3rd Quarter Results

British Land Co PLC 13 February 2007 13 February 2007 THE BRITISH LAND COMPANY PLC THIRD QUARTER REPORT - TO 31 DECEMBER 2006 Highlights â€¢ British Land became a REIT on 1 January 2007 - confident that new status will add materially to shareholder value - activist property strategy facilitated and progressing well - Q3 results reflect charges and provisions for REIT entry costs â€¢ Net Asset Value(1) per share 1610 pence after REIT charges and refinancings, 1685 pence pre-charges up 3.8% for quarter(2) (15.4% for 9 months(2)) - EPRA Net Assets(1) Â£8.5 billion - Net Assets Â£8.3 billion (up Â£1.7 billion after deferred tax release) â€¢ Underlying pre-tax profit(3) Â£64 million for quarter (Â£194 million for 9 months, up 12% on 2005) - Headline pre-tax profit(4) Â£175 million (9 months, Â£877 million) - Profit on ordinary activities before tax Â£381 million (9 months, Â£1,051 million) â€¢ Underlying earnings per share(3) 12 pence for quarter (32 pence for 9 months, up 19% on 2005) - Headline earnings per share 285 pence (396 pence for 9 months) - Dividend 6.5 pence per share for the quarter, payable May (12.1 pence for 9 months) - Total return(5) for 9 months 16.2%2 â€¢ Portfolio valuation increase of 1.7% for the quarter (7.7% for 9 months) - Below IPD data due to booking less yield shift - still outperforming on rental growth(6) - Valuation uplift led by London Offices and Retail Warehouse parks â€¢ Properties owned or managed Â£20.4 billion â€¢ Activity levels remain strong - 4 million sq ft London Office development projects progressing well. Leadenhall Building and Osnaburgh Street projects now started on site. Good interest levels in lettings - Over Â£1.2 billion (gross) disposals announced since March 2006 (Â£356 million in quarter), with more to come. Disposals matched by development spend and acquisitions including retail warehouse parks in UK & Europe - Refinancings complete (some Â£4.9 billion total over last 2 years), reducing future interest expense Chris Gibson-Smith, Chairman comments: "We have a full agenda for British Land to cement our position as a flagship of the new REIT regime. We are providing the best of modern space for our customers and thereby tapping into superior growth prospects as the overall property market slows. The business continues to make good progress and is well positioned for the future." (1) EPRA (European Public Real Estate Association) basis - Note 1 (2) before charges for REIT conversion and refinancings (3) see Note 1 to the accounts (4) with proportional consolidation of Funds and Joint Ventures - Table A (5) increase in EPRA NAV plus dividends paid (6) ERV growth of 4.4% for 9 months (IPD 3.3%) Review by the Chief Executive, Stephen Hester British Land is reporting another quarter of good progress. We have made the important transition to REIT status. Our business strategy is clear and its execution well in hand. Markets Real estate markets are difficult to call at present. The fundamentals remain strong. A healthy economy, strong employment and a central bank determined to combat inflationary pressures are a good recipe for our business. It means rental growth is available to boost returns. Solid asset backing and long-term dependable cash flows support property yields and give the prospect of total returns comparing fairly to bonds and equities on a risk adjusted basis. On a sectoral view, expansion of London's service industries and national consumer spending in positive territory underpin our customers' ability to expand in the best space - which British Land is well placed to offer. Finally, the broad based interest in real estate from domestic and global participants ensures continuing investment demand where value can be perceived. On the other hand, 2006 saw further property yield reductions, now twinned with a modest rise in bond yields to underline our own view that the property investment case can no longer rely on further positive yield shift. In a more balanced market, sentiment and money flows - currently still positive - are harder to call. Equally, those parts of the property market where price appreciation has gone further than the fundamentals of customer demand and risk assessment support, may disappoint some investors. Thankfully, British Land remains positioned to produce growth and attractive returns in the more demanding markets in prospect. Our asset values are well supported - perhaps even conservative in places - and rental growth prospects are good. REITs update From 1 January 2007 British Land became a REIT, with the largest property portfolio under management of UK REITs and a stock market capitalisation within the world's top 5 REITs. Significant internal restructuring has been undertaken to optimise our new status. Our third quarter results contain charges and provisions for the REIT entry tax, the last of our comprehensive refinancings and other lesser reorganisation provisions. In turn we have been able to benefit from eliminating Â£1.6 billion of deferred tax, boosting stated net assets. Our UK rental income and capital profits will hereinafter be largely tax free. Our dividend payments are now moving to a quarterly basis with 6.5 pence per share declared for our last 'non-REIT' quarter payable in May (following the 5.6 pence interim dividend to be paid in February). As previously announced, our first full year REIT dividend will total at least 33 pence per share. Our business strategy has been clearly laid out and REITs will significantly facilitate our portfolio reshaping, so improving property performance. The translation of property performance to shareholder value in turn is substantially boosted without tax and via higher dividends. Breadth of investor interest in REITs, the strengthened competitive position of quoted REITs as the property vehicle of choice, both support the prospect of sustained stock valuation gains relative to history. British Land is focused on creating superior, cash flow driven, total returns. Our activist strategies are driven by meeting customer needs for optimum prime space. Our sector concentrations in out of town retail and London offices remain attractive and we target further boosts from development, capital recycling and asset management. Portfolio reshaping - continuous asset selection During the first half of this financial year total sales and purchases amounted to some Â£1.7 billion gross. Since 1 October 2006 we have maintained the pace, acquiring Â£387 million of assets and disposing of Â£403 million. This activity continues to follow the two principal themes we have established: to sharpen our sectoral focus on areas where we have distinctive expertise and confidence in performance; and recycling capital within those 'advantaged' sectors. The tables below set out the transactions. We have sold high street retail units and in-town centres in locations where trading is likely to be weaker, and retail parks where we have maximised the asset management growth potential for the near term. Our decision to sell our Slough shopping centres at a loss versus March 2006 valuation illustrates our disciplined focus on future trading success, disappointing though the investment had proven. Proceeds from disposals have been recycled into new investments where strong retailer trading should allow us to achieve attractive rental growth: - the retail parks acquired in Oldham and Manchester are part Open A1 schemes in prominent positions with significant scope for increasing rents. Centre Retail Park, Oldham, dominates its catchment and offers opportunities to create value through asset management, including improvements to the planning, re-division of units and further enhancement of the tenant mix - HUT's Dartford purchase provides asset management opportunities complementary to an existing investment in the Fund, expected to result in improved income - PREF's acquisition of two more retail parks increases our investments in Europe, providing further prospects for attractive returns under our management - the Somerfield stores were acquired on a leaseback which provides us with increasing rent based on RPI (or open market review every five years, if higher) - similar rental uplifts linked to RPI apply to the leases of the TGI Friday's restaurants, mostly located in prime out of town positions. These Somerfield and TGI Friday purchases add to our holdings of long, fixed uplift or indexed leases, which offer a level and security of return likely to be more in demand as overall property growth rates subside. In the office sector, the acquisition of the remaining freehold interest in Osnaburgh Street, NW1, from The Crown Estate has enabled us to begin construction of the next phase of the development of the Regent's Place estate, to provide a further 380,000 sq ft of offices and 110,000 sq ft of residential accommodation. The freehold of the former Natwest building in Colmore Row, Birmingham is a prominent and prime office site in the centre of the city for redevelopment. We are working with all local interests to design some 250,000 sq ft of new high quality offices, providing an attractive addition to the Birmingham office environment. Sales Price BL Share Gain/ Â£m Â£m (Loss) %1 3 months to 31 December 2006 Queensmere & Observatory Shopping Centres, Slough2 200 200 (9.0) 3 Homebase stores - Tunbridge Wells, Rayleigh Weir2 and Upton 45 45 25.4 Sainsburys, Hanley2 21 21 (5.0) Station Road Retail Parade, Solihull2 17 17 4.6 Queens Road Retail Park, Sheffield 17 17 0.5 Silverlink Leisure Park, Newcastle3 15 5 9.8 Great Bridge Retail Park, West Bromwich 13 13 24.1 Market Street, Manchester2 12 12 7.5 Others 16 9 3.7 356 339 (2.0) Since 31 December 2006 (exchanged/completed) Purley Way, Croydon 44 44 12.5 High Street units, Coventry 3 3 (4.4) 47 47 11.2 Total 403 386 (0.5) 1 sale price versus latest year end valuation (March 2006) 2 completed after 31 December 2006 3 Hercules Unit Trust (HUT) Purchases Price BL Share Â£m Â£m 3 months to 31 December 2006 Centre Retail Park, Oldham 115 115 Etoy & Matran Retail Parks, Switzerland1 31 7 2 retail parks - Dartford2 and Hyde 24 16 7 Somerfield stores 17 17 Offices (for development): Osnaburgh Street Estate, London NW1 55 55 Colmore Row, Birmingham 25 25 267 235 Since 31 December 2006 (exchanged) 15 TGI Friday restaurants 48 48 Udine Retail Park, Italy1 72 16 120 64 Total 387 299 1 Pillar Retail Europark Fund (PREF) 2 Hercules Unit Trust (HUT) Proactive asset management - focus on customer requirements Our attention to customer needs and service across the business is reflected in the range of our asset management and development activity, delivering good results from lettings, tenancy changes, lease restructurings, planning improvements, scheme refurbishments and significant developments. Development update: Offices - Our 4 million sq ft London office development programme is progressing well. The Broadgate Tower and 201 Bishopsgate are on schedule. Ludgate West is on target for completion in late 2007. We are seeing a promising level of interest from tenants for partial pre-lettings at these City developments. Terms have been agreed for 223,000 sq ft at 201 Bishopsgate and other negotiations are at an advanced stage. At Ropemaker Place, the piling and basement preparation works are proceeding as programmed and we expect to receive planning consent for our revised scheme this month. Demolition work has started on site at the Leadenhall Building and at Osnaburgh Street, Regent's Place, commencing these two important office developments. The North East Quadrant will be the next phase of development at Regent's Place; we intend to submit a planning application this week for c. 500,000 sq ft of offices and retail and have carried out basement enabling works. Completion of Osnaburgh Street and the North East Quadrant will bring the total office, retail, leisure and residential accommodation at Regent's Place to some 2 million sq ft. Our building at York House, W1, has reached practical completion on time and within budget. We are fitting out the c. 40,000 sq ft to be occupied as our new head office. Discussions are advanced for letting of the remaining accommodation with 75% already 'under offer'. The Willis Building is due for completion in March/April 2007 - this landmark City office development is fully pre-let. The latest phase of the Blythe Valley Business Park (Plot G2) also completed during the quarter; the 35,000 sq ft office accommodation is fully let and has generated a significant uplift over cost. British Land is one of two parties short-listed by Network Rail for the proposed Euston station redevelopment - a longer term project. Network Rail is expected soon to nominate its preferred partner. Retail - Planning consent for our new development at Giltbrook Retail Park, Nottingham has been received and detailed discussions with key retailers are well advanced for a number of pre-lets. Construction is expected to begin mid-2007 with completion in 2008. St Stephen's Shopping Centre, Hull (a forward purchase) is due to complete on schedule in mid 2007. Lettings have been agreed with major retailers including H &M, New Look, Zara, Next and Tesco at this edge of town retail and leisure scheme. Infrastructure works for our joint venture development of 2.1 million sq ft at Puerto Venecia in Zaragoza, Spain, are progressing well. The IKEA store, anchoring the retail park, is expected to open for trade in May. Contracts have been exchanged recently with El Corte Ingles, Spain's largest department store operator, to anchor the shopping centre with an owner-occupied store of over 400,000 sq ft. Management initiatives: In the City at Plantation Place South, EC3, a further new letting of some 19,000 sq ft has been contracted to Arch Insurance at a best rent of Â£47.50 per sq ft, and a further 19,000 sq ft is under offer. In our owned and managed retail warehouse portfolio, 16 new lettings covering a total of over 100,000 sq ft have been achieved during the quarter. These include agreement with Virgin Retail in respect of a unit at Teeside Shopping Park, Stockton, which establishes further progress in rental growth and a new highest rent at the scheme at Â£45 per sq ft. The Crown Point Shopping Park at Denton is now fully let following recent lettings including to Marks and Spencer who are due to open in March. At our completed development of Nugent Shopping Park, Orpington, new lettings have been contracted with Laura Ashley and Clinton Cards, with all remaining space under offer to major high street retailers. The West Cornwall Shopping Park at Hayle, a recently completed development acquired by HUT, has also achieved full letting. A new lease recently granted to Marks and Spencer will enable them to combine this new space with their existing units to create a new store of 28,000 sq ft at ground floor level, due to open in July. Marks and Spencer have also taken a new 60,000 sq ft store at Fort Kinnaird Shopping Park, Edinburgh, and expect to open in April. This will be a positive catalyst for further development at the park, to include another 100,000 sq ft of retail space. HUT has also contracted recently new lettings at Borehamwood Shopping Park to HSBC and at Glasgow Fort Shopping Park to The Pier, in both cases the tenant's first out of town store concept. These lettings are further examples of the flexibility of these types of retail investments to meet retailers' changing trading requirements. At Meadowhall Shopping Centre the reconfiguration of the area previously occupied by Sainsbury's and the centre refurbishment are progressing well. The units of 73,000 sq ft and 66,000 sq ft in the new space contracted to be let to Primark and Next are expected to be ready to hand over to those tenants for their fit out to commence in March 2007; they intend to open for trade in autumn 2007. Within the superstores portfolio our joint ventures with Tesco have recently completed extensions to provide an extra 49,000 sq ft at a cost of some Â£16 million and we have agreed five more Tesco store extensions, in total a further 50,000 sq ft. Valuation The table below shows the principal valuation movements for the 3 month and 9 month periods to 31 December 2006. The 1.7% portfolio uplift for the three months was below that reported by the IPD statistics for the same period (2.6%). This is due to booking less yield shift than the index. Despite rental growth outperformance, and the prospect of more from our prime portfolio, British Land's net initial and equivalent portfolio yields as calculated by IPD at 4.3% and 4.9% (4.7% nominal equivalent) are the closest they have been for at least 10 years to the IPD index, which contains a more mixed quality of investment. We expect the focus on rental growth as the driver of capital values to pay off in future periods. Contributing to the uplift this quarter was like for like growth in rental value (ERV) for the portfolio, ahead of the market at 1.6% (4.4% vs 3.3% IPD for 9 months). The nominal net equivalent yield (including purchasers' costs) on the portfolio has tightened by 3 bps during the three months on a like for like basis. The main sector drivers of the valuation increase over the quarter were: â€¢London offices (including developments) at 35% of the portfolio rose by 3.2% (11.9% for 9 months), including 3.6% ERV growth (9.4% for 9 months) on the investments â€¢Retail warehouse parks at 25% of the portfolio, up 2% (7.9% for 9 months) led by rental growth and sustained demand for open A1 parks â€¢Shopping Centres showed a fall in value due to the loss on sale at Slough. Vacancy rates remain very low (1.6% excluding asset management initiatives and 'under offer'). ------------- ------ -------- ------- ------- ------------ Valuation Group Funds/JVs1 Total Portfolio Uplift2 % by Sector Â£m Â£m Â£m % ------------- ------ -------- ------- ------- ------ ------- 3 mths 9 mths ------------- ------ -------- ------- ------- -------- ------- Retail Retail 2,494 1,575 4,069 24.8 2.0 7.9 warehouses Superstores 1,615 273 1,888 11.5 1.0 6.1 Shopping 2,182 497 2,679 16.3 (0.6) 3.1 centres3 Department 791 147 938 5.7 0.6 4.2 Stores High street 374 - 374 2.3 0.7 3.6 ------------- ------ -------- ------- ------- -------- ------- All retail 7,456 2,492 9,948 60.6 0.9 5.7 Offices City4 3,732 - 3,733 22.7 3.1 10.8 West End5,6 924 - 924 5.6 4.0 13.3 Business parks & provincial 158 3 161 1.0 0.9 2.9 Development6 1,156 1 1,156 7.0 2.7 14.7 ------------- ------ -------- ------- ------- -------- ------- All offices 5,970 4 5,974 36.3 3.1 11.6 Industrial, distribution, 482 34 516 3.1 1.4 4.2 leisure, other ------------- ------ -------- ------- ------- -------- ------- Total7 13,908 2,530 16,438 100.0 1.7 7.7 ------------- ------ -------- ------- ------- -------- ------- 1 Group's share of properties in Funds and Joint Ventures 2 increase in value for 3 months and 9 months to 31 December 2006, includes valuation movement in developments, purchases and sales, net of capital expenditure 3 Meadowhall valuation Â£1,623 million (unchanged over 3 months after cap-ex, up 0.6% pre cap-ex); ERV Â£82.6 million; net equivalent yield 4.65% (true equivalent yield 4.8%) 4 Broadgate valuation up 3.0% over 3 months to Â£3,541 million; headline ERV range Â£42.50 - Â£52.50 per sq ft (average headline ERV has risen 5% to Â£45.50 psf); net initial yield 4.82% (assuming top up of rent free periods and guaranteed minimum uplifts to first review) 5 Regent's Place valuation up 4.2% over 3 months to Â£634 million; headline ERV range Â£23.50 - Â£47.50 per sq ft; net initial yield 4.61% (assuming top up of rent free periods and guaranteed minimum uplifts to first review) 6 West End now includes York House, previously shown under Development 7 annualised net rents Â£670 million (excluding developments) (net rental income under IFRS differs from annualised net rents which are cash based, due to accounting items such as spreading lease incentives and contracted future rental uplifts, as well as direct property costs); portfolio initial yield (gross to British Land, without deduction of purchaser's costs) 4.4%; initial yield adding back rent frees 4.5%; reversionary yield (gross, five years) 5.0% Following a Songbird EGM on 24 January 2007, we exchanged our D share interest (previous book value Â£30 million) for 14.5 million additional B shares. We now own 112.1 million shares, 10.8% of the economic interest in Canary Wharf, increasing our exposure to the development returns. Our investment was valued for accounting purposes at 31 December 2006 at Â£288 million, equivalent to 256.5 pence per share. The market value of the AIM listed B shares at 31 December 2006 was 349.5 pence per share. The EGM also approved a special dividend to Songbird shareholders of 29.5 pence per share payable later in February 2007. Financial Results REIT status: As a REIT with effect from 1 January 2007, our UK property rental income and capital gains will no longer be taxable. Certain assets, as expected, do not qualify under present arrangements for REIT status - these include overseas interests and our investment in Songbird. The units held in the Funds are subject to capital gains tax if sold, while distributed income from them is tax exempt. During the quarter to 31 December 2006 the Group was internally reorganised, substantially reducing the number of functional subsidiaries and streamlining our structure. The decision was also taken to convert our trading properties into investment properties. The REIT entry charge on all our UK investment properties is payable in July 2007. The results for the quarter to 31 December 2006 were affected by the following factors arising on the change of status: â€¢provision for the REIT entry charge and related items of Â£338 million â€¢elimination of Â£1,651 million of deferred tax (which represents the contingent tax liability had the portfolio been sold at 31 December 2006 without the benefit of tax exempt REIT status), net of goodwill. Refinancing: Debt refinancings in the quarter, which reduce future interest costs, incurred charges of Â£77 million (pre-tax); 9 months Â£305 million. These charges in the quarter, arising mainly due to the difference between the market and book values of the relevant debt, were incurred on two transactions: â€¢Â£39 million in respect of the refinancing of the Meadowhall Shopping Centre securitisation, with a new simplified structure providing rating improvements for bondholders and a lower on-going interest cost at 4.98% â€¢Â£38 million for the refinance of the last of British Land's higher coupon debentures (8.875% 2035 and 9.375% 2028), replacing them with a new amortising 2035 debenture at a rate of 5.0055%. Over the last two years we have refinanced all British Land's secured and securitised debt of some Â£4.9 billion, and agreed new (or renewed) bank facilities of over Â£2.7 billion, all reducing interest costs going forward. The average interest rate at 31 December 2006 was 5.36% (31 December 2004: 6.49%). Balance Sheet: EPRA net assets at 31 December 2006 were Â£8.5 billion, 1610 pence per share. The decrease of 0.9% over the quarter is due to the charges on REIT conversion and refinancings, offsetting gains on portfolio revaluation and the Songbird investment plus underlying profit after tax. EPRA net asset value before the charges for REIT conversion and refinancings was Â£8.9 billion, 1685 pence per share, up 3.8% for the quarter (15.4% for 9 months, also excluding all such charges over the period). The release of deferred tax does not increase EPRA NAV because such tax is already excluded from that calculation. This release does however improve balance sheet net assets, which rose 25% over the quarter to Â£8.3 billion. NNNAV (triple net) per share rose similarly by 26% to 1586 pence, also boosted by the deferred tax release. The difference between NNNAV and EPRA NAV has also closed as the refinancings of debt and the movement in long term interest rates have largely eliminated the mark to market difference on debt - Â£10 million at 31 December 2006 (2005: Â£544 million). Total properties as at 31 December 2006 were Â£16.4 billion, Â£20.4 billion including assets under management. Gearing at the quarter end was steady at a Loan to Value ratio of 42%. Proforma gearing including payment of the REIT entry charges 44% (48% proportionally consolidated). Income Statement (data presented on a proportionally consolidated basis - Table A): Gross rental income for the quarter was Â£180 million; Â£533 million for 9 months, down from Â£564 million in 9 months to December 2005 primarily due to property disposals. Like for like gross rental income was up 3% for the 9 months. Other income in the quarter was Â£10 million, comprising performance and management fees; Â£44 million for 9 months, up 26% on the comparative period. The performance fee element of other income (Â£6 million booked in the quarter) is comparatively volatile and for calendar 2006 will be finalised in our current fourth quarter, after the relevant benchmark is published. A special dividend of Â£33 million is expected from Songbird in the current quarter which will be booked as a capital item, not part of underlying profit. Net interest costs for the quarter were Â£93 million; Â£281 million for 9 months, down from Â£329 million in 9 months to December 2005 due to disposals and debt refinancings. Underlying pre-tax profit was Â£64 million for the quarter; Â£194 million for 9 months, an increase of 12.1% on the comparative period. Underlying earnings per share were 12 pence; 32 pence for 9 months, an increase of 18.5% on the comparative period. Headline earnings per share were 285 pence; 396 pence for 9 months, up 86%. The total return for the 9 months to 31 December 2006 was 16.2%, before charges for REIT conversion and refinancings. A proportionally consolidated income statement and balance sheet have been prepared and attached as Table A. Comparable data for all the relevant periods is also set out in Table A. The British Land Company PLC PRELIMINARY ANNOUNCEMENT OF FINANCIAL RESULTS For the three month and nine month periods ended 31 December 2006 Consolidated Income Statement for the three month period ended 31 December 2006 Year ended Three months ended Three months ended 31 March 2006 31 December 2006 31 December 2005 Audited + Unaudited Unaudited -------------- --------------- ------------- Under Under Under Capital -lying Capital -lying Capital -lying and pre and pre and pre other Total tax * other Total tax * other Total tax * Â£m Â£m Â£m Note Â£m Â£m Â£m Â£m Â£m Â£m ------ ------ ------ --- ------ ------ ------ ------ ------ ----- 690 690 Gross rental and 2 174 174 180 180 related income ------ ------ ------ ----------- --- ------ ------ ------ ------ ------ ----- 589 589 Net rental and 2 148 148 147 147 related income 50 50 Fees and other 2 10 10 25 25 income (10) (10) Amortisation of (3) (3) (3) (3) intangible asset 39 272 311 Funds and joint 3 6 260 266 11 129 140 ventures (see also below) (81) (81) Administrative (20) (13) (33) (18) (18) expenses 1,370 1,370 Net valuation 2 256 256 420 420 gains (includes profits on disposals) (240) (240) Goodwill impairment (106) (106) Net financing costs 50 50 financing income 7 7 26 26 (419) (419) financing (87) (87) (120) (120) charges (122) (122) refinancing 6 (77) (77) charges ------ ------ ------ ------ ------ ------ ------ ------ ----- (369) (122) (491) (80) (77) (157) (94) (94) ------ ------ ------ ------ ------ ------ ------ ------ ----- 228 1,270 1,498 Profit on 64 317 381 71 546 617 ordinary activities before taxation ------ ------ ------ Taxation expense REIT conversion charge (277) (7) current tax 10 3 (307) deferred tax 1,375 (112) ------ ------ ----- (314) 2 1,108 (109) ------ ------ ------ ----------- --- ------ ------ ------ ------ ------ ----- 1,184 Profit for the 1,489 508 period after taxation attributable to shareholders of the Company ------ ------ ------ ----------- --- ------ ------ ------ ------ ------ ----- 228 p Earnings basic 1 286 p 98 p per share: ------ ------ ----- 227 p diluted 1 285 p 98 p ------ ------ ----- ------ ------ ------ ----------- --- ------ ------ ------ ------ ------ ----- Share of results of funds and joint ventures ----------- 39 39 Underlying 6 6 11 11 profit pre-tax 378 378 Net valuation 54 54 184 184 gains (includes profits on disposals) REIT conversion charge (48) (48) (9) (9) Current tax (12) (12) (5) (5) (97) (97) Deferred tax 266 266 (50) (50) ------ ------ ------ ----------- --- ------ ------ ------ ------ ------ ----- 39 272 311 3 6 260 266 11 129 140 ------ ------ ------ ----------- --- ------ ------ ------ ------ ------ ----- + Restated as described in note 9. * As defined in note 1. Consolidated Income Statement for the nine month period ended 31 December 2006 Year ended Nine months ended Nine months ended 31 March 2006 31 December 2006 31 December 2005 Audited + Unaudited Unaudited + ------------ -------------- ------------ Under Under Under -lying Capital -lying Capital -lying Capital pre and pre and pre and tax * other Total tax * other Total tax * other Total Â£m Â£m Â£m Note Â£m Â£m Â£m Â£m Â£m Â£m ------ ------ ----- ------------------- --- ------ ------ ----- ------ ------ ----- 690 690 Gross rental and related 2 489 489 520 520 income ------ ------ ----- ------------------- --- ------ ------ ----- ------ ------ ----- 589 589 Net rental and related 2 422 422 452 452 income 50 50 Fees and other income 2 43 43 34 34 (10) (10) Amortisation of intangible (11) (11) (6) (6) asset 39 272 311 Funds and joint ventures 3 28 393 421 25 195 220 (see also below) (81) (81) Administrative expenses (62) (13) (75) (54) (54) 1,370 1,370 Net valuation gains 2 899 899 998 998 (includes profits on disposals) (240) (240) Goodwill impairment (106) (106) Net financing costs 50 50 financing income 35 35 57 57 (419) (419) financing charges (272) (272) (341) (341) (122) (122) refinancing 6 (305) (305) charges ------ ------ ----- ------ ------ ----- ------ ------ ----- (369) (122) (491) (237) (305) (542) (284) (284) ------ ------ ----- ------ ------- ----- ------ ------ ----- 228 1,270 1,498 Profit on ordinary 194 857 1,051 173 1,187 1,360 activities before taxation ------ ------ ------ Taxation expense REIT conversion charge (277) (7) current tax 4 (8) (307) deferred tax 1,289 (242) ----- ----- ----- (314) 2 1,016 (250) ------ ------ ----- ------------------- --- ------ ------ ----- ------ ------ ----- 1,184 Profit for the period after 2,067 1,110 taxation attributable to shareholders of the Company ------ ------ ----- ------------------- --- ------ ------ ----- ------ ------ ----- 228 p Earnings basic 1 398 p 214 p per ----- share: ----- ----- 227 p diluted 1 396 p 213 p ----- ----- ----- ------ ------ ----- ------------------- --- ------ ------ ----- ------ ------ ----- Share of results of funds and joint ventures 39 39 Underlying profit pre-tax 28 28 25 25 378 378 Net valuation gains 221 221 266 266 (includes profits on disposals) Goodwill impairment (2) (2) REIT conversion charge (48) (48) (9) (9) Current tax (14) (14) (7) (7) (97) (97) Deferred tax 236 236 (64) (64) ------ ------ ----- ------------------- --- ------ ------ ----- ------ ------ ----- 39 272 311 3 28 393 421 25 195 220 ------ ------ ----- ------------------- --- ------ ------ ----- ------ ------ ----- + Restated as described in note 9. * As defined in note 1. Consolidated Balance Sheet as at 31 December 2006 31 31 31 30 March December December September 2006 2006 2005 2006 Audited + Unaudited Unaudited + Unaudited Â£m Note Â£m Â£m Â£m ------- ------- ------- ------- Assets Non-current assets 11,081 Investment 5 12,945 11,612 12,540 properties 597 Development 5 994 387 800 properties ------- ------- ------- ------- 11,678 13,939 11,999 13,340 Other non-current assets 1,234 Investments in 3 1,477 1,251 1,204 funds and joint ventures 248 Other investments 306 173 252 65 Intangible assets 54 69 57 Goodwill 180 105 ------- ------- ------- ------- 13,225 15,776 13,672 14,958 ------- ------- ------- ------- Current assets 36 Trading properties 5 42 49 (at cost) 118 Debtors 158 83 129 133 Cash and 6 145 211 195 short-term deposits ------- ------- ------- ------- 287 303 336 373 ------- ------- ------- ------- 13,512 Total assets 16,079 14,008 15,331 ------- ------- ------- ------- Liabilities Current liabilities (129) Short-term 6 (140) (213) (140) borrowings and overdrafts (417) Creditors (785) (495) (482) ------- ------- ------- ------- (546) (925) (708) (622) ------- ------- ------- ------- Non-current liabilities (5,575) Debentures and 6 (6,624) (6,187) (6,420) loans (44) Other non-current (34) (40) (47) liabilities (1,331) Deferred tax (183) (1,248) (1,615) liabilities ------- ------- ------- ------- (6,950) (6,841) (7,475) (8,082) ------- ------- ------- ------- (7,496) Total liabilities (7,766) (8,183) (8,704) ------- ------- ------- ------- 6,016 Net assets 8,313 5,825 6,627 ------- ------- ------- ------- Equity 130 Share capital 7 130 130 130 1,253 Share premium 7 1,259 1,252 1,255 176 Other reserves 7 461 37 274 4,457 Retained earnings 7 6,463 4,406 4,968 ------- ------- ------- ------- Total equity attributable to 6,016 shareholders of 8,313 5,825 6,627 the Company ------- ------- ------- ------- 1486 p EPRA NAV per share* 1 1610 p 1390 p 1624 p ------- ------- ------- ------- + Restated as described in note 9. * As defined in note 1. Consolidated Statement of Recognised Income and Expense for the period ended 31 December 2006 Year ended Three months ended Nine months ended 31 March 31 December 31 December 2006 2006 2005 2006 2005 + Audited + Unaudited Unaudited Â£m Note Â£m Â£m Â£m Â£m ------- ------ ------ ------ ------ 1,184 Profit for the period after 1,489 508 2,067 1,110 taxation ------- ------ ------ ------ ------ Valuation movements 102 - on development properties 2 29 40 136 57 92 - on other investments 2 50 55 18 Gains (losses) on cash flow hedges (26) - Group 35 (16) 46 (64) 2 - Funds and joint ventures 9 1 14 (6) (1) Actuarial gain (loss) on 5 (3) 8 (3) pension scheme Fair value adjustment on consolidation of former joint venture (7) (56) Tax on items taken directly 57 (3) 12 (3) to equity* ------- ------ ------ ------ ------ 113 Net gain (loss) recognised 185 19 264 (1) directly in equity Transferred to the income statement (cash flow hedges) (14) - foreign currency 7 (5) 20 (16) derivatives 32 - interest rate derivatives 3 2 7 ------- ------ ------ ------ ------ 18 7 (2) 22 (9) ------- ------ ------ ------ ------ Total recognised income and expense 1,315 for the period 1,681 525 2,353 1,100 ------- ------ ------ ------ ------ + Restated as described in note 9. * Includes deferred tax on development property revaluations, where the deferred tax benefit on REIT conversion is Â£84m. Reconciliation of Movements in Shareholders' Funds Year ended Three months ended Nine months ended 31 March 31 December 31 December 2006 2006 2005 2006 2005 Audited Unaudited Unaudited Â£m Â£m Â£m Â£m Â£m ------- ------ ------ ------ ------ Capital items 4 - Shares issued 4 6 3 (10) - Purchase of ESOP shares (3) (1) (16) (10) 8 - Adjustment for share and 4 2 15 6 share option awards (84) - Dividends paid in the (61) (57) period ------- ------ ------ ------ ------ (82) 5 1 (56) (58) 1,315 Total recognised income and 1,681 525 2,353 1,100 expense for the period ------- ------ ------ ------ ------ 1,233 Movement in shareholders' 1,686 526 2,297 1,042 funds for the period 4,783 Opening equity shareholders' 6,627 5,299 6,016 4,783 funds ------- ------ ------ ------ ------ 6,016 Closing equity shareholders' 8,313 5,825 8,313 5,825 funds ------- ------ ------ ------ ------ Consolidated Cash Flow Statement for the period ended 31 December 2006 Year ended 31 Three months ended Nine months ended March 31 December 31 December 2006 2006 2005 2006 2005 Audited Unaudited Unaudited Â£m Note Â£m Â£m Â£m Â£m ------ ------ ------ ------ ------ 455 Cash generated from 4 126 133 360 370 operations (392) Interest paid (96) (84) (254) (264) 13 Interest received 2 3 10 9 (10) UK corporation tax (3) (5) 4 (9) (paid) received (3) Foreign tax (paid) (2) 25 Distributions received: funds and joint 4 4 27 9 ventures 16 other 16 18 16 investments ------ ------ ------ ------ ------ 104 Net cash inflow from operating 33 67 165 129 activities ------ ------ ------ ------ ------ Cash flows from investing activities Purchase of investment properties (402) and development (291) (80) (528) (185) expenditure 1,889 Sale of investment 93 562 378 894 properties (8) Foreign tax paid on property sales (3) Purchase of investments (4) (2) (4) (2) (21) Investment in and loans to funds and (1) (2) (107) (5) joint ventures 277 Capital distributions received from 62 80 62 funds and joint ventures 69 Sale of shares and loans repaid by 17 5 257 funds and joint ventures (815) Purchase of subsidiary companies (net (16) (12) (815) of cash acquired)* ------ ------ ------ ------ ------ 986 Net cash (outflow) inflow from (219) 557 (188) 206 investing activities ------ ------ ------ ------ ------ Cash flows from financing activities 4 Issue of ordinary shares 4 6 3 (10) Purchase of ESOP shares (3) (1) (16) (10) (84) Dividends paid (61) (57) Issue of Meadowhall Finance PLC 840 840 securitised debt Redemption of MSC (Funding) PLC (897) (897) securitised debt 753 Issue of BL Superstores Finance PLC securitised debt (705) Redemption of BLSSP (Funding) PLC securitised debt Issue of British Land debentures 42 263 Amounts paid on exchange of British (39) (240) Land debentures Redemption of British (20) Land debentures (398) Repayment of debt acquired with (296) (403) subsidiary companies (669) Increase (decrease) in bank and other 186 (560) 458 192 borrowings ------ ------ ------ ------ ------ (1,109) Net cash inflow (outflow) from 133 (561) 37 (275) financing activities ------ ------ ------ ------ ------ (19) Net (decrease) increase in cash and (53) 63 14 60 cash equivalents 147 Cash and cash equivalents at 1 October 195 144 128 147 / 1 April ------ ------ ------ ------ ------ 128 Cash and cash equivalents at 31 142 207 142 207 December 2006 ------ ------ ------ ------ ------ Cash and cash equivalents consists of: 133 Cash and short-term 145 211 145 211 deposits (5) Overdrafts (3) (4) (3) (4) ------ ------ ------ ------ ------ 128 142 207 142 207 ------ ------ ------ ------ ------ * Properties of Â£588m acquired through corporate structures in the nine months ended 31 December 2006. 1. Performance measures Year ended Three months ended 31 December Nine months ended 31 December 31 March 2006 2006 2005 2006 2005 ----------- ---------- ---------- ----------- -------------- Earnings Pence Earnings Earnings Pence Earnings Pence Earnings Pence Earnings Pence per per per share per per per share share (diluted) share share share Â£m Â£m Â£m Â£m Â£m ---- ---- ---- ---- ------- 228 Under 64 71 194 173 -lying pre-tax profit - income statement (43) Tax charge (1) (11) (27) (33) relating to underlying profit ------ ----- ------ ----- ------ ----- ------ ------- ------- ------- 185 36 p Under 63 12 p 60 12 p 167 32 p 140 27 p -lying earnings per share ------ ----- ------ ----- ------ ----- ------ ------- ------- ------- 1,184 227 p Profit for 1,489 285 p 508 98 p 2,067 396 p 1,110 213 p the period after taxation + ------ ----- ------ ----- ------ ----- ------ ------- ------- ------- Underlying pre-tax profit excludes gains on property revaluations and disposals, intangible asset movements, refinancing charges and Â£13m of administrative expenses relating to REIT conversion. The weighted average number of shares in issue for the three month period was: basic: 520m (nine months ended 31 December 2006: 520m; year ended 31 March 2006: 519m; three months ended 31 December 2005: 519m; nine months ended 31 December 2005: 519m); diluted: 523m (nine months ended 31 December 2006: 522m; year ended 31 March 2006: 521m; three months ended 31 December 2005: 521m; nine months ended 31 December 2005: 520m). Basic earnings per share (undiluted) for the three month period were 286p (nine months ended 31 December 2006: 398p; year ended 31 March 2006: 228p; three months ended 31 December 2005: 98p; nine months ended 31 December 2005: 214p). + Prior periods restated as described in note 9. 31 March 31 December 31 December 30 September 2006 Net asset value (NAV) 2006 2005 2006 Â£m Â£m Â£m Â£m ------ ------- ------- ------- 6,016 Balance sheet net assets 8,313 5,825 6,627 1,636 Deferred tax arising on revaluation movements, capital 164 1,467 1,908 allowances and derivatives Goodwill (180) (105) 33 Mark to market on interest rate (48) 74 swaps 74 Surplus arising on trading and finance lease properties 5 70 78 43 Dilution effect - options 52 43 53 ------ ------- ------- ------- 7,802 EPRA NAV 8,486 7,299 8,561 ------ ------- ------- ------- 1486 p EPRA NAV per share 1610 p 1390 p 1624 p ------ ------- ------- ------- The European Public Real Estate Association (EPRA) issued Best Practices Policy Recommendations in January 2006, which gives guidelines for performance measures. The EPRA NAV per share includes the external valuation surplus on trading properties but excludes the fair value adjustments for debt and related derivatives and deferred taxation on revaluations and capital allowances and is calculated on a fully diluted basis. At 31 December 2006, the number of shares and potential shares in issue (on a fully diluted basis) was 527m (30 September 2006: 527m; 31 March 2006: 525m; 31 December 2005: 525m). Total return per share for the nine months ended 31 December 2006 was 16.2% before charges for REIT conversion and refinancings. 2. Income statement notes Year Three months Nine months ended ended ended 31 31 December 31 December March 2006 2006 2005 2006 2005 Â£m Â£m Â£m Â£m Â£m ---- ---- ---- ---- ---- Gross and net rental income 571 Rent receivable 144 142 407 434 Spreading of tenant incentives and guaranteed 54 rent increases 9 14 32 41 10 Surrender 4 2 9 10 premiums ------- ------ ------ ------ ------ 635 Gross rental 157 158 448 485 income 55 Service charge 17 22 41 35 income ------- ------ ------ ------ ------ 690 Gross rental and related income 174 180 489 520 (57) Service charge (16) (19) (41) (28) expense (44) Property operating expenses (10) (14) (26) (40) ------- ------ ------ ------ ------ 589 Net rental and related income 148 147 422 452 ------- ------ ------ ------ ------ Fees and other income 29 Performance and management fees 10 8 21 10 16 Dividend received from Songbird 16 18 16 Estates PLC 5 Other fees and commission 1 4 8 ------- ------ ------ ------ ------ 50 10 25 43 34 ------- ------ ------ ------ ------ Net revaluation gains on property and investments In income statement 1,203 Revaluation of properties 182 403 785 922 167 Gains on property disposals 74 17 114 76 (incl. trading appropriations) ------- ------ ------ ------ ------ 1,370 256 420 899 998 378 Share of profits of funds and 54 184 221 266 joint ventures (note 3) ------- ------ ------ ------ ------ 1,748 310 604 1,120 1,264 In consolidated statement of recognised income and expense 102 Revaluation of development 29 40 136 57 properties 92 Revaluation of investments 50 55 18 ------- ------ ------ ------ ------ 1,942 389 644 1,311 1,339 ------- ------ ------ ------ ------ Taxation expense (3) Current tax: UK corporation (15) (3) (10) tax (30%) 11 Foreign tax 1 2 2 11 ------- ------ ------ ------ ------ 8 (14) (1) (8) 11 (1) Adjustments in respect of prior 4 (2) 4 (3) ------- years ------ ------ ------ 7 Total current tax (credit) (10) (3) (4) 8 charge REIT conversion 277 277 charge 307 Deferred tax on revaluations and (1,375) 112 (1,289) 242 income ------- ------ ------ ------ ------ 314 Group total taxation (net) (1,108) 109 (1,016) 250 106 Attributable to funds and joint (206) 55 (174) 71 ventures ------- ------ ------ ------ ------ 420 Total taxation (1,314) 164 (1,190) 321 ------- ------ ------ ------ ------ Tax attributable to underlying profits for the three months ended 31 December 2006 is Â£1m (nine months ended 31 December 2006: Â£27m; year ended 31 March 2006: Â£43m; three months ended 31 December 2005: Â£11m; nine months ended 31 December 2005: Â£33m). 3. Funds and joint ventures Summary of British Land's share of investments in funds and joint ventures at 31 December 2006 Underlying Underlying profits profits (Three (Nine Net Gross Gross months) months) Investment assets liabilities Â£m Â£m Â£m Â£m Â£m ---- ---- ---- ---- ---- Share of funds 3 13 839 1,416 (577) Share of joint ventures 3 15 638 1,363 (725) ------------------------ ------- ------- ------- ------ ------ Total share of investments 6 28 1,477 2,779 (1,302) ------------------------ ------- ------- ------- ------ ------ The total investment in joint ventures is Â£648m, which also incorporates Â£10m being City of London Office Unit Trust (CLOUT) and its associated ventures, which is included within share of funds. British Land's share of profits of funds and joint ventures Year Three months ended Nine months ended ended 31 31 December 31 December March 2006 2006 2005 2006 2005 Â£m Â£m Â£m Â£m Â£m ---- ---- ---- ---- ---- 123 Gross rental income 23 31 85 79 ------ ------------------ ------- ------- ------ ------ 112 Net rental income 21 29 77 75 (6) Other income and (2) (1) (5) (5) expenditure (67) Net financing costs (13) (17) (44) (45) ------ ------- ------- ------ ------ 39 Underlying profit 6 11 28 25 before taxation 378 Net valuation gains on 54 184 221 266 property Goodwill impairment (2) ------ ------- ------- ------ ------ 417 Profit on ordinary activities 60 195 247 291 before taxation REIT conversion charge (48) (48) (9) Current tax (12) (5) (14) (7) (97) Deferred tax 266 (50) 236 (64) ------ ----------------------- ------- ------- ------ ------ 311 Profit on ordinary activities 266 140 421 220 after taxation ----------------------- ------- ------- ------ ------ 4. Reconciliation of profit on ordinary activities before tax to cash generated from operations Year Three months ended Nine months ended ended 31 31 December 31 December March 2006 + 2006 2005 2006 2005 + Â£m Â£m Â£m Â£m Â£m ---- --- ---- ---- ---- ---- 1,498 Profit on ordinary 381 617 1,051 1,360 activities before tax 11 Depreciation and 3 3 11 6 amortisation (16) Dividends received (16) (18) (16) (1,369) Net valuation gains on (256) (420) (899) (998) properties (311) Share of profits after tax of (266) (140) (421) (220) funds and joint ventures 369 Net financing costs 80 94 237 284 122 Refinancing charges 77 305 240 Impairment of goodwill 106 106 (89) Other cash flow items 1 (5) (12) (46) ------ ------------------ ------- ------- ------ ------ 455 Cash generated from 126 133 360 370 operations ------ ------------------ ------- ------- ------ ------ + Restated as described in note 9. 5. Investment, development and trading properties Investment, development and trading properties were valued on the basis of open market value, supported by market evidence, in accordance with the Appraisal and Valuation Manual published by The Royal Institution of Chartered Surveyors. 31 31 31 30 March December December September 2006 2006 2005 2006 Â£m Â£m Â£m Â£m ---- ---- ---- ---- 11,081 Investment properties 12,945 11,612 12,540 597 Development properties 994 387 800 36 Trading properties at cost 42 49 ------ -------- -------- -------- 11,714 Carrying value of properties on balance 13,939 12,041 13,389 sheet 67 External valuation surplus on trading 63 73 properties (28) Head lease liabilities (31) (27) (33) ------ -------- -------- -------- 11,753 Total British Land Group property 13,908 12,077 13,429 ------ portfolio valuation -------- -------- -------- Share of funds and joint ventures 2,651 Investment properties 2,438 2,702 2,379 Development properties 85 83 4 Trading properties at cost 1 6 7 Finance lease properties 7 8 7 3 External valuation surplus on trading 3 properties 4 External valuation surplus on finance 5 4 5 lease properties (8) Head lease liabilities (6) (8) (6) ------ -------- -------- -------- 2,661 2,530 2,715 2,468 ------ ---------------------------- -------- -------- -------- 14,414 Total property portfolio valuation 16,438 14,792 15,897 ------ ---------------------------- -------- -------- -------- Group properties valued at Â£9,170m were subject to a security interest and other properties of non-recourse companies amounted to Â£7m. 6. Net Debt 31 31 31 30 March December December September 2006 2006 2005 2006 Â£m Â£m Â£m Â£m ---- ---- ---- ---- 3,683 Securitisations 3,640 3,555 3,668 785 Debentures 1,178 785 1,138 1,049 Bank loans and overdrafts 1,523 1,872 1,324 187 Other bonds and loan notes 423 188 430 ------ -------- -------- -------- 5,704 Gross debt 6,764 6,400 6,560 ------ -------- -------- -------- 48 Interest rate and currency derivative 40 107 49 liabilities (26) Interest rate and currency derivative (48) (29) (34) ------ assets -------- -------- -------- 5,726 6,756 6,478 6,575 (133) Cash and short-term deposits (145) (211) (195) ------ ---------------------------- -------- -------- -------- 5,593 Net debt 6,611 6,267 6,380 ------ ---------------------------- -------- -------- -------- Gross debt includes Â£140m due within one year at 31 December 2006 (30 September 2006: Â£140m; 31 March 2006: Â£129m; 31 December 2005: Â£213m). On 29 August 2006 and 20 December 2006 the existing debentures of the Company and its ring fenced subsidiary, BL Universal, were restructured, resulting in the formation of a single Â£1bn debenture pool secured on Â£1.8bn of assets. The Group also refinanced its Meadowhall Shopping Centre on 19 December 2006 by way of a simplified securitisation. The Group has incurred pre-tax refinancing charges of Â£77m and Â£305m for the three and nine months ended 31 December 2006, respectively, mainly due to the difference between the market and book values of the existing debt. Other bonds and loan notes includes a Â£256m floating rate secured loan note issued as consideration for the acquisition of the remaining 50% interest in BL Davidson Limited. 7. Reserves Share Share Other Retained capital premium reserves earnings Total Â£m Â£m Â£m Â£m Â£m At 1 April 2005 - as previously 130 1,249 12 3,392 4,783 published Restatement (note 9) 32 (32) --------------------------- ------ ------- ----- ------- ------ Restated position at 1 April 2005 130 1,249 44 3,360 4,783 Total recognised income and expense* (27) 602 575 Share issues* 3 3 Purchase of ESOP shares* (9) (9) Adjustment for share and share option 4 4 awards* Dividends paid in the period* (57) (57) --------------------------- ------ ------- ----- ------- ------ At 30 September 2005 130 1,252 17 3,900 5,299 Total recognised income and expense* 20 505 525 Purchase of ESOP shares* (1) (1) Adjustment for share and share option 2 2 awards* --------------------------- ------ ------- ----- ------- ------ At 31 December 2005 130 1,252 37 4,406 5,825 Total recognised income and expense 139 76 215 Share issues 1 1 Adjustment for share and share option 2 2 awards Dividends paid in the period (27) (27) --------------------------- ------ ------- ----- ------- ------ At 31 March 2006 130 1,253 176 4,457 6,016 Total recognised income and expense* 98 574 672 Share issues* 2 2 Purchase of ESOP shares* (13) (13) Adjustment for share and share option 11 11 awards* Dividends paid in the period* (61) (61) --------------------------- ------ ------- ----- ------- ------ At 30 September 2006 130 1,255 274 4,968 6,627 Total recognised income and expense* 187 1,494 1,681 Share issues* 4 4 Purchase of ESOP shares* (3) (3) Adjustment for share and share option 4 4 awards* Dividends paid in the period* --------------------------- ------ ------- ----- ------- ------ At 31 December 2006 130 1,259 461 6,463 8,313 --------------------------- ------ ------- ----- ------- ------ * Memorandum: Nine months to 31 December 2005 as 3 (7) 1,046 1,042 analysed Nine months to 31 December 2006 as 6 285 2,006 2,297 analysed 8. Dividends The first quarterly dividend of 6.5 pence per share totalling Â£34m is payable on 18 May 2007 to shareholders on the register at the close of business on 20 April 2007. The Company offers shareholders the option to reinvest their cash dividends automatically in the Company's shares through the Dividend Reinvestment Plan (DRIP). Further details of the DRIP can be found on the Company's website, www.britishland.com, or by calling Lloyds TSB Registrars' DRIP helpline on 0870 241 3018. 9. Basis of preparation The financial information contained in this report does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The full accounts for the year ended 31 March 2006, which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union and which received an unqualified report from the auditors, and did not contain a statement under s237 (2) or (3) of the Companies Act 1985, have been filed with the Registrar of Companies. The current period financial information presented in this document is unaudited. It has been prepared using accounting policies consistent with IFRS and the accounting policies set out in the Group's audited results for the year ended 31 March 2006, consistently applied in all material respects, with the exception that following an amendment to IAS 39 the surplus or deficit arising on the revaluation of other investments is now taken to equity rather than recognised directly in the income statement. This change has no impact on the Group's net assets and the comparative income statements have been restated on a consistent basis. The quarterly financial information was approved by the Board on 12 February 2007. Table A --------- Summary income statement based on proportional consolidation for the three and nine month periods ended 31 December 2006 The following pro forma information is unaudited and does not form part of the consolidated primary statements or the notes thereto. It presents the results of the Group, with funds and joint ventures consolidated on a line by line, i.e. proportional basis. The underlying profit before tax and total profit after tax are the same as presented in the consolidated income statement. 3 months Q3 Q2 Q1 ended 3 months ended 9 months ended --------- -------------- ----------- 31.12 31.12 30.9 30.6 31.12 31.12 2005 2006 2006 2006 2006 2005 Â£m Â£m Â£m Â£m Â£m Â£m ---- ---- ---- ---- ---- ---- 189 Gross rental income 180 177 176 533 564 ---- ---- ---- ---- ---- ---- 176 Net rental income 169 166 164 499 527 26 Fees and other income 10 10 24 44 35 (20) Administrative expenses (22) (23) (23) (68) (60) (111) Net interest costs (93) (96) (92) (281) (329) ---- ---- ---- ---- ---- ---- 71 Underlying profit before tax 64 57 73 194 173 Debt refinancing costs (77) (228) (305) 604 Net valuation gains (includes 310 355 455 1,120 1,264 profits on disposals) (3) Amortisation of intangible asset (3) (4) (4) (11) (6) Goodwill impairment * (106) (2) (108) REIT conversion costs * (13) (13) ---- ---- ---- ---- ---- ---- 672 Profit on ordinary activities 175 180 522 877 1,431 before tax (11) Tax charge relating to underlying (1) (12) (14) (27) (33) profit REIT conversion charge * (325) (325) Deferred tax benefit * 1,673 1,673 (153) Other taxation (33) (5) (93) (131) (288) ---- ---- ---- ---- ---- ---- 508 Profit for the period after 1,489 163 415 2,067 1,110 taxation ---- ---- ---- ---- ---- ---- 12p Underlying earnings per share - 12p 9p 11p 32p 27p diluted basis ---- ---- ---- ---- ---- ---- The underlying earnings per share is calculated on underlying pre-tax profit of Â£64m and Â£194m, tax attributable to underlying profits of Â£1m and Â£27m and shares numbering 523m and 522m on a diluted basis, for the three and nine months ended 31 December 2006 respectively. Gross rental income excludes service charge receivable. REIT conversion * Â£m ---- Deferred tax benefit + on investment properties 1,673 on development properties (included in the Consolidated Statement of 84 Recognised Income and Expense) Goodwill impairment (106) ------ Elimination of deferred tax, net of goodwill 1,651 REIT conversion charge and costs (338) ------------------------------- ------ Net effect of REIT conversion 1,313 ------------------------------- ------ + The deferred tax benefit shown is the deferred tax which would have been recorded at 31 December had the Group not converted to REIT status. Table A (continued) --------------------- Pro forma summary balance sheets based on proportional consolidation The following pro forma information is unaudited and does not form part of the consolidated primary statements or the notes thereto. It presents the composition of the net assets of the Group, with share of funds and joint venture assets and liabilities included on a line by line, i.e. proportional basis and assuming full dilution. 31 31 31 30 March December December September 2006 2006 2005 2006 Â£m Â£m Â£m Â£m ------ ------ ------ -------- 8,775 Retail properties 9,948 8,482 9,770 5,200 Office properties 5,974 5,580 5,619 439 Other properties 516 730 508 ------ ------ ------ -------- 14,414 Total properties 16,438 14,792 15,897 250 Other investments 307 179 253 65 Intangible assets 54 69 57 (243) Other net liabilities (650) (295) (262) (6,684) Net debt (7,663) (7,446) (7,384) ------ ------ ------ -------- 7,802 EPRA NAV 8,486 7,299 8,561 ------ ------ ------ -------- 1486 p EPRA NAV per share (note 1) 1610 p 1390 p 1624 p ------ ------ ------ -------- Calculation of EPRA NNNAV per share 7,802 EPRA NAV 8,486 7,299 8,561 (1,530) Deferred tax arising on (164) (1,354) (1,820) revaluation movements (33) Mark to market on interest 48 (106) rate swaps (386) Mark to market on debt (10) (544) (148) 125 Tax relief arising thereon 195 44 ------ ------ ------ -------- 5,978 EPRA NNNAV 8,360 5,490 6,637 ------ ------ ------ -------- 1139 p EPRA NNNAV per share 1586 p 1046 p 1259 p ------ ------ ------ -------- EPRA NNNAV is the EPRA NAV less fair value adjustments for debt and derivatives and the deferred taxation on revaluations and capital allowances. 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