Final Results- Part 1

RNS Number : 2773Y

British Land Co PLC

16 May 2016

The British Land Company PLC Full Year Results

Chris Grigg, Chief Executive said: "We have delivered another strong set of results with performance underpinned by strengthening rental growth across our business. We are focusing the business around long term trends and continue to see the benefits of the investments we have made in recent years. While we are mindful of the impact of market uncertainty, our high quality portfolio, flexible development pipeline and robust financial position continue to mean that our business is both resilient and well placed for the long term."

Strong full year results

• Total accounting return of 14.2% (2014/15: 24.5%)

• Underlying Profit +16.0% to £363 million; IFRS PBT of £1,331 million (2014/15 £1,789 million) reflecting valuation uplift of £950 million (2014/15 £1,582 million)

• EPRA NAV +10.9% to 919 pence (932p pre Budget stamp duty increase); IFRS Net Assets at £9.6 billion (2014/15 £8.6 billion)

• Final quarterly dividend of 7.09 pence (+2.5%); bringing the full year to 28.36 pence (+2.5%)

• Full year dividend of 29.20 pence per share proposed for 2016/17, +3.0%; first quarter 7.30 pence

Valuation performance driven by improving ERV growth

• Total portfolio valuation +6.7%; standing investments +6.4%; developments +9.4%; H2 performance driven by ERV growth with an accelerating trend compared to H1 and FY15

• Strong uplift in Offices & Residential +11.8%; good performance in Retail & Leisure +2.4%

• ERV growth of 5.3% outperforming IPD by 130 bps; 9.6% in Offices and 2.4% in Retail; Multi-let Retail ERV growth of 3.4%

Placemaking skills delivering leasing success; portfolio nearly fully let

• 1.3 million sq ft of lettings and renewals across the portfolio; occupancy now 99%

• Retail occupiers attracted to our multi-let assets benefiting from placemaking activity; 903,000 sq ft Retail lettings and renewals; 8.0% ahead of ERV; 343,000 sq ft under offer

• Footfall +3.0%, outperforming the benchmark by 440bps; retailer sales +2.4%

• 296,000 sq ft of Office lettings and renewals; 5.6% ahead of ERV; The Leadenhall Building, 98% let or under offer (2014/15 84%); £3.8 million of rent added through rent reviews +17% vs previous rents

Allocating capital into our London campuses and multi-let Retail assets

• Net investment of £280 million into our London campuses; acquisition of One Sheldon Square, development of 4 Kingdom Street and public realm works at Paddington Central; completion of 5 Broadgate development; completion of 338 Euston Road refurbishment at Regent's Place

• Focus on multi-let Retail portfolio; 169,000 sq ft of leisure extensions completed at Whiteley and Glasgow Fort; £420 million of mature or non-core Retail asset disposals, including £122 million of superstores

Modest committed development, but a significant pipeline with optionality

• Committed speculative development of £530 million; 2.0 million sq ft near term pipeline

• Progressing the Broadgate vision; planning granted on 100 Liverpool Street and 1 Finsbury Avenue for 823,000 sq ft of redevelopment. Planning submitted at 2-3 Finsbury Avenue for 550,000 sq ft

• 168,000 sq ft of leisure extensions consented at Drake Circus Shopping Centre, Plymouth and New Mersey Shopping Park, Speke

• Roger Madelin joined as Canada Water Project Head in February; aim to submit outline planning application in 2017

Robust financial position with continued access to low cost finance

• Proportionately consolidated LTV reduced to 32%; 29% pro-forma for 2012 Convertible Bond

• Proportionately consolidated WAIR reduced by 50 bps to 3.3%; driven by increased proportion of floating rate debt, £350 million zero coupon convertible, tender offer and purchase of £110 million of debentures

YE 31 March Income statement	2015	2016	Change
Underlying Profit¹	£313m	£363m	+16.0%
IFRS profit before tax	£1,789m	£1,331m
Diluted underlying earnings per share¹	30.6p	34.1p	+11.4%
IFRS diluted earnings per share	167.3p	124.1p
Dividend per share	27.68p	28.36p	+2.5%
Balance sheet
Portfolio at valuation (proportionately consolidated)	£13,637m	£14,648m	+6.7%²
EPRA Net Asset Value per share	829p	919p	+10.9%
IFRS net assets	£8,565m	£9,619m
Loan to value ratio (proportionately consolidated)	35%	32%
Total accounting return	24.5%	14.2%

¹See Note 2 to the condensed set of financial statements

²Valuation uplift 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, 16 May 2016, 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:	0808 109 0700
Passcode:	British Land

A dial in replay will be available later in the day and will be available for 7 days. The details are as follows:

Replay number:	0208 196 1998
Passcode:	7368680#

For Information Contact

Investor Relations

Sally Jones, British Land

020 7467 2942

Media

Pip Wood, British Land

020 7467 2838

Gordon Simpson, Finsbury

Guy Lamming, Finsbury

020 7251 3801

Forward-looking statements

This Press Release 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) the outcome and consequences of the referendum on Britain leaving the EU, (c) industry and market trends (including demand in the property investment market and property price volatility), (d) competition, (e) the behaviour of other market participants, (f) 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), (g) inflation and consumer confidence, (h) labour relations and work stoppages, (i) natural disasters and adverse weather conditions, (j) terrorism and acts of war, (k) British Land's overall business strategy, risk appetite and investment choices in its portfolio management, (l) legal or other proceedings against or affecting British Land, (m) reliable and secure IT infrastructure, (n) changes in occupier demand and tenant default, (o) changes in financial and equity markets including interest and exchange rate fluctuations, (p) changes in accounting practices and the interpretation of accounting standards and (q) the availability and cost of finance. The Company's principal risks are described in greater detail in the section of this Press Release headed Managing risk in delivering our strategy. Forward-looking statements in this Press Release, 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 Press Release 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, and nothing in this Press Release should be construed as a profit forecast. 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.

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 considers the business principally on a proportionally consolidated basis when setting the strategy, determining annual priorities, making investment and financing decisions and reviewing performance. This 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 financial key performance indicators are also presented on this basis. Refer to the Financial Review for a discussion of the IFRS results.

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 £20.0 billion (of which British Land share is £14.6 billion) as valued at 31 March 2016. 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 finance these places effectively.

Retail assets account for 50% 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 over 20 million sq ft of retail space across multi-lets, superstores, 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 48% 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 7.5 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).

The remaining 2% of our portfolio is at Canada Water where we have a 46 acre redevelopment opportunity in our medium term pipeline.

Our industry-leading sustainability strategy is a powerful tool to deliver lasting value for all our stakeholders. By supporting communities, improving environments and growing economies, we create Places People Prefer and enhance long term returns.

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

CHIEF EXECUTIVE'S REVIEW

In a fast changing market we are focusing our business to benefit from long term trends, notably: the transforming impact technology is having on the way we work, shop and live; the impact of population growth and urbanisation, particularly in London and the South East; and increasing consumer expectations including in areas such as health, wellbeing and sustainability. We are focusing our portfolio on places where we can control the environment, exploiting our placemaking expertise to manage more complex mixed use environments delivering on our core purpose of creating Places People Prefer. We see increasing overlap between our office campuses and our multi-let regional and local retail centres as they combine a greater mix of uses and evolve to reflect our customers' changing lifestyles.

We have had another good year both in terms of our underlying financial performance and our delivery against our strategic objectives. Performance in the year was underpinned by strengthening rental growth reflecting the investments we have made across our portfolio in recent years alongside good occupational markets. We made good progress with our committed developments and are in a strong position to be able to move forward with our near term development pipeline when the time is right. We continued to sell mature and non-core assets, redeploying capital principally into our existing portfolio - in our campuses and regional and local retail centres. Overall our investment activity was broadly balanced.

EPRA net asset value was 10.9% ahead at 919 pence per share at the year end (932 pence excluding the impact of the recent increase in stamp duty). Valuation was up 6.7% with Offices up 11.8% and Retail up 2.4% principally due to 5.3% ERV growth across the portfolio, which was 130 bps ahead of IPD. We generated total property returns of 11.3% for the year.

Underlying Profit was 16.0% ahead at £363 million driven both by our successful leasing activity and our lower financing costs. Diluted Underlying EPS was up 11.4% at 34.1 pence per share. In line with previous announcements, the final quarterly dividend is 7.09 pence per share bringing the full year dividend to 28.36 pence per share, an increase of 2.5%, delivering a total accounting return of 14.2%. Our proportionately consolidated LTV reduced to 32% in line with our strategy of not gearing up on yield shift, with our investment activity broadly balanced. As a result of our refinancing activities, including the £350 million zero coupon convertible bond, our average financing cost is down 50 bps to 3.3%. Reflecting our confidence in the coming year, the Board is proposing a quarterly dividend of 7.30 pence per share or 29.20 pence per share for the full year, an increase of 3.0%.

Our portfolio is virtually full with occupancy of 99%. In good occupational markets in both Retail and Offices, we saw strong levels of demand for our remaining space. This is reflected in our leasing transactions with 1.3 million sq ft of lettings and renewals agreed on average 6.8% ahead of ERV.

In Offices we made good progress enhancing and enlivening environments, strengthening long term demand for our space, and appealing to a broader range of occupiers. We let or renewed 296,000 sq ft of space on average 5.6% ahead of ERV, and added £3.8 million of rent through rent reviews settled on terms 17% ahead of previous rents. The Leadenhall Building is now 98% let or under offer, with just one of the top floors to let. We are making good progress on our campus visions. At Broadgate, we completed 5 Broadgate and we are progressing our development opportunities across the campus. Elsewhere, our focus on creating Places People Prefer is driving public realm improvements at Paddington Central and will influence our plans at Regent's Place where we see further near term refurbishment opportunities. Our campuses remain affordable, and the investment we are undertaking leaves us well positioned to capture rental growth going forward.

In Retail, we let or renewed 903,000 sq ft of space on average 8.0% ahead of ERV reflecting the strength of our markets as well as the quality of our assets and the work we have been doing to improve them. We now manage our multi-let portfolio along regional and local lines reflecting how we see consumers spend their time and money. We continued to invest in our multi-let portfolio, through large scale leisure extensions but also through smaller asset management initiatives, improving the amenities at our assets to drive footfall, dwell and spend through improved customer satisfaction. Footfall across our multi-let portfolio was up 3.0%, outperforming the market benchmark by 440bps with retailers' in-store sales also ahead of the market, up 2.4%. We saw strong demand for our pipeline of leisure extensions and at those assets where we have completed extensions or improvement works we have already seen good ERV growth and operational improvements. Superstores performance was more subdued, as expected, but we have been active in selling down our holding to £0.8 billion, from £1.3 billion two years ago. With deals under offer, this falls to £0.7 billion.

As expected, our investment activity was broadly balanced over the year, including our share of capital spend. We continued to allocate more capital into our London campuses, investing a net £280 million through developments at Broadgate, Regent's Place and Paddington Central, where we also acquired One Sheldon Square. In Retail, we made £420 million of disposals as we increase our focus on the multi-let portfolio where we can put our placemaking skills to work to drive rental growth.

In April, British Land was one of only seven companies to receive the 2016 Queen's Award for Enterprise: Sustainable Development as part of Her Majesty The Queen's 90th birthday honours. The Award is the UK's highest accolade for business success and is given to companies which bring major economic, social and environmental benefits through their business. The award reflects our continuous achievement in all these areas over the last five years. We made strong progress embedding our sustainability strategy, including innovating on wellbeing through public realm improvements where we invested £30 million over the year. We diverted 98% of all managed waste from landfill and delivered a 40% carbon intensity reduction, leading the Global Real Estate Sustainability Benchmark for Europe/diversified for the second year running.

Development remains a core part of our business. With the delivery of 5 Broadgate, our 2010 programme completed in the year, generating profit of £1.1 billion and an IRR of over 30%. We are currently on site at 629,000 sq ft of developments, a speculative commitment of £530 million, principally 4 Kingdom Street and Clarges Mayfair, our super-prime residential scheme (over 50% pre-sold). Looking forward, we have a significant future pipeline with built in optionality, meaning we can start each project at the right time. At Broadgate, our near term pipeline includes 100 Liverpool Street and 1 Finsbury Avenue, where we received planning during the year and looking to the medium term we submitted a planning application at 2-3 Finsbury Avenue. Other potential near term opportunities in Offices include 1 Triton Square at Regent's Place and 5 Kingdom Street at Paddington Central. In Retail, our near term pipeline includes leisure extensions at Drake Circus Shopping Centre, Plymouth and New Mersey Shopping Park, Speke. Our medium term plans include our mixed use redevelopment of the Eden Walk Shopping Centre, Kingston and a significant leisure extension at Meadowhall (currently in public consultation) which will enhance its position as a flagship regional centre.

We have an exceptional opportunity at Canada Water to create a vibrant new destination for London and are delighted Roger Madelin has joined British Land to head up the project: we are already benefiting from his experience leading the redevelopment of King's Cross. This is a long term project, but we are making progress, with a public consultation taking place in February 2016, ahead of an outline planning submission in 2017.

Outlook

Looking forward, we remain confident in the underlying strength of the business despite continued global macro uncertainty and the potentially adverse impact of a vote for the UK to leave the European Union. Our business is resilient: our portfolio is modern, nearly fully let to quality occupiers on long leases; and our finances are strong with moderate LTV, low costs and long dated financing from a wide range of sources. Our current committed development pipeline is modest but we have built optionality into our future pipeline so we can exploit its potential when the time is right. Our strategy of creating Places People Prefer focuses our investment and activities on macro trends, ensuring our real estate reflects the changing way people work, shop and live. We have significant opportunities across our existing portfolio, including in our three existing London campuses and the potential to create a new London campus at Canada Water, alongside our regional and local multi-let Retail assets.

BUSINESS REVIEW

PORTFOLIO OVERVIEW

YE 31 March¹	2015	2016
Portfolio valuation	£13,637m	£14,648m
Total property return	18.4%	11.3%
- ERV growth	4.6%	5.3%
- Capital return	13.4%	6.8%
Lettings/renewals vs ERV	10.0%	6.8%
Occupancy	98.3%	98.8%
Weighted average lease length to first break	9.5 yrs	9.0 yrs
Gross investment activity²	£2,231m	£1,257m
- Acquisitions²	£749m	£332m
- Disposals	£1,273m	£618m
- Capital investment	£257m	£307m

¹ On a proportionately consolidated basis

² 2015 restated to exclude post period end acquisition of 1 Sheldon Square, which is now included in 2016

Overview

2015/16 was another strong period for the UK property market overall, despite the more challenging macro environment. London continued to outperform the rest of the UK. Performance was driven by rental growth as opposed to the yield compression seen in recent years, with prime yields supported by rents which continued to rise in both the West End and the City. The occupational market overall remains favourable although more recently there is evidence that some large occupiers are delaying decisions to take space until after the upcoming EU referendum. In retail, demand remains for prime assets, but wider uncertainty has impacted investment market volumes in recent months. The retail occupational market strengthened overall, reflecting improving consumer confidence and rising real wages. However, since the turn of the year, there have been some signs that consumer confidence and spending have started to weaken.

Portfolio Performance

		Valuation Uplift (%)
YE 31 March 2016¹	Valuation £m	Investment Portfolio	Developments	Total Portfolio
Retail & Leisure	7,341	2.4	3.2	2.4
Offices & Residential	7,024	11.7	12.7	11.8
Canada Water	283	-	1.7	1.7
Total	14,648	6.4	9.4	6.7

¹On a proportionately consolidated basis

Our portfolio performed well overall, benefiting from our strategy to increase our focus on London and balance our portfolio between Offices and Retail. London and the South East now represents 65% of the portfolio compared to 56% six years ago. The portfolio is also broadly balanced between Offices (49% on a pro-forma basis) and Retail. This compares with six years ago when Offices accounted for 33% of the portfolio. Our Offices and Retail businesses are increasingly complementary reflecting our focus on campuses in Offices and multi-let centres in Retail which are becoming more mixed use. In addition, the stable income generated by the Retail business has allowed us to invest in more cyclical Office development projects.

Our portfolio generated a total property return of 11.3%, comprising a capital return of 6.8% and an income return of 4.2%. We outperformed IPD benchmarks by 50 bps on a capital returns basis, or 200 bps per annum on a 5 year view, continuing a consistent trend of outperformance. Total portfolio valuation was up 6.7% to £14.6 billion. This performance includes the impact of a 1% increase in stamp duty for commercial property, announced by the Chancellor in March. Excluding the stamp duty increase, the underlying portfolio valuation was up 7.7%. The standing investment portfolio was up 6.4% and accounted for c90% of the total uplift; the contribution from developments was lower as the completion of 5 Broadgate in July 2015 brought our major 2010 development programme to a close.

Performance was driven by ERV growth across the business of 5.3%, outperforming the market by 130 bps, with a far lower contribution from yield compression which was 17 bps compared to 48 bps in 2014/15. Overall, our actions accounted for around 60% of performance in both the Retail and Offices portfolios. Offices and Residential delivered a valuation uplift of 11.8%, driven by ERV growth of 9.6% and our Retail and Leisure portfolio grew by 2.4%, also benefiting from 2.4% of ERV growth. Within our Retail & Leisure portfolio, our multi-let assets were up 2.8%, with ERV growth of 3.4%.

We are pleased with the shape of our portfolio, with our weightings in Retail and Offices broadly balanced. In the past the income generated from the Retail side of the portfolio allowed us to build out our significant 2010 development programme while maintaining our dividend, and going forward as technology transforms how we live and work we see that the breadth of our portfolio will provide a competitive advantage.

Investment Activity

The gross value of our investment activity since 1 April 2015 as measured by our share of acquisitions, disposals, capital spend on developments and other capital projects was £1.3 billion. On a net basis, our activity was broadly balanced. We maintained our capital discipline taking advantage of supportive markets to sell mature or non-core assets and reinvesting in our existing business and in selected acquisitions, principally adjacent to existing assets.

From 1 April 2015¹	Retail	Offices	Residential	Total
	£m	£m	£m	£m
Development Spend	17	140	30	187
Capital Spend	99	19	2	120
Purchases	100	232	-	332
Sales Purchases	(420)	(139)	(59)	(618)
Net Investment	(204)	252	(27)	21
Gross Investment	636	530	91	1,257

¹On a proportionately consolidated basis

The most significant acquisition was One Sheldon Square, Paddington Central, acquired for £210 million in April last year. This brought our total ownership at the campus to 806,000 sq ft including 4 Kingdom Street, which is under construction, with the potential to develop a further 240,000 sq ft at 5 Kingdom Street. We also acquired an additional £95 million interest (gross asset value) in the Hercules Unit Trust ("HUT") portfolio, bringing our gross investment over the last two years to £492 million at an effective net initial yield of 6.0%. Our holding now stands at 75%.

In line with our strategy, we continued to reshape the Retail portfolio, with £420 million of mature or non-core asset disposals in the period. Key transactions included the sale of Rotherham Parkgate and Birstall shopping parks for £120 million and £31 million respectively (both our share). We also sold nine standalone foodstores totalling £122 million reducing our total superstore holding to £0.8 billion from £1.3 billion two years ago. We no longer have any exposure to the European market since selling the remaining £43 million of our European assets in line with our exit strategy.

In Offices, we sold 39 Victoria Street in July last year for £139 million at an attractive yield of less than 4%, crystallising an attractive IRR of over 20%. We also sold £59 million (our share) of residential properties on average 3% ahead of valuation, and continued to achieve completions on exchanged units. Two thirds by value (our share) were at The Hempel Collection. In line with our strategy, we will market no further units at Clarges Mayfair until practical completion in 2017. This follows our successful pre-sales campaign in September 2014, where we pre-sold just over 50% by value.

Committed Developments & Pipeline
At 31 March 2016¹		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	908	553	13	23.7	21.5	-	-
Under Construction	629	605	204	16.1	0.2	657	358
Near term Pipeline	2,019		1,450
Medium term Pipeline	7,175

¹ On a proportionately consolidated basis (except area which is shown at 100%)

We completed 908,000 sq ft of developments in the period, with 5 Broadgate accounting for 710,000 sq ft. The completion of 5 Broadgate marked the conclusion of the 2.7 million sq ft development programme started in 2010, which generated profits of £1.1 billion and an IRR of over 30%. We also completed Yalding House, a 29,000 sq ft office led refurbishment in the heart of Fitzrovia as well as 169,000 sq ft of Retail developments, including a retail extension at Glasgow Fort and a leisure extension at Whiteley Shopping.

Our under construction programme covers 629,000 sq ft representing a speculative capital commitment of £530 million. This principally includes 192,000 sq ft at our super prime residential led development Clarges Mayfair, where we have already pre-sold over 50% of the residential units by value, and 147,000 sq ft of office space at 4 Kingdom Street on our Paddington Central campus.

We are making good progress with our near term development pipeline, which increased from 1.5 million sq ft in March last year to 2.0 million sq ft. We have built optionality into our pipeline and are progressing the projects so we can be ready to commit when the time is right.

The three largest schemes in the near term pipeline reflect office lease expiries over the next 2 years at Broadgate and Regent's Place, where we expect to deliver a significant increase in the overall floor space on redevelopment. At 100 Liverpool Street we recently received a resolution to grant planning consent for a revised 520,000 sq ft redevelopment, incorporating a larger retail component and at 1 Finsbury Avenue we received consent on a 303,000 sq ft redevelopment. At 1 Triton Square, on our Regent's Place campus, we are progressing the design for a substantial refurbishment.

Our planning application for 340,000 sq ft of mixed use space at Blossom Street, Shoreditch was also granted consent, having been called in by the Mayor of London. The High Court has since rejected a Judicial Review of the Mayor's decision to take over the application but it is unlikely that we will start onsite in 2016. At 5 Kingdom Street, on our Paddington Central campus, we expect to submit a revised planning application for a larger scheme by the end of the year.

In Retail, we will continue to enhance our offer with a strong near term pipeline of leisure extensions, including 102,000 sq ft at Drake Circus Shopping Centre, Plymouth and 66,000 sq ft at New Mersey Shopping Park, Speke. We also received planning consent at Ealing Broadway Shopping Centre for the conversion of an office block to 34,000 sq ft of private rented residential apartments. We also added Crawley Homewares Park to the near term pipeline, where we obtained planning consent to redevelop the existing Homebase into a 52,000 sq ft homewares park comprising 5 units.

Looking ahead to our medium term pipeline, in Retail we submitted a planning application for the £262 million (our share £131 million) mixed use redevelopment of Eden Walk, Kingston. The 562,000 sq ft development will include public space, leisure, retail and residential. We are also in public consultation for a 330,000 sq ft leisure scheme at Meadowhall. In Offices, we submitted a planning application for the redevelopment of 2-3 Finsbury Avenue, which seeks to increase the area from 189,000 sq ft to 550,000 sq ft.

The most significant project in the medium term pipeline is at Canada Water. At the beginning of February 2016, we were delighted to welcome Roger Madelin to the team to head up this exciting 46 acre redevelopment opportunity. As Chief Executive/Joint Chief Executive of Argent, Roger was directly responsible for leading a number of significant developments, and from 2000 led the team on the 67 acre King's Cross development. Canada Water is one of the largest regeneration projects in inner London; it has good transport infrastructure, with access to the City, West End and Canary Wharf via the Jubilee line, but also to emerging areas around Shoreditch as well as South West London via the London Overground.

Planning policies have now been adopted within the London Borough of Southwark and the Greater London Authority which encourage and are supportive of a significant quantum of mixed development. In February 2016 public consultation commenced regarding the current masterplan proposals. Over the coming months British Land and Southwark Council will review the responses received from the local community.

Studies to assess how the proposed quantum and mix of development might best be configured and delivered over time are currently being undertaken alongside detailed financial modelling. Discussions with a number of prospective occupiers from the retail, leisure, workspace and the full residential spectrum are assisting us in this process. The implications of the Government's proposed Housing Bill and of any emerging policies from the new London Mayor will be assessed and incorporated where necessary.

We anticipate a programme and resource schedule to prepare, evaluate and consider a planning submission will have been produced and agreed with Southwark Council by summer 2016 with the ambition to submit an outline planning application in 2017. As we work towards a planning submission we will continue to collect rents of £8 million per annum from Surrey Quays Shopping Centre and Leisure Park.

During the year we continued to support diversity and training initiatives that make young people of all backgrounds aware of real estate careers, including Pathways to Property and Budding Brunels, as well as apprenticeships and local employment programmes, such as Broadgate Connect. Together with our suppliers, we supported 120 apprenticeships at our places in the year. In addition, a pilot study on four developments revealed that 60% of spend went within 25 miles and over 50% went to small and medium sized enterprises, fuelling regional economies around our assets.

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 March¹	2015²	2016
Portfolio valuation (BL share)	£7,314m	£7,341m
Total property return	14.4%	7.8%
- ERV growth	2.5%	2.4%
- Capital return	8.5%	2.5%
Lettings/renewals vs ERV	8.7%	8.0%
Occupancy	98.4%	99.0%
Weighted average lease length to first break	10.4 yrs	9.8 yrs

¹ On a proportionately consolidated basis

² Restated to exclude Canada Water as now presented separately

Overview

The way people shop and spend their leisure time continues to evolve, with technology lying at the heart of this. It has become increasingly clear that while online sales continue to grow, physical space remains at the heart of how people shop. But today, successful destinations need to be about more than just shopping - they are more mixed use, often with food, drink and leisure, and are more embedded in the communities where they are located. Our strategy in Retail is to focus on creating outstanding places for modern consumer lifestyles, places for people to shop, eat and be entertained.

We have been progressively reducing our exposure to smaller and single let assets, and focusing the business around our larger multi-let assets where we can control the environment in which we operate and use our placemaking expertise to drive value. As a result of these actions our multi-let portfolio now accounts for over 70% of our Retail business, up from 60% six years ago. We now manage and report our multi-let portfolio along regional and local lines, reflecting how we see consumers spend their time and money. The data we collect tells us that regional and local assets fulfil different consumer needs but well-located and well-configured assets can be equally successful in today's omni-channel world. Regional assets have a wide retail and leisure offer, a bigger catchment and longer dwell time. Local assets are typically smaller in scale, highly convenient and accessible and often with more local community amenities and activities.

Over the year, the retail occupational market strengthened reflecting rising employment and real wages alongside falling oil prices. Occupancy rates improved as retail & leisure operators continued to expand, trial new formats and focus on taking space in the most attractive locations. Results have been positive overall, especially for food & beverage operators and retailers with mature omni-channel strategies. This has created occupier tension, driving rents at those assets offering high levels of footfall and sales in high quality environments. Since the turn of the year however, consumer confidence has fallen and retail sales have dipped, with some administrations in fashion, likely reflecting concerns about the impending EU referendum and wider global economic and political uncertainty.

The calendar year 2015 was also a good year for the retail investment market and a record breaking year for shopping parks, with £2.6 billion of deals transacted. Since the turn of the year, there has been a lack of benchmark retail transactions and a slowdown in activity with the majority of deals carried over from 2015. Demand remains strong for prime multi-let retail assets, and is increasingly diverse, but there is a limited amount of stock on the market. Investors have become more discerning, with increased polarisation between prime and secondary assets and demand for secondary assets showing signs of softening.

Portfolio Performance

Our Retail & Leisure portfolio valuation was up 2.4% over the year to £7.3 billion, including the impact of the recent 1% increase in stamp duty for commercial property. Excluding the effects of the stamp duty change, valuation uplift was broadly the same in each half at around 1.8%, driven by our actions which contributed 60% of the uplift. The portfolio outperformed the market by 20 bps on a capital returns basis and 30 bps on a total returns basis.

ERV across the portfolio was up 2.4% (compared to 1.4% for the market as whole) with growth in the second half of the year higher at 1.5% compared with 0.9% in the first half. ERV growth was stronger in the multi-let portfolio at 3.4%, compared to 3.0% in 2014/15, with the accelerating ERV trend broadly balanced across both regional and local subsectors leading to IPD outperformance of 210 bps, demonstrating the quality of our portfolio. The Retail portfolio continued to benefit from yield movement over the year with 13 bps of yield compression compared to 47 bps in the prior year. The average NEY now stands at 5.0%.

Asset Management

Our focus on the strongest, best located schemes and our consistent approach to deliver the most appropriate offer and standard of service continued to drive good demand for our space, so occupancy across the portfolio remained high at 99%. Footfall was up 3.0% outperforming the market by 440 bps and our retailers performed well with their in-store sales up 2.4%, outperforming the market by 200 bps.

We provide a flexible and affordable proposition for occupiers, with an average rent to sales ratio (excluding internet sales) of 10%. We signed 903,000 sq ft of lettings/renewals on attractive terms, with investment lettings and renewals on average 8.0% ahead of ERV. We saw good demand for units of all sizes including larger units with over 450,000 sq ft of lettings/renewals on floor areas over 10,000 sq ft. Using our detailed consumer data we continued to improve the occupier mix at our local and regional assets, adding quality brands and broadening our leisure offering to keep pace with consumer needs. We signed 35 new food and beverage occupiers and 2 cinemas, adding 174,000 sq ft of food, beverage, and leisure space to our Retail operations through lettings and extensions. We settled 1.6 million sq ft of rent reviews at 3.8% ahead of previous passing rent, and only 6% of occupiers decided to leave on expiry, which gives further confidence that we are creating the right kind of space for occupiers. We saw like-for-like net rental income growth across the Retail portfolio of 1.4%.

We continue to enjoy strong relationships with our major occupiers, and work closely with them to deliver the space they want. The investments we are making to improve our assets continued to attract new brands and popular restaurant providers to our regional and local assets. Primark recently opened 68,000 sq ft of space at Chester Broughton and Edinburgh Fort Kinnard and both locations are trading well. At Glasgow Fort we attracted 7 new occupiers out of town, including Pandora, Kiko Milano, GBK and Foot Asylum. This has improved the quality and range of occupiers available to consumers and driven rental growth.

In order to attract such strong occupiers to our multi-let assets, we continued to invest across the portfolio to deliver the highest quality retail environments. Over the course of the year we spent £80 million on asset management initiatives and the positive impact of this is reflected both in our valuation, and in our operational metrics. Activity included the £14 million refurbishment of Ealing Broadway which completed in November 2015, yielding positive results including a 5% uplift in retailer sales over the year along with several new tenants; Wasabi, EAT and Smiggle. This resulted in 7.5% ERV growth at Ealing Broadway in the second half of the year. At Teesside Shopping Park our ongoing refurbishment has led to new out of town entrants, including Paperchase, taking space. We completed a programme of upgrades on five assets which included improved new customer walkways, parent & child parking provision, customer service centres, high quality landscaping, community artworks celebrating local heritage and children's play areas. We are already seeing the positive impact of these works through improved customer satisfaction, an increase in retailer sales, and ERV growth.

In line with our aim to provide a consistent high level of service for our occupiers and consumers we have taken the property management of our retail assets in-house to Broadgate Estates, our wholly owned subsidiary and one of the UK's leading property management companies. In the year, we rolled out WorldHost customer service training to more than 800 people at our places and Dementia Friendly training to over 600 people, making sure that from cleaning and security to maintenance and management, our teams have the understanding and skills to welcome and support visitors. We are delighted at the positive feedback from visitors and we are recognising team members who are going above and beyond through our Awards for Excellence.

Meadowhall had a strong year. Sales at the centre were 2.2% ahead, with retailers on the refurbished premium mall significantly outperforming. We are on site with a £60 million internal refurbishment, ahead of which we have already signed some high quality new brands including Diesel, Joules, Kiko Milano, Jack Wills and Tapas Revolution. Overall, long term deals at Meadowhall were signed at an average of 6.3% ahead of ERV and like-for-like income was up 5.7% over the year. Looking forward, we are in public consultation for a 330,000 sq ft leisure scheme which will cement Meadowhall's position as among the best retail and leisure destinations in the UK.

We commissioned a review by PwC, which identified Meadowhall's social and economic contribution to the Sheffield City Region and the wider UK for the first time, with 1p in every £1 and one job in every 100 in the region linking back to Meadowhall, as well as 660 apprenticeships over five years. The Centre has also contributed £7.3 billion gross value added to the UK economy over 25 years and £303 million tax over five years. Environmental achievements include 42% less energy use over six years and 17,000 tonnes of waste recycled over ten years. Looking forward, around half the materials and labour for our Meadowhall refurbishment are being sourced from companies within the Sheffield City Region, bringing a further £25 million to the regional economy.

Investment Activity

Gross investment activity over the year was £636 million, with total sales of £420 million (BL share) and total acquisitions of £100 million (BL share).

We continued to reshape the portfolio, disposing £420 million of mature or non-core assets. Key transactions included the sale of HUT assets in Rotherham Parkgate and Birstall shopping parks for £120 million and £31 million respectively (both our share). We also disposed of nine standalone foodstores totalling £122 million. This included the £60 million sale of Tesco Bursledon at a 5.0% net initial yield, and the £32 million sale of Sainsbury's Islington at a net initial yield of 3.96%. This has reduced our total superstore holding to £0.8 billion from £1.3 billion two years ago. We have a further £68 million of superstores under offer, at a NIY of 4.2%, which will further reduce our holding to £0.7 billion.

We acquired an additional £95 million interest in the HUT portfolio of shopping parks, increasing our ownership from 69.2% to 75.3% over the year. On average, these units were acquired at NAV representing an effective net initial yield of 6.3% (based on actual acquisition costs). With the disposals made in the year, we have rebalanced the HUT portfolio, and in February HUT unitholders resolved to replace Schroders with Crestbridge as manager.

We completed 169,000 sq ft of developments over the year. The 57,000 sq ft leisure extension at Whiteley opened in November 2015 and has traded well with sales growth of 8.2% in the second half. The 112,000 sq ft Marks and Spencer anchored retail extension at Glasgow Fort opened at the start of the year, providing a strong additional anchor to the scheme with footfall increasing by 6.7%. The new 12,000 sq ft leisure quarter and 600 space multi-storey car park are under construction at Glasgow Fort and will complete later in the year; the new space is already exchanged or under offer at record level rents and includes new out of town occupiers Thaikhun and GBK.

Our 254,000 near term development pipeline includes 168,000 sq ft of leisure extensions and 86,000 sq ft of redevelopment. At Drake Circus, Plymouth, where we have permission for a 102,000 sq ft leisure scheme including space for 14 restaurants adjacent to the shopping centre, we expect to take vacant possession of the bus station site later this year. We have already pre-let space to Cineworld for a 12 screen cinema as well as Byron, Wagamama and Zizzi. At New Mersey Shopping Park in Speke, we received consent for a 66,000 sq ft leisure extension with an 11 screen cinema also pre-let to Cineworld, and six restaurants. Already we have exchanged or are under offer on six restaurant units and, in the main part of the scheme, Next has renewed its lease and will extend its trading space to 48,000 sq ft.

We have also received planning consent at Ealing Broadway Shopping Centre for the conversion of an office block to 34,000 sq ft of private rented residential apartments. This marks the next stage in our development plan for this asset, and follows a successful £14 million refurbishment of the centre completed in November 2015. Planning permission has also been granted for the redevelopment of a Homebase at Crawley into a new 52,000 sq ft homewares park.

Looking further ahead to the medium term, during the year we submitted a planning application for a £262 million (our share £131 million) mixed use redevelopment of Eden Walk, Kingston, to include 562,000 sq ft public space, leisure, retail and residential. At Meadowhall, public consultation has started on our 330,000 sq ft leisure extension. Across our near and medium term pipeline, we are on track to achieve BREEAM Excellent or Very Good ratings on 464,000 sq ft of retail and leisure space, reflecting strong performance on wellbeing, efficiency, ecology and other sustainability criteria.

OFFICES & RESIDENTIAL REVIEW

Highlights

YE 31 March¹	2015²	2016
Portfolio Valuation	£6,049m	£7,024m
Total property return	24.4%	15.4%
- ERV growth	8.0%	9.6%
- Capital return	20.5%	12.0%
Lettings/renewals vs ERV	10.8%	5.6%
Occupancy Rate	98.1%	98.6%
Weighted average lease length to first break	8.1 yrs	7.9 yrs

¹On a proportionately consolidated basis

² Restated to exclude Canada Water as now presented separately

Overview

London again delivered good absolute and relative performance over the year, continuing to benefit from trends such as strong relative economic growth; population growth; globalisation of labour and capital and infrastructure-led regeneration. Our Offices & Residential business grew to £7.0 billion, from £6.0 billion a year ago, driven by valuation uplift of 11.8%.

Our strategy is focused on using our placemaking skills to drive further improvement at our campuses, which account for over 70% of our Offices portfolio, through development, public realm improvements and the introduction of a greater range of uses. We are also using these placemaking skills at our standalone assets, which allow us to experiment with different products - such as Yalding House - and also provide liquidity to the portfolio - such as the disposal of 39 Victoria Street. Our development capabilities are a competitive advantage enabling us to improve our campuses and deliver value to our shareholders.

The occupational market in London remained strong, seeing healthy demand throughout the year. With Central London vacancy at 2.8% compared to the long term average of 5.3%, prime rents continued to rise. However, in recent months there have been signs of a slowdown, likely due to the EU referendum. Take up is likely to slow further in the short term, but long term we believe that London's global position will endure.

The investment market also remained healthy, reflecting the fundamental attractions of London, growing rents, good liquidity and a scarcity of income return around the world. Demand from global and domestic investors remained robust despite the historically low yields, and while investment volumes have fallen since January, first quarter transactions at £3.5 billion were 8% ahead of the 5 year average. Importantly there have been a number of transactions which support current yields.

In residential, the prime market has been impacted by both increased supply and recent tax changes and transaction volumes have slowed. In the super prime market, there is continued emphasis on the quality of stock and although London continues to be viewed as attractive, volumes have moderated. The mainstream market in London has remained relatively robust with steady demand.

We continued to reduce our residential commitment through further pre-sales at The Hempel and Aldgate Place, and with only £292 million of units remaining, our residential business represents a manageable amount of our portfolio. The majority of the remaining units by value are at Clarges Mayfair, which we will not market until completion in late 2017 and is a scheme which we believe will still generate strong interest.

Portfolio Performance

We continued to benefit from our focus on London. The value of our Offices and Residential portfolio was up 11.8% to £7.0 billion, including the impact of the recent 1% increase in stamp duty for commercial property. The drivers of valuation growth shifted substantially over the year with our actions accounting for 30% of growth in the first half, and almost all growth in the second half. We saw inward yield shift of 21 bps across the Office portfolio compared to 51 bps last year, reflecting the slowdown in the investment market.

The West End and City portfolios were up 12.8% and 11.1% respectively, with the West End portfolio showing a particularly strong performance in the second half, in part due to the 15% uplift on the West End developments. The Residential portfolio was up 5.7%. This movement translates into strong overall capital return of 12.0%, ahead of the IPD sector benchmark by 90 bps.

The Offices & Residential investment portfolio was up 11.7% driven by 9.6% ERV growth. As our development pipeline completed, standing investments have become an increasingly important contributor to performance, accounting for almost 90% of the uplift in the year. Developments delivered valuation uplift of 12.7% with strong performance at 4 Kingdom Street which saw a valuation uplift of 42%.

Asset Management

Despite delivering 2.2 million sq ft of developments in the last 3 years, our portfolio is now virtually fully let reflecting the strength of occupational demand and the quality of our space. As a result, overall letting volumes at 296,000 sq ft are below recent years' levels, but we continue to agree deals on terms 5.6% ahead of ERV.

We added £3.8 million of annualised rent through rent reviews on 687,000 sq ft of space, an uplift of 17% compared to previous passing rent. Our campuses are relatively affordable and with 1.8 million sq ft of rent reviews to settle in the next 18 months, we are well placed to capture rental growth going forward. Average ERVs at Paddington and Regent's Place at £46 psf and £57 psf respectively are low relative to core West End, and at Broadgate the average is £57 psf. Overall, our portfolio is now 10% reversionary (7% City, 11% West End).

In the City, The Leadenhall Building is now 98% let or under offer, from 84% at the start of the year with just one of the top floors to let: we continued to set new rental highs in the City. We have been particularly pleased not only by the occupier interest but also the critical acclaim it has received, with the Leadenhall Building named "Building of the Year" by the Worshipful Company of Chartered Architects. We were also delighted that The Duke of Cambridge and Prince Harry formally opened the building in October 2015.

At Broadgate, we are progressing our vision to create a world class campus for London. This reflects the growth and diversity of its location, not only as an important part of the City, but being adjacent to the regenerating areas of Shoreditch and Spitalfields, which increasingly cater to technology and other creative sectors. The opening of the Crossrail station at Liverpool Street in 2018 will also be supportive of our overall vision. Redevelopment opportunities will significantly increase the scale of the campus and better integrate it with the vibrant areas to the north and east. The redevelopment of Broadgate Circle has done much to enliven the campus and our plans will build on this momentum with a more diverse offer which matches changing working lifestyles. Our near term development pipeline includes 823,000 sq ft of space, with a further 550,000 in the medium term.

At Regent's Place, we are progressing our vision to evolve the campus through redevelopment works. We completed the refurbishment of 79,000 sq ft at 338 Euston Road with Facebook taking occupation of the majority of the space. Levels 2 and 7 (13,000 sq ft) are available and we are seeing good interest both from existing and new occupiers. We have made good progress with rent reviews at 20 Triton Street, growing rents on average from £52 psf to £70 psf on 151,000 sq ft of space and adding £2.5 million to annualised rents with a further 600,000 sq ft to be negotiated in the next 18 months. The next phase of major works is at 1 Triton Square where we are in the early stages of designing a significant refurbishment.

At Paddington Central, we are making good progress towards our vision to complete the campus through development and transforming the public realm. We completed phase 1 of the public realm enhancement works and phase 2, which will be focussed around Kingdom Street, is out to tender and will start this summer. We have secured 4 moorings on the canal and we have also purchased 2 canal boats to be used to host events and enliven the surrounding area. We saw ERV growth of 5% across the campus in the second half of the year and settled rent reviews on 75,000 sq ft of space at 2 Kingdom Street, taking rents from £45 psf to £54 psf and adding £0.6 million to annualised rents.

Investment Activity

Gross investment activity over the year was £621 million, with total sales of £198 million (BL share) and total acquisitions of £232 million (BL share).

We continued to make progress at our Residential schemes, The Hempel Collection and Aldgate Place, selling £59 million of apartments at prices on average 3% ahead of valuation. At Clarges Mayfair, having pre-sold over 50% of the gross development value of the residential element of the scheme in September 2014, it remains our intention to undertake no further marketing until the remaining apartments have reached practical completion.

In July last year, we sold an office building at 39 Victoria Street for a net price of £139 million. We acquired the building for £40 million in 2009 and it was let in its entirety to the Corporate Officer of The House of Commons in 2013 following a substantial refurbishment. The disposal, at a yield of less than 4%, crystallised an attractive IRR of over 20% per annum since purchase.

At the start of the year we acquired 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 806,000 sq ft.

We completed 739,000 sq ft of developments in the period, with 5 Broadgate accounting for 710,000 sq ft. UBS began fitting out 5 Broadgate in the summer, and we expect them to move in later this year. We achieved a BREEAM Excellent rating at 5 Broadgate and we are on track to achieve BREEAM Excellent across a further 2.7 million sq ft of office space.

We also completed Yalding House, a 29,000 sq ft office led refurbishment in the heart of Fitzrovia. The building, which was launched in February, has variable floor plates and is targeted at small and medium sized businesses in the creative sectors. We are pleased with the level of enquiries seen to date.

Our under construction programme covers 617,000 sq ft with total speculative commitment (including land) of £530 million. This includes 192,000 sq ft at our super prime residential led development Clarges Mayfair, where both the relocation of the Kennel Club and the affordable housing element were delivered in the period. We are on track to complete the 48,000 sq ft office element in the summer, with the residential to complete in late 2017.

At 4 Kingdom Street we are making good progress. We are on track to 'top out' later this month and on target to deliver 147,000 sq ft of office space in 2017. At 2 Kingdom Street, Broadgate Estates achieved the world's first BREEAM Outstanding Fit Out. As well as being highly efficient, the new environment is helping Broadgate Estates attract and retain the best talent.

There are signs that increases in construction costs are moderating, reflecting lower raw material costs. However, tender prices still reflect limited capacity in the industry with contractors seeking to restore margins and limit their risk exposure. In central London, we are currently forecasting cost inflation of 5% per annum and for our projects under construction all our costs are fixed.

We made good progress with our near term development pipeline, which has increased from 1.3 million sq ft in March last year to 1.8 million sq ft. We recently received consent for a revised 520,000 sq ft redevelopment of 100 Liverpool Street at Broadgate incorporating a larger retail component than in the previous consent, in line with our plans to add 400,000 sq ft of retail to the campus in the medium term. Subject to UBS completing the fit out works at 5 Broadgate we expect to be in a position to commence with 100 Liverpool Street in early 2017.

At 1 Finsbury Avenue, we received planning consent for a 303,000 sq ft redevelopment, and at 1 Triton Square, on our Regent's Place campus, we are progressing the design. We will make the decision whether to commit to these schemes at the appropriate time, but we are pleased with the level of interest we are seeing from occupiers for potential pre-lets, despite the fact that the projects are still at an early stage.

Our planning application for 340,000 sq ft of mixed use space at Blossom Street, Shoreditch was also granted consent, having been called in by the Mayor of London. The High Court has since rejected a Judicial Review of the Mayor's decision take over in the application but it is unlikely that we will start onsite in 2016 as had been our intention. While we are concerned with the delay, we do not own the site and instead have an option to acquire the site from the City of London Corporation. At 5 Kingdom Street we have made good progress on the proposed design and we expect to submit a planning application by the end of the year.

Looking ahead to our medium term pipeline we submitted a planning application for the redevelopment of 2 and 3 Finsbury Avenue, increasing the area from 189,000 sq ft to 550,000 sq ft.

FINANCE REVIEW

YE 31 March	2015	2016
Total accounting return ¹	24.5%	14.2%
EPRA net asset value per share ¹	829p	919p
Dividend per share	27.7p	28.4p
Underlying Profit ¹	£313m	£363m
IFRS profit before tax	£1,789m	£1,331m
IFRS net assets	£8,565m	£9,619m
LTV proportionally consolidated ¹	35%	32%
Weighted average interest rate	3.8%	3.3%

¹ See glossary for definitions

Overview

The strong performance this year is reflected in our operating results and the total accounting return of 14.2%.

Our focus on placemaking and accelerating ERV growth have delivered a portfolio valuation uplift of 6.7% on a proportionally consolidated basis and a 10.9% increase in NAV per share to 919 pence; excluding the impact of the 1% increase in stamp duty on commercial property NAV per share would have been 932 pence (an increase of 12.4%).

We have completed £1.3 billion of investment activity with acquisition and development spend broadly balancing disposals. We have sold mature and non-core assets and have reinvested in our existing business and in selected acquisitions adjacent to existing assets.

Our balance sheet metrics remain strong. The proportionately consolidated loan to value ratio has decreased to 32% from 35% due to a combination of our actions, including the results of our placemaking activity, and market movements. We have raised £915 million of new debt, including a £350 million zero coupon convertible bond. Together with the £110 million debenture bonds tender offer and purchase we have completed over £1 billion of financing activity in the year. This drove the 50 bps reduction in the Group's proportionately consolidated weighted average interest rate to 3.3% from 3.8%.

Underlying Profit increased to £363 million as a result of our successful financing activity, leasing of our completed developments and rental income growth in the investment portfolio, including a number of significant rent reviews in Offices.

Underlying earnings per share increased by less than profits due to the requirement to anticipate conversion into new shares of the £400 million 1.5% convertible bond, issued in 2012 and maturing in 2017 with a conversion price of 693 pence.

IFRS profit before tax for the year of £1,331 million is lower than the prior year, primarily due to a reduced level of property valuation movement reflecting the slowdown in yield compression and the recent increase in stamp duty on commercial property.

Looking forward to next year we intend to increase the dividend by 3% to 29.20 pence per share, with a quarterly dividend of 7.30 pence per share.

Presentation of financial information

A summary income statement and summary balance sheet which reconcile the Group financial statements to British Land's interests on a proportionally consolidated basis are included in Table A within the supplementary disclosures.

Income statement

1. Underlying Profit

Underlying Profit is the measure that is used internally to assess income performance. No company adjustments have been made in the current or prior year and therefore this is the same as the pre-tax EPRA earnings measure which includes a number of adjustments to the IFRS reported profit before tax. This is presented below on a proportionally consolidated basis:

	Section	2015 ¹	2016
		£m	£m
Gross rental income		618	654
Property operating expenses		(33)	(34)
Net rental income	1.1	585	620
Net fees and other income		17	17
Administrative expenses	1.3	(88)	(94)
Net financing costs	1.2	(201)	(180)
Underlying Profit		313	363
Non-controlling interest in Underlying Profit		16	14
EPRA adjustments ²		1,460	954
IFRS profit before tax	2	1,789	1,331
Underlying earnings per share	1.4	30.6p	34.1p
IFRS basic earnings per share	2	168.3p	131.2p
Dividend per share	3	27.68p	28.36p

¹ Fees and other income and administrative expenses have been restated to reflect the change in presentation of the results of Broadgate Estates, a wholly owned subsidiary of the Group. This restatement has had no impact on Underlying Profit. Refer to note 1 of the financial statements for further details.

² EPRA adjustments consist of investment and development property revaluations, gains/losses on investment and trading property disposals, changes in the fair value of financial instruments and associated close out costs. These items are presented in the capital and other column of the consolidated income statement.

1.1 Net rental income

			£m
Net rental income for the year ended 31 March 2015			585
Developments			23
Like-for-like rental income growth			15
Acquisitions			40
Disposals			(43)
Net rental income for the year ended 31 March 2016			620

The £35 million increase in net rental income during the year was the result of strong letting activity.

The successful letting of our development programme provided £23 million of this increase, primarily due to the start of the lease at 5 Broadgate and the lettings we have made at the Leadenhall Building which is now almost full, with recent leasing deals setting new records for City rents.

Like-for-like rental income growth was 3.4%. Office and Residential growth was almost 7%; just over half of this was due to the letting up of completed developments that are now in the like-for-like portfolio with the remainder being attributable to strong rent review activity, particularly at Regent's Place and Paddington. Retail and Leisure growth was 1.4% (1.8% excluding the impact of surrender premia).

Our near term development pipeline could add a further £68 million of net rental income over the next 5 years. The three largest schemes in the near term pipeline are income producing investments with a current passing rent of £24 million which is expected to run off in the last quarter of 2016/17.

1.2 Net financing costs

			£m
Net financing costs for the year ended 31 March 2015			(201)
Financing activity			27
Acquisitions			(11)
Disposals			10
Completion of developments			(5)
Net financing costs for the year ended 31 March 2016			(180)

We completed over £1 billion of financing activity in the current year including the £350 million zero coupon convertible bond and the £110 million debenture bonds tender offer and purchase. We have raised and refinanced a total of £915 million of debt at lower margins and in a lower interest rate environment. Together with the impact of last year's financing activity, this resulted in a £27 million decrease in financing costs this year.

Our approach to interest rate management was also important in reducing interest costs. At the year end we had reduced the proportion of our debt held at fixed rates to 60% on average over the next 5 years (64% at 31 March 2015).

Overall, our actions during the year drove the reduction in our proportionally consolidated weighted average interest rate to 3.3% at 31 March 2016 from 3.8% at 31 March 2015.

Lower capitalised interest in the current year reflected our reduced development commitment. This resulted in an additional £5 million of interest cost in the year.

1.3 Administrative expenses

During the year, we brought the property management of our retail assets in-house to Broadgate Estates, a wholly owned subsidiary, in line with our strategic focus on customer orientation and placemaking. In recognition of the core role Broadgate Estates now plays in how we run the business, we have changed the way its results are presented in the Group income statement. This has resulted in a £5 million increase in administrative expenses and an equal and offsetting increase in net fee and other income; importantly this change has no impact on Underlying Profit. The prior year comparatives for net fee and other income and administrative expenses have also been restated to reflect this change in presentation.

Development team costs of £4 million were capitalised for the first time this year as we progress our development pipeline.

Overall, administrative expenses increased by £6 million this year in line with our planned investment in people and technology in order to enhance the capability of the business, which includes a £2 million increase related to Broadgate Estates. The Group's operating cost ratio remains sector leading at 16.6% (2014/15: 16.4%).

1.4 Underlying EPS

Underlying EPS for 2015/16 was 34.1 pence (2014/15: 30.6 pence) based on Underlying Profit after tax of £365 million (2014/15: £313 million), adjusted to add back interest on the £400 million 1.5% convertible bond of £6 million (2014/15: £nil), and the weighted average diluted number of shares of 1,089 million (2014/15: 1,022 million).

The increase in Underlying EPS of 11.4% is less than the increase in Underlying Profit because we are now required to anticipate conversion into shares of the £400 million 1.5% convertible bond, which matures in 2017, in our reported Underlying EPS.

2. IFRS profit before tax

The main difference between IFRS profit before tax and Underling Profit is that it includes the valuation movement on investment and development properties and the fair value movements of financial instruments. In addition, the Group's investments in joint ventures and funds are equity accounted in the IFRS income statement but are included on a proportionately consolidated basis within Underlying Profit.

The IFRS profit before tax for the year was £1,331 million, a decrease of £458 million, primarily due to the slowdown in yield compression and the 1% stamp duty increase on commercial property in the current year, resulting in lower levels of property valuation movement. This impacts IFRS profit before tax through the valuation movement on the Group's properties which was £268 million less than last year and the valuation movement on the properties held in joint ventures and funds which was £344 million less than last year.

The £77 million decrease in net financing costs to £75 million was principally due to revaluation gains recorded in respect of the Group's convertible bonds.

The £50 million increase in net rental income to £425 million was primarily the result of the purchase of a controlling interest in New Mersey in Speke in March 2015, the purchase of controlling interests in two mixed portfolios of single and multi-let assets (the 'Tesco transaction') also completed in March 2015 and like-for-like rental income growth in the standing portfolio.

Basic earnings per share decreased by 22% to 131.2 pence per share. The weighted average number of shares in issue during the period was 1,025 million (2014/15: 1,016 million).

3. Dividends

The quarterly dividend was increased to 7.09 pence per share in the year, bringing the total dividend declared for the current financial year to 28.36 pence per share (2014/15: 27.68 pence per share), an increase of 2.5% over the prior year. The dividend paid in the financial year was 28.02 pence per share (2014/15: 27.34 pence per share).

It is the Board's intention to increase the dividend by 3.0% in 2016/17 to 29.20 pence per share, with a quarterly dividend of 7.30 pence per share.

Balance sheet

	Section	2015	2016
		£m	£m
Properties at valuation		13,677	14,648
Other non-current assets		256	138
		13,933	14,786
Other net current liabilities		(307)	(257)
Adjusted net debt	6	(4,918)	(4,765)
Other non-current liabilities		(73)	(90)
EPRA net assets (undiluted)		8,635	9,674
Dilution impact of convertible bond		400	400
EPRA net assets (diluted)		9,035	10,074
EPRA NAV per share	4	829p	919p
Non-controlling interest		333	277
EPRA adjustments¹		(803)	(732)
IFRS net assets	5	8,565	9,619

¹ EPRA net assets exclude the mark-to-market on effective cash flow hedges and related debt adjustments, the mark-to-market on the convertible bonds as well as deferred taxation on property and derivative revaluations. They include the valuation surplus on trading properties and are adjusted for the dilutive impact of share options and the £400 million convertible bond maturing in 2017. No adjustment is made for the £350 million zero coupon convertible bond because this is not currently dilutive. Details of the EPRA adjustments are included in Table A within the supplementary disclosures.

4. EPRA net asset value per share

			pence
EPRA NAV per share at 31 March 2015			829
Offices and Residential valuation uplift			68
Retail and Leisure valuation uplift			17
Underlying Profit			34
Dividends			(26)
Finance transaction costs			(3)
EPRA NAV per share at 31 March 2016			919

The EPRA NAV per share of 919 pence includes the 13 pence adverse impact from the 1% rise in Stamp Duty Land Tax on commercial property announced in the budget this year.

The 10.9% increase in EPRA NAV per share reflects a strong valuation performance across the portfolio of 6.7%. Our portfolio is broadly split equally between Offices and Retail. The valuation uplift in the year is primarily due to ERV growth of 5.3% with an accelerated trend compared to last year reflecting our focus on placemaking and the strength of the markets we invest in. Yield compression was 17 bps and contributed significantly less to the valuation uplift compared to the prior year.

Returns were driven by our standing investments, up 6.4%, boosted by an increase of 9.4% in our developments.

Office and Residential valuations were up 11.8% with strong ERV growth of 9.6%; the West End performed slightly more strongly than the City, in part due to the valuation uplift on our developments. Retail and Leisure valuations were up 2.4%; underpinned by strong performance in our multi-let portfolio which saw ERV growth of 3.4%.

The finance transaction costs primarily relate to the debenture bond tender offer and purchase completed in the year and are compensated for by lower interest costs over the remaining period of the finance.

5. IFRS net assets

IFRS net assets at 31 March 2016 were £9,619 million, an increase of £1,054 million. This was primarily due to property revaluation gains in the current year, which were £616 million for the Group and £245 million for the Group's share of joint ventures and funds.

In August 2015 the loan provided by the Group to the Broadgate joint venture was repaid. This was funded by additional shareholder contributions to the joint venture and resulted in a £137 million decrease in net debt and a £137 million increase in the Group's investments in joint ventures and funds.

Cash flow, net debt and financing

6. Adjusted net debt ¹

			£m
Adjusted net debt at 31 March 2015			(4,918)
Acquisitions			(332)
Development and capex			(310)
Disposals			611
Net cash from operations			294
Dividends			(235)
Other			125
Adjusted net debt at 31 March 2016			(4,765)

¹ Adjusted net debt is a proportionally consolidated measure. It represents the Group net debt as disclosed in Note 17 and the Group's share of joint venture and funds' net debt excluding the mark-to-market on effective cash flow hedges and related debt adjustments and non-controlling interests. A reconciliation between the Group net debt and adjusted net debt is included in Table A within the supplementary disclosures.

The impact of our investment activity in the year was broadly balanced. Significant acquisitions completed in the year included One Sheldon Square and the purchase of an additional 6.1% of the units in Hercules Unit Trust bringing the Group's ownership to 75.3% at the year end.

Development expenditure of £190 million related to the spend on our committed development programme and capital expenditure of £120 million related to asset management on the standing portfolio. Forecast development spend of £204 million is anticipated over the next three years on the Group's committed development programme and £720 million on the Group's near term development pipeline. This compares to £358 million of contracted residential sales along with a further £292 million of residential units yet to be contracted for sale on existing committed projects.

Significant disposals in the year included 39 Victoria Street at an attractive yield which generated an IRR of over 20%, Rotherham Parkgate and Leeds Birstall. In addition, disposals of standalone superstores totalling £122 million were completed including the sale of Tesco Bursledon for £60 million and Sainsbury's Islington for £32 million, reducing the Group's total superstore exposure to under £0.8 billion. We currently have a further £100 million of mature or non-core retail assets under offer.

7. Financing

	Group		Proportionally consolidated
	2015	2016	2015	2016
Net debt / adjusted net debt ¹	£3,828m	£3,617m	£4,918m	£4,765m
Principal amount of gross debt	£3,717m	£3,552m	£5,202m	£5,089m
Loan to value	28%	25%	35%	32%
Weighted average interest rate	3.3%	2.6%	3.8%	3.3%
Interest cover	2.9	3.3	2.6	3.0
Weighted average debt maturity	7.5 years	7.2 years	8.7 years	8.1 years

¹ The Group figures represent net debt as presented in note 17 of the financial statements, the proportionally consolidated figures include the Group's share of joint venture and funds' net debt and exclude the mark-to-market on effective cash flow hedges and related debt adjustments and non-controlling interests.

Balance sheet metrics remain strong. LTV and the weighted average interest rate on drawn debt were reduced and interest cover improved. The decrease in both our Group and proportionally consolidated LTV measures is due to a combination of our actions and market movements. Note 17 of the financial statements sets out the calculation of the Group and proportionally consolidated LTV.

Our proportionally consolidated LTV was 32% at March 2016, down from 40% two years ago. Pro-forma for the full conversion of the £400 million 1.5% convertible bond maturing in 2017, proportionately consolidated LTV is 29%.

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

Financing activity during the year amounted to over £1 billion. We continue to achieve attractive financings which improve earnings and liquidity, including £915 million of new debt finance since 31 March 2015.

Taking advantage of favourable market conditions, we raised a £350 million zero coupon senior unsecured convertible bond due 2020, which includes flexible settlement options and provides further diversification of our sources of finance.

Following a tender offer in respect of British Land's 6.75% First Mortgage Debenture Bonds due 2020, we purchased £110 million of bonds. The purchase was funded by existing committed facilities and the bonds were cancelled.

Financing activity in our joint venture and funds in the year consisted of the repayment of £100 million of a Hercules Unit Trust term loan, reducing the facility to £250 million, and its subsequent refinancing at pricing less than half the previous facility. The Gibraltar Limited Partnership £140 million loan facility was also refinanced in the year at significantly lower pricing.

Overall, financing activity we completed in the year was the principal factor in the reduction of the proportionally consolidated weighted average interest rate from 3.8% to 3.3%.

We have also agreed one year extensions to both our bank syndicated unsecured revolving credit facilities, in total £1,245 million.

British Land has £1.8 billion of committed unsecured revolving banking facilities and £83 million of cash and short term deposits. Of these facilities £1.6 billion have maturities of more than two years and £1.2 billion was undrawn at 31 March 2016. Based on our current commitments and these facilities, the Group has no requirement to refinance for four years.

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

Tax

The Group elected for REIT status on 1 January 2007, paying a £308 million conversion charge to HMRC in the same year. As a consequence of the Group's REIT status, tax is levied on the distribution of income from our qualifying property rental business rather than at the corporate level. Any income which does not qualify as property income within the REIT rules is subject to tax in the normal way. This includes profits on properties developed and sold within 3 years as well as fees and interest. The tax credit for the year is £2m (excluding deferred tax).

Our 2016 Total Tax Contribution was more than £240 million mainly arising from taxes collected from others which we administered together with taxes and levies paid directly.

HMRC continue to award British Land a low risk tax rating which is in part a reflection of our REIT status together with the open and regular dialogue we maintain with them. We continue to comfortably pass all REIT tests to ensure our REIT status is maintained.

Lucinda Bell

Chief Financial Officer

FINANCIAL POLICIES AND PRINCIPLES

Leverage

Our mix of equity and debt financing is managed to achieve the appropriate 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 and excluding non-controlling interests.

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 only as a result of market yield improvement. Consequently our maximum LTV may be higher in the low point in the cycle and will trend downwards as market yields tighten.

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.

Our current proportionally consolidated LTV of 32% includes our share of the debt in joint ventures and funds and is higher than the Group measure of 25%.

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 (set out below). 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 below 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 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 for 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 available facilities, the Group has no requirement to refinance for four years (irrespective of whether the settlement of the 2012 convertible bond is with equity or debt).

British Land's current committed undrawn bank facilities are £1.2 billion.

Managing interest rate exposure

We manage our interest rate profile independently from our debt. The Board considers the appropriate maximum level of sensitivity of underlying earnings to movements in market rates of interest over a five-year period and the appropriate ranges of fixed rate debt over relevant time periods.

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 60% on average of projected net debt is fixed over the next five years, with a decreasing profile over the period. 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 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 our 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 33 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 over £6 billion (British Land share over £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 drawn debt are well spread, 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 refinancing date horizon of not less than two years.

The current range of debt maturities is one to 20 years. In accordance with our usual practice, we expect to refinance facilities ahead of their maturities.

Maintain liquidity

In addition to our drawn debt, we aim always to have a good level of undrawn, committed, unsecured revolving bank facilities in British Land. 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 in British Land 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 is responsive to the need to manage our exposure such that we aim not to exceed a maximum proportionally consolidated LTV threshold in an economic downturn if market yields rise to previous peak levels.

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 bonds maturing in 2017 and 2020.

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

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 ratio

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 £6.5 billion as at 31 March 2016.

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 2016, these assets generated £63 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.

At 31 March

2012

2013

2014

2015

2016

Net borrowings to adjusted capital and reserves¹

Net unsecured borrowings to unencumbered assets²

Highest during the year to 31 March 2016:

¹ 42%; and

² 33%

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 £295 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 2019 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 Broadgate (£1,667 million), Meadowhall (£696 million) and the Sainsbury's Superstores portfolio (£463 million), have weighted average maturities of 12.1 years, 10.4 years, and 6.5 years respectively. The only financial covenant applicable is to meet interest and scheduled amortisation (equivalent to 1 times cover); there are no LTV 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 include LTV 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.

RISK MANAGEMENT AND PRINCIPAL RISKS

For British Land, effective risk management is a cornerstone of our strategy and fundamental to the achievement of our strategic objectives in delivery of long term sustainable returns. We focus on the management of the principal risks facing our business, including those risks that could threaten the Group's solvency and liquidity as well as identifying emerging risks, whilst at the same time making the most of our opportunities.

Our Risk Management Framework

Our integrated approach combines a top-down strategic view with a complementary bottom- up operational process outlined in the diagram below.

	Top-down strategic risk management	Bottom-up operational risk management
Board/Audit Committee	· Review external environment · Robust assessment of principal risks · Set risk appetite and parameters · Determine strategic action points	· Assess effectiveness of risk management systems · Report on principal risks and uncertainties
Risk Committee (Executive Directors)	· Identify principal risks · Direct delivery of strategic actions in line with risk appetite · Monitor key risk indicators	· Consider completeness of identified risks and adequacy of mitigating actions · Consider aggregation of risk exposures across the business
Business units	· Execute strategic actions · Report on key risk indicators	· Report current and emerging risks · Identify, evaluate and mitigate operational risks recorded in risk register

The Board takes overall responsibility for risk management with a particular focus on determining the nature and extent of principal risks it is willing to take in achieving its strategic objectives. This is set in the context of the external environment in which we operate - this is our risk appetite. The Audit Committee takes responsibility for overseeing the effectiveness of risk management and internal control systems on behalf of the Board, and also advises the Board on the principal risks facing the Group including those that would threaten its solvency or liquidity.

The Executive Directors are responsible for delivering the Company's strategy and managing risk. The Risk Committee (which is Chaired by the Chief Financial Officer and consists of all Executive Directors) is responsible for managing strategic and operational risk in achieving the Group's performance goals.

Whilst responsibility for oversight of risk management rests with the Board, the effective day-to-day management of risk is embedded in all areas of our business and forms an integral part of our core values and how we work. This bottom-up approach ensures potential risks are identified at an early stage, escalated as appropriate and mitigations are put in place to manage such risks. Each business unit maintains a comprehensive risk register which is reviewed quarterly by the Risk Committee, with significant and emerging risks escalated to the Audit Committee for consideration as appropriate.

Our Risk Appetite

The Group's risk appetite is reviewed annually (in the context of the core strengths of our business model) and approved by the Board. This evaluation guides the actions we take in executing our strategy. The most significant judgements affecting our risk appetite include our assessment of prospective property returns; our asset selection and investment strategy; the level of development exposure and our financial leverage.

British Land core strengths

· High quality commercial property focused on regional and local multi-let retail assets around the UK and London office campuses

· Placemaking strategy of creating Places People Prefer

· Customer orientation enables us to develop a deep understanding of the people who use our places

· Strong and diverse occupier base

· High occupancy and long lease lengths provides stable, secure cash flows

· Mixed use development expertise

· Ability to source and execute attractive investment deals

· Efficient capital structure with good access to capital and debt markets

· Sustainability credentials

We have identified a suite of Key Risk Indicators (KRIs) to monitor our principal risks, which are reviewed quarterly by the Risk Committee, to ensure that the activities of the business remain within our risk appetite and that our risk exposure is well matched to changes in the business and operating environment.

The Board has considered the Group's risk appetite and it is considered appropriate to achieve our strategic objectives. Our business is both resilient and well placed for the long term. Our portfolio is modern and nearly fully let to quality occupiers on long leases. We have maintained our capital discipline, with investment and development being broadly balanced by asset disposals, and reduced our proportionally consolidated LTV to 32%. Development continues to remain a core part of our business, and whilst our current commitment has reduced as our 2010 programme has recently completed, we are progressing an attractive future pipeline of development opportunities, with the flexibility to move forward when the time is right.

Risk Focus in 2015

The Board has undertaken a robust assessment of the principal risks facing British Land and our principal risks have evolved as a result of the uncertainty as to the outcome of the pending referendum on the UK's membership of the EU, increased geopolitical instability and cyber security. External factors, such as the macro economic environment, continue to dominate the risk landscape. Whilst we cannot control the external environment, we continue to actively monitor leading indicators on the economic and property cycle.

We continue to drive improvements in our risk management process and the quality of risk information generated, whilst at the same time maintaining a practical approach. During the year, we introduced an enhanced Information Security Policy with the aim of providing greater protection of British Land's electronic data by mandating increasingly secure processes, appropriate controls and operations and promoting awareness of cyber security. We have also reviewed and refreshed our Anti-Bribery and Corruption policies and controls.

The principal risks facing British Land are summarised below.

External Risks

Risks and impacts		How we monitor and manage the risk	Change in the period
Economic outlook	The economic climate and projections for interest rates present risks and opportunities in property and financing markets and the businesses of our occupiers.	· The Risk Committee reviews the economic environment in which we operate quarterly to assess whether any changes to the economic outlook justify a re-assessment of the strategy or risk appetite of the business. · Indicators such as forecast GDP growth, employment rates, business and consumer confidence, interest rates and inflation/deflation are considered, as well as central bank guidance and government policy updates. · We focus on prime assets and sectors which we believe will deliver outperformance over the medium term, benefiting from continuing occupier demand and investor appetite.	↑ The UK economy has remained robust however there is continued economic and political uncertainty and concerns over the forthcoming EU referendum. Uncertainty remains over when interest rates will rise, albeit consensus has pushed back their expectations for interest rate rises and expects the increase will not be steep.
Political outlook	Significant political events (including the pending EU referendum) and policies, bring risks both in terms of uncertainty until the outcome is known and the impact of policies introduced principally in two areas: · reluctance of investors and businesses to make investment decisions whilst the outcome remains uncertain; and · on determination of the outcome, the impact on the case for investment in the UK, and on specific policies and regulation introduced, particularly those which directly impact real estate.	· Whilst we are not able to influence the outcome of significant political events, we do take the uncertainty related to such events and the range of possible outcomes into account when making strategic investment and financing decisions. · We engage public affairs consultants to ensure that we are properly briefed on the potential policy and regulatory implications of political events. Where appropriate, we act with other industry participants to influence the debate on these policies.	↑ Uncertainty remains as to the outcome of the pending referendum on the UK's membership of the EU. We maintain support for remaining in the EU. There is uncertainty over the new Mayor's approach to planning and housing. The geo-political environment remains unstable with immigration issues resulting from the ongoing unrest in the Middle East putting pressure on state resources in Europe.
Commercial property investor demand	Reduction in investor demand for UK real estate may result in falls in asset valuations and could arise from variations in: · the health of the UK economy; · the attractiveness of investment in the UK; · availability of finance; · relative attractiveness of other asset classes.	· The Risk Committee reviews the property market quarterly to assess whether any changes to the market outlook present risks and opportunities which should be reflected in the execution of our strategy. The Committee considers indicators such as margin between property yields and borrowing costs and property capital growth forecasts which are considered alongside the Committee members' knowledge and experience of market activity and trends. · We focus on prime assets and sectors which we believe will deliver outperformance over the medium term, benefiting from continuing occupier demand and investor appetite. · Strong relationships with agents and direct investors active in the market.	↑ There has continued to be a high level of investor demand for UK commercial property, both from domestic and international investors during the year. However, since the turn of the year, there has been a slowdown in transactions in part due to heightened global uncertainty and investors' concerns over the pending EU referendum. The market for the most attractive assets remained highly liquid, however investors are becoming increasingly discerning with some softening in demand for more secondary assets, particularly in retail.
Development cost inflation	Cost inflation presents a risk to the profitability of our development projects and has the potential to adversely affect our cash position and overall return on investment.	· For each project we make a judgement about apportionment of construction risk. Where we retain this risk we aim to fix costs early in the process, subject to other market factors, with key contractors subject to financial covenant review. · We factor in construction cost inflation for our projects as part of the investment appraisal process to assess the viability of each development. · We are working with our supply chain on initiatives to address skills shortages and to understand how resource constraints that could impact development costs in the long term.	↓ There are signs that construction cost inflation is moderating, reflecting lower raw material costs. However, tender prices still reflect the limited capacity in the industry with contractors seeking to rebuild margins and limit their risk exposure. We factor cost inflation into our development appraisals and for our projects under construction substantially all our costs are fixed.
Occupier demand and tenant default	Underlying income, rental growth and capital performance could be adversely affected by weakening occupier demand and occupier failures resulting from variations in the health of the UK economy and corresponding weakening of consumer confidence, business activity and investment. Changing consumer and business practices (including the growth of internet retailing, flexible working practices, and demand for energy efficient buildings), new technologies, new legislation and alternative locations may result in earlier than anticipated obsolescence of our buildings if evolving occupier and regulatory requirements are not met.	· The Risk Committee reviews indicators of occupier demand quarterly including consumer confidence surveys, employment and ERV growth forecasts, alongside the Committee members' knowledge and experience of occupier plans, trading performance and leasing activity in guiding execution of our strategy. · We have a diversified occupier base and monitor concentration of exposure to individual occupiers or sectors. We perform rigorous occupier covenant checks on an ongoing basis so that we can be proactive in managing exposure to weaker occupiers. · Ongoing engagement with our occupiers. Through our Key Occupier Account programme we work together with our occupiers to find ways to best meet their evolving requirements. · Our sustainability strategy links action on occupier health and wellbeing, efficiency, community and sustainable design to our business strategy. Our social and environmental targets help us comply with new legislation and respond to customer demands; for example, we expect all office developments to be BREEAM Excellent.	↔ The London occupational market has remained strong through the period with healthy take-up and record low vacancy rates; occupiers are increasingly thinking about requirements several years in advance. The market has, however, slowed since the turn of the year, as occupiers delay decisions until after the pending EU referendum. Looking forward the development pipeline indicates that office supply will remain constrained in the near-term, and potentially longer, if proposed developments continue to be delayed. In retail, the occupational market remains robust with increasing requirements from new entrants and for new store formats, particularly at the most attractive locations. Retailers are continuing to focus their portfolios on fewer, better stores which suits their omni-channel strategies. Challenges to retailer profitability include the Living Wage, business rates revaluation and the increasing cost of omni-channel platforms, including distribution.
Availability and cost of finance	Reduced availability of property finance may adversely impact ability to refinance debt and drive up cost. This may also result in weaker investor demand for real estate. · Increasing finance costs would reduce Underlying Profits.	· Market borrowing rates and real estate credit availability and activity are monitored by the Risk Committee quarterly and reviewed regularly in order to guide our financing actions in executing our strategy. · We maintain good relationships with our key financing partners and advisors. · We maintain a diverse range of sources of finance to provide access to funding as required. We aim always to have a good level of undrawn, committed, unsecured revolving facilities to ensure we have adequate financing availability to support business requirements and opportunities. · We work with industry bodies and other relevant organisations to participate in any debate of emerging banking regulations where our interests are affected.	↑ There continues to be good overall market appetite for real estate finance, depending on quality of the borrower, project and specific lender requirements. Overall, while there has been market volatility, financing costs remained relatively low. However, macro-economic uncertainties could adversely impact future liquidity and pricing.
Catastrophic business event	An external event such as a civil emergency, including a large-scale terrorist attack, cyber crime, extreme weather occurrence or environmental disaster could severely disrupt global markets (including property and finance) and cause significant damage and disruption to British Land's portfolio and operations.	We maintain a comprehensive crisis response plan across all business units as well as a head office business continuity plan. · The Risk Committee monitors the Home Office terrorism threat levels and we have access to security threat information services. · Asset emergency procedures are regularly reviewed and scenario tested. Physical security measures are in place at properties and development sites. · Asset risk assessments are carried out (e.g. security, flood, environmental, health and safety). · Our cyber security systems are backed up by incident management, disaster recovery and business continuity plans, all of which are regularly reviewed to be able to respond to changes in the threat landscape and organisational requirements. · We also have appropriate insurance in place across the portfolio.	↔ The Home Office threat level from international terrorism remains 'severe'. Our business continuity plans and asset emergency procedures have been reviewed and enhanced where appropriate. During the year, we introduced an enhanced Information Security Policy with the aim of providing greater protection of British Land's electronic data by mandating increasingly secure processes, appropriate controls and operations and promoting awareness of cyber security.

Internal Risks

Risks and impacts

How we monitor and

manage the risk

Change in the period

Investment Strategy

In order to meet our strategic objectives we must invest in and exit from the right properties at the right time. Significant underperformance could result from inappropriate determination and execution of our property investment strategy, including:

· sector selection and weighting;

· timing of investment and divestment decisions;

· exposure to developments;

· sector, asset, tenant, region concentration;

· co-investment arrangements.

Our investment strategy is determined to be consistent with our target risk appetite and is based on the evaluation of the external environment.

· Progress against the strategy and continuing alignment with our risk appetite is discussed at each Risk Committee with reference to the property markets and the external economic environment.

· Individual investment decisions are subject to robust risk evaluation overseen by our Investment Committee including consideration of returns relative to risk adjusted hurdle rates.

· Review of prospective performance of individual assets and their business plans.

· We foster collaborative relationships with our co-investors and enter into ownership agreements which balance the interests of the parties.

↔ We are focusing the business around long term trends and continue to see the benefits of the investments we made in recent years. In line with our priorities set out last year, we have focused our investment on London and the South East, and investing around transport infrastructure; we've achieved some key development milestones and are also getting closer to our customers. In Retail, we made £420 million of disposals as we increase our focus on the multi-let portfolio where we can put our placemaking skills to work to drive rental growth.

Development exposure

Development provides an opportunity for outperformance but this brings with it elevated risk. The care with which we make our decisions around which schemes to develop when, as well as our execution of these projects, must reflect this.

Development risks could adversely impact underlying income and capital performance including:

· development letting exposure;

· construction timing and costs;

· major contractor failure;

· adverse planning judgements.

We maintain our levels of total and speculative development exposure as a proportion of the investment portfolio value within a target range taking into account associated risks and the impact on key financial metrics. This is monitored quarterly by the Risk Committee along with progress of developments against plan.

· Prior to committing to a development, the Group undertakes a detailed appraisal overseen by our Investment Committee including consideration of returns relative to risk adjusted hurdle rates.

· Pre-let targets are used to reduce development letting risk where considered appropriate.

· We actively engage with the communities in which we operate, as detailed in our Local Charter, to ensure that our development activities consider the interests of all stakeholders.

· We manage environmental and social risks across our development supply chain by engaging with our suppliers, including through our Sustainability Brief for Developments and Health and Safety Policy.

↔ Development is an important part of our business and a key driver of returns. We have assembled an attractive pipeline of development opportunities which gives us growth into the future, and where we are able to make timely decisions to reflect changes in market conditions. These include exciting opportunities across our three existing London campuses, the potential to create a new London campus at Canada Water, alongside significant investment opportunities in our existing Retail assets.

People

A number of critical business processes and decisions lie in the hands of a few people.

Failure to recruit, develop and retain staff and Directors with the right skills and experience

may result in significant underperformance or impact the effectiveness of operations and decision making, in turn impacting business performance.

Our HR strategy is designed to minimise risk through:

· informed and skilled recruitment processes;

· talent, performance management and succession planning for key roles;

· highly competitive compensation and benefits;

· people development and training;

The risk is measured through employee engagement surveys, employee turnover and retention metrics and regular 'people review' activities.

We monitor this through the number of unplanned executive departures in addition to conducting exit interviews.

We engage with our outsourced suppliers to make clear our requirements in managing key risks including health and safety, fraud and bribery and other social and environmental risks, as detailed in our Supply Chain Charter.

↔ Having expert people is one of the four core focus areas of our business model. We provide a strong corporate culture committed to our people, a great working environment, competitive benefits and career development opportunities. We empower our people to make the most of their potential with us. Our high level of staff engagement was recognised by maintaining a One Star rating in the Sunday Times Best Companies to Work For survey.

Capital Structure - leverage

We maintain a capital structure which recognises the balance between performance, risk and flexibility.

· Leverage magnifies returns, both positive and negative.

· An increase in leverage increases the risk of a breach of covenants on borrowing facilities and may increase finance costs.

· 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 monitor our LTV to manage leverage levels over the property cycle and seek to ensure that 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 only as a result of market yield improvement.

· We manage our investment activity, the size and timing of which can be uneven, as well as our development commitments to ensure that our LTV level remains appropriate.

· 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.

↔ Balance sheet metrics in the year remained strong. We have maintained our capital discipline with investment and development being broadly balanced by asset disposals, and reduced our proportionally consolidated LTV to 32% in line with our strategy to not increase leverage solely on the basis of an improvement in market yields.

Finance strategy execution

Our strategy addresses risks both to continuing solvency and the stability of our profits.

Failure to manage the refinancing requirement may result in a shortage of funds to sustain the operations of the business or repay facilities as they fall due.

This and a breach of financial covenant limits are considered to be significant risks to the continuing operation of British Land as a going concern.

We have five key principles guiding our financing which together are employed to manage the risks in this area: diversify our sources of finance, phase maturity of debt portfolio, maintain liquidity, maintain flexibility, and maintain strong balance sheet metrics.

· We monitor the period until refinancing is required, which is a key determinant of financing activity, and regularly evaluate the likelihood of covenant breach.

· We are committed to maintaining and enhancing relationships with our key financing partners.

· We are mindful of relevant emerging regulation which has the potential to impact the way that we finance the Group.

↔ We continue to achieve attractive financings which improve earnings and liquidity. We have completed over £1 billion of financing activity during the year, including a zero coupon £350 million senior unsecured convertible bond due 2020 which provides further diversification of our sources of finance, and includes flexible settlement options. Based on current commitments and our current available facilities, the Group has no requirement to refinance for at least four years.

Income sustainability

We must be mindful of maintaining sustainable income streams in order to continue to generate returns for our shareholders and provide the platform from which to grow the business through development and

capital appreciation.

We consider sustainability of our income streams in:

· execution of investment strategy and capital recycling, notably timing of reinvestment of sale proceeds;

· nature and structure of leasing activity;

· nature and timing of asset management and development activity.

· We undertake comprehensive profit and cash flow forecasting incorporating scenario analysis to model the impact of proposed transactions.

· Pro-active asset management approach to maintain strong occupier line-up. We monitor our market letting exposure including vacancies, upcoming expiries and breaks and tenants in administration as well as our weighted average lease length.

· We have a diversified occupier base and monitor concentration of exposure to individual occupiers or sectors.

· We are proactive in addressing key lease breaks and expiries to minimise periods of vacancy.

· We actively engage with the communities in which we operate, as detailed in our Local Charter, to ensure we provide buildings that meet the needs of all relevant stakeholders.

↔ The quality of our portfolio and environments enables us to attract some of the strongest occupiers to our properties; this, together with our high occupancy levels and long lease lengths, provides security of income. We are increasing the diversity of our occupier mix and no single occupier accounts for more than 5.7% of revenues. In delivering our investment strategy we are mindful of the impact on our income security.

Key

Change from last year:

↑ Risk exposure has increased

↔ No significant change in risk exposure

↓ Risk exposure has reduced

Directors' responsibility statement

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, and the parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law).

Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and accounting estimates that are reasonable and prudent;

· state whether IFRSs as adopted by the European Union and applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and parent Company financial statements respectively; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

Each of the Directors confirm that to the best of their knowledge:

· the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

· the Strategic Report and the Directors' Report include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

By order of the Board.

Lucinda Bell

Chief Financial Officer

16 May 2016

This information is provided by RNS

The company news service from the London Stock Exchange

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