage of gross rental income (after removing the impact of the credit risk provision) were 6.1% (2009: 5.4%) for the Group or 5.7% (2009: 5.4%) on a proportionally consolidated basis. The movement in the outgoings percentage year on year is due to an increase in void costs on vacant buildings, principally the Ropemaker and Triton Street developments that were not fully pre-let on completion, though lettings achieved in the fourth quarter and post year end have significantly reduced the Group's exposure to void properties.

Fees and other income at £13 million were reduced from £18 million in the prior year, due to the lower valuation of properties in the Funds on which the management and performance fees are based.

Joint Venture and Funds underlying profits for the financial year were £81 million, an increase of £26 million on the year to March 2009. The increase reflects the establishment of the Meadowhall Joint venture in February 2009 and the Broadgate Joint venture in November 2009. On an IFRS basis (being the net profit including property revaluation movements and taxation) the reported results for Funds and Joint Ventures were a profit of £479 million, which compares to a loss of £767 million in the year to March 2009, reflecting the recovery in valuation of properties and investments.

Group administrative expenses for the financial year at £55 million have increased by £4m on the prior year, which included a release of £7 million of accruals for share based incentives following the non vesting of share incentives granted over three years.

Net financing costs for the financial year were £127 million, a reduction of £80 million on the prior year. This reduction is due to the lower level of Group debt following property disposals in the past two years.

Net financing costs on a proportionally consolidated basis were £246 million, a reduction of £46 million on the year to March 2009. The differential between Group and proportionally consolidated financing costs reflects the increased proportion of Joint Ventures in the Group results following the establishment of the Meadowhall and Broadgate Joint ventures.

As a result, Underlying pre-tax profits were £249 million for the financial year, reduced by £19 million on the prior year. The principal drivers of this movement are set out below:

Movement in Underlying pre-tax profit	£m

Year ended 31 March 2009	268
Credit risk provision	17
Share incentive write back	(7)
Year ended 31 March 2009 (adjusted)	278
Disposals less acquisitions (of which Broadgate £12m & Meadowhall £8m)	(33)
Rent reviews, new lettings and renewals	14
Lease determinations & expiries	(7)
Developments	(22)
Impact of rights issue proceeds	8
Current year release of credit risk provision	16
Management & performance fees	(5)
Year ended 31 March 2010	249

The revaluation increase of £496 million is the most significant item in the Group's IFRS income statement for the current financial year, this compares to a valuation reduction of £3,241 million in the prior financial year. The current year revaluation gain has resulted in the IFRS profit on ordinary activities before taxation amounting to £1,128 million which compares to loss of £3,928 million last year.

Taxation recognised in the income statement amounted to a credit of £12 million, principally due to the favourable settlement of prior year tax exposures. This compares to a credit of £47 million in the prior year, resulting mainly from deferred tax movements.

Earnings per share

Underlying earnings per share were 28.4 pence compared to 41.0 pence in the prior year, due to the movement in underlying profit discussed above as well as due to the impact of the March 2009 Rights Issue.

Dividends

The Group pays quarterly dividends, which mirrors the rental cash inflows. The proposed dividend for the fourth quarter is 6.5 pence per share, totalling £57 million, and will be payable on 13 August 2010 to shareholders on the register at the close of business on 9 July 2010. This dividend will be entirely a 'normal' dividend i.e. not a PID (Property Income Distribution).

An enhanced scrip alternative with a 5% bonus (above the equivalent cash value) is being offered to shareholders with the fourth quarter dividend. Shareholders will be able to choose between cash or shares. Further details will be available with the Annual General Meeting notice circular.

The enhanced scrip alternative has been offered with all quarterly dividends since the fourth quarter dividend for the March 2009 financial year; the scrip and cash elements of dividends declared and paid in the year can be summarised as follows:

Dividends	Cash	Scrip	Total	Total
	£m	£m	£m	pence per share
Payment month
November 2009 1^st interim	35	21	56	6.50
February 2010 2^nd interim	37	19	56	6.50
May 2010 3^rd interim	32	24	56	6.50
August 2010 4^th interim			57	6.50
Declared for year to March 2010			225	26.0
November 2008 1^st interim	48		48	7.77¹
February 2009 2^nd interim	47		47	7.76¹
May 2009 3^rd interim	48		48	7.77¹
August 2009 4^th interim	32	23	55	6.50
Declared for year to March 2009	175	23	198	29.8

¹ Restated for the March 2009 Rights Issue - actual dividend paid was 9.375 pence per share

We are obliged to pay out 90% of our REIT profits. While the calculation of the REIT distribution is volatile due to tax rules, this is usually a timing difference and so, in view of the stability of our underlying business, we aim to provide a consistent predictable approach to dividends. We do not intend to pay out capital profits.

Our aim is to grow dividends in line with underlying rental income growth. In a period of low demand from occupiers or over-supply, over-renting may delay rental income growth.

Balance Sheet

The Group and proportionally consolidated balance sheets, IFRS net assets and EPRA net assets can be summarised as follows:

Summary Balance Sheet

	As at 31 March 2010			As at 31 March 2009
	Group	Funds & JVs	Prop Consol	Group	Funds & JVs	Prop Consol
	£m	£m	£m	£m	£m	£m

Properties at valuation	4,152	4,387	8,539	5,810	2,815	8,625
Investment in Funds & JVs	1,594	(1,594)		952	(952)
Other non-current assets	271	(105)	166	63		63
	6,017	2,688	8,705	6,825	1,863	8,688
Other net current liabilities	(189)	(24)	(213)	(308)	2	(306)
Net Debt	(1,550)	(2,660)	(4,210)	(3,242)	(1,863)	(5,105)
Other non-current liabilities	(70)	(4)	(74)	(66)	(2)	(68)
IFRS net assets	4,208		4,208	3,209		3,209
EPRA adjustments	199		199	178		178
EPRA net assets	4,407		4,407	3,387		3,387
EPRA NAV per share	504p		504p	398p		398p

The table above shows that at the year end the Group has 51% of the property portfolio and 63% of net debt held off the Group's balance sheet in Funds and Joint Ventures. The IFRS balance sheet shows our investment in Funds and Joint Ventures grouped together and shown net. On this basis our net investment at 31 March 2010 was £1,594 million, up from £952 million at the previous year end. The movement is principally due to the establishment of the Broadgate joint venture in November 2009 as well as the recovery in property values during the latter half of this financial year.

The EPRA net assets have increased in the current financial year to £4.4 billion (504 pence per share) as at 31 March 2010 from £3.4 billion (398 pence per share) as at 31 March 2009. The principal drivers for this increase are as follows:

Movement in EPRA Net Assets

	£m	Pence per share
At 31 March 2009	3,387	398
Property & investment revaluation (including disposals)	908	104
Underlying profit after taxation	244	28
Cash dividends	(152)	(17)
Scrip dividends	-	(7)
Other share issues	31	(1)
Other	(11)	(1)
At 31 March 2010	4,407	504

Movement in net debt and cash flows

The Group net debt was reduced by 52% during the financial year to £1,550 million, the drivers for this movement can be summarised as follows:

Movement in IFRS net debt

		£m
At 31 March 2009		3,242
Net cash flow from operating activities		(136)
Property and investment sale proceeds		(323)
Property & investment purchases and capital expenditure		373
Dividends paid		154¹
Other cash flow movements		11
Net Debt transferred on establishment of Broadgate Joint venture		(1,751)
Fair value movements of debt & derivatives		(20)
At 31 March 2010		1,550

¹includes £2m of withholding tax relating to prior year divdends, in addition to £152m of current year cash dividends

Impact of Meadowhall and Broadgate Joint Ventures

Since February 2009, the Company has sold a 50% interest in two major asset groups - Meadowhall and Broadgate - into Joint ventures. Both of these disposals were corporate transactions where the securitised debt as well as the investment properties of these ventures was sold into the joint ventures.

These transactions have significantly impacted the presentation of the Group's IFRS financial statements:

· In the income statement, the gross and net rental income, the net financing costs as well as the net valuation movement of these ventures post completion are now shown net in the single 'Funds and Joint Ventures' line;

· In the balance sheet, the investment properties, net working capital balances and net debt of these ventures are now shown net in the 'investment in Funds and Joint Ventures' line.

These disclosure changes are due to the Group now only having joint control of these entities after the disposal of 50% to our joint venture partners, therefore these groups are accounted for under the equity method.

Accounting Judgements

In preparing these financial statements the key accounting judgements relate to the carrying value of properties and investments, which are stated at Market Value. The Group uses external professional Valuers to determine the relevant amounts.

The primary source of evidence for property valuations should be recent, comparable market transactions on arm's length terms. However the valuation of the Group's property portfolio is inherently subjective, as it is made on the basis of assumptions about investor pricing which may not prove to be accurate, particularly in periods where there are few comparable transactions.

Financial strength

Two significant factors contribute equally and jointly to British Land's financial strength: security of cash flows from our assets and our financing structure.

Our prime property assets generate secure long-term contracted rental income. The weighted average lease length is 12.6 years (14.0 years to expiry). If no other management action is taken, and if all tenants with a break clause in their leases choose to exercise them, after three years to March 2013, 98% of our current rents will continue to be contracted.

This reliable cash flow, offering considerable downside protection, is enhanced by lease terms which contractually provide for growth in income at regular rent reviews. The following features of our UK rent roll including our share of Funds and Joint Ventures are evidence of the security of our rental cash flows:

· 98% are subject to upward only reviews;

· included in these, 78% have open market rent reviews, usually every five years (with reviews across the portfolio well spread over the next five year period);

· 20% are subject to RPI-linked (subject to a floor of zero), fixed or minimum uplifts;

· £61 million further income is contracted to be added to the rent roll over the next five years due to the expiry of current rent-free periods and minimum rental increases becoming effective under existing leases;

· 1.5% of rents are from short term leases;

· less than 0.5% are reliant on the occupier's turnover; and

· over 97% of the March 2010 quarter rents were collected within 10 working days of the due date, in line with our previous record.

A wide spread of good tenant covenants also contributes to the security of our income. No single entity accounts for more than 8% of the total rents. Top 10 retail tenants include the largest food, fashion and homeware retailers and department stores and provide 29% of rents. The top 10 office tenants include major international banks, law firms and HM Government, accounting for 17% of the rent roll.

Occupancy remains high across all sectors, 97% overall. The development programme always creates additional space by its very nature, but we are confident that we can continue to rent the new space out successfully.

FINANCING POLICY AND PRACTICE

The principal objectives under this policy are to:

· minimise the cost of capital through a mix of debt and equity finance;

· raise debt from a variety of sources and maintain a spread of maturities, including longer-term financing supported by committed income under long leases;

· maintain significant committed undrawn loan facilities, to support current and future business requirements; and

· actively manage financial risks, including interest rate, foreign exchange, liquidity and counterparty risks.

Profit and loss account and balance sheet management

The Group monitors its current and projected financial position using several key internally generated reports: cash flow, borrowing, debt maturity and interest rate exposure. The Group also undertakes sensitivity analysis to assess the impact of proposed transactions, movements in interest rates and changes in property values on the key balance sheet, liquidity and profitability ratios.

Debt finance gearing is used to enhance returns. The Loan to Value ratio on a proportionally consolidated basis (including our share of Joint Ventures and Funds) is the primary measure of gearing monitored by the Board. The level of gearing is adjusted over time to reflect judgements about the position of the property market and our portfolio in the cycle, the relative vulnerability to market corrections of our assets, particularly regarding the level of speculative development, and relevant general economic indicators. Across the property cycle the Board considers the Loan to Value ratio should not exceed a maximum of 55%. At 31 March 2010 the proportionally consolidated Loan to Value was 47%.

Liability management is not a profit centre - no speculative transactions are undertaken. The Group's debt and derivative positions are continually reviewed to meet current and expected debt requirements.

The Group maintains a balance between longer-term and shorter-term financings. Short-term financing is principally raised through bilateral and syndicated revolving bank facilities. Medium to longer-term financing comprises public and private bond issues, including private placements and securitisations. Financing risk is spread by using a variety of types of debt. The maturity profile is managed by spreading the repayment dates and extending facilities.

Interest rate management

The Board sets an appropriate maximum level of sensitivity of underlying earnings and cash flows to movements in market rates of interest over a rolling 3 to 5 year period. The proportion of fixed rate debt required to remain within the target sensitivity varies with the levels of gearing and interest cover. With financing raised at both fixed and variable rates, derivatives (primarily interest rate swaps) are used to achieve the desired interest rate profile across proportionally consolidated net debt. Currently 80-90% of projected debt is at fixed rate over the policy time period. The use of derivatives is managed by the Derivatives Committee. The Group's exposure to derivative counterparties is monitored on a regular basis, as are their external credit ratings.

Liquidity and cash management

The Group maintains undrawn committed revolving bank facilities to provide financial liquidity. These can be drawn/repaid at short notice, reducing the need to hold liquid resources in cash and deposits. This minimises costs arising from the difference between borrowing and deposit rates, while reducing credit exposure. Deposits are placed as necessary to optimise the rate of return, subject to the credit standing of the counterparty.

In January 2010, the Group purchased £200 million of medium-term notes. These tradable notes have a fixed interest rate of 4.4% per annum and a maturity date of January 2015.

Foreign currency management

The Group's policy is to have no material unhedged net assets or liabilities denominated in foreign currencies. The currency risk on overseas investments is hedged via foreign currency denominated borrowings and derivatives.

When attractive terms are available to do so, the Group borrows in freely available currencies other than Sterling. The Group fully hedges its foreign currency risk on such borrowings.

Financing Statistics

Year End 31 March	2010	2009
Group:
Net debt	£1,550m	£3,242m
Weighted average debt maturity	12.4 yrs	15.1 yrs
Weighted average interest rate	5.28%	5.33%
% of debt at fixed/capped interest rates	80%	100%
Interest cover¹	2.3x	2.0x
Loan to value²	25%	46%
Undrawn committed facilities	£2,861m	£2,950m
Group and share of Funds and Joint Ventures:
Net debt³	£4,210m	£5,105m
Weighted average debt maturity	11.1 yrs	12.7 yrs
Weighted average interest rate	5.18%	5.27%
Interest cover¹	2.0x	1.9x
Loan to value²	47%	57%

¹Underlying profit before interest and tax / net interest

² debt / property and investments

³ EPRA net debt £4,081 million (2008/9: £4,941 million) - see Table A

Financing Structure

As set out under its financing policy, the Group utilises debt raised from a variety of sources, with a spread of maturities to mitigate refinancing risk. At 31 March 2010 Group gross borrowings were £1,781 million; including our share of debt in Funds and Joint Ventures, gross borrowings were £4,669 million.

The types of debt employed are:

i) with recourse to British Land for repayment and being either additionally secured by specific assets or unsecured; and

ii) non-recourse to British Land and in "ring-fenced" structures, including Funds and Joint Ventures.

Facilities with recourse to British Land

Secured debt at fixed interest rates with long maturities and no amortisation is provided by debentures. The £1 billion of Debentures issued by British Land are secured against a single combined pool of assets with common covenants: the value of those assets is required to cover the amount of these debentures by a minimum of 1.5 times and net rental income must cover the interest at least 1 times. We use our rights under the debentures to withdraw, substitute or add properties (or cash collateral) in the security pool, in order to manage these cover ratios effectively, deal with any asset sales and remedy if necessary. Secured debt issued by the Group as part of the acquisition in 2006 of the BL Davidson former joint venture also includes asset value and income ratios, similarly managed by us and remediable as necessary.

The assets of the Group not subject to any security stood at some £2.4 billion as at 31 March 2010.

Unsecured bank revolving credit facilities raised by British Land provide full flexibility of drawing and repayment at short notice without additional cost, providing valuable operational support, and are committed for terms up to five years. Undrawn loan facilities are maintained to support current and future business requirements.

These credit facilities are based on relationships with a wide range of banks, reducing reliance on any particular lender. At 31 March 2010, 29 different financial institutions from 12 countries provided finance to the Group via bilateral or syndicated facilities. Current facilities amount to some £3 billion at floating interest rates based on LIBOR plus an average margin of 47 bps per annum (arranged during 2004-7, when we concentrated on achieving the longest available term at the then market rates). These lines are now mostly undrawn, following repayments from the proceeds of sales and of the Rights Issue.

The maturities of the Group bank facilities are such that some £1 billion expire within the next 2 years (including a £790 million bank syndicate) and some £1.9 billion has a maturity of more than 3 years. The Group's refinancing requirements will be considered in the light of investment decisions.

Other unsecured funding includes US private placements, issued in full at fixed rates, requiring no amortisation and with terms up to 17 years. British Land currently has two US private placements: £98 million 5.5% Senior Notes 2027 and $154m 6.3% Senior US Dollar Notes 2015 (which is swapped back into sterling at 6.0%). Issuing in this market widens the debt investor base.

Covenants applying across each of these unsecured facilities (having been consistently agreed with all lenders since 2003) are the same:

a) Net Borrowings not to exceed 175% of Adjusted Capital and Reserves; and

b) Net Unsecured Borrowings not to exceed 70% of Unencumbered Assets.

No income/interest cover ratios apply to these facilities.

There are no other unsecured debt financial covenants in the Group.

Covenant Ratio

As at 31 March

2006

2007

2008

2009

2010

Net Unsecured Borrowings to Unencumbered Assets¹

26%

28%

22%

14%

Net Borrowings to Adjusted Capital and Reserves²

73%

74%

83%

37%

Highest during the year to 31 March 2010: 21%¹; 91% ²

Although secured assets and other assets of non-recourse companies are excluded from Unencumbered Assets for the covenant calculations, unsecured lenders benefit from the surplus value of these assets above the related debt and the free cash flow from them. During the year ended 31 March 2010 these assets generated £82 million of surplus cash after payment of interest and securitisation amortisation. This will reduce next year as a result of the formation of the Broadgate joint venture. In addition, while investments in Joint Ventures do not form part of Unencumbered Assets, profits generated by these ventures are passed up to the Group.

Derivatives, usually interest rate swaps, are used to achieve the required interest rate profile viewed across all the Group debt.

Non-recourse to British Land

Joint Ventures and Funds are each financed and interest rate managed separately, without recourse to British Land for repayment. The debt has been arranged through securitisation or bank debt specifically according to the requirements of the business of each venture. At 31 March 2010, our share of the total debt in the Funds and Joint Ventures is some £2.9 billion. Over the next two years a total of £529 million (at 100%) of this will mature and these facilities will be addressed by the relevant entities and refinanced as appropriate for their businesses.

Those debt arrangements which include loan to value ratio covenants have maximum levels ranging from 55% to 90% (except for one Fund in which we have a small interest where the LTV is 35%); several of them have rental income to interest or debt service cover requirements. There is no obligation on British Land to remedy any breach of these covenants and any remedy needed would be considered by the parties on a case by case basis.

Securitisations are used to raise long-term debt based on the cash flows generated from specific assets or pools of assets. The strength of these cash flows allows credit-rated debt to be raised with long maturities. Securitisations have been arranged in ring-fenced, special purpose entities with no recourse to British Land or other companies or assets in the Group.

The securitisations of the Broadgate Estate (£1,951 million), Meadowhall (£832 million) and the Sainsbury's superstores portfolio (£678 million) have weighted average maturities of 15.9 years, 14.2 years, and 10.6 years respectively. The only financial covenant applicable to these securitisations is that income must cover interest and scheduled amortisation (1 times). These securitisations provide for quarterly principal repayments with the balance outstanding reducing to approximately 20-30% of the original amount raised by expected final maturity. The debt structures permitted British Land to introduce third party investors without requiring repayment of the debt. Over the last 2 years each of the relevant entities have been subject to new joint venture transactions, where British Land effectively disposed of a 50% share in the investment.

Although a combination of fixed and floating rate debt has been issued in the securitisations, all the floating rate instruments have been fully swapped into fixed rate debt, from the date of issue.

Transaction specific derivatives are employed by the relevant borrowing entity in the Joint Ventures and Funds to achieve the desired interest rate profile when floating rate debt is raised through other debt structures.

Debentures without recourse to British Land are those issued by BLD Property Holdings Limited (formerly Asda Property Holdings Limited) a company acquired by the Group in 2006.

There are three fixed rate debentures of £111 million in total:

- 10.3125% First Mortgage Debenture Stock 2011

- 6.125% First Mortgage Debenture Stock 2014

- 9.125% First Mortgage Debenture Stock 2020

Asset value and income ratio cover requirements are managed and remediable as necessary, in line with our other debentures.

KEY PERFORMANCE INDICATORS

Year ended 31 March 2010	British Land	IPD
High quality income stream
Occupancy rate¹	96%	92%
Average lease length (to first break)	12.6 years	9.8 years
Rent subject to break/expiry over next 3 years	7%	21%
Like-for-like rental income growth	+1.4%	-0.6%
Like-for-like rental value growth	-6.2%	-5.5%
Total property return	21.5%	17.4%

Year ended 31 March	2010	2009
Capital Value Growth and Total Returns
Portfolio valuation growth	+13.5%	-28.2%
Net asset value² per share growth	+27%	-64%
Total return	33.5%	-61.6%
Strong balance sheet and financing capability
Loan to Value ratio	47%	57%
Average debt maturity	11.1 years	12.7 years
Sustainability
Customer satisfaction survey³	82%	73%
Resource efficiency - improvement in energy usage	12%	-10%

Data for Group and its share of Funds and Joint Ventures

¹excluding accommodation subject to asset management and under offer (to be comparable to IPD)

²EPRA basis

³ Results are for bi-annual survey conducted in 2009 and 2007 respectively

The high levels of occupancy, rental value growth and rental income growth are all strong indicators of our continued selection of prime properties with enduring occupier appeal. With the exception of rental values, which declined by 6.2%, all these measures were robust during the year.

Over time, growth in the income stream from our properties supports growth in the value of our portfolio and drives total return, a key measure of performance. Our outperformance on a capital return basis versus IPD reflects the prime nature of the portfolio and our focus on sectors and assets within the property market which have in aggregate, higher income growth potential than the property market as a whole.

Risk Management

Approach to Risk Management

Risk management is integral to the way we run our business from setting strategy, through to formulation of objectives, consideration of transactions, day-to-day decision making and performance of core business procedures. British Land's small head office team and relatively flat management structure allows the executive directors to have close involvement in the operational matters of the Group, and identify and respond to risks promptly.

Our approach seeks to understand, limit and manage adverse impacts arising from external and internal financial, property and operational events whatever their cause. It is inherent in the nature of risk that risk brings reward, and there are risks that we will choose, with our expertise, to accept and others that cannot be fully mitigated at an acceptable cost.

The principal risks are shown in the table below.

Risk Process

British Land undertakes a comprehensive formal risk appraisal on a semi-annual basis with the Board and other key executives which identifies the principal risks that affect the Group. To enable focus on key risks, a simple and conventional method of prioritisation is undertaken. Risks are scored and ranked based on the likelihood of occurrence and potential impact on the Group.

The resulting risk matrix and risk log are reviewed by the Executive Committee of the Board. The adequacy of risk mitigating strategies and controls are considered at each review. This helps to assist in defining the risk profile of the business and ensures that the implications are understood. The principal risks are also considered by the Audit Committee.

The responsibility for the management of each risk is clearly allocated to specific members of the Executive Committee.

Key risk indicators are being defined and allocated to each risk. In most cases the property and financing indicators have been used within the business for many years.

The risk processes described above are regularly benchmarked against best practice. The Audit Committee specifically reviews and considers the risk management processes annually.

Risk Description

Impact Areas

Key Mitigants

Property Investment

Failure to execute property investment and development strategies which are value enhancing.

Net Asset Value

Total property return

Defined investment strategy.

Defined asset appraisal process.

Investment Committee reviews all opportunities against predetermined criteria.

Monitoring of macro-economic and property market trends.

Investor Market

Decreases in demand by investors to real estate.

Net Asset Value

Prime portfolio.

Active Asset Management.

Office Occupier Market

Weakened occupier demand for office developments and potential vacancies due to financial market rationalisation and economic uncertainty.

Rental income and cash flow.

Reduced strength of tenant covenant and increased arrears/bad debts.

Cost of tenant incentives for new lettings.

Empty unit (void) costs.

Net Asset Value.

Long upward only lease profiles.

High occupancy and low near term expiries.

Quality assets easier to re-let.

Retail Occupier Market

Reduced retail occupier demand for space, increased supply, tenant defaults

Rental income and cash flow.

Empty unit (void) costs.
Net Asset Value.

Diversified tenant base.

Long leases and strong covenants which are reviewed on letting.

Prime portfolio easier to re-let.

Close occupier relationships assists in understanding changing requirements.

Review of consumer trends.

Tenants at risk monitored regularly.

Financing Availability

Shortage of financing or refinancing at acceptable cost.

Unable to fund property investments or development programme. Increased cost of financing including undrawn bank facilities.

Spread of sources and maturities of facilities.

Sufficient lines maintained for spending commitments with significant committed but undrawn facilities.

Continuing and extensive capital market and bank relationship management.

Financing Cost

Adverse interest rate movements

Increased cost of borrowing and hedging.

Ability to refinance.

Interest hedging policy.

Hedging effectiveness regularly monitored.

Credit Risk

Financial counterparty credit risk.

Loss of deposits.
Favourable BL positions are forcibly closed.

Cost of re-arranging facilities.

Incremental changes in financing rate.

Summary of exposures by bank and credit ratings reported monthly.

Spread of sources and maturity of facilities.

Cash placed across a range of deposit accounts.
Credit worthiness of derivative counter parties assessed.

Taxation

Increased tax rates or tax scope.

Increased direct tax costs and compliance costs.

Property performance.

Dialogue with government on industry issues.

Structured planning.

Taxation Compliance

Internal action or inaction leads to non-compliance with Real Estate Investment Trust (REIT) taxation regime.

Taxation penalties

Detailed understanding of REIT legislation.

Compliance modelling and forecasting.

Strong relationship with HMRC.
Advisors used on transactions and for compliance.

People

Key staff departures or change

Lost business relationships.
Loss of management direction, poor or delayed decision making.

Reputational damage with stakeholders.

Employment package in line with FTSE 100 companies.

Simple, consistent and known procedures allow operations to continue.

Succession planning regularly evaluated with non-reliance on single individuals.

Supply Chain

Development contractor solvency and availability

Cost overruns.

Programme delays leading to potential loss of tenant revenue

Close supply chain relationships facilitate assessment and monitoring.

Major or leading contractors engaged only.

Assessment of contractor prior to appointment, including a financial covenant review before the contract is agreed.

Health & Safety

Occupational and Construction Health & Safety or Environmental breach.

Criminal prosecution of responsible executives. Reputational damage.

Fines and legal costs.

Health and Safety policy.

Specialised professional advice.

Extensive compliance reporting.

Site risk assessments and audit visits.

Environmental Resources

Environmentally unsustainable or undesirable buildings are held in our portfolio with potential impacts of inefficient use of natural resources or failure to adapt to expected climatic influences.

Exposure to resource-related taxation and penalties and reputational damage.

Increased occupational costs and reduced property values.

Impact of floods, low air-quality and extreme temperature

New developments, significant acquisitions and office refurbishments follow a Sustainability Brief.

Occupier programmes for sustainability and minimising environmental impact.

Internationally recognised Environmental Management System for sustainable developments.

Assessment of resource risks during development.

Ethics

Fraud and misstatement

Reputational damage

Financial loss

Segregation of duties and dual payment authorities.

System access controls for accounting and cash.

Vetting of new staff background and employment history.
Annual external and internal auditing of key controls and testing of expenditure and accounting transactions.

Insurance.

Culture of review and challenge.

Corporate Responsibility

At British Land, corporate responsibility is a critical part of how we manage risks and enhance value across our portfolio. We are achieving more through our partnership approach to developing, managing and financing property responsibly. The key material issues managed and monitored through our corporate responsibility strategy are natural resources, customers, communities, staff and suppliers. Our corporate responsibility key performance indicators provide a rigorous method of assessment of progress against annual targets and are independently audited each year.

Our full Corporate Responsibility Report 2009/10 may be viewed at www.britishland.com

It is designed to be accessible and easy to navigate. On-line reporting, rather than circulation of full printed copies, is part of our efforts to improve environmental performance.

Directors' Responsibility Statement

We confirm that to the best of our knowledge:

(a) the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole;

(b) the adoption of a going concern basis for the preparation of the financial statements continues to be appropriate based on the foregoing and having reviewed the forecast financial position of the Group; and

(c) the management report, or 'Business Review', includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Business Review. The financial position of the Group, its cash flows, liquidity position and borrowing facilities, together with the Group's financing policy, are described in the Financial Review.

The Group has considerable undrawn debt facilities and cash deposits in excess of current drawn banking facilities. There is substantial headroom against the covenants for its unsecured banking facilities, details of which are included in the financing and cash flow pages of the Business Review. It also benefits from a diverse and secure income stream from leases with long average lease terms. As a consequence, the directors believe that the Group is well placed to manage its business risks satisfactorily despite the current uncertain economic outlook.

The directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis in preparing the annual report and accounts.

By order of the Board, Graham Roberts, Finance Director

GLOSSARY OF TERMS

Annualised rents are gross rents as at the reporting date plus, where rent reviews are outstanding, any increases to estimated rental value (as determined by the Group's external Valuers), less any ground rents payable under head leases.

Development construction cost is the total cost of construction of a project to completion, excluding site values and finance costs.

EPRA is the European Public Real Estate Association.

EPRA earnings is the profit after taxation excluding investment property revaluations and gains/losses on disposals, intangible asset movements and their related taxation.

EPRA net assets (EPRA NAV) are the balance sheet net assets excluding the mark to market on effective cash flow hedges and related debt adjustments, deferred taxation on revaluations and diluting for the effect of those shares potentially issuable under employee share schemes.

EPRA NAV per share is EPRA NAV divided by the diluted number of shares at the period end.

EPRA NNNAV is the EPRA NAV adjusted to reflect the fair value of debt and derivatives and to include deferred taxations on revaluations.

Estimated rental value (ERV) is the external Valuers' opinion as to the open market rent, which on the date of valuation, could reasonably be expected to be obtained on a new letting or rent review of a property.

Equivalent yield is the net weighted average income return a property will produce based upon the timing of the income received. In accordance with usual practice, the equivalent yields (as determined by the external Valuers) assume rent received annually in arrears and on values before deducting prospective purchasers' costs.

Group is The British Land Company PLC and its subsidiaries and excludes its share of funds and joint ventures.

IFRSInternational Financial Reporting Standards

Initial yield is the annualised net rents generated by the portfolio expressed as a percentage of the portfolio valuation, excluding development properties.

Interest cover is the number of times net interest payable is covered by underlying profit before net interest payable and taxation.

IPD is the Investment Property Databank Ltd which produces an independent benchmark of property returns.

Like-for-like ERV growth is the change in ERV over a period on the standing investment properties expressed as a percentage of the ERV at the start of the period.

Like-for-like rental income growth is the growth in gross rental income on properties owned throughout the current and previous periods under review. This growth rate includes revenue recognition and lease accounting adjustments but excludes properties held for development in either period, properties with guaranteed rent reviews, asset management determinations and surrender premiums.

Loan to Value (LTV) is the ratio of gross debt less cash, short term deposits and liquid investments to the aggregate value of properties and investments.

Mark to market is the difference between the book value of an asset or liability and its market value.

Market Value in relation to property assets is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion (as determined by the Group's external Valuers). In accordance with usual practice, the Group's external Valuers report valuations net, after the deduction of the prospective purchaser's costs, including stamp duty land tax, agent and legal fees.

Net rental income is the rental income receivable in the period after payment of ground rents and net property outgoings. Net rental income will differ from annualised net rents and passing rent due to the effects of income from rent reviews, net property outgoings and accounting adjustments for fixed and minimum contracted rent reviews and lease incentives.

Occupancy rate is estimated rental value of let units expressed as a percentage of the total estimated rental value of the portfolio, excluding development properties.

Open A1 is a planning consent enabling the sale of a wide range of goods, including food, fashion, footwear, books, electronics and household goods - as set out in The Town and Country Planning (Use Classes ) Order 1987.

Passing rent is the gross rent, less any ground rent payable under head leases.

Planning Consent gives consent for a development, and covers matters such as use and design. Full details of the development scheme must be provided in an application for full planning consent, including detailed design, external appearance and landscaping before a project can proceed. Outline planning consent establishes the broad outline of the scheme and is subject to the later approval of the details of the design.

Property Income Distribution (PID) As a REIT the Group is obliged to distribute 90% of the tax exempt profits. These dividends, which are referred to as PIDs, are subject to withholding tax at the basic rate of income tax. Certain classes of shareholders may qualify to receive the dividend gross. See our website (www.britishland.com) for details. The Group can also make other normal (non- PID) dividend payments which are taxed in the usual way.

Real Estate Investment Trust (REIT) a listed property company which qualifies for and has elected into a tax regime, which exempts qualifying UK property rental income and gains on investment property disposals from corporation tax.

Reversion is the increase in rent estimated by the external Valuers, where the passing rent is below the estimated rental value. The increases to rent arise on rent reviews, letting of vacant space and expiry of rent free periods.

Reversionary yield is the anticipated yield, which the initial yield will rise to once the rent reaches the estimated rental value.

Tenant (or lease) incentives are any incentives offered to occupiers to enter into a lease. Typically the incentive will be an initial rent free period, or a cash contribution to fit-out or similar costs. Under accounting rules the value of lease incentives given to tenants is amortised through the income statement on a straight-line basis to the earliest lease termination date.

Total return is the growth in EPRA NAV per share plus dividends paid expressed as a percentage of EPRA NAV per share at the beginning of the period.

Total shareholder return is the growth in value of a shareholding over a specified period, assuming that dividends are reinvested to purchase additional units of stock.

Underlying earnings per share (EPS) consists of underlying profit after tax divided by the diluted weighted average number of shares in issue during the period.

Underlying profit before tax is the profit for the period before taxation after excluding amortisation of intangible assets and impairment charges, net valuation gains/losses (including profits/losses on disposals), other receivables of a capital nature, net refinancing charges, fair value movements on liquid investments and swap close out costs.

Vacancy rate is the estimated rental value of vacant properties expressed as a percentage of the total estimated rental value of the portfolio, excluding development properties.

Virtual freehold represents a long leasehold tenure for a period up to 999 years. A 'peppercorn', or nominal, rental is paid annually.

Weighted average debt maturity each tranche of Group debt is multiplied by the remaining period to its maturity and the result is divided by total Group debt in issue at the period end.

Weighted average interest rate is the Group loan interest and derivative costs per annum at the period end, divided by total Group debt in issue at the period end.

Weighted average lease term is the average lease term remaining to first break, or expiry, across the portfolio weighted by rental income. This is also disclosed assuming all break clauses are exercised at the earliest date, as stated. Excludes short term licences and residential leases.

Yield shift is a movement (usually expressed in basis points) in the initial yield of a property asset.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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British Land Company (BLND)

Friday, 26th July 2024

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