Final Results - Part 1

RNS Number : 1266N

British Land Co PLC

14 May 2015

 



The British Land Company PLC Full Year Results

Chris Grigg, Chief Executive said: "We are announcing a strong set of results today with the Group continuing to outperform on a range of measures.  This reflects the strategic decisions we have taken over the last five years to re-position the business, alongside the strength of our day to day asset management activities. I am particularly pleased with our exceptional leasing activity over the year, which is the clearest indication we are creating environments where people want to work, shop and live.  As we look ahead, our results give us confidence we are well positioned for changing trends in the real estate sector: we have a modern portfolio focused on the right locations; a strong balance sheet with a low cost of debt; and an exciting development programme."

Strong full year results

•     Total accounting return of 24.5% (2014: 20.0%)

•     Underlying PBT +5.4% to £313 million; IFRS PBT of £1,789 million (2014: £1,110 million)

•     EPRA NAV +20.5% to 829 pence; IFRS Net Assets at £8.6 billion (2014: £7.1 billion)

•     Quarterly dividend of 6.92 pence per share; bringing the full year to 27.68 pence (2014: 27.0 pence per share)

•     First quarter dividend of 7.09 pence per share proposed for 2016, an increase of 2.5%

Valuation uplift reflecting strong markets and our own actions; continuing to outperform

•     Total portfolio valuation +12.1%; standing investments +11.1%; developments +25.9%

•     Strong uplift in Offices & Residential +18.8% reflecting buoyant markets; good uplift in Retail & Leisure +7.5%

•     ERV growth of 4.6%; strengthening rental growth in Offices and Retail  

•     Outperforming IPD: all property total returns +130 bps; capital returns +190 bps

Exceptional leasing activity; portfolio close to full occupancy

•     2.4 million sq ft of leasing activity across Retail and Offices

•     1.1 million sq ft of Retail lettings and renewals, 8.7% ahead of ERV; further 348,000 sq ft under offer

•     809,500 sq ft of Office lettings and renewals, 10.8% ahead of ERV; further 151,700 sq ft under offer

Continued repositioning of the portfolio with £2.4 billion of gross investment activity¹

•    £210 million acquisition of One Sheldon Square post year end, increasing ownership at Paddington Central

•    £733 million property exchange with Tesco, increasing weighting towards multi-let assets in the South, and reducing weighting to standalone foodstores to under 7%

•    Acquired additional £169 million interest in the HUT portfolio, increasing our ownership to 69.2%

•    Total residential sales of £370 million; includes £259 million at Clarges Mayfair

•    £903 million of mature asset disposals (including Tesco property exchange)

¹ Includes our share of acquisitions and disposals and our capital investment in developments

Progressing the development pipeline focusing on London and our strongest retail assets

•     Profits of £1.1 billion on space delivered since 2010, an IRR of over 30%

•     The Leadenhall Building completed; 84% let or under offer, achieving rental highs for the City

•     On site at 4 Kingdom Street with 147,000 sq ft office development

•     Planning permission received on 517,000 sq ft at 100 Liverpool Street and an application submitted for 347,000 sq ft at Blossom Street, Shoreditch

•     Around £100 million invested in improving and extending Retail assets in the year

Replenishing long-term pipeline with a major regeneration opportunity at Canada Water

•     £135 million acquisition of Surrey Quays Leisure Park completing 46 acre site in Zone 2

•     Total investment cost of £250 million, around £5.5 million per acre

Financing costs significantly reduced

•     £1.9 billion of financing activity; reducing weighted average interest rate by 30 bps to 3.8

•     Proportionally consolidated LTV lower at 35% (2014: 40%); LTV of 32% pro-forma for 2017 Convertible Bond

YE 31 March Income statement	2014	2015	Change
Underlying profit before tax1,2	£297m	£313m	+5.4%
IFRS profit before tax	£1,110m	£1,789m
Diluted Underlying EPS2	29.4p	30.6p	+4.1%
Diluted EPS	110.2p	167.3p
Dividend per share	27.00p	27.68p	+2.5%
Balance sheet
Portfolio at valuation	£11,951m	£13,637m	+12.1%3
EPRA Net Asset Value per share	688p	829p	+20.5%
IFRS net assets	£7,117m	£8,565m
Loan to value ratio (proportionately consolidated)	40%	35%
Total accounting return	20.0%	24.5%

¹ Underlying profit before tax attributable to shareholders of the Company (i.e. excludes non-controlling interests related to HUT)

² See Note 2 to the condensed set of financial statements

³ Valuation movement during the period (excluding effect of capital expenditure) of properties held at the balance sheet date, including purchases and sales

Investor Conference Call

A presentation of the results will take place at 9.30am today, 14 May 2015, and will be broadcast live via webcast (www.britishland.com) and conference call.  The details for the conference call are as follows:

UK Toll Free Number:	0800 279 5736
UK Number:	[phone]
Passcode:	7379055
A dial in replay will be available later in the day and the details are:
Replay number:	[phone]
Passcode:	7379055
For Information Contact
Investor Relations
Sally Jones, British Land	020 7467 2942
Media
Pip Wood, British Land	020 7467 2838
Gordon Simpson, Finsbury	020 7251 3801
Guy Lamming, Finsbury

Forward-Looking Statements

This Report contains certain 'forward-looking' statements.  Such statements reflect current views on, among other things, our markets, activities, projections, objectives and prospects. Such 'forward-looking' statements can sometimes, but not always, be identified by their reference to a date or point in the future or the use of 'forward-looking' terminology, including terms such as 'believes', 'estimates', 'anticipates', 'expects', 'forecasts', 'intends', 'due', 'plans', 'projects', 'goal', 'outlook', 'schedule' 'target', 'aim', 'may', 'likely to', 'will', 'would', 'could', 'should' or similar expressions or in each case their negative or other variations or comparable terminology. By their nature, forward-looking statements involve inherent risks, assumptions and uncertainties because they relate to future events and depend on circumstances which may or may not occur and may be beyond our ability to control or predict.  Forward-looking statements should be regarded with caution as actual results may differ materially from those expressed in, or implied by, such statements.

Important factors that could cause actual results, performance or achievements of British Land to differ materially from any outcomes or results expressed or implied by such forward-looking statements include, among other things: (a) general business and political, social and economic conditions globally, (b) industry and market trends (including demand in the property investment market and property price volatility), (c) competition, (d) the behaviour of other market participants, (e) changes in government and other regulation, including in relation to the environment, health and safety and taxation (in particular, in respect of British Land's status as a Real Estate Investment Trust), (f) inflation and consumer confidence, (g) labour relations and work stoppages, (h) natural disasters and adverse weather conditions, (i) terrorism and  acts of war, (j) British Land's overall business strategy, risk appetite and investment choices in its portfolio management, (k) legal or other proceedings against or affecting British Land, (l) reliable and secure IT infrastructure, (m) changes in occupier demand and tenant default, (n) changes in financial and equity markets including interest and exchange rate fluctuations, (o) changes in accounting practices and the interpretation of accounting standards and (p) the availability and cost of finance. The Company's principal risks are described in greater detail in the section of this Report headed Risk Management and Principal Risks. Forward-looking statements in this Report, or the British Land website or made subsequently, which are attributable to British Land or persons acting on its behalf should therefore be construed in light of all such factors.

Information contained in this Report relating to British Land or its share price or the yield on its shares are not guarantees of, and should not be relied upon as an indicator of, future performance. Any forward-looking statements made by or on behalf of British Land speak only as of the date they are made. Such forward-looking statements are expressly qualified in their entirety by the factors referred to above and no representation, assurance, guarantee or warranty is given in relation to them (whether by British Land or any of its associates, Directors, officers, employees or advisers), including as to their completeness, accuracy or the basis on which they were prepared.

Other than in accordance with our legal and regulatory obligations (including under the UK Financial Conduct Authority's Listing Rules and Disclosure Rules and Transparency Rules), British Land does not intend or undertake to update or revise forward-looking statements to reflect any changes in British Land's expectations with regard thereto or any changes in information, events, conditions or circumstances on which any such statement is based. This document shall not, under any circumstances, create any implication that there has been no change in the business or affairs of British Land since the date of this document or that the information contained herein is correct as at any time subsequent to this date. 

Notes to Editors:

About British Land

We are one of Europe's largest publicly listed real estate companies. We own, manage, develop and finance a portfolio of high quality commercial property, focused on retail locations around the UK and London offices. We have total assets in the UK, owned or managed of £18.9 billion (of which British Land share is £13.6 billion), as valued at 31 March 2015. Our properties are home to over 1,200 different organisations ranging from international brands to local start-ups. Our objective is to deliver long-term and sustainable total returns to our shareholders and we do this by focusing on Places People Prefer. People have a choice where they work, shop and live and we aim to create outstanding places which make a positive difference to people's everyday lives. Our customer orientation enables us to develop a deep understanding of the people who use our places. We employ a lean team of experts, who have the skills to translate this understanding into creating the right places, and we have an efficient capital structure which is able to effectively finance these places.

UK Retail assets account for 55% of our portfolio. As the UK's largest listed owner and manager of retail space, our portfolio is well matched to the different ways people shop today. We are focused on being the destination of choice for retailers and their customers by being the best provider of spaces and services. Comprising around 22 million sq ft of retail space across shopping parks, superstores, shopping centres, department stores and leisure assets, the retail portfolio is modern, flexible and adaptable to a wide range of formats.

Our Office and Residential portfolio, which accounts for 45% of our portfolio is focused on London.  We have an attractive mix of high quality buildings in well managed environments and a pipeline of development projects which will add significantly to our portfolio. Increasingly, our Offices are in mixed-use environments which include retail and residential elements. Our 6.7 million sq ft of high quality office space includes Regent's Place and Paddington Central in the West End and Broadgate, the premier city office campus (50% share).

Our size and substance demands a responsible approach to business. We believe leadership on issues such as sustainability helps drive our performance and is core to the delivery of our overall objective of driving shareholder value and creating Places People Prefer.

Further details can be found on the British Land website at www.britishland.com  

CHIEF EXECUTIVE'S REVIEW

It has been a good year for British Land.  We delivered high returns underpinned by a positive market and a strong operational performance.  We completed £2.4 billion of investment activity, improving the quality of the portfolio, and increasing our weighting towards London and the South East.  Across our assets we focused on creating Places People Prefer, and at Canada Water, our 46-acre regeneration project in South London, we have created a unique opportunity to deliver this on a large scale. 

Over the last two years, our business has achieved a total accounting return of nearly 50%, with returns of 24.5% in 2015.  This has been underpinned by growth in our net asset value, up 20.5% in the year to 829 pence per share.  This strong performance reflects strategic decisions taken over the last five years to reposition the business towards the strongest markets, together with our day to day asset management activities.  Our portfolio value increased by 12.1% generating total property returns of 18.4% for the year, ahead of property benchmarks on both a total and a capital return basis. 

Underlying profits were 5% ahead at £313 million, with underlying EPS up 4.1% at 30.6 pence. In line with previous announcements, the final quarterly dividend will be 6.92 pence per share, bringing the full year dividend to 27.68 pence, an increase of 2.5%.  Our LTV has reduced to 35% and we expect to maintain a lower level of leverage going forward.  As a result of our refinancing activities, including the re-couponing element of the Tesco property exchange transaction, our average financing cost is down 30 bps compared with last year at 3.8% (2014: 4.1%).  Reflecting our confidence in the coming year, the Board is proposing a quarterly dividend of 7.09 pence per share or 28.36 pence per share for the full year, an increase of 2.5%. 

This was an exceptional period for leasing.  In Offices, we let, renewed or placed under offer nearly 1 million sq ft of space, with the Leadenhall Building the stand out performer.  It is now 84% let or under offer, up from 53% at the start of the year, with 199,000 sq ft let or placed under offer over the year, and lettings on the highest floors breaking records for City rents.  Across the Office portfolio, we are now 98% let, with investment lettings and renewals on average 10.8% ahead of ERV.  We are also attracting a new type of occupier, with technology and creative sectors accounting for a growing proportion of lettings. We let space at Broadgate and Crown Place respectively to collaborative workspace providers WeWork and Central Working.  At Regent's Place, Facebook will increase their presence to over 150,000 sq ft, with a new letting at 338 Euston Road in addition to the space they currently occupy at 10 Brock Street. 

This activity is a positive reflection of the work we are doing across the portfolio to create environments which are well suited to the way people work today.  At Broadgate, we completed the refurbishment of Broadgate Circle, creating a vibrant new high-end dining destination for this part of the City.  At Regent's Place, we increased the retail and leisure offering with a number of independent operators added over the year.  At Paddington Central, we are underway with the first phase of public realm improvements and submitted planning for a second phase. 

In Retail, we let or renewed terms on over 1 million sq ft of space, nearly 9% ahead of ERV. The portfolio is virtually full and we saw the highest rental growth in seven years.  Footfall is up 1.9% outperforming market benchmarks by 290 bps.  Our focus in Retail is on owning assets that capture a broad range of consumer journeys and on using our skills, knowledge, insights and relationships to drive value.  Across the portfolio we are improving environments; adding leisure space; trialling new concepts in food and entertainment; and where we see value, leveraging technology.  Our strong operational performance shows this approach is delivering results. 

This focus is also reflected in our investment activity.  Our £733 million property exchange with Tesco replaced 21 standalone foodstores, where our ability to improve the offering is limited, with attractive multi-let assets in areas of population growth, and all on financially attractive terms.  Together with £123 million of further superstore sales, our overall weighting to standalone foodstores is reduced to just under 7% of the portfolio.  In addition, we sold a further £245 million of mature retail assets, or assets which are not in line with our strategy.

Gross investment activity since the start of the year was £2.4 billion, including the acquisition of One Sheldon Square in April 2015, with acquisitions and development spend broadly balancing disposals.  Our investment strategy focused on increasing our ownership in and around existing assets, through direct investment, by adding to our equity interest or the acquisition of adjacent properties, and over the year our portfolio was significantly re-oriented by a number of these incremental investments. 

The acquisition of Surrey Quays Leisure Park announced in March 2015 for £135 million completed our site assembly at Canada Water.  Spanning 46 acres, and assembled in four transactions over five years, this will be one of the most important regeneration projects in London, with the potential for up to 7 million sq ft (gross floor area) of office, retail, residential, leisure and community space.  It is a major, long term project, which will be delivered in a number of phases and presents a unique opportunity to create an attractive, mixed use town centre which fully reflects the needs of local communities. 

The purchase of One Sheldon Square for £210 million after the year end increased our ownership interest at Paddington Central to 800,000 sq ft; it is strategically located at the entrance to the campus, giving us greater control over a key point of access.  We also took full ownership of two of our joint ventures with Tesco, providing greater flexibility to improve the assets, and we increased our interest in the HUT portfolio of shopping parks to 69.2%. 

We continued to take advantage of buoyant investment markets to exit mature assets, with disposals of £903 million over the year.  We made further sales of £370 million residential units with the majority at Clarges Mayfair in the first half, taking advantage of stronger demand, particularly at the super-prime end. 

Our development pipeline is moving forward.  We are on site at 4 Kingdom Street, and submitted planning for two major London developments, Blossom Street, Shoreditch and 100 Liverpool Street; with permission recently granted at 100 Liverpool Street.  These three developments are in line with our investment themes, which are focused on areas of London which will benefit from growth and regeneration; which have excellent transport infrastructure or are adjacent to our existing assets.  We also committed to around £200 million of investment and development into our existing Retail portfolio over the next few years, including a substantial refurbishment of Meadowhall, on its 25th anniversary. 

We made great progress over the year against our long-term social and environmental targets.  18,800 people benefited from our community programmes, including apprentices, jobseekers and school children, and 88% of our major assets achieved best practice or strong performance on all the social commitment targets set within our Community Charter.  We have reduced carbon emissions and energy usage by 39% and 40% respectively against 2009, performing strongly on our efficiency targets and 95% of waste was diverted from landfill at our properties and developments.  We are also pleased to have launched our 2020 Sustainability Strategy which focuses on the wellbeing of the people who use our assets, delivering the right support to local communities and businesses as well as the long term sustainability of our buildings.

Outlook

Our consistent outperformance in recent years underlines the success of our actions repositioning the business. Today, British Land is more concentrated on London and the South East; more of our Offices business is in the West End and in large mixed-use campuses; our Retail is well positioned for omni-channel growth and more focused on larger multi-let assets; we have rebuilt a substantial development pipeline at attractive prices; and we have lower leverage.  These actions put us in a strong position in the context of long-term trends which will have a significant impact on our markets: globalisation; population growth and urbanisation; and the transforming impact of technology on the way we work, shop and live. This all gives us confidence that we are well positioned for the future and for continued outperformance.

Chris Grigg

Chief Executive

BUSINESS REVIEW

PORTFOLIO OVERVIEW

YE 31 March	2014		2015
Portfolio valuation		£11,951m	£13,637m
Total property return		14.2%	18.4%
-        ERV growth		3.0%	4.6%
-        Capital return		8.9%	13.4%
Lettings/renewals vs ERV		6.3%	10.0%
Occupancy		96.1%	98.3%
Weighted average lease length to first break		10.3yrs	9.5 yrs
Gross investment activity		£1,970m	£2,441m1
-       Acquisitions		£1,033m	£959m1
-       Disposals		£710m	£1,273m
-       Committed developments capex		£227m	£209m

¹ Includes post balance sheet activity up to and including the acquisition of One Sheldon Square

Overview

2014/15 was an exceptionally strong period for UK property markets.  A supportive macro environment, and low funding costs meant the UK remained the real estate investment market of choice for overseas capital in search of yield.  London continued to be the principal beneficiary, with demand driving yields down in both the City and West End; occupationally, markets remained strong.  In retail, yields continued to compress, but with yield shift weighted towards the first half.  Real wage growth, elusive at the start of the recovery, gained pace.  Consumers are spending, and this is reflected in retailers' improving results and their more positive outlook.      

Our portfolio performed well overall, benefiting from our decisions in previous years to focus our investment on the strongest markets, or where we can add value.  Over the year, we bought or sold 16% of the portfolio by value.  Today, London and the South East account for 64% of our portfolio on a pro-forma basis, up from 50% five years ago.  Our pipeline of near and medium term developments is also focused on London, targeting areas which we believe will most benefit from growth and regeneration. 

Portfolio Performance

		Valuation Uplift (%)
YE 31 March 2015	Valuation £m	Investment Portfolio	Developments	Total Portfolio
Retail & Leisure	7,557	7.4	20.8	7.5
Offices & Residential	6,080	17.3	26.2	18.8
Total	13,637	11.1	25.9	12.1

Our portfolio generated a total property return of 18.4%, comprising a capital return of 13.4% and an income return of 4.6%.  We outperformed IPD benchmarks by 130 bps on a total returns and 190 bps on a capital returns basis, or 180 bps per annum and 240 bps per annum on a 5 year view, continuing a consistent trend of outperformance.

Total portfolio valuation was up 12.1% to £13.6 billion.  As in previous years, developments performed well, up over 25% in the year, but as our major 2010 development programme draws to a close, its contribution to overall performance was reduced.  The standing portfolio, which was up 11.1% on the year accounted for 85% of total uplift.  Offices and Residential had an excellent year, with valuations up over 18%, reflecting the strength of the London market and our actions.  The Retail and Leisure portfolio grew by 7.5%, also benefiting from improving market conditions, but with our actions making a significant contribution to the uplift. 

Rental values grew by 4.6% across the business, outperforming the market by 130bps.  Yield compression across the portfolio was 48 bps, slightly higher in Offices (51 bps) than Retail (47 bps).

Investment Activity

The gross value of our investment activity since 1 April 2014 was £2.4 billion, including our share of acquisitions and disposals and our capital investment in developments of £209 million.  This includes post balance sheet activity up to and including the acquisition of One Sheldon Square.

Acquisitions and Disposals

From 1 April 2014	Price (Gross)	BL Share	Annual Passing Rent
	£m	£m	£m
Acquisitions
Retail	783	749	36
Offices	210	210	10
Residential	-	-	-
Total Acquisitions	993	959	46
Disposals
Retail	883	720	40
Offices	144	137	6
Residential	415	370	-
Europe	70	46	4
Total Disposals	1,512	1,273	50

Our investment priority has been on increasing our ownership in and around our existing assets, through direct investment, by adding to our equity interests or the acquisition of adjacent properties.  In line with our strategy, we continue to focus on our wider investment themes of London and the South East, targeting areas which will benefit from growth and regeneration and increasing our exposure to major transport interchanges. 

The acquisition of Surrey Quays Leisure Park for £135 million is a good example of this strategy in action.  It completes our site assembly at Canada Water, a regeneration project spanning 46 acres in South London, which already benefits from excellent transport infrastructure.  The acquisition of One Sheldon Square for £210 million post year end increases our control over the Paddington Central campus.  In Retail too, we took full ownership of two of our joint ventures with Tesco, increasing our exposure to multi-let assets in areas of significant population growth in the South, including Serpentine Green, Peterborough and the Kingston Centre, Milton Keynes.  We acquired an additional £169 million interest in the HUT portfolio of shopping parks, bringing our stake to 69.2%, and through HUT, acquired a further 37.5% (£59 million our share) in New Mersey Shopping Park, Speke. 

Taking advantage of buoyant markets to reshape the portfolio, sales made during the year have focused largely on Retail, with total superstore sales (including the Tesco Aqua portfolio) of £475 million.  We made further non-core disposals of £245 million in Retail and £137 million in Offices, including the sale of a property in Maidenhead for £90 million.  Overall, disposals completed or exchanged were sold on an average NIY of 5.4% and 5.6% ahead of book value.  Total residential sales were £370 million with Clarges Mayfair accounting for £259 million.

Development

Committed Developments & Pipeline
At 31 March 2015		BL Share
	Sq ft	Current Value	Cost to complete	ERV	Pre-let ERV	Resi End Value	Pre-sold Resi
	'000	£m	£m	£m	£m	£m	£m
Completed in Period	1,145	534	20	27.5	24.0	-	-
Under Construction	1,534	909	358	37.7	20.6	676	315
Near-Term Pipeline	1,491		781
Medium-Term Pipeline	6,915

The major development programme we committed to in 2010 will draw to a close with the completion of 5 Broadgate shortly.  The programme covered 2.7 million sq ft of space, principally in London and delivered into strengthening markets.  94% is now let or under offer, with 199 Bishopsgate, 10-30 Brock Street and 39 Victoria Street achieving full occupancy during the year and all but one of the residential units are sold.  Including other developments completed since 2010, we have delivered 3.2 million sq ft of space, generating profits of £1.1 billion, an IRR of over 30%. 

In the period, we completed over 500,000 sq ft of Retail developments, including 305,000 sq ft at Old Market, Hereford.  In Offices, the Leadenhall Building completed in July covering 600,000 sq ft.  An investigation of the fractured bolts at the Leadenhall Building was completed in January 2015, and a programme of replacement is underway.  The building has let up well, and we are continuing to see very good interest. 

Our projects under construction cover 1.5 million sq ft, (of which 5 Broadgate accounts for 710,000 sq ft) and now includes 4 Kingdom Street, where we started on site in February 2015.  At Clarges Mayfair, we made good progress on pre-sales totalling over 56% of the gross development value of the residential element of the scheme and at Aldgate we have pre-sold apartments totalling £23 million.  Our total residential exposure has reduced from £430 million at the start of the year to £140 million (measured by our original commitment adjusted for sales).  Based on current valuations, our total residential exposure is £246 million.  Our Marks and Spencer anchored retail extension at Glasgow Fort achieved practical completion in March 2015 and will open this month.

Construction costs increased across the market, most notably in London reflecting rising input costs and contractors' increasing margins after a prolonged period of margin pressure.  We expect cost inflation of around 6% per annum.  The impact of cost inflation has been largely offset by improving values.  For projects under construction 87% of costs are fixed.

We made good progress moving the near-term pipeline forward.  We submitted planning on Blossom Street, Shoreditch for 347,000 sq ft of mixed use space, and a decision is expected in the coming months.  We also submitted planning on 100 Liverpool Street and permission was recently granted; our proposal covers over 515,000 sq ft of office and retail space, adding three further floors to the existing building and improving its connections to the wider Broadgate campus.  This is a major refurbishment project, which forms the next chapter in our vision for Broadgate.   

On the Retail side, we have consent for a further 42,000 sq ft of retail and restaurant space at Glasgow Fort, and for a 100,000 sq ft leisure extension at Drakes Circus shopping centre in Plymouth.  We have also submitted planning for 66,000 sq ft of leisure space at New Mersey Shopping Park, Speke. 

Our medium-term pipeline is dominated by the Canada Water Masterplan. We have assembled one of the most significant regeneration projects for London, covering 46 acres of land in Zone 2. To date, we have invested £250 million in four transactions over five years, including our recent freehold purchase of Surrey Quays Leisure Park, for £135 million. Together with the London Borough of Southwark, we now own all of the key freehold and long leasehold interests needed to deliver up to 7 million sq ft (gross floor area) of mixed use space. The site benefits from excellent transport infrastructure, with direct connections to Canary Wharf and the West End from the Jubilee Line and to the emerging tech hubs at Shoreditch and Whitechapel, from the London Overground. It is a unique opportunity to regenerate a central part of London that has been overlooked and plays well to our skill set of developing and managing mixed use environments, which are vibrant and successful places to shop, work, live and visit, and are integrated into their local communities.  Our cost per acre of around £5.5 million compares favourably with the market value of consented land in London which we anticipate will provide attractive future profit potential. Our current intention is to submit planning in 2016.

More details on the portfolio, property performance, individual developments and assets acquired during the year can be found in the Retail & Leisure and Offices & Residential reviews and in the detailed supplementary tables.

RETAIL & LEISURE REVIEW

Performance Highlights

YE 31 March	2014	2015
Portfolio valuation (BL share)	£6,852m	£7,557m
Total property return	10.7%	14.4%
-       ERV growth	1.5%	2.5%
-       Capital Return	4.6%	8.5%
Lettings/renewals vs ERV	4.9%	8.7%
Occupancy	98.5%	98.5%
Weighted average lease length to first break	11.3 yrs	10.4yrs

Overview

The retail market strengthened with retailers' confidence underpinned by continued economic growth and improving consumer sentiment.  Retailers' strategies are successfully being refined to cover multiple channels, with the physical store remaining a core part of the offering.  The focus today is on connecting with customers through the look and feel of the store and the range of services offered.   The best quality retail schemes are complementary to these strategies and in a more selective market are enjoying strong demand for space.  This is reflected in low vacancy rates and at the strongest assets, improving rental growth.

In a low yield environment, with improving retailer results, and emerging rental growth, assets with a strong income profile present an attractive proposition. Investment demand across the sector has remained buoyant from a range of buyers including UK and international institutions, private equity and Sovereign wealth funds.  Appetite for shopping centres, both prime and secondary, has been particularly strong, driving inward yield movement. However investors are increasingly discerning as to the underlying property fundamentals and are pricing accordingly.

Reflecting wider macro trends, our strategy is to focus on assets which are internet resilient and which are in tune with modern lifestyles.  This means owning assets that capture a broad range of consumer journeys, and where we can use our skills, knowledge, insights and relationships to drive value.  We are divesting assets where we feel our ability to influence the offer and experience is limited or has been maximised, and we continued to take advantage of buoyant market conditions to make disposals of £720 million (our share) of mature assets.  We spent almost £100 million enhancing the Retail portfolio in the period, including £54 million on development.  We have committed to a further £200 million investment over the next few years, ranging from large scale extensions, adding food and leisure space to relatively simple improvements such as landscaping and wi-fi coverage.   

As part of our commitment to provide the best possible experience for our customers, we are increasing the number of people on site at our assets and over time, are transitioning the management of our Retail portfolio to Broadgate Estates, our wholly owned subsidiary.  Broadgate Estates, one of the UK's leading property management companies, already manages our Office portfolio.  It was recently awarded contracts to manage Drake Circus, SouthGate Bath, Broughton Shopping Park, Chester and Forster Square Shopping Park, Bradford, with more Retail assets likely to transition over the next 12 months.     

Portfolio Performance

Our Retail and Leisure portfolio valuation was up 7.5% over the year to £7.5 billion.  The portfolio outperformed the market by 70 bps on a capital returns basis.  Despite significant market yield shift over the year, our active asset management contributed to more than a quarter of the uplift, with this contribution increasing in the second half.  Shopping parks and shopping centres performed well overall, although performance was more muted in the second half, reflecting a lack of transactional evidence, particularly for prime shopping parks.  Superstores were up 1.9% over the year, but were also softer in the second half, with negative sentiment putting upwards pressure on yields, despite continued activity in the investment market. 

Our strategy is delivering results, and this is reflected in the strength of our occupational metrics.  Rental growth of 2.5% was the highest in seven years, boosted by a strong performance from food and beverage units.  The portfolio is virtually fully let, with occupancy of 98.5%.  Units in administration remain low at 0.2% of total rent, and of the 144 expiries this year, almost 90% were renewed or re-let soon after expiry.   Footfall was up 190 bps over the year, outperforming the market by 290 bps and like-for-like rental income grew by 1.5%.  Retailer sales were ahead by 3.7%.

Our most recent exit surveys show like-for-like average off-peak¹ retail spend up 11% since last year, dwell time up 4.5%  and frequency of visits up 4%.  At peak¹, retail spend is up 13% over the last two years and catering spend is up 8% despite a drop in dwell time.  We are also attracting more affluent shoppers than expected based on our catchments.  The exit surveys now cover 98% of our multi-let portfolio and inform our decision making, from where and how we invest in our assets, to the balance between retail and leisure space, and the optimal occupier mix.

¹ Peak surveys include Christmas trading; off-peak surveys take place between March and October

Asset Management

Despite high occupancy levels, we signed 1.1 million sq ft of lettings/renewals on attractive terms, with investment lettings and renewals on average 9% ahead of ERV, and rent reviews 3% ahead of previous passing rent.  We continue to improve the occupier mix, adding premium brands, and broadening our leisure offering to keep pace with consumer demands.   We added around 90,000 sq ft of food, beverage, and leisure space to our retail operations, through lettings and extensions. 

We continue to enjoy strong relationships with our major occupiers, and work closely with them to deliver the space they want.  Over the course of the year, we refurbished and upsized four anchor stores with Next, providing an additional 75,000 sq ft (including mezzanine).  We signed five deals with Arcadia, including Outfit stores at Chester (13,000 sq ft) and Cheltenham (15,000 sq ft).  We delivered new format stores for Primark and TK Maxx at Fort Kinnaird, Edinburgh, where Fat Face and Simply Be also took space, following their positive experiences at Whiteley and Stockton respectively.  The investment we are making to improve our assets is attracting new brands and popular restaurant concepts.  We are pleased that Lavazza, The White Company, Wildwood Deli and Five Guys have all taken space with us over the year.  At Whiteley, we opened Rock Up, an exciting leisure concept introducing climbing to all ages; we have seen very pleasing sales figures, both for Rock Up and at adjacent outlets, and our catchment has extended as a result.  We continue to partner with occupiers on community initiatives.  We worked with WH Smith to host literacy events and with a range of retailers to improve the skills of young people in the retail and hospitality industry.  

In order to attract such strong occupiers to our assets, we are investing across the portfolio to deliver the highest quality retail environments.  The positive impact that this has had is reflected both in our valuation, and in our operational metrics.  At Ealing Broadway Shopping Centre, we acquired the adjacent Crystal House block and Next store, and are already part way through a £14.5 million refurbishment, comprehensively improving the food and beverage offering, with the introduction of occupiers such as Turtle Bay, and Limeyard.  ERV growth since acquisition is up 19%.  At Meadowhall, we spent £3 million upgrading a premium part of the scheme, where occupiers saw their six month like-for-like sales up 6% compared to 3.6% across the centre.  We are now on site with a programme of public realm improvements at the Tollgate Centre in Colchester and the Wheatley Shopping Park in Doncaster, and will start work at our shopping parks in Nottingham and Oldham in the coming months.  We recently obtained planning permission for a £30 million comprehensive refurbishment of Teesside Shopping Park in Stockton.

Our portfolio is well positioned for the omni-channel strategies of our occupiers and their customers.  Click and Collect is particularly well suited to our out of town shopping parks and is an efficient driver of footfall and spend, with 64% of our Click and Collect customers making further purchases on site, and 23% spending on catering.  Our Click and Collect rates are more than double the industry average at peak times, and two-thirds greater during off-peak, with out of town shopping parks driving these rates.  Across the portfolio we are trialling new concepts which leverage technology.  At Meadowhall, we have trialled iBeacon technology which allows shoppers to receive offers direct to their smart phones and Doddle opened one of their first outlets at a non-transport location at Ealing Broadway Shopping Centre, allowing shoppers to click and collect at a location that suits them.

In line with our commitment to improve the energy efficiency of our buildings, and in preparation for the Government's Minimum Energy Efficiency Standards in 2018, we have completed a full Energy Performance Certificate review across our portfolio. This confirmed that the majority of our buildings significantly outperform the required standards. Less than 5% of our Retail portfolio would not meet 2018 requirements, and we have plans in place to improve their ratings.

Investment Activity

Gross investment activity over the year was £1.5 billion, with total sales of £720 million (BL share) and total acquisitions of £749 million. 

The most significant deal was the £733 million property exchange with Tesco in March 2015, which exchanged our interest in a joint venture superstore portfolio on a NIY yield of 4.8%, for Tesco's interest in two joint ventures predominately comprising shopping centres and shopping parks, at a topped up NIY of 5.2%.  This transaction will be accretive to earnings in 2016, reflecting a £2 million increase in net rent and an £8 million reduction in net interest.  It greatly simplified the ownership structure of around 3.2 million sq ft of retail assets, and together with a further £123 million of superstore disposals (including seven standalone stores) during the year, reduced our total exposure to standalone foodstores to just under 7% of the portfolio, from 11% at the start of the year, and 16% five years ago.  Nearly 60% of our standalone foodstores are in the South or South East.

Further disposals since the half year include House of Fraser, Birmingham for £71 million, Kingswood Shopping Park, Hull for £58 million, and Green Lanes Shopping Centre, Barnstaple for £36 million.  Asset recycling will continue to be a key part of our strategy to evolve the portfolio, and we currently have over £200 million of assets for sale in the market.

We acquired an additional £169 million interest in the HUT portfolio of shopping parks, increasing our ownership from 58.6% at 31 March 2014 to 69.2% at 31 March 2015.  On average, these units were acquired at NAV representing an effective net initial yield of 5.6% (based on actual acquisition costs).  In February, Hercules Unit Trust acquired a further 37.5% (£59 million our share) in the New Mersey Shopping Park, Speke, bringing its ownership to 87.5%. 

Development

We completed over 500,000 sq ft of developments over the year, including the 305,000 sq ft Old Market shopping centre in Hereford, which opened in May 2014.  Since then, our development activity has focused on extensions to our existing assets, covering around 197,000 sq ft as well as some substantial refurbishments.  The extensions at Chester, Edinburgh and Preston all opened in the period and are trading ahead of expectations.  Our 112,000 sq ft Marks and Spencer anchored extension at Glasgow Fort achieved practical completion in March 2015, and is due to open this month, and we have planning consent for a further 42,000 sq ft of retail and restaurant space.  The 58,000 sq ft leisure extension at Whiteley, Fareham will complete in the autumn and is almost fully let to occupiers including Cineworld, Five Guys and Dim T.  

In March 2015, on the 25th anniversary of Meadowhall Shopping Centre, we announced plans for a £50 million internal refurbishment, creating a more contemporary environment to appeal to premium and lifestyle retailers as well as a broader range of customers.  The recent refurbishment of Park Lane, one of the key shopping malls has met with a positive response with new retailers including The White Company, Jigsaw and White Stuff all taking space.  We expect to start work on the refurbishment in the autumn, with completion by the end of 2017.  Meadowhall is also one of our strong environmental performers, achieving 42% energy reductions in six years and zero waste to landfill, as well as making substantial community contributions.

Looking further ahead, we achieved planning for a 100,000 sq ft leisure scheme at Drake Circus in Plymouth, which will include a 12 screen cinema and 13 restaurant units and expect to be on site in summer 2016.  We have submitted planning for 66,000 sq ft of leisure space at the New Mersey Shopping Park, Speke and for a comprehensive refurbishment of Ealing Broadway Shopping Centre, including Crystal House which fronts the shopping centre.  The current proposal includes conversion of 34,000 sq ft of vacant office space to private rented residential.  Our longer term plans include a £250 million (our share £125 million) mixed use redevelopment of Eden Walk, Kingston upon Thames, to include public space, leisure, retail and residential, and our intention is to put in a planning application this year.

OFFICES & RESIDENTIAL REVIEW

Highlights

YE 31 March	2014	2015
Portfolio Valuation	£5,099m	£6,080m
Total Return	19.4%	24.4%
- ERV growth	5.8%	8.0%
- Capital Return	15.5%	20.5%
Lettings/renewals vs ERV	8.4%	10.8%
Occupancy Rate	92.1%	98.1%
Weighted average lease length to first break	8.4 yrs	8.1 yrs

Overview

London is a major beneficiary of a number of macro trends: globalisation, both of labour and capital, and population growth, particularly in urban centres.  Its business friendly environment, diverse pool of talent and the choice it offers in terms of retail, leisure and entertainment underpin its appeal.  

London has led the UK's economic recovery, and continues to outperform.  This is reflected in our markets, with strong take up, around 28% ahead of last year, and vacancy levels in both the City and West End well below their long term averages.  Rents are ahead by over 10% in both the City and West End.  Technology is changing the way people work, and this has implications both for the occupier market, and the product our occupiers expect.  Technology and creative sectors account for a growing proportion of take up and the emphasis is increasingly on engaging, flexible spaces, which prioritise wellbeing and productivity. 

London continued to be the most popular real estate investment market globally, attracting some 25% more capital than New York in 2014, the next most popular destination.  This year saw a number of high profile office transactions, which reduced prime yields by around 25 bps in the City and West End.  Sovereign wealth funds continue to be active buyers, and their appetite for Central London offices and for 'trophy' assets in particular was undiminished.  Long-term UK and international pension funds also remained keen buyers. 

In residential, the mainstream market remained relatively robust but the prime Central London market softened, reflecting uncertainty ahead of an election and the risk of a mansion tax on properties above £2 million.  The super-prime market moderated slightly, but we are continuing to see good demand for exceptional new build properties, such as Clarges Mayfair. 

We are positioning our Offices and Residential business around these broader economic trends.  Our investment in London over the last five years through acquisitions and developments has been significant at nearly £2 billion and has been highly accretive to our performance.  We are focused on mixed use environments, delivering flexible and engaging working spaces; places to relax and be entertained; green spaces; living spaces; shops and restaurants; all around excellent transport infrastructure.  Over the year we have attracted a more diverse mix of occupiers to our assets than ever before, so we believe we are making good progress. 

Portfolio Performance

We continued to benefit from our focus on London.  The value of our Offices and Residential portfolio was up 18.8% to £6.1 billion, with yield shift accounting for nearly two thirds of the increase, and our actions accounting for the remainder.  The West End and City portfolios were up 19% and 21% respectively, with the City portfolio showing a particularly strong performance in the second half.  The Residential portfolio was up over 7%.  This movement translates into an overall total property return of 24.4%, ahead of the IPD sector benchmark by 330 bps. 

The Office standing portfolio was up 17.4% driven by 51 bps yield compression.  As our development pipeline completed, standing investments have become an increasingly important contributor to performance, accounting for around three-quarters of the uplift in the year.  ERVs were 8.0% ahead across the Office portfolio, reflecting strong occupational demand, and boosted in the first half by prospective refurbishments at 100 Liverpool Street, and 1, 2 and 3 Finsbury Avenue.  Developments continued to deliver good value, up 26.2% mainly due to strong market conditions, but with sales on the residential side also supporting valuation.  We have delivered 3.2 million sq ft of space since 2010, generating £1.1 billion of profits, an IRR of over 30%.

Asset Management

It was an exceptional period for lettings, reflecting both strong occupational demand, and the quality and design of the office space we brought to market.  Lettings and renewals covering 809,500 sq ft, were signed in the year, with a further 151,700 sq ft under offer, in total 23% ahead of last year.  Investment lettings and renewals were on average 10.8% above ERV.  This activity contributed to our outperformance.

At the Leadenhall Building, our strategy of letting the lower floors first and focusing on the upper floors at completion has played out well.  We let 199,000 sq ft of space, beating previous rental records for City rents.  We have also let space to a broader range of occupiers than might be expected for this area of the City, including the building's architects, Rogers Stirk Harbour + Partners (18,000 sq ft) and IPsoft (11,500 sq ft), a leading provider of cognitive and IT solutions who signed in the second half.  All of this means we are now 84% let or under offer, compared to 53% at the start of the year.

At Broadgate, our vision is to create a vibrant, mixed use environment benefiting from its location around Liverpool Street station and the addition of Crossrail from 2018, as well as growth and regeneration to the north and east of the City.  Together with our partners GIC, we are making real progress.  The campus is appealing to a more diverse range of occupiers with technology and creative sectors accounting for 36% of the 173,200 sq ft let over the year.  73,000 sq ft has been let to collaborative workspace providers, including WeWork at 199 Bishopsgate and Central Working at Crown Place, which create supportive working environments for entrepreneurs, start-ups and small businesses.  Our £20 million redevelopment of Broadgate Circle launched in April, with 11 new brands, including Yauatcha from the Michelin starred Hakkasan Group, José Pizarro Tapas Bar & Restaurant and Comptoir Libanais, helping to create a new destination dining area in this part of the City.  5 Broadgate, which is fully let to UBS will achieve practical completion shortly and fit out is underway.  The building achieved a BREEAM sustainability score in the top 10 of London office developments.  Earlier in the year, we also agreed a 5.8 year extension to Deutsche Bank's lease of 1 Appold Street, taking the expiry date to 2023.  The office space across the campus is now fully let.

At Regent's Place, we are refurbishing 72,000 sq ft of space at 338 Euston Road; Facebook have signed for 66,000 sq ft in addition to the 87,000 sq ft they already occupy at 10 Brock Street, bringing their total space to over 150,000 sq ft.  This re-sets rental levels across the asset; the remainder of the space will re-launch into the market in early 2016.  This is a strong endorsement for the campus, which we believe reflects our efforts to make this a vibrant and interesting place to work, as well as its excellent location in London's West End.  As part of our refurbishment of 338 Euston Road, we have secured planning permission for 2,400 sq ft of retail space.  We recently completed a series of leisure lettings in the wider campus, including to The Refinery, from London bar group Drake & Morgan, Nuvola and Beany Green.

At Paddington Central, which we acquired in July 2013, we are underway with the first round of public realm improvements and are working up designs for a second.  One Sheldon Square, acquired post period end is fully let to Visa Europe Services on a total annual contracted rent of £9.5 million, and we are now virtually full across the campus.  We are fully let at both 39 Victoria Street and 10 Portman Square, and are now over 80% let or under offer at Marble Arch House.

Investment Activity

We made over £500 million of sales in the year, with residential sales accounting for £370 million, on average 4% above valuation and of this, Clarges Mayfair contributed £259 million.  We also sold an office property in Maidenhead for £90 million, at a 5.9% NIY, 12.5% above valuation.

After the year end, we announced the acquisition of One Sheldon Square for £210 million.  This is in line with our strategy of expanding our interests in and around our core campuses.  It also increases our exposure to an up and coming area of London, and Paddington station, a major London transport interchange, which will benefit from the opening of Crossrail in 2018.  The acquisition adds nearly 200,000 sq ft to our office space, bringing the assets we own in Paddington Central to 800,000 sq ft.  Together with our development at 4 Kingdom Street, and the work we are doing to improve the public realm, we are building real momentum across the campus to create an environment which meets the needs of today's occupiers. 

Development

5 Broadgate will complete shortly, concluding our highly successful 2010 development programme.  We are now 94% let or under offer over 2.3 million sq ft of office space with 79,000 sq ft available at the Leadenhall Building and just 11,400 sq ft at Marble Arch House.  Our five year programme in Central London supported over 30,000 jobs, including apprenticeships, as well as contributing an estimated £1.2 billion gross value added (GVA) to the UK economy. 96% of our Office developments are rated BREEAM Excellent, reflecting our strong performance on efficiency, ecology, wellbeing and other BREEAM criteria. Our new Office developments are on average 25% more efficient than regulations require.

We have 654,000 sq ft of development projects under construction in London (excluding 5 Broadgate), the most significant being Clarges Mayfair and 4 Kingdom Street.  At Clarges, we sold 22 out of 34 apartments following a pre-launch last summer, targeting an exclusive list of known potential buyers, but will now wait until nearer completion, before marketing the remainder.  Sales have been agreed at an average capital value of £4,750 per sq ft, with several apartments setting new records for sales values in Mayfair.  Deposits totalling around 12% of the total sales value have been received, with a further 17% falling due before completion and the balance due on completion.  The total proceeds of £259 million represent 56% of the total gross development value of the private residential element of the scheme and together with sales across other residential schemes bring our residential exposure down to £140 million (measured by our original commitment adjusted for sales). 

In February 2015, we started on site at 4 Kingdom Street, a 147,000 sq ft office development over nine storeys.  Each storey of the redesigned building has a large corner terrace, and a communal roof terrace provides space for break-out sessions, entertaining and sporting facilities, at the same time encouraging urban biodiversity.  The building is scheduled to complete in 2017, and based on current forecasts, we expect it to launch into a market where supply remains tight. 

Our near term pipeline now covers 1.3 million sq ft.  Key milestones were reached at Blossom Street, Shoreditch and 100 Liverpool Street where planning applications were submitted on both schemes before Christmas.   At Blossom Street we are planning a complex, conservation led scheme, comprising a mix of floorplates from 1,000 - 20,000 sq ft.  Building on the historic fabric of the area, we will integrate 262,000 sq ft of character office space suitable for the tech and creative industries with 13 retail units and 40 apartments to create a mixed use development which is in keeping with the surrounding area.  With 60% of the floorplates under 3,500 sq ft, equating to around 85% of all small and medium-sized business space planned for this area in the next four years, this development will be well suited to the needs of small and growing businesses.  Subject to planning, we expect to be on site in 2016 and to complete in 2018. 

The redevelopment of 100 Liverpool Street marks the next phase in our long term vision for our Broadgate campus.  Our proposal, which was recently granted, adds three further floors to the building, and improves local connections and public spaces between 100 Liverpool Street, Liverpool Street Station and Broadgate Circle - in all covering 515,000 sq ft of office and retail space.  We expect to be on site in early 2017 and complete in 2019. 

At 5 Kingdom Street, we have consent for 210,000 sq ft of office space and are working on a planning proposal to improve and enlarge the scheme.  Looking further ahead to the medium term pipeline, our 46 acre regeneration development at Canada Water will include a significant element of office and residential space. 

FINANCE REVIEW

YE 31 March	2014		2015
Total accounting return		20.0%	24.5%
EPRA net asset value per share		688p	829p
Dividend per share		27.0p	27.7p
Underlying profit before tax		£297m	£313m
LTV proportionally consolidated		40%	35%
Weighted average interest rate		4.1%	3.8%

Overview

The Group had another successful year, continuing to deliver high returns underpinned by the positive market and our actions.

Over the last two years, our business has achieved a total accounting return of nearly 50%, with returns of 24.5% in 2015. This strong performance reflects strategic decisions taken over the last five years, together with our day to day asset management activities. This, combined with a continued tightening of market yields has resulted in EPRA valuation surplus of £1.6 billion and a 20.5% increase in NAV per share to 829p.

We completed £2.4 billion of investment activity including the acquisition of One Sheldon Square in April 2015; with acquisition and development spend broadly balancing disposals. We took advantage of the strength of the market to sell assets which we do not believe will be successful in the long term and, with an increased focus towards London and the South East, reinvested in assets which strengthen our existing estates and provide development opportunities.

We manage our mix of equity and debt financing to achieve the right balance between enhancing returns for shareholders and the risk of higher leverage. Our approach to LTV seeks to ensure that it does not exceed a maximum threshold if market yields were to rise to previous peak levels, this means we do not gear up on market yield shift. The decrease in LTV to 35% is a reflection of the impact market yield improvements, ERV growth and our actions had on valuations.

The financing actions that we took in the year had the benefit of reducing the Group's weighted average interest rate by 30 bps to 3.8% whilst preserving a capital structure which supports our strategy. These included the re-couponing element of the Tesco property exchange transaction, the refinancing of a number of debt facilities at reduced margins and a reduction in the Group's facilities reflecting our lower leverage mind-set.

Underlying profit increased to £313 million as a result of significant letting activity and the financing actions taken. The increase in EPS of 4% is higher than the dividend increase in the year of 2.5% as we improve dividend cover.

Presentation of financial information

The Group financial statements are prepared under IFRS where the Group's interests in joint ventures and funds are shown as a single line item on the income statement and balance sheet and all subsidiaries are consolidated at 100%. Management reviews the performance of the business principally on a proportionally consolidated basis which includes the Group's share of joint ventures and funds on a line-by-line basis and excludes non-controlling interests in the Group's subsidiaries. The Group's financial key performance indicators are also presented on this basis.

A summary income statement and summary balance sheet which show British Land's interests on this basis are included in Table A within the supplementary disclosures.

Income statement

Underlying profit before tax excludes capital and other one-off items and is the measure that is used internally to assess the Group's income performance. This is presented below on a proportionally consolidated basis:

	2014	2015
	£m	£m
Gross rental income	597	618
Property outgoings	(35)	(33)
Net rental income	562	585
Fees and other income	15	14
Administration expenses	(78)	(85)
Net financing costs	(202)	(201)
Underlying profit before tax	297	313
Underlying earnings per share	29.4p	30.6p
Dividends per share	27.00p	27.68p

Net rental income

			£m
Net rental income for the year ended 31 March 2014			562
Developments			22
Like for like			9
Current year acquisitions			3
Current year disposals			(12)
Prior year investment activity			1
Net rental income for the year ended 31 March 2015			585

The increase in net rental income was driven by the successful letting of our development programme, notably the Leadenhall Building, and like-for-like growth of 2.3%, reflecting 4.2% growth in the Offices portfolio and 1.5% growth in the Retail and Leisure Portfolio. Occupancy levels across the portfolio increased to 98.3% (2014: 96.1%).

Since the start of the financial year, and including One Sheldon Square which completed in April 2015, acquisitions and disposals have been broadly balanced. The disposals were completed earlier in the year, and taking into account the impact of acquisitions, this has had the effect of reducing net rental income by £9 million in 2015.

Looking forward, net rental income is expected to benefit from acquisitions completed in the second half of the year. In addition, once UBS start benefiting from the rent free at 5 Broadgate we will begin accruing income whilst continuing to receive rent at 100 Liverpool Street and Finsbury Avenue. This increases accounting rents by £12 million in the coming financial year. 

In addition, the Group currently has around £200 million of Retail assets under offer or on the market.

Net financing costs

			£m
Net financing costs for the year ended 31 March 2014			(202)
Developments			(6)
Liability management			6
Current year acquisitions			(1)
Current year disposals			3
Prior year investment activity			(1)
Net financing costs for the year ended 31 March 2015			(201)

The savings from liability management, combined with those from the disposals made in the year, offset the increased costs associated with the cessation of capitalisation of interest on completed developments and other finance cost increases.

The full year impact of liability management undertaken in the current year is expected to provide financing cost savings next year and the re-couponing element of the Tesco property exchange transaction is expected to provide additional savings of £8m.

Administration expenses (proportionally consolidated)

The increase in administration expenses is in part due to the impact of incentives, linked to the achievement of performance targets, and in part due to our investment in people and technology to enhance the capability of the business. We expect to continue this investment next year.

The Group's operating cost ratio remains competitive at 16.4% (2014: 16.2%).

Underlying EPS

Underlying EPS for 2014/15 was 30.6p (2014: 29.4p) based on underlying profit after tax of £313 million (2014: £295 million) and weighted average diluted number of shares of 1,022 million (2014: 1,004 million). The contingent conditions on the Group's convertible bond will expire in September 2015 and therefore reported EPS will be diluted from April 2015 onwards. For the purposes of the diluted EPS calculation, interest payable on the convertible of £6 million per annum will be added back and the number of shares will be increased by 58 million.

Dividends

The quarterly dividend was increased to 6.92 pence per share in the year, bringing the total dividend declared for the current financial year to 27.68 pence per share. The dividend paid in the financial year was 27.34 pence (2014: 26.70 pence).

The dividend pay-out ratio was improved over the prior year at 89% (2014: 92%). Our ambition is to continue to improve this further over the medium term. It is the Board's intention to increase the dividend by 2.5% in 2016 to 28.36 pence, with a quarterly dividend of 7.09 pence.

IFRS profit after tax

IFRS profit after tax for the year was £1,765 million (2014: £1,116 million). In addition to underlying profits, the most significant item impacting IFRS profit was the net valuation increase of £910 million for the Group and £595 million for the Group's share of joint ventures and funds.

Balance sheet

EPRA net assets include a number of adjustments to the IFRS reported net assets and are presented below on a proportionally consolidated basis:

	2014	2015
	£m	£m
Properties at valuation	12,040	13,677
Other non-current assets	194	256
	12,234	13,933
Other net current liabilities	(304)	(307)
Adjusted net debt	(4,890)	(4,918)
Other non-current liabilities	(13)	(73)
EPRA net assets (undiluted)	7,027	8,635
Dilution impact of convertible bond	-	400
EPRA net assets (diluted)	7,027	9,035
EPRA NAV per share	688p	829p
Non-controlling interest	371	333
EPRA adjustments1	(281)	(803)
IFRS net assets1	7,117	8,565

¹EPRA net assets exclude the mark-to-market on effective cash flow hedges and related debt adjustments, as well as deferred taxation on revaluations. It includes trading properties at fair value and is adjusted for the impact of share options and the convertible bond which are dilutive.

Movement in EPRA net asset value per share

			p
EPRA NAV per share at 31 March 2014			688
Offices and Residential valuation uplift			92
Retail and Leisure valuation uplift			56
Underlying profit			31
Dividends			(27)
Dilution for convertible			(8)
Tesco swap			(3)
EPRA NAV per share at 31 March 2015			829

The 20.5% increase in EPRA NAV reflects a strong valuation performance across the portfolio. The valuation uplift in the year of 12.1% reflects yield compression of 48 bps and ERV growth of 4.6%.

Returns were driven by continuing strong performance from our standing investments, up 11%, and a 26% increase in our developments.

This performance was due to market movements and reflects the strategic decisions taken over the last five years, including our well timed development programme, the quality of the Group's assets and how they are managed and the sector allocation decisions we have made. The Group's portfolio is now almost evenly split between Offices and Retail.

The impact of diluting for the convertible was eight pence per share, due to the share price being above the convertible bond conversion price for the first time this year.

The re-couponing completed as part of the Tesco property swap resulted in a three pence per share decrease in EPRA NAV.

IFRS balance sheet

At 31 March 2015, 33% of the property portfolio and 29% of net debt was held within joint ventures and funds. The IFRS balance sheet shows our investment in joint ventures and funds grouped together and shown net. On this basis, our investment at 31 March 2015 was £2,901 million.

Cash flow, net debt and financing

Adjusted net debt

			£m
Adjusted net debt at 31 March 2014			(4,890)
Acquisitions			(749)
Development and capex			(266)
Disposals			1,004
Net cash from operations			282
Dividends			(228)
Transactions with joint ventures and funds			(71)
Adjusted net debt at 31 March 2015			(4,918)

Significant acquisitions completed in the year included the Surrey Quays Leisure Park, the purchase of Tesco's interest in two joint ventures as part of the Tesco property swap and the purchase of an additional 10.5% of the units in the Hercules Unit Trust bringing the Group's ownership to 69.2% at the year end. In addition, One Sheldon Square was acquired in April 2015 for £210 million.

Development and capital expenditure in the year reflected the spend on the committed development programme and the replenishment the development pipeline. Forecast development spend of £378 million is anticipated over the next three years on the Group's committed development programme. This compares to £306 million of contracted residential sales at year end.

Significant disposals in the year included the sale of the Group's joint venture interest in the Tesco Aqua Limited Partnership to Tesco as part of the Tesco property swap and the sale of three Sainsbury's superstores. These sales reduced the Group's exposure to standalone foodstores from 11% of the total portfolio in 2014 to just under 7% in 2015.

Net cash flow from operating activities on a proportionally consolidated basis was £282 million, higher than the £249 million received last year primarily due to the increase in net rental income.

Financing

	Group 1		Proportionally consolidated
	2014	2015	2014	2015
Adjusted net debt	£2,877m	£3,425m	£4,890m	£4,918m
Principal value of gross debt	£2,990m	£3,517m	£5,198m	£5,202m
Loan to value	29%	28%	40%	35%
Weighted average interest rate of drawn debt	3.5%	3.3%	4.1%	3.8%
Interest cover	3.2	3.0	2.5	2.6
Weighted average debt maturity	8.2 years	7.8 years	8.7 years	8.7 years

¹ Group presented after elimination of non-controlling interests

Balance sheet metrics in the current year remained strong. On a proportionally consolidated basis, LTV and the weighted average interest rate on drawn debt were reduced while interest cover was improved.  The decrease in LTV to 35% is a reflection of the impact market yield improvements, ERV growth and our actions had on valuations.

The strength of the Group's balance sheet is reflected in British Land's senior unsecured credit rating which remains rated by Fitch at A-.

We continue to achieve attractive financings which improve earnings and liquidity. We have raised £1.9 billion of debt finance since 31 March 2014, including the five year £785 million unsecured Revolving Credit Facility ('RCF') in April 2014; an extension by one year was agreed May 2015.

In February 2015, we undertook a restructuring of British Land's other syndicated RCFs. A new £485 million unsecured RCF was entered into at an initial margin of 90 bps with a maturity of five years, which may be extended to a maximum of seven years, on British Land's request and on each bank's approval for their participation. This facility replaced the £560 million RCF which would have matured in May 2016, and was an extension and re-pricing of the £310 million RCF, which was due to expire in May 2018. This restructuring reduced the total facilities available to the Group by about £400 million, in line with our lower leverage mind-set.

Refinancing of our joint venture and fund facilities in the year consisted of an extension of the Hercules Unit Trust £350 million facility at a borrowing cost 80 bps lower than the previous facility and refinancing of the Tesco BL Properties joint venture £325 million facility at a borrowing cost 280 bps lower than the previous facility. We also repaid the higher rate £60 million facility held by Tesco British Land Property Partnership in March 2015 following our acquisition of Tesco's interest in this joint venture.

Overall, liability management completed in the year, including the re-couponing element of the Tesco property exchange transaction, has reduced the proportionally consolidated weighted average interest rate from 4.1% to 3.8%

British Land has £1.9 billion of committed banking facilities and £73 million of cash and short term deposits. Of these facilities £1.6 billion have maturities of more than two years.

Further information on our approach to financing is provided in the financial policies and principles section.

Tax

As a consequence of the Group's REIT status, income and capital gains from our qualifying property rental business are exempt from UK corporation tax. The tax charge in the year is £24m, of which £23m relates to deferred tax.

We continue to comfortably pass all REIT tests to ensure our REIT status is maintained.

Any UK income that does not qualify as property income within the REIT rules (such as fees and interest) is subject to tax in the normal way. We are also subject to tax on overseas properties depending on the requirements of each jurisdiction.

HMRC continue to award British Land a Low Risk tax rating which is in part a reflection of our REIT status together with the regular dialogue we maintain with them and our transparent approach to complex areas.

We administer the tax compliance for 470 companies covering Group and joint ventures and funds (392 UK companies and 78 overseas companies); details of which are shown in our annual return filed at Companies House on 28 February 2015.

In the year to 31 March 2015, British Land paid and collected more than £200 million across all taxes to HMRC.

Lucinda Bell

Chief Financial Officer

FINANCIAL POLICIES AND PRINICIPLES

Leverage

We manage our mix of equity and debt financing to achieve the right balance between enhancing returns for shareholders and the risk of higher leverage. We use a loan to value ratio (debt as a percentage of the gross value of our assets, "LTV") to measure our leverage, primarily on a proportionally consolidated basis including our share of joint ventures and funds.

We seek to manage our leverage such that our LTV should not exceed a maximum threshold if market yields were to rise to previous peak levels. This means we will not increase our LTV if asset values increase as a result of market yield improvement. Consequently our maximum LTV will be higher in the low point in the cycle and will trend downwards as market yields tighten. At this point in the cycle and at today's yields our current maximum LTV is 38% on a proportionally consolidated basis (a lower level than the range in which we operated in previous years).

We leverage our equity and achieve benefits of scale while spreading risk, through joint ventures and funds which are typically partly financed with debt without recourse to British Land. The debt in joint ventures and funds is included in the proportionally consolidated LTV of 35% which is higher than the Group measure for our unsecured lenders, which is around 28%.

Debt finance

The scale of our business combined with the quality of our assets and rental income means that we are attractive to a broad range of debt providers and able to arrange finance on favourable terms. Good access to the capital and debt markets is a competitive advantage, allowing us to take opportunities when they arise.

The group's approach to debt financing for British Land is to raise funds predominantly on an unsecured basis with our standard financial covenants. This provides the greatest flexibility and low operational cost. Our joint ventures and funds are each financed in 'ring-fenced' structures without recourse to British Land for repayment and are secured on the relevant assets.

Presented opposite are the five guiding principles that govern the way we structure and manage our debt.

Debt financing involves risk from adverse changes in the property and financing markets. In arranging and monitoring our financing we include important risk disciplines, ensuring that relevant risks are fully evaluated and managed.

Monitoring and controlling our debt

We monitor our projected LTV and our debt requirement using several key internally generated reports focused principally on borrowing levels, debt maturity, available facilities, covenant headroom and interest rate exposure. We also undertake 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.

In assessing our ongoing debt requirements, including those of our development programme, we consider potential downside scenarios such as a fall in valuations and the effect that might have on our covenants.

Based on our current commitments and our current available facilities, we have no requirement to refinance prior to March 2019. British Land's current committed undrawn bank facilities are £1.2 billion.

Managing interest rate exposure

We manage our interest rate risk independently from our debt. 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 five-year period. The proportion of fixed rate debt required to remain within the target sensitivity has decreased as a result of our lower levels of leverage and increased interest cover.

Our debt finance is 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 64% of projected net debt (including our share of joint ventures and funds) is fixed over the next five years, and we expect this percentage to decrease over the forthcoming year. The use of derivatives is managed by a Derivatives Committee. The interest rate management of joint ventures and funds is addressed by each entity for its business.

Counterparties

We monitor the credit standing of our counterparties to minimise our risk exposure in respect of placing cash deposits and derivatives. Regular reviews are made of the external credit ratings of the counterparties.

Foreign currency

Our policy is to have no material unhedged net assets or liabilities denominated in foreign currencies.

When attractive terms are available, the Group may choose to borrow in freely available currencies other than sterling, and will fully hedge the foreign currency exposure.

Our five guiding principles

Diversify our sources of finance

We monitor the finance markets and seek to access different types of finance when the relevant market conditions are favourable to meet the needs of our business and, where appropriate, those of our joint ventures and funds. The scale and quality of the Group's business enables us to access a broad range of unsecured and secured, recourse and non-recourse debt.

We enjoy and encourage long term relationships with banks and debt investors. We aim to avoid reliance on particular sources of funds and borrow from a large number of lenders from different sectors in the market and a range of geographical areas, with a total of 41 debt providers of bank facilities and private placements alone. We also aim to ensure that debt providers understand our business; we adopt a transparent approach to provide sufficient disclosures so that lenders can evaluate their exposure within the overall context of the Group. These factors increase our attractiveness to debt providers, and in the last five years we have arranged £5.4 billion (British Land share £4.5 billion) of new finance in unsecured and secured bank loan facilities, US Private Placements and convertible bonds.

Phase maturity of debt portfolio

The maturity profile of our debt is managed with a spread of repayment dates. We monitor the various debt markets so that we have the ability to act quickly to arrange new finance as opportunities arise. Maturities of different types of debt are well spread, taking into account term debt and revolving facilities reducing our refinancing risk in respect of timing and market conditions. As a result of our financing activity, we are comfortably ahead of our preferred two year re-financing date horizon. The current range of debt maturities is one to twenty years.

Maintain liquidity

In addition to our drawn term debt, we aim always to have a good level of undrawn, committed, unsecured revolving bank facilities. These facilities provide financial liquidity, reduce the need to hold resources in cash and deposits, and minimise costs arising from the difference between borrowing and deposit rates while reducing credit exposure.

We arrange these revolving credit facilities in excess of our committed and expected requirements to ensure we have adequate financing availability to support business requirements and opportunities.

Maintain flexibility

Our facilities are structured to provide valuable flexibility for investment deal execution, whether sales or purchases, developments or asset management. Our bank revolving credit facilities provide full flexibility of drawing and repayment (and cancellation if we require) at short notice without additional cost. These are arranged with standard terms and financial covenants and generally have maturities of five years. Flexibility is maintained with our combination of this unsecured revolving debt and secured term debt in debentures with good substitution rights, where we have the ability to move assets in and out of the security.

Maintain strong balance sheet metrics

We actively manage our mix of equity and debt financing to achieve a balance between our ability to generate an attractive return for shareholders with the risks of having more debt.

Our capital strategy has evolved and is responsive to the need to manage our exposure throughout the property cycle such that we aim not to exceed a maximum proportionally consolidated LTV threshold in an economic downturn.

Group borrowings

Unsecured financing for the Group is raised through: bilateral and syndicated unsecured revolving bank facilities, with initial terms of five years (often extendable); US Private Placements with maturities up to 2027; and the convertible bond maturing in 2017.

Secured debt is provided by debentures with longer maturities up to 2035 at fixed rates of interest and a bank term loan acquired in the year.

Unsecured borrowings

The same financial covenants apply across each of the Group's unsecured facilities. These covenants, which have been consistently agreed with all unsecured lenders since 2003, are:

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

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

Covenant ratios

	2011 %	2012 %	2013 %	2014 %	2015 %
Net borrowings to adjusted capital and reserves 1	36	44	31	40	38
Net unsecured borrowings to unencumbered assets 2	25	34	23	31	28

Highest during the year to 31 March 2015:

¹ 40%; and ² 32%

No income/interest cover ratios apply to these facilities, and there are no other unsecured debt financial covenants in the Group.

The Unencumbered Assets of the Group, not subject to any security, stood at £5.6 billion as at 31 March 2015.

Although secured assets 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 2015, these assets generated £40 million of surplus cash after payment of interest. In addition, while investments in joint ventures do not form part of Unencumbered Assets, our share of profits generated by these ventures are regularly passed up to the Group.

Secured borrowings

Secured debt with recourse to British Land is provided by debentures at fixed interest rates with long maturities and no amortisation. These 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 once. 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 and deal with any asset sales.

Secured debt without recourse to British Land comprises the following, each of which is secured on a specific portfolio of properties:

-    a fixed rate debenture of £30 million for BLD Property Holdings Ltd to 2020; and

-    a bank loan of £325 million for TBL Properties Limited (and its subsidiaries) to 2019.

Borrowings in our joint ventures and funds

External debt for our joint ventures and funds has been arranged through long dated securitisations or bank debt, according to the requirements of the business of each venture.

Hercules Unit Trust has term loan facilities maturing in 2017 and 2020 arranged for its business and secured on its property portfolios, without recourse to British Land. These loans include value and income based covenants.

The securitisations of the Broadgate Estate (£1,717 million), Meadowhall (£723 million) and the Sainsbury's Superstores portfolio (£479 million), have weighted average maturities of 12.7 years, 11.0 years, and 7.3 years respectively. The only financial covenant applicable is that income must cover interest and scheduled amortisation (1 times); there are no loan to value covenants. These securitisations provide for quarterly principal repayments with the balance outstanding reducing to approximately 20% to 30% of the original amount raised by expected final maturity, thus mitigating refinancing risk.

Other debt arrangements with banks and other lenders include loan to value ratio covenants with maximum levels ranging from 40% to 65%, and most 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.

 

END

 

 

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