Final Results - Part 1

RNS Number : 3583F

British Land Co PLC

17 May 2017

The British Land Company PLC Full Year Results

17 May 2017

Chris Grigg, Chief Executive said: "We are reporting a good set of results today despite an uncertain environment over the last 12 months. We are particularly pleased by the increase in underlying profits, by our strong leasing performance across the business and by the very successful sales we have made. The increase in valuations in the second half is also better than many expected six months ago. These results reflect the continuing execution of our strategy, providing space that responds to changing lifestyles and really fulfils customers' needs. We expect to be operating in an uncertain environment for some time; in this context we will benefit from the resilience of our business, the quality of our portfolio and the strength of our finances. We also look forward with cautious optimism as we believe that we can generate incremental returns by allocating capital to development opportunities we have created, whilst keeping risk at an appropriate level and maintaining flexibility to respond to changes in our markets."

Good financial performance reflecting an active year executing our strategy

• Underlying profit +7.4% to £390 million (2015/16: £363 million); IFRS PBT of £195 million (2015/16: £1,331 million)

• EPRA NAV -0.4% to 915 pence; IFRS Net Assets at £9.5 billion (2015/16 £9.6 billion)

• Final quarterly dividend of 7.3 pence (+3.0%); bringing the full year to 29.2 pence (+3.0%)

• 2017/18 full year dividend of 30.08 pence per share proposed, +3.0%; first quarter 7.52 pence

• Total accounting return of +2.7% (2015/16: +14.2%)

Modest reduction in valuation, improving performance in the second half and continuing ERV growth

• Portfolio valuation -1.4%; +1.6% gain in H2; 15 bps yield expansion in the year

• Offices valuation -0.7%; ERVs +0.5%

• Retail valuation -1.8%; ERVs +1.6% with multi-let +2.4%

Strong leasing and operational performance, evidencing good demand for the places we create

• 1.7 million sq ft of lettings and renewals across the portfolio, 8.0% ahead of ERV, adding £22 million of rent

• Occupancy 98%, with average lease length of 8.3 years

• 1.3 million sq ft of Retail lettings and renewals, 10.8% ahead of ERV; letting more space on better terms, to a broader range of occupiers than a year ago

• Outperforming benchmarks on footfall by +240 bps and in-store sales growth by +220 bps

• 279,000 sq ft of Office lettings and renewals, 1.4% ahead of ERV, letting up standalone developments

• Under offer or in advanced negotiations on a further 700,000 sq ft at our campuses, including 310,000 sq ft pre-let of proposed redevelopment of 1 Triton Square, Regent's Place; further 850,000 sq ft of discussions

• 44% reduction in carbon intensity versus 2009 (2015/16: 40%) as we progress towards our 55% reduction target by 2020

£2 billion of gross capital activity - well positioned to exploit optionality in our pipeline

• £1.5 billion of disposals, 9% ahead of valuation; includes sale of 50% interest in The Leadenhall Building for £575 million which is expected to complete post year end in May 2017

• Retail disposals of £881 million at an average yield of 4.3%; includes Debenhams, Oxford Street for £400 million and £226 million of superstore sales reducing weighting of superstores to 4% of the total portfolio

• £195 million acquisitions focusing on adjacencies; £292 million capital spend; net divestment £1.1 billion

• Speculative development commitment below 4%; £1.7 billion pipeline across a range of uses benefiting from 2.3 million sq ft of planning consents secured in the year, plus Canada Water

Improved financial position with continued access to low cost finance

• LTV at 29.9% (March 2016: 32.1%) and weighted average interest rate at 3.1% (March 2016: 3.3%); LTV at 26.9% and weighted average interest rate at 3.4% pro-forma for sale of The Leadenhall Building

• Based on current commitments, the Group has no requirement to refinance until early 2021

Year Ended 31 March	2016	2017	Change
Income statement
Underlying profit¹	£363m	£390m	+7.4%
Diluted underlying earnings per share^1,2	34.1p	37.8p	+10.9%
IFRS profit before tax	£1,331m	£195m
IFRS basic earnings per share	131.2p	18.8p
Dividend per share	28.36p	29.20p	+3.0%
Total accounting return¹	14.2%	2.7%
Balance sheet
Portfolio at valuation (proportionally consolidated)	£14,648m	£13,940m	-1.4%³
EPRA Net Asset Value per share¹	919p	915p	-0.4%
IFRS net assets	£9,619m	£9,476m
Loan to value ratio (proportionally consolidated)	32.1%	29.9%

¹See Glossary for definition

²See Note 2 to the condensed set of financial statements

³ Valuation movement during the year (after taking account of capex) of properties held at the balance sheet date, including developments (classified by end use), purchases and sales

Financial disclosure

Reflecting the long term nature of our business, we will cease publication of first and third quarter trading updates going forward. We will continue to provide trading updates ahead of our AGM each year. The next AGM is scheduled for 18 July 2017 and we will continue to provide timely updates on the business as appropriate.

Investor Conference Call

A presentation of the results will take place at 9.30am today, 17 May 2017, 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:	9929006#

For Information Contact

Investor Relations
Jonathan Rae, British Land	020 7467 2938

Media
Pip Wood, British Land	020 7467 2838
Guy Lamming, Finsbury	020 7251 3801
Gordon Simpson, 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 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 Risk Management and Principal Risks. 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 or profit estimate. 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, Disclosure Rules, Transparency Rules and the Market Abuse Regulations), 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

Our portfolio of high quality UK commercial property is focused on Retail around the UK and London Offices. We own or manage a portfolio valued at £19.1 billion (British Land share: £13.9 billion) as at 31 March 2017 making us one of Europe's largest listed real estate investment companies.

Our strategy is to provide places which meet the needs of our customers and respond to changing lifestyles - Places People Prefer. We do this by creating great environments both inside and outside our buildings and use our scale and placemaking skills to enhance and enliven them. This expands their appeal to a broader range of occupiers, creating enduring demand and driving sustainable, long term performance.

Our Retail portfolio is focused on Regional and Local multi-let centres, and accounts for 48% of our portfolio. Our Offices portfolio comprises three office-led campuses in central London as well as high quality standalone buildings and accounts for 49% of our portfolio. Increasingly our focus is on providing a mix of uses and this is most evident at Canada Water, our 46 acre redevelopment opportunity where we have plans to create a new neighbourhood for London.

Sustainability is embedded throughout our business. Our places, which are designed to meet high sustainability standards, become part of local communities, provide opportunities for skills development and employment and promote wellbeing. Our industry-leading sustainability performance led to British Land being named a European Sector Leader in the 2016 Global Real Estate Sustainability Benchmark for the third year running.

In April 2016 British Land received the Queen's Award for Enterprise: Sustainable Development, the UK's highest accolade for business success for economic, social and environmental benefits achievements over a period of five years.

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

CHIEF EXECUTIVE'S REVIEW

We have delivered good results despite challenges in our markets following the EU referendum. Our markets were stronger than many anticipated and our strategy, which positions us to benefit from long term trends, is delivering. Rising consumer expectations, the blurring of work and leisure time and the transforming impact of technology are the key themes shaping demand for our space. Nearly one year after the referendum, we see clear signs that the impact of these trends is accelerating, driving polarisation in our markets. Our leasing performance has been good, contributing to strong earnings growth; we have intensified our focus on where our placemaking expertise can enhance value, attracting a broader range of occupiers; and we have sold well, providing the capital to exploit opportunities we have within our portfolio.

Our strategy is to differentiate our space by providing places which reflect people's changing lifestyles. We use our placemaking expertise to create great environments both inside and outside our buildings - creating Places People Prefer. This underpins our focus on our multi-let retail properties and our London campuses which are increasingly mixed use.

Investment markets were weaker in the first half, reflecting uncertainty both before and after the referendum, but improved in the second half as the UK economy proved resilient. Overall, our EPRA net asset value was down just 0.4% to 915 pence per share. Retail and Offices valuations were down 1.8% and 0.7% respectively, with both sectors experiencing yield expansion in the first half but modest contraction in the second half. Our disposals provide clear evidence to support these valuations.

Our portfolio is virtually full with occupancy of 98%. Despite the low level of vacancy, we signed 1.7 million sq ft of lettings and renewals in the year, on average 8.0% ahead of ERV. In both the retail and office markets we are seeing an increasing focus on the best space in the best locations.

In Offices, where the result of the referendum created greater uncertainty, we have seen occupiers continuing to commit, but often after longer and more thoughtful decision making processes. Our leasing performance was strong, with space let or terms renewed on 279,000 sq ft of space in the year, on average 1.4% ahead of ERV. This included the remaining space at The Leadenhall Building and Marble Arch House. At 7 Clarges Street, the office space was over 80% let just four months after launch. In addition, we have 700,000 sq ft of space under offer or in advanced negotiations across our development pipeline. This includes 102,000 sq ft at 4 Kingdom Street where almost 80% of the office space was under offer within a week of completion in April 2017, on terms ahead of pre-referendum ERVs, and 1 Triton Square where we are under offer on 310,000 sq ft representing all of the office space on the proposed redevelopment.

Our focus on London remains. We expect London to continue as a leading global city reflecting its diverse pool of intellectual capital and reputation for innovation, as well as its culture, language and strong regulatory and legal framework. Our activity this year is testament to the quality of our space which reflects the needs of today's occupiers. By providing space which reflects the evolving way people are working and blending their work and leisure time, we help our occupiers attract and retain key talent. Our newest spaces are more flexible, catering to the demands of big and small companies with the option of shorter lease term arrangements. This year, we will be launching a branded flexible workspace offer which enables us to capture incremental demand from the increasing number of small businesses taking space in London as well as meeting a growing need amongst our existing occupiers for flexible space for specific projects and teams. We have already agreed our first flexible workspace letting at 2 Finsbury Avenue, extending our relationship with an existing occupier at Paddington Central for their digital team.

In Retail, demand remained firm in the year, despite wider uncertainty for consumers and retailers alike. We let more space on better terms to a wider range of occupiers than in the previous year. This amounted to 1.3 million sq ft of leasing, on average 10.8% ahead of ERV. Consumer spending was resilient in the months following the referendum, but weaker sales data in recent months suggests that consumers are becoming more cautious with higher prices impacting disposable incomes. Retailers are also anticipating a more challenging environment, with import cost inflation, higher business rates in some areas and the National Living Wage putting pressure on margins.

These dynamics have increased retailers' focus on space which allows them to trade profitably across a range of channels. Our Regional and Local portfolio supports their strategy. Our Regional centres provide a broader offering, suited to larger, flagship stores and attracting visitors from a wide catchment for a longer dwell time. Our Local centres are convenient and accessible and so they work well for click and collect and more targeted shopping trips, as well as providing a range of amenities for local communities. Our placemaking activities and our community engagement encourage new and repeat visits to our sites and this has driven continued outperformance in both footfall (ahead of benchmark by 240 bps) and retailer in-store sales growth (220 bps ahead).

We have made good progress on our development pipeline. As well as completions at 4 Kingdom Street and the offices element of Clarges, we committed to the redevelopment of 100 Liverpool Street at Broadgate and works commenced there in December. UBS have now vacated 800,000 sq ft of space across the campus on completion of their occupancy of 5 Broadgate. Located at the gateway to our Broadgate campus and adjacent to the new Liverpool Street Crossrail station, this development progresses our vision to create a world class, mixed use destination at Broadgate providing a range of space, including significant additional retail and restaurants.

Gross investment activity since the start of the year totalled £2.0 billion and included the exchange of our 50% interest in The Leadenhall Building, which is due to complete later this month, reflecting our disciplined approach to capital allocation. This project has delivered annualised returns of 25% for us and our JV partner since our commitment in 2010 and demonstrates how our standalone office properties provide liquidity, allowing us to develop and trade opportunistically. On the retail side, we sold £881 million of single-let and non-core retail assets, including Debenhams, Oxford Street for £400 million and £226 million of superstores, reducing the weighting of superstores within our portfolio to 4%. Our £195 million of acquisitions were focused on adjacencies to existing holdings, notably the New George Street Estate in Plymouth (£64 million) which complements Drake Circus and 10-40 The Broadway (£49 million), adjacent to Ealing Broadway.

The net impact of our activity was a 7.4% increase in underlying profits to £390 million. Like-for-like income growth of 2.9%, together with lower finance costs reflected in a further reduction of our weighted average interest rate to 3.1%, has more than offset the impact of disposals. Diluted underlying EPS was up 10.9% at 37.8 pence per share. The final dividend payment will be 7.3 pence per share, bringing the full year dividend to 29.2 pence per share, an increase of 3.0% and contributing to a total accounting return of 2.7%. The Board is proposing a quarterly dividend of 7.52 pence per share or 30.08 pence for the coming year, a further increase of 3.0%. The impact of recent sales and expiries on future profits, our target payout ratio, and the uncertain environment influenced the Board's thinking, as well as the opportunities that we have within the portfolio to grow income over the medium term.

The impact of our investment activity has been to reduce our proportionally consolidated LTV to 29.9% at March 2017 from 32.1% in March 2016. This falls further to 26.9% pro-forma for the sale of The Leadenhall Building. With our completed developments substantially let, and good progress on planning and pre-let discussions across the pipeline, we are well placed to exploit the optionality we have to create value and grow income. We have identified near term and medium term opportunities that enable us to apply our development and placemaking expertise in progressing the delivery of our strategy.

Last week, we obtained approval from the London Borough of Camden on the redevelopment of 1 Triton Square at Regent's Place, where we are under offer on all of the office space. We expect to commit to this, as well as refurbishments of 135 Bishopsgate and 1 Finsbury Avenue at Broadgate in the coming months with an associated cost of c. £300 million.

Looking further ahead, our medium term pipeline covers a range of uses, including office-led development in London and retail and mixed use development across the country, notably Eden Walk in Kingston where we received planning permission for our 538,000 sq ft mixed use regeneration during the year. We will maintain an appropriate level of development risk; for our office-led developments commitment is likely to be influenced by the progress of pre-let discussions. We have a disciplined approach to capital allocation and retain flexibility to respond to the changing environment.

In addition, we are making progress at Canada Water where we are working closely with key stakeholders including the London Borough of Southwark. We held our fourth public consultation in May 2017 and are targeting submission of a planning application around the end of this financial year. We have held discussions with a wide range of potential occupiers and have been encouraged by the response.

British Land received the Queen's Award for Enterprise in 2016, the UK's highest accolade for business success. One year on, we are continuing to deliver strong economic, social and environmental performance. Our industry-leading energy and carbon reductions resulted in British Land being named European Sector Leader in the Global Real Estate Sustainability Benchmark for the third year running and in the CDP Climate A List, we rank in the top 9% of global companies tackling climate change. We have launched Bright Lights, our skills and employment programme helping a wide range of people into work within our industry. That includes within British Land. I was also particularly pleased to announce that we had updated our policy on Shared Parental Pay to provide equal enhanced benefits for all parents, one example of how we are promoting the development of a diverse and inclusive team.

Outlook

Looking forward, the picture is a mixed one. The Brexit process has begun but uncertainty will continue for some considerable time. Though the UK economy has performed well since the vote, we can expect more inflation and increasing pressure on disposable incomes. This will impact consumer behaviour and retailer profitability. London occupiers, particularly financial institutions, are making contingency plans but there is a wide range of possible outcomes here. Our conversations with occupiers tell us that a large majority continue to value London and believe in its place as a global centre, as we do.

Although we are seeing businesses taking longer to commit and being more thorough in assessing options, we see polarisation of both occupier and investor demand accelerating with an increasing focus on the best quality space. Our results show that our space continues to be attractive to occupiers and investors alike, with strong leasing across the portfolio, profitable disposals and material outperformance on our Retail operating metrics. This reflects the continuing execution of our strategy, providing space that responds to changing lifestyles and really fulfils customers' needs.

In this uncertain environment, we expect to benefit from the resilience of our business, the quality of our portfolio and the strength of our finances. We also look forward with cautious optimism as we believe that we can generate incremental returns by allocating capital to development opportunities we have created, whilst keeping risk at an appropriate level and flexibility to respond to changes in our markets.

Chris Grigg

Chief Executive

BUSINESS REVIEW

Key metrics

Year ended 31 March	2016	2017
Portfolio valuation	£14,648m	£13,940m
Occupancy	98.8%	98.0%
Weighted average lease length to first break	9.0 yrs	8.3 yrs

Total property return	11.3%	3.1%
- Yield shift	(17) bps	15 bps
- ERV growth	5.3%	1.1%
- Valuation movement	6.7%	(1.4)%

Lettings/renewals (sq ft)	1.3m	1.7m
Lettings/renewals vs ERV	6.8%	8.0%

Gross investment activity¹ (since 1 April)	£1,257m	£2,033m
- Acquisitions¹	£332m	£195m
- Disposals¹	(£618m)	(£1,546m)
- Capital investment	£307m	£292m
Net investment/(divestment)	£21m	(£1,059m)

On a proportionally consolidated basis including the Group's share of joint ventures and funds

¹Includes £594 million disposals that exchanged during the year ended 31 March 2017 and complete after 31 March 2017; includes £92 million acquisitions and £116 million disposals that exchanged and completed after 31 March 2017

Market and strategy

It is nearly one year since the UK voted to leave the European Union. In that time, the economy has outperformed expectations, with GDP projections for 2017 revised upwards to an average of 2% and unemployment below 5%, its lowest in over 40 years. However, we have entered a prolonged period of uncertainty and businesses will face a number of headwinds. Mindful of this background, but facing a clear need to move forward, occupiers are continuing to make decisions, but plans are taking longer to come to fruition.

This is reflected in our markets. IPD capital return fell 2.4% in the three months immediately following the referendum but since then, six months of positive capital returns totalling 2.0% have partially reversed this position.

On the investment side, overall volumes are down year-on-year. However, London offices saw a pick-up in activity towards the end of 2016, and momentum was sustained into 2017, with a number of high profile transactions, concluded at tight yields, generally ahead of valuation. This included our exchange of The Leadenhall Building, which demonstrates the continuing appeal of high quality, well located properties in London. In retail, activity has been subdued with a lack of quality stock being brought to the market. This has resulted in limited transactional activity in multi-let retail, although long term, secure income assets remain attractive to a range of investors.

We expect Brexit-related headwinds to impact our occupational markets. In offices, it will be some years before we have clarity on the impact of proposed regulatory changes which may affect occupier demand, particularly in financial services. However, demand from more creative sectors, which has accounted for a growing share of activity in recent years, has held up well, and we are encouraged that a number of leading global companies have reaffirmed their commitment to London since the referendum. Vacancy rates have risen from low levels to marginally above long term averages in both the City and West End following recent development completions. We expect further supply to apply downward pressure on market rents, but our experience today is that the right space in strong locations continues to command rents around pre-referendum levels. Central London development is forecast to be at elevated levels, but we are increasingly seeing plans being deferred or cancelled, and a significant proportion of the supply proposed in 2019 and 2020 remains uncommitted.

Retailers are facing a more challenging environment with cost pressures from a number of sources including the National Living Wage, business rates in some areas and import cost inflation. These factors will heighten their focus on the best space, where to date, demand has held up well. On the consumer side, confidence will be vulnerable to political and economic uncertainties and we have seen some evidence of softening retail spend in the first part of 2017 with inflation impacting disposable income.

Our view is that Brexit will accelerate polarisation in our markets. In recent years we have positioned our business to benefit from the long term trends driving demand for space, by providing places which reflect people's changing lifestyles. Our data-driven approach to understanding how people use our properties guides investment and placemaking activities across our portfolio, as well as our approach to targeting an increasingly broad range of occupiers. We provide places with a blend of uses and a mix of services in attractive environments, accommodating the preferences of our occupiers, their customers and employees. This is most effective where we control the wider surroundings, underpinning our focus on our multi-let retail properties and our London campuses.

Portfolio performance

YE 31 March 2017	Valuation £m	Valuation movement (%)	ERV growth (%)	Total property return (%)
Retail	6,654	(1.8)	1.6	3.5
Offices & Residential	7,015	(0.5)	0.5	3.0
Canada Water	271	(10.8)	0.9	(8.1)
Total	13,940	(1.4)	1.1	3.1

Our portfolio saw a valuation fall of 1.4% over the year. The decline of 2.8% in the first half was primarily due to outward yield shift of 19 bps. This was partially offset by a valuation increase of 1.6% in the second half when yields moved inwards by 5 bps and we benefited from the impact of sales, particularly our 50% interest in The Leadenhall Building which exchanged in the year. Valuations were also supported by continuing ERV growth.

The value of our Retail portfolio was down 1.8% reflecting total outward yield shift of 14 bps, with 18 bps movement in the first half partially offset by 3 bps contraction in the second half. We saw variation within Retail, with the strongest ERV growth on our multi-let portfolio at 2.4%. This was 2.5% at our Local centres, marginally ahead of our Regional centres at 2.3%. We saw a valuation fall on superstores of 5.2%, reflecting a fall in ERVs of 4.0%, but a stronger performance across our other single let assets with valuations up more than 5%. This reflected the sale of Debenhams, Oxford Street and lease extensions and rent increases agreed across our Homebase portfolio.

Offices were down 0.7% with outward yield movement of 15 bps for the full year, as 21 bps expansion in the first half was partially offset by 6 bps contraction in the second half. We saw the largest valuation falls on assets with near term expiries, particularly those properties vacated by UBS at Broadgate. Conversely, UBS' new building 5 Broadgate, gained in value benefiting from a long lease with RPI linked uplifts. The value of The Leadenhall Building also increased reflecting the sale price agreed 24% above valuation.

The value of Canada Water fell 10.8% reflecting the valuer's reassessment of development risk and returns, particularly on residential, as well as planning and feasibility costs not recovered. This 46-acre regeneration opportunity is valued at £6 million per acre. The next major value creation step is expected to be on securing planning.

Our portfolio outperformed IPD at the sector level, with Retail and Offices 60 bps and 40 bps ahead on a capital returns basis. Overall we underperformed the IPD universe which comprises 20% industrial assets which performed well this year, by 110 bps on a capital return basis and by 150 bps on a total return basis.

Investment and development activity

From 1 April 2016	Retail	Offices	Residential	Canada Water	Total
	£m	£m	£m	£m	£m
Purchases¹	187	-	-	8	195
Sales^1,2	(881)	(609)	(56)	-	(1,546)
Development Spend	20	132	21	10	183
Capital Spend	91	18	-	-	109
Net Investment	(583)	(459)	(35)	18	(1,059)
Gross Investment	1,179	759	77	18	2,033

On a proportionally consolidated basis including the Group's share of joint ventures and funds

¹Includes £43m acquisitions and £116m disposals that exchanged and completed post year end as part of the Tesco JV swap transaction resulting in a net £73m disposal of superstore assets; also includes a further £49m acquisition that exchanged and completed post year end

²Of which, £575m Offices sales and £19m Residential sales completing post year end

The gross value of our investment activity since 1 April 2016, as measured by our share of acquisitions, disposals, capital spend on developments and other capital projects was £2.0 billion. This includes £1.5 billion of sales on average 9% ahead of valuation, at an average yield of 4%. Net divestment was £1.1 billion.

Offices sales included our 50% interest in The Leadenhall Building, which exchanged in March for a headline price of £1.15 billion (100%). The sale, to C C Land, is conditional upon C C Land shareholder approval. A Special General Meeting of the shareholders of C C Land has been convened on 18 May 2017 to approve the transaction. We expect the transaction to complete shortly thereafter. This transaction is a good example of how our standalone office assets provide liquidity allowing us to develop and trade opportunistically. At our campuses we focus on delivering sustainable returns over the long term.

In Retail, we made £881 million of disposals, 3% ahead of valuation, comprising £709 million of single-let properties and £172 million of multi-let assets which were not aligned with our strategic goals. The largest sale was Debenhams, Oxford Street for a price of £400 million. We sold £226 million (£410 million gross value) of superstores including £116 million as part of our Tesco JV swap transaction which exchanged and completed after the year end, resulting in the termination of the last of our five Tesco joint ventures. In aggregate, our Tesco joint ventures delivered an annualised return of over 10% since the first one was established in 1997. Over the last five years, we have now sold over £900 million of superstores, reducing their weighting in the retail portfolio from 22% to 8% and in the overall portfolio from 13% to 4%. Multi-let retail now accounts for 78% of the retail portfolio increasing from 71% at the start of the year.

We have progressed sales at each of our residential schemes with £56 million exchanged over the year, on average 4.5% ahead of valuation with a further £27 million reserved at prices in line with March 2017 valuations. Sales at Aldgate Place were exchanged at prices in line with valuation, leaving just one apartment to sell. At The Hempel Collection, sales accelerated following the launch in March 2017, and a reduction in prices by 10%. At Clarges, Mayfair we intend to market the remaining 11 apartments following completion in late 2017 but we agreed the sale of one of the larger apartments in the year ahead of valuation following a one-off approach. This activity reduces our residential properties to sell to £210 million of which £150 million is at Clarges.

Our £195 million of acquisitions in the year were focused on adjacencies to existing holdings, notably our £64 million acquisition of the New George Street Estate in Plymouth which lies between Drake Circus and our proposed leisure scheme and our £49 million purchase of 10-40 The Broadway, Ealing which is adjacent to our Ealing Broadway Local retail centre. In both cases these acquisitions complement and enhance our existing plans.

Development spend totalled £183 million in the year. We completed almost 200,000 sq ft of office space at 4 Kingdom Street, Paddington Central and 7 Clarges Street and 187 apartments at Aldgate Place (Phase 1) and The Hempel Collection. Capital expenditure enhancing our assets was £109 million, including extensions and unit reconfigurations at our multi-let retail assets with directly associated income uplifts. We have invested £44 million improving our retail environments, notably at Meadowhall which accounted for £23 million, as part of our £60 million (100%) refurbishment. This completes at the end of 2017, and is the most significant investment in the centre since it opened in 1990, ensuring that it continues to meet consumers' evolving expectations. We are already seeing a good response from occupiers with 37 long term lettings and renewals signed here in the year. We have also invested £5 million enhancing the public realm at our London campuses, primarily Paddington Central, as part of a £12 million investment programme.

Developments

At 31 March 2017		BL Share
	Sq ft	Current Value	Cost to complete	ERV	ERV let/under offer	Resi Exchanged	Spec dev¹
	'000	£m	£m	£m	£m	£m	(%)
Completed in year	489	343	37	16	11	-
Committed	690	478	218	21	1	278	4%
Near term	1,083	345	338	43	25	-	6%
Medium term	3,031
Canada Water	5,500

On a proportionally consolidated basis including the Group's share of joint ventures and funds (except area which is shown at 100%)

¹Speculative development is defined as valuation plus costs to come less percentage pre-sold/pre-let as a proportion of the investment portfolio value. The near term figure quoted is the current position pro-forma for commitment of near term opportunities.

Following development completions, our speculative development exposure has reduced to below 4%. This is well within our internal risk threshold for speculative development. This threshold was reduced to 8% of overall portfolio value from 10% in the year, reflecting a moderation of our appetite for speculative development risk given uncertainty in our markets. Our most significant commitment is 100 Liverpool Street at Broadgate; totalling 520,000 sq ft, including 90,000 sq ft of retail. It is due to complete at the end of 2019, with costs to come of £152 million (BL share). We also commenced a 66,000 sq ft leisure development at New Mersey, Speke which is largely pre-let and expect to complete the residential element of Clarges, Mayfair later this year.

Construction cost forecasts continue to suggest a slowdown in the rate of growth over this year and next, despite increasing pressure on input costs. Our experience suggests that cost inflation is marginally lower than it has been over the last two years. However, we continue to take a cautious view and maintain prudent allowances within project budgets to reflect specific sectors and locations. 90% of the costs on our committed development programme have been fixed.

Our divestments, totalling £1.5 billion this year, our planning activity and progress on leasing discussions improve our optionality and leave us well placed to make timely decisions on commitments in our development pipeline. Our completed developments are substantially let, with almost 80% of the office space at 4 Kingdom Street under offer, and over 80% of the office space at 7 Clarges Street let. Leasing discussions on our committed pipeline are progressing and we are under offer on all of the office space at our proposed redevelopment of 1 Triton Square. This activity enables us to progress developments whilst keeping speculative commitments at an appropriate level. We secured planning consents totalling 2.3 million sq ft in the year across the portfolio and submitted planning applications on a further 1.3 million sq ft. This provides for a much wider range of opportunities in the near and medium term than we had at the start of the year.

In our near term pipeline, we expect to commit to the refurbishments of 1 Finsbury Avenue (288,000 sq ft) and 135 Bishopsgate (325,000 sq ft) at Broadgate, in the coming months following receipt of planning and agreement with our joint venture partner. Our plans at both include increasing retail and leisure space by 88,000 sq ft including a cinema and roof terrace being added to 1 Finsbury Avenue. Royal Bank of Scotland will be surrendering their lease at 135 Bishopsgate in June 2017 ahead of expiry in 2019 and we will receive a payment of £34 million (100%) compensating for the remaining lease term and dilapidations; we are already seeing good interest on a significant portion of the space here. At 1 Triton Square we are currently under offer on all of the office space, and have received approval from the London Borough of Camden for our redevelopment. Subject to completion of the planning process and the pre-let, we expect to commit and to start on site in March next year. This will coincide with the expiry of short term leases agreed to maintain optionality for the redevelopment of this site while mitigating holding costs. On the retail side, we are refining our plans for a 104,000 sq ft leisure scheme at Drake Circus in Plymouth and we expect to start on site next year. In total, these commitments amount to £338 million of spend and would take our speculative development commitment to 6%.

Looking further ahead, our medium term pipeline covers a range of uses, including office-led development in London, and retail and mixed use developments across the country and at Canada Water. The majority of these projects are income producing, (including 2 & 3 Finsbury Avenue and Eden Walk) or are held at low cost (Blossom Street and the proposed leisure scheme at Meadowhall) providing us with real optionality on the timing and nature of our commitment. The total potential cost associated with these opportunities is £1.4 billion plus Canada Water. We will maintain an appropriate level of development risk, and so on our office-led developments, commitment is likely to be influenced by the progress of pre-let discussions. We have a disciplined approach to capital allocation and retain the flexibility to respond to the changing environment.

Opportunities at our campuses include the 105,000 sq ft Gateway Building at Paddington Central, where we are in advanced negotiations with an operator for a boutique hotel on the site of the current management suite. We expect to proceed if these discussions are successful, subject to planning. We are also working to enhance the existing consent for a 240,000 sq ft office building at the site of 5 Kingdom Street. In the meantime, we have let space on a short term basis to Pergola Paddington Central, who are creating an 850-capacity pop up dining concept which benefits the broader campus. At Broadgate, we have secured planning for a 563,000 sq ft redevelopment of 2&3 Finsbury Avenue; UBS have vacated 2 Finsbury Avenue and we have secured short term lettings on 90% of this space whilst their lease at 3 Finsbury Avenue remains in place (break in late 2018). Looking further forward, we expect to take vacant possession of 1-2 Broadgate in summer 2019 and are working up our plans for a 375,000 sq ft scheme which will include a substantial retail element. At Blossom Street, we have secured full consent on a 340,000 sq ft office-led mixed use development.

Our retail opportunities include a 322,000 sq ft leisure extension at Meadowhall. We have submitted our plans and expect a decision over the summer with a view to starting on site in 2018. Our plans envisage a multi-level Leisure Hall with dining and entertainment options alongside high quality internal and external spaces for events and community use, including new restaurants, a new cinema, café court and gym.

Eden Walk is a 538,000 sq ft mixed use, regeneration scheme in Kingston, which we own in joint venture with USS. In March 2017, we achieved consent for our development, which includes 40 new retail and restaurant units, 380 new homes and 35,000 sq ft of high quality, modern and flexible office space. Our proposal will create an estimated 600 additional jobs for local people. We are progressing our plans to secure vacant possession of the site, and expect to commence development in 2019, but in the meantime the scheme is income producing with a yield of 3.4%.

Canada Water is the most significant development opportunity in our medium term pipeline; the shopping centre and leisure scheme remain income producing with a yield of 2.8%. We are working closely with the London Borough of Southwark, the Greater London Authority, Transport for London and the local community on our masterplan for the 46 acre site, with plans for up to 5.5 million sq ft of space across a wide range of uses. This includes 2 million sq ft of workspace and 1 million sq ft of retail and leisure space alongside educational and cultural uses and up to 3,500 new homes. These will include a mix of affordable and market priced housing as well as a more targeted provision, including student accommodation. The revised masterplan integrates principles of sustainability and wellbeing which will create a new urban centre for London. Our active programme of engagement with the local community and other stakeholders includes our fourth public consultation which started earlier this month and we are targeting submission of a planning application around the end of the financial year. We will evaluate phasing of the project and potential funding structures as we move closer to securing planning. In the meantime, we have been engaging with a wide range of potential occupiers and are encouraged by the interest. In the short term, we have created an exciting new events space at the Printworks to raise the public profile of the area and to generate income, as well as testing the appetite for this kind of facility within our plans. The space has already played host to Secret Cinema and Mulberry in London fashion week, and now regularly hosts cultural events. In total, almost 100,000 people have attended events there.

More details on the portfolio, property performance, individual developments and assets sold and acquired during the year can be found in the detailed supplementary tables

Retail Placemaking

Key metrics

Year ended 31 March	2016	2017
Portfolio valuation (BL share)	£7,341m	£6,654m
- Of which multi-let	£5,222m	£5,102m
Occupancy	99.0%	98.3%
Weighted average lease length to first break	9.8 yrs	8.6 yrs

Total property return	7.8%	3.5%
- Yield shift	(13) bps	14 bps
- ERV growth	2.4%	1.6%
- Multi-let ERV growth	3.4%	2.4%
- Valuation movement	2.4%	(1.8)%

Lettings/renewals	903,000 sq ft	1,272,000 sq ft
Lettings/renewals vs ERV	8.0%	10.8%

On a proportionally consolidated basis including the Group's share of joint ventures and funds

Our Retail business has had a successful year, evidenced by our continued strong leasing, our operational metrics which are outperforming and our ERV growth which is ahead of the market, particularly where we have invested. This is our tenth consecutive year of outperformance on a total returns basis. This is testament to our strategy, which is to create outstanding places for modern consumer lifestyles.

The growth of online has driven polarisation in retail, as occupiers are increasingly focused on the best, and the most appropriate space to profitably grow sales across all channels. We expect this trend to accelerate in the coming years, as retailers face a range of headwinds such as cost inflation and weaker consumer spending while the terms on which the UK leaves the EU are negotiated. For many of our occupiers, the best space means a number of flagship or "hub" stores supplemented by a network of more convenient outlets which ensure sufficient coverage and are an important part of online fulfilment networks, including click and collect. This mirrors our strategy in Retail which is to operate both Regional centres, attracting visitors from a wide catchment for planned trips, with a breadth and depth of retail and leisure, and Local centres which fit into the daily life of communities and are more convenient and accessible.

Our focus is on our occupiers and their customers and we use a range of sources to understand needs. We engage with consumers directly through shopper surveys and collect data on their online interactions, generating insights about how, when and where people like to shop. This guides everything from our investment in the portfolio to the occupiers we are targeting, enabling us to position our centres to be the best in their catchment, for the range of shopper missions they serve. A high level of customer services is a key element of our offering and we now manage our retail assets in-house through Broadgate Estates; this transition was completed in the year and we have been very pleased with how this has enabled us to deliver a consistent and a high standard of service across our retail portfolio.

This year, footfall and in-store sales (which exclude click and collect and the boost to online from physical stores), outperformed their benchmarks by 240 bps and 220 bps respectively, but both were flat overall. Differing dynamics were evident across our portfolio, with footfall at our Regional centres down 1.9% but sales up 0.3% illustrating how people are visiting these larger centres less frequently, but spending more. At our Local centres, footfall was up 2.1% but in-store sales were down 0.7% reflecting greater click and collect usage at these sites which is not included within in-store sales. Our True Value of Stores research, conducted in the year with retail consultancy GlobalData illustrated the important role physical stores play in boosting sales across other channels, including click and collect. On average, click and collect usage is 46% greater at our Local centres than the national average and click and collect customers spend around 50% more than the average shopper. This outperformance illustrates that in a polarising market, our centres are attracting a disproportionate share of consumer demand.

This year, despite a more uncertain trading environment, and with the portfolio virtually full at 98%, we let more space, on better terms, to a wider range of occupiers than in the previous year. Lettings and renewals totalling 1.3 million sq ft were signed in the year, on average 10.8% ahead of ERV. Our Regional centres accounted for approximately two-thirds of this activity but both Regional and Local centres achieved leasing terms which were strongly ahead of ERV.

Our leasing covered a broad range of sectors, but we were particularly successful in fashion, homewares and food & beverage which accounted for 25%, 27% and 15% of leasing respectively. Reflecting our customers' preferences, our plans are to increase the leisure and food & beverage allocation across our portfolio from the current position of 10% (up from 6% four years ago), and we made good progress on this in the year with 133,000 sq ft of lettings. We are particularly pleased that several of our occupiers have chosen our assets for their first out of town locations including Thaikhun, Wahaca, Smiggle, Superdry, Charles Clinkard and Pret-A-Manger. This success reflects an increasingly sophisticated pitching process which leverages our insights to help prospective occupiers understand our offer and positioning within our catchments. A number of operators, including Primark, JD Sports, Sports Direct and Schuh chose to locate more of their flagship stores with us in the year, by adding to their existing space at our Regional centres. At our Local centres, we saw new lettings to Wilko, River Island, Nando's and more community focussed occupiers such as Explore Learning and local gyms. We are also appealing to more premium brands, particularly where we have invested and Meadowhall, is a good example of this. Neal's Yard, Nespresso, Hawes & Curtis, Flannels and Ghost London all signed in the year as our £60 million (100%) refurbishment programme nears completion.

This strong demand for our space is reflected in the re-letting of 90% of the 247,000 sq ft of space returned to us following BHS' administration, with long term leases at levels significantly in excess of previous passing rent.

Like-for-like rental growth (excluding surrender premiums) was 2.0%, driven by our strong leasing activity as well as rent reviews with over 120 reviews settled on average 3.4% ahead of passing rent and ahead of valuation assumptions. This year we renewed eight Homebase leases, totalling 283,000 sq ft extending the lease term to 15 years, increasing rents and providing a significant capital uplift for our single let portfolio.

ERV growth across our multi-let properties was 2.4% and this performance provides strong evidence that our strategy is working. Investment in our assets, guided by our insights has driven demand for our space, bringing our portfolio to near full occupancy, and generating the demand tension needed to drive rents. We are particularly pleased that ERV growth across assets benefiting from our investment was 3.2%, which was ahead of the portfolio average. At Colchester ERV growth was nearly 14% following completion of our £6 million investment to improve the public realm there, including a new playground, the addition of public art and reconfiguration of the car park.

Development spend in the year was £20 million and included a new leisure quarter at Glasgow Fort, with four new restaurants and a multi-storey car park adding 600 spaces and increasing car park capacity by over 30% to accommodate growing visitor numbers. This follows leisure and retail extensions in 2013 and 2015 which have underpinned improved operational performance at the centre. The centre is now ranked top in its category by CACI in Scotland. Our leisure extension at New Mersey, Speke, where construction commenced this year will add an 11-screen cinema, pre-let to Cineworld, and six restaurant units, significantly enhancing the leisure offering at this centre. Opening in summer 2018, we have already pre-let restaurants to Wagamama's, Nando's and TGI Friday. This year we achieved planning consents on 840,000 sq ft, covering a range of activity from large mixed use developments to small-scale improvements to existing properties, providing optionality for the future.

This year, capital spend in the retail portfolio totalled £91 million of which just over half were initiatives delivering an immediate increase in income. The remainder were initiatives to enhance environments with longer term benefits for our assets. The refurbishment programme at Meadowhall was the most significant of these, accounting for £23 million (BL share). This is part of our £60 million (100%) upgrade completing in late 2017. At Teesside, we are on site with a £30 million refurbishment programme to coincide with the centre's 25^th anniversary. Our improvements focus on the public realm and customer service facilities and will deliver more flexible space for our occupiers.

Our insight has also guided our placemaking activities across the portfolio. This year we staged a virtual Christmas present hunt at 21 Local and Regional centres, the largest ever augmented reality game in UK retail property. Eats from the Street, showcasing the best in UK street food returned to ten of our centres and we launched Street Style a fashion and beauty event which ran across seven of our assets. Our Young Readers Programme, run in partnership with the National Literacy Trust and retail occupiers, is in its sixth year and we are pleased that over 5,000 children took part this year. Our Bright Lights skills programme provided work placements with our retail and leisure occupiers for 70 local unemployed young people of which 75% moved into permanent jobs soon after. Initiatives such as these help enliven our places, attracting new and repeat visitors to our centres and foster stronger connections with local communities and our occupiers. The people who live in and around our assets are an important part of our catchment and their loyalty is increasingly relevant as customers have greater choices around how and where they shop.

Offices Placemaking

Key metrics

Year ended 31 March	2016	2017
Portfolio Valuation (BL share)	£6,790m	£6,844m
- Of which campuses	£5,032m	£4,960m
Occupancy	98.6%	97.7%
Weighted average lease length to first break	7.9 yrs	7.8 yrs

Total property return	15.4%	2.8%
- Yield shift	(21) bps	15 bps
- ERV growth	9.6%	0.5%
- Valuation movement	12.1%	(0.7)%

Lettings/renewals	296,000 sq ft	279,000 sq ft
Lettings/renewals vs ERV	5.6%	1.4%

On a proportionally consolidated basis including the Group's share of joint ventures and funds

Our Offices business has had a strong year. The portfolio is virtually full and we have made good progress letting space across our recently completed, committed and near term pipeline. In line with our strategy to create outstanding places for modern professional and consumer lifestyles we are increasing the mix of uses across our campuses, to appeal to a broader range of occupiers.

Office take up in central London has been led by the technology and media sectors, which are now the most significant component of demand, accounting for nearly one third of activity in 2016. With its pool of international talent and reputation for innovation, London has proved to be a magnet for these new and growing companies. This trend is driving a change in the type of space which is succeeding, with a growing emphasis on flexibility, co-working and wellbeing, as well as environments which are compatible with the way people's work and leisure time overlap. Financial services accounted for under 20% of take up, less than half the figure in 2010. This trend may accelerate further with regulatory and policy changes following Brexit, but the feedback we have is that the preference of financial services companies is to retain the majority of their operations in London because overwhelmingly this is where their employees want to live and work.

Our strategy focuses on providing the right space, the right services, and the right environments to meet this broader spectrum of demand. We have engaged more actively with the users of our space, and this year, launched the "Office Agenda" an online platform where we share key insights with workers and decision makers on topical issues including the role of real estate in attracting and retaining talent and "smart" offices. Our surveys of nearly 4,000 office workers and decision-makers provided valuable insight into what makes a great place to work, helping our occupiers refine their office strategy and enabling us to better reflect their needs.

At the portfolio level, this includes broadening the range of uses on our campuses with a higher allocation to retail and leisure, as well as delivering more flexible office space with floorplates which are easily divisible, enabling us to target a wider range of occupiers. At the campus level, we are applying our placemaking framework by enhancing and enlivening our assets with a comprehensive programme of events including exhibitions, art installations, concerts, wellbeing activities, pop-up shops, bars, markets and restaurants, and live screening of sports, theatre and film. We also partner with our occupiers on community initiatives, such as the Regent's Place Community Fund, where our partnership with occupiers has invested £30,000 this year to support local community projects, making a positive difference and strengthening our links with local communities. We survey occupiers across our campuses and our results show that satisfaction levels are high, and have improved over the last two years, particularly amongst key decision makers.

The success of our approach is demonstrated by our leasing activity, which this year totalled 279,000 sq ft, 1.4% ahead of ERV. 33,000 sq ft related to retail, leisure or community space. We have let a further 85,000 sq ft on a short term or meanwhile basis, adding uses which enliven our campuses and address lease expiries while preserving optionality for redevelopment. We were pleased that a number of our major occupiers re-committed to our campuses in the year, including Facebook who have agreed terms to further extend their occupation of 106,000 sq ft at 10 Brock Street. At 20 Triton Street, Dimensional Fund Advisors have agreed to a re-gear, taking their term to 10 years (original expiry June 2020), with an additional 12,000 sq ft and Credit Agricole have agreed to extend their 140,000 sq ft lease at Broadwalk House from 2019 to 2025. This activity, as well as the final lettings at Marble Arch House and The Leadenhall Building has increased like for like rent across the office portfolio by 4.5%.

We are also letting well across our recently completed and near term pipeline whilst successfully expanding our mix of uses. At 4 Kingdom Street, Paddington Central, we were almost 80% under offer on the office space within a week of completion in April. In aggregate, these leases are on terms 3% ahead of pre-referendum net effective ERVs and over 25% ahead of our Investment Committee assumptions at commitment in 2014. We have signed a two-year lease with Pergola Paddington Central for an 850-capacity pop-up dining destination on the site of 5 Kingdom Street. The venue will feature some of London's most popular restaurants and bars, including Patty & Bun, DF / Mexico and Raw Press and the offering will change each season. At Broadgate, we are addressing vacancies at 2 Finsbury Avenue with 90,000 sq ft of short term lettings, including to Theatre Delicatessen, a fintech company and an architecture practice.

We started on site at 100 Liverpool Street in the year. It sits at the gateway to our Broadgate campus, adjacent to Liverpool Street station where the first Crossrail services will commence next year. It covers 520,000 sq ft (an increase of 140,000 sq ft) and is designed to be divisible into units as small as 3,000 sq ft with shared facilities catering to demand from smaller businesses. 90,000 sq ft is allocated to retail and restaurants, and we are committed to both the WELL standard for wellbeing and the WiredScore Platinum rating for internet connectivity and infrastructure. This development is a good illustration of our strategy in Offices to deliver buildings which meet evolving customer needs and appeal to a broader range of occupiers. The redevelopment is expected to more than double rents at the building.

The next phase of development will see the mix of uses continue to evolve. Our revised plans for a 288,000 sq ft refurbishment at 1 Finsbury Avenue include a cinema, retail and restaurants at ground floor, and our proposals at 135 Bishopsgate allocate 43,000 sq ft to retail. We have submitted plans for refurbishment of these buildings, and are in discussions with prospective occupiers on nearly half of the combined space. We expect to commit to both refurbishments in the coming months with an associated cost of £90 million. At Paddington Central, we are in advanced negotiations with an operator to pre-let a boutique hotel and all day dining concept on the site of the existing management suite (the Gateway Building). At Regent's Place we are pleased that we are under offer on 310,000 sq ft representing all of the office space at our proposed redevelopment of 1 Triton Square, and received approval from the London Borough of Camden last week.

This means that across our campuses, we are under offer or in advanced negotiations on over 700,000 sq ft of space with significant discussions ongoing across the London business with potential occupiers on a further 850,000 sq ft of space, which could trigger further development commitments.

As part of our campus offering we will shortly launch a branded flexible workspace offer which enables us to capture incremental demand from the increasing number of small businesses taking space in London as well as meeting a growing need amongst our existing occupiers for flexible space for specific projects and teams. Our first flexible deal is on 25,000 sq ft at 2 Finsbury Avenue, extending our relationship with an existing occupier at Paddington Central, who need additional space for their digital team. This initiative strengthens existing relationships and attracts new occupiers to our campus, potentially our core occupiers of the future. We have allocated further space across our campuses including at 4 Kingdom Street, and we have commenced fit-out across 80,000 sq ft.

Following the exchange of The Leadenhall Building, our standalone office portfolio accounts for 22% of Offices. At 7 Clarges Street, the 51,000 sq ft office element of our mixed use development in Mayfair, we were pleased that over 80% of the space was let or under offer just four months after its launch in September. We achieved an average rent of £113 psf, on terms in line with pre-referendum net effective ERVs, demonstrating the continuing demand for quality office space in London. At Yalding House (29,000 sq ft) we have let four of the six floors and are under offer on the final two. Like The Leadenhall Building, these are buildings where we can develop and trade opportunistically, to provide liquidity in our portfolio and enhance returns.

FINANCE REVIEW

Year ended 31 March	2016	2017
Underlying Profit^1,2	£363m	£390m
Underlying earnings per share¹	34.1p	37.8p
IFRS profit before tax	£1,331m	£195m
Dividend per share	28.36p	29.20p
Total accounting return^1,3	+14.2%	+2.7%
EPRA net asset value per share^1,2	919p	915p
IFRS net assets	£9,619m	£9,476m
LTV ^1,4,5	32.1%	29.9%
Weighted average interest rate ⁵	3.3%	3.1%

¹ See Glossary for definitions

² See Table B within supplementary disclosure for reconciliations to IFRS metrics

³ See Note 2 within condensed financial statements for calculation

⁴ See Note 14 within condensed financial statements for calculation and reconciliation to IFRS metrics

⁵ On a proportionally consolidated basis including the Group's share of joint ventures and funds

Overview

We delivered a good set of results especially in the context of an uncertain environment, with Underlying Profit growth of 7.4% and underlying earnings per share (EPS) growth of 10.9%.

EPRA net asset value per share (NAV) decreased by 0.4% reflecting a portfolio valuation fall of 1.4% on a proportionally consolidated basis. It also includes the impact of no longer treating the 1.5% convertible bond as dilutive, as the share price was below the exchange price of 693 pence at the year end. Excluding this adjustment, NAV decreased by 1.7%.

We have been active, with £2.0 billion of gross capital activity (£1.1 billion of net capital activity). This comprises £1.5 billion of disposals of primarily single-let Retail assets and our 50% interest in The Leadenhall Building which completes after the year end. We have reinvested £0.3 billion in our developments and capital expenditure across the portfolio, and made £0.2 billion of acquisitions, primarily of assets adjacent to existing holdings.

The net proceeds from this activity improve our financial resilience and provide capacity for reinvestment into our portfolio, particularly on the broad range of development opportunities within our existing pipeline. The proportionally consolidated loan to value ratio (LTV) has decreased to 29.9% from 32.1% at March 2016. Our actions have reduced the proportionally consolidated weighted average interest rate to 3.1% from 3.3% at March 2016. Adjusting for the receipt of proceeds from the sale of our 50% interest in The Leadenhall Building, LTV is 26.9% and the weighted average interest rate is 3.4%.

Underlying Profit increased by 7.4% to £390 million; the impact of net sales has been more than offset by like-for-like rental growth, financing activity and a reduction in administrative expenses. The Group's operating cost ratio has reduced by 100 bps to 15.6% (2015/16: 16.6%).

IFRS profit before tax for the year of £195 million is lower than the prior year profit of £1,331 million, primarily due to the negative property valuation movement in the year.

As previously announced in May 2016, we increased the dividend for the year ended 31 March 2017 by 3.0%. Looking forward to next year we intend to increase the dividend by a further 3.0% to 30.08 pence per share, with a quarterly dividend of 7.52 pence per share.

Presentation of financial information

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

Management monitors Underlying Profit as this more accurately reflects the Group's financial performance and the underlying recurring performance of our core property rental activity, as opposed to IFRS metrics which include the non-cash valuation movement on the property portfolio. It is based on the Best Practices Recommendations of the European Public Real Estate Association (EPRA) which are widely used alternate metrics to their IFRS equivalents.

Management also monitors EPRA NAV as this provides a transparent and consistent basis to enable comparison between European property companies. Linked to this, the use of Total Accounting Return allows management to monitor return to shareholders based on movements in a consistently applied metric, being EPRA NAV, and dividends paid.

Loan to value (proportionally consolidated) is also monitored by management as a key measure of the level of debt employed by the Group to meet its strategic objectives, along with a measurement of risk. It also allows comparison to other property companies who similarly monitor and report this measure.

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	2016	2017
		£m	£m
Gross rental income		654	643
Property operating expenses		(34)	(33)
Net rental income	1.1	620	610
Net fees and other income		17	17
Administrative expenses	1.3	(94)	(86)
Net financing costs	1.2	(180)	(151)
Underlying profit		363	390
Non-controlling interests in Underlying Profit		14	14
EPRA adjustments¹		954	(209)
IFRS profit before tax	2	1,331	195
Underlying EPS	1.4	34.1p	37.8p
IFRS basic EPS	2	131.2p	18.8p
Dividend per share	3	28.36p	29.20p

¹ 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 2016			620
Capital activity			(23)
Like-for-like rental income growth			11
Expiries on properties in the development pipeline			(8)
Leasing of developments			10
Net rental income for the year ended 31 March 2017			610

The £10 million decrease in net rental income during the year was the result of like-for-like growth and leasing of developments partially offsetting the impact of capital activity and lease expiries.

Like-for-like rental income growth was 2.9% excluding the impact of surrender premia. Retail growth was 2.0% (1.6% including the impact of surrender premia). This was driven by strong leasing activity, asset management activities, such as splitting units, and additional turnover and car park income.

Office and Residential like-for-like growth was 4.5%; just over half of this was due to the letting up of completed developments that are now in the like-for-like portfolio, predominantly The Leadenhall Building and Marble Arch House which are both now full. The remainder is attributable to strong rent review activity, particularly at Regent's Place.

Lease expiries relating to properties in our development pipeline reduced net rents by £8 million, including £3 million at 100 Liverpool Street where we are on site and £3 million at 1 Triton Square which is under offer for redevelopment on a pre-let basis; we have received approval for this development from the London Borough of Camden. The successful letting of our recently completed development programme provided £10 million of additional rent this year. This brings the net impact of developments on net rental income to £2 million.

Looking ahead to next year, we expect transactions completing post year end to reduce rent by £18 million and future lease expiries relating to properties in the development pipeline to reduce rent by £6 million. Rental income growth will be driven by the letting up of developments and like-for-like growth.

1.2 Net financing costs

			£m
Net financing costs for the year ended 31 March 2016			(180)
Financing activity - debt related transactions			16
Financing decisions - lower interest rates			9
Acquisitions			(5)
Disposals			10
Completion of developments			(1)
Net financing costs for the year ended 31 March 2017			(151)

Financing costs were £29 million lower this year.

Debt related transactions over the last two years, including the £350 million zero coupon convertible bond, reduced costs by £16 million this year. In the current year, we used sales proceeds to repay unsecured revolving credit facilities and we completed the early repayment of the £295 million TBL Properties Limited secured loan. We agreed one year extensions on a total of £1.4 billion of our unsecured facilities and agreed a new £100 million bi-lateral facility. Our liability management, which is NPV positive, reduced NAV by 4 pence per share.

Our approach to interest rate management remains an important factor in reducing interest costs. The decision to keep a portion of our debt at floating rates has seen us benefit from lower market rates which has resulted in a reduction in financing costs of £9 million. The proportion of our projected debt held at fixed rates is 60% on average over the next 5 years. At 31 March 2017, our debt pro-forma for the sale of the Leadenhall Building was 78% fixed on a spot basis.

1.3 Administrative expenses

Administrative expenses decreased by £8 million this year as a result of managing down our cost base and lower variable pay. The Group's operating cost ratio has reduced by 100 bps to 15.6% (2015/16: 16.6%).

1.4 Underlying Earnings Per Share

Underlying EPS was 37.8 pence (2015/16: 34.1 pence) based on Underlying Profit after tax of £390 million (2015/16: £363 million). The increase in underlying EPS of 10.9% is more than the increase in Underlying Profit of 7.4% as the 1.5% convertible bond is no longer dilutive. As the share price was below the 693 pence exchange price at year end, no dilution adjustment was made (2015/16: £6 million interest added back and shares increased by 57.8 million), in line with EPRA guidance.

2. IFRS profit before tax

The main difference between IFRS profit before tax and Underlying 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 proportionally consolidated basis within Underlying Profit.

The IFRS profit before tax for the year was £195 million, compared to a profit before tax for the prior year of £1,331 million. This reflects the valuation movement on the Group's properties which was £760 million less than the prior year and the valuation movement on the properties held in joint ventures and funds which was £338 million less than the prior year, in both cases resulting from outward yield shift and a lower level of ERV growth in the current year.

IFRS basic EPS was 18.8 pence per share, compared to 131.2 pence per share in the prior year, driven principally by property valuation movements. The basic weighted average number of shares in issue during the year was 1,029 million (2015/16: 1,025 million).

3. Dividends

In line with intention announced in May 2016, we increased the dividend by 3.0% for the year to March 2017 which gives a full year dividend of 29.20 pence per share.

The fourth interim dividend payment for the quarter ended 31 March 2017 will be 7.30 pence per share. Payment will be made on 4 August 2017 to shareholders on the register at close of business on 30 June 2017.

The increase in Underlying EPS of 10.9% resulted in a reduction in the dividend pay-out ratio to 77% (2015/16: 83%).

In proposing the dividend for the coming year, the Board took into account the current market environment, our target payout range and drivers of next year's profits. It is the Board's intention to increase the dividend by 3.0% in 2017/18 to 30.08 pence per share, with a quarterly dividend of 7.52 pence per share, reflecting confidence in our ability to grow income over the medium term.

Balance sheet

	Section	2016	2017
		£m	£m
Properties at valuation		14,648	13,940
Other non-current assets		138	156
		14,786	14,096
Other net current liabilities		(257)	(364)
Adjusted net debt	6	(4,765)	(4,223)
Other non-current liabilities		(90)	(11)
EPRA net assets (undiluted)		9,674	9,498
Dilution impact of convertible bond		400	-
EPRA net assets (diluted)		10,074	9,498
EPRA NAV per share	4	919p	915p
Non-controlling interests		277	255
1.5% convertible bond dilution		(400)	-
Other EPRA adjustments¹		(332)	(277)
IFRS net assets	5	9,619	9,476

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. 2015/16 also includes an adjustment for the dilutive impact of the 1.5% convertible bond maturing in 2017. No dilution adjustment is made for the £350 million zero coupon convertible bond maturing in 2020. Details of the EPRA adjustments are included in Table B within the supplementary disclosures.

4. EPRA net asset value per share

			pence
EPRA NAV per share at 31 March 2016			919
H1 valuation movement			(39)
H2 valuation movement			19
Underlying Profit			36
Dividends			(27)
Finance transaction costs			(4)
1.5% convertible bond dilution reversal			12
Other			(1)
EPRA NAV per share at 31 March 2017			915

The 0.4% decrease in EPRA NAV per share reflects a valuation decline of 1.4%. Values fell by 2.8% in the first six months, followed by an upward revaluation of 1.6% in the second half of the year. The movement in the year reflected outward yield movement of 15 bps, partially offset by ERV growth of 1.1%. Net sales exchanged of over £1.5 billion, including Debenhams, Oxford Street and The Leadenhall Building, provided a positive contribution to the portfolio capital return of 0.9%.

Retail valuations were down 1.8% with outward yield movement of 14 bps partially offset by ERV growth of 1.6%; the multi-let portfolio saw stronger ERV growth of 2.4%, driven by good leasing activity.

Office and Residential valuations were down 0.5% with outward yield movement of 15 bps partially offset by ERV growth of 0.5%; We agreed the sale of Leadenhall at a price 24% ahead of the 30 September 2016 valuation and the valuers have recognised the majority of this increase in the 31 March 2017 valuation.

The 4 pence impact of finance transaction costs primarily relates to early repayment of term debt and termination of associated interest rate swaps.

There is a 12 pence benefit to EPRA NAV due to the reversal of the 1.5% convertible bond dilution included in 2015/16 results. As the share price was below the 693 pence exchange price at year end, no dilution adjustment was made (2015/16: £400 million debt deducted from net asset value and diluted number of shares increased by 57.8 million). Excluding this adjustment, NAV decreased by 1.7%.

5. IFRS net assets

IFRS net assets at 31 March 2017 were £9,476 million, a decrease of £143 million from 31 March 2016. This was primarily due to IFRS profit before tax of £195 million being less than the dividends paid in the year of £296 million.

Cash flow, net debt and financing

6. Adjusted net debt¹

			£m
Adjusted net debt at 31 March 2016			(4,765)
Disposals			853
Acquisitions			(103)
Development and capex			(263)
Net cash from operations			363
Dividends			(295)
UBS capital payment			10
Other			(23)
Adjusted net debt at 31 March 2017			(4,223)

¹ Adjusted net debt is a proportionally consolidated measure. It represents the Group net debt as disclosed in Note 14 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.

Capital activity reduced debt by £0.5 billion in the year. Completed disposals during the year included the sale of Debenhams, Oxford Street for £400 million, a portfolio of non-core Retail assets for £191 million and 8 superstores totalling £111 million (BL share). Acquisitions completed in the year included the New George Street Estate in Plymouth for £64 million which will now be managed as an integrated part of Drake Circus. Other investments included development expenditure of £189 million and capital expenditure of £74 million related to asset management on the standing portfolio.

Net divestment including transactions completing after the year end increases to £1.1 billion. This includes the expected completion of the sale of The Leadenhall Building sale for £575 million (BL share) and the completion of the Tesco JV swap transaction resulting in a net divestment of £73 million of superstore assets.

We received a £10 million capital payment received in December 2016 from UBS in relation to the development and occupation of 5 Broadgate, and subsequent exit of 100 Liverpool Street, including 8-10 Broadgate.

7. Financing

	Group		Proportionally consolidated
	2016	2017	2016	2017
Net debt / adjusted net debt ¹	£3,617m	£3,094m	£4,765m	£4,223m
Principal amount of gross debt	£3,552m	£3,069m	£5,089m	£4,520m
Loan to value	25.2%	22.6%	32.1%	29.9%
Weighted average interest rate	2.6%	2.4%	3.3%	3.1%
Interest cover	3.3	4.5	3.0	3.6
Weighted average debt maturity	7.2 years	6.9 years	8.1 years	7.7 years

¹ Group data as presented in note 14 of the condensed 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.

The balance sheet remains resilient. LTV and weighted average interest rate on drawn debt were reduced and interest cover improved. Our proportionally consolidated LTV was 29.9% at 31 March 2017, down 220 bps from 32.1% at March 2016 mainly reflecting the impact of disposals. This reduces by a further 300 bps to 26.9% pro-forma for the sale of The Leadenhall Building. Note 14 of the condensed financial statements sets out the calculation of the Group and proportionally consolidated LTV.

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- with the Outlook upgraded to 'Positive'.

Our proportionally consolidated weighted average interest rate reduced to 3.1% at 31 March 2017 from 3.3% at 31 March 2016. This reflects a 60 bps reduction principally as a result of our financing activity and decisions, partially offset by a rise of 40 bps due to repayment of cheaper facilities with sales proceeds received. This increases to 3.4% pro-forma for the sale of The Leadenhall Building.

Our weighted average debt maturity is 8 years.

British Land has £1.8 billion of committed unsecured revolving banking facilities. Of these facilities, £1.7 billion have maturities of more than two years and £1.3 billion was undrawn at 31 March 2017. Based on our current commitments, these facilities and scheduled debt maturities, we have no requirement to refinance until early 2021 regardless of whether our convertible bonds are cash or equity settled.

Lucinda Bell

Chief Financial Officer

FINANCIAL POLICIES AND PRINCIPLES

Leverage

We manage our use of debt and equity finance to balance the benefits of leverage against the risks, including a magnification of property valuation movements. A loan to value ratio ("LTV") measures our leverage, primarily on a proportionally consolidated basis including our share of joint ventures and funds and excluding non-controlling interests. Our current proportionally consolidated LTV of 29.9% is higher than the Group measure of 22.6%.

We aim to manage our LTV through the property cycle such that our financial position would remain robust in the event of a significant fall in property values. This means we do not adjust our approach to leverage based on changes in property market yields. Consequently our LTV may be higher in the low point in the cycle and will trend downwards as market yields tighten.

Debt finance

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

The Group's approach to debt financing for British Land is to raise funds predominantly on an unsecured basis with our standard financial covenants. This provides 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 on the following page are the five guiding principles that govern the way we structure and manage debt.

Monitoring and controlling our debt

We monitor our debt requirement by focusing principally on current and projected borrowing levels, available facilities, debt maturity and interest rate exposure. We undertake sensitivity analysis to assess the impacts of proposed transactions, movements in interest rates and changes in property values on key balance sheet, liquidity and profitability ratios. We also consider the risks of a reduction in the availability of finance including a temporary disruption of the debt markets.

Based on our current commitments and available facilities, the Group has no requirement to refinance until early 2021 (irrespective of whether the settlement of the 1.5% 2012 convertible bond is with equity or debt). British Land's committed bank facilities total £1.8 billion, of which £1.3 billion is undrawn.

Managing interest rate exposure

We manage our interest rate profile independently from our debt, considering the sensitivity of underlying earnings to movements in market rates of interest over a five-year period. The Board sets appropriate ranges of hedged debt over that period and the longer term.

Our debt finance is raised at both fixed and variable rates. Derivatives (primarily interest rate swaps and caps) are used to achieve the desired interest rate profile across proportionally consolidated net debt. Currently 60% on average of projected net debt is hedged over the next five years, with a decreasing profile over that period. The use of derivatives is managed by a Derivatives Committee, using delegated authority from the Board. The interest rate management of joint ventures and funds is considered separately by each entity's Board, taking into account appropriate factors for its business.

Counterparties

We monitor the credit standing of our counterparties to minimise our risk exposure in placing cash deposits and arranging 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 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 sources 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 our business enables us to access a broad range of unsecured and secured, recourse and non-recourse debt.

We develop and maintain 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 across a range of geographical areas, with a total of 30 debt providers in bank facilities and private placements alone. We work to ensure that debt providers understand our business, adopting a transparent approach to provide sufficient disclosures to enable them to 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 £4.6 billion (British Land share £3.9 billion) of new finance in unsecured and secured bank loan facilities,

US Private Placements and convertible bonds. In addition we have existing long dated debentures and securitisation bonds. A European Medium Term Note programme has also been maintained to enable us to access Sterling/Euro unsecured bond markets when it is appropriate for our business.

Phase

maturity

of debt

portfolio

The maturity profile of our debt is managed with a spread of repayment dates, reducing our refinancing risk in respect of timing and market conditions. We monitor the various debt markets so that we have the ability to act quickly to arrange new finance as opportunities arise which meet our business needs. 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 within one to 19 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 always aim to have a good level of undrawn, committed, unsecured revolving bank facilities. These facilities provide financial liquidity, reduce the need to hold resources in cash and deposits, and minimise costs arising from the difference between borrowing and deposit rates, while reducing credit exposure.

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

Maintain

flexibility

Our facilities are structured to provide valuable flexibility for investment activity execution, whether sales, purchases, developments or asset management initiatives. Our revolving credit facilities provide full operational 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. Alongside this unsecured revolving debt our secured term debt in debentures has good asset security substitution rights, where we have the ability to move assets in and out of the security pool.

Maintain

strong balance

sheet metrics

We use both debt and equity financing. We aim to manage LTV through the property cycle such that our financial position would remain robust in the event of a significant fall in property values and we do not adjust our approach to leverage based on changes in property market yields.

We manage our interest rate profile independently from our debt, setting appropriate ranges of hedged debt over a five year period and the longer term.

Group borrowings

Unsecured financing for the Group includes bilateral and syndicated revolving bank facilities (with initial terms usually of five years, often extendable); US Private Placements with maturities up to 2027; and the convertible bonds maturing in 2017 and 2020.

Secured debt for the Group (excluding debt in Hercules Unit Trust which is covered under

'Borrowings in our joint ventures and funds') is provided by debentures with longer maturities up to 2035.

Unsecured borrowings and covenants

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

· Net Unsecured Borrowings not to exceed 70% of Unencumbered Assets

No income or 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 £6.6 billion as at 31 March 2017.

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 2017, these assets generated £49 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 free cash flows generated by these ventures are regularly passed up to the Group.

Unsecured financial covenants

At 31 March	2013 %	2014 %	2015 %	2016 %	2017 %
Net borrowings to adjusted capital and reserves¹	31	40	38	34	29
Net unsecured borrowings to unencumbered assets²	23	31	28	29	26

____________

Highest during the year to 31 March 2017:

¹ 34%; and

² 29%

Secured borrowings

Secured debt with recourse to British Land is provided by debentures at fixed interest rates with long maturities and limited amortisation. These are secured against a 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 a fixed rate debenture of £30 million for BLD Property Holdings Ltd to 2020 secured by a small portfolio of properties.

The £295 million secured bank loan for TBL Properties Limited (and its subsidiaries) was repaid early on 30 September 2016.

Borrowings in our joint ventures and funds

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

Hercules Unit Trust and its joint ventures have term loan facilities maturing in 2019 and 2020 arranged for their business and secured on property portfolios, without recourse to British Land. These loans include LTV ratio (with maximum levels ranging from 40% to 65%) and income based covenants.

The securitisations of Broadgate (£1,616 million), Meadowhall (£670 million) and the Sainsbury's Superstores portfolio (£367 million), have weighted average maturities of 11.4 years, 9.7 years, and 5.9 years respectively. The key financial covenant applicable is to meet interest and scheduled amortisation (equivalent to 1 times cover); there are no LTV covenants. These securitisations have quarterly amortisation with the balance outstanding reducing to approximately 20% to 30% of the original amount raised by expected final maturity, thus mitigating refinancing risk.

There is no obligation on British Land to remedy any breach of these covenants in the debt arrangement of joint ventures and funds.

RISK MANAGEMENT AND PRINCIPAL RISKS

For British Land, effective risk management is a cornerstone of delivering our strategy and fundamental to the achievement of our objective of delivering sustainable long term value. We maintain a comprehensive risk management process which serves to identify, assess and respond to the principal risks facing our business, including those risks that could threaten the Group's solvency and liquidity, as well as identifying emerging risks. Our approach is not intended to eliminate risk entirely, but instead to manage our risk exposures across the business, 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.

The Board is responsible for the overall approach to risk management with a particular focus on determining the nature and extent of exposure to principal risks it is willing to take in achieving its strategic objectives. This is assessed in the context of the core strengths of our business below and the external environment in which we operate - this is our risk appetite.

British Land core strengths:

· High quality portfolio focused on multi-let retail across the UK and office-led campuses in London

· Placemaking to create Places People Prefer

· Customer orientation to respond to changing lifestyles

· Diverse and high quality occupier base

· High occupancy and long lease lengths provides 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 embedded in our strategy

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. Our risk management framework categorises our risks into external, strategic and operational risks and the Risk Committee (comprising the Executive Directors and Chaired by the Chief Financial Officer) is responsible for managing the principal risks in each category in order to achieve 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 within our operational business units 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 with mitigations 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.

Our risk appetite

The Group's risk appetite is reviewed annually as part of the annual strategy review process and approved by the Board. This evaluation guides the actions we take in executing our strategy. We have identified a suite of Key Risk Indicators (KRIs) to monitor the Group's risk profile 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 our business and our markets. These include the most significant judgements affecting our risk exposure, including our assessment of prospective property returns; our asset selection and investment strategy; the level of occupational and development exposure and our financial leverage.

The Board has considered the Group's risk appetite in light of the outcome of the UK's referendum on continued membership of the EU. Our strategy, which is based on long term trends, endures; we had already positioned the business for a range of outcomes with modest development exposure, high occupancy and robust finances. However, we have a range of tactical levers to address the evolving political and economic uncertainties.

We have moderated our development activity, reflecting increased uncertainty. We reduced our internal risk metric for the maximum we will develop speculatively from 10% of the portfolio to 8%, although our current exposure is much lower at 4%.

Our financial position is strong; our proportionally consolidated LTV has reduced to 26.9% reflecting asset sales (pro-forma for the exchange of The Leadenhall Building) and our financing has an average term of eight years on drawn debt with no requirement to refinance until early 2021.

The Board considers that the Group's risk appetite is appropriate to achieve our strategic objectives. Our business is both resilient and well placed to capture value in the long term.

Our changing risks and focus

The Board has undertaken a robust assessment of the principal risks and uncertainties that the Group is exposed to in light of the long term trends we are facing and in light of the EU referendum result. Several of our principal risks are elevated as a result of the increased political and economic uncertainty.

Looking forward, risks that also could be impacted while the terms and timing of exit are negotiated, and potentially beyond are: investor and occupier demand, availability of finance, execution of investment strategy and income sustainability. We remain mindful of potential headwinds going forward and our risk appetite and tactical decisions will reflect the evolving environment to ensure the business remains both resilient and well positioned to capture upside in the future.

Also, several of our principal risks have evolved in nature; the regulatory environment is now recognised within a broader 'Political and Regulatory Outlook' risk; and the 'Development Strategy' risk has been expanded to include development cost inflation.

Other areas of focus during the year included:

· Culture

· Cyber security

· Asset level crisis plan

· Fraud and whistleblowing

· Effectiveness review of our risk process

During the year, we have undertaken an effectiveness review of our risk management process, as well as an Internal Audit. Our risk management process appropriately supports the effective management of risks, whilst maintaining a practical approach and meeting the requirements of the UK Corporate Governance Code.

We have built on our existing process by embedding risk management discussions in the relevant business unit management committees and provided training for our risk specialists across the business.

This year we have hosted a major civil contingencies exercise simulating a large scale critical incident at one of our multi-let retail assets. This was undertaken with support from several police forces, fire and ambulance and other national agencies and enabled us to test our capabilities and preparedness in the event of a significant emergency.

The principal risks facing British Land are summarised in the table below.

PRINCIPAL RISKS

External risks

Risks and impacts		How we monitor and manage the risk	Change in the year
Economic outlook	The UK economic climate and future movements in interest rates present risks and opportunities in property and financing markets and the businesses of our occupiers which can impact both the delivery of our strategy and our financial performance.	· 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 risk appetite of the business · Key Indicators include 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 stress test our business plan against a downturn in economic outlook to ensure our financial position is sufficiently flexible and resilient · Our resilient business model focuses on a high quality portfolio, with secure income streams and robust finances	↑ The UK economy has remained robust and fared better than many expected following the EU referendum, with economic activity improving in the second half of 2016, albeit we have seen some evidence of softening retail spend in the first part of 2017. There is continuing uncertainty associated with the UK's future exit from the EU and other geopolitical changes, with a wide spectrum of views about future economic performance. Equity and foreign exchange markets have been volatile. Interest rates have remained low; but UK inflation is increasing, partly driven by the devaluation of sterling. We remain mindful of potential headwinds and have the flexibility to scale our development activity and risk exposures up or down to respond to market conditions, to ensure the business remains both resilient and well positioned to capture upside in the future.
Political and regulatory outlook	Significant political events and regulatory changes, including the decision to leave the EU, brings risks principally in two areas: · reluctance of investors and businesses to make investment and occupational 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 or our customers	· 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 · Internally we review and monitor proposals and emerging policy and legislation to ensure that we take the necessary steps to ensure compliance. Additionally 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 and representative bodies to contribute to the debate on regulatory changes	↑ There remains uncertainty about the nature of Britain's exit from and future relations with the EU, alongside how this could impact the UK economy. Furthermore, the global geopolitical and trade environment remains uncertain. We are confident that the natural resilience of our business, with its long leases, high occupancy and robust financial position, together with the actions we have taken, leaves our business well positioned.
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, and · 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 and our capital allocation plan. 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 be less susceptible over the medium term to a reduction in occupier and investor demand · Strong relationships with agents and direct investors active in the market · We stress test our business plan for the effect of a change in property yields	↑ Investment volumes were lower in 2016, although there has been a pick-up in activity more recently, particularly in central London offices. UK property continues to appeal to certain investors underpinned by the relatively wide yield gap between property yields and long term interest rates, further supported by currency movements. The market for the most attractive assets remains liquid and in the central London office market there have been a number of high profile transactions including our sale of The Leadenhall Building. Prime yields have remained broadly stable, although market pricing is becoming increasingly polarised with some softening in demand for more secondary assets. We have continued to be active and successfully sold £1.5 billion of assets, overall at 9% ahead of valuation.
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 high quality, diversified occupier base and monitor concentration of exposure to individual occupiers or sectors. We perform rigorous occupier covenant checks ahead of approving deals and 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, energy 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	↑ In retail, demand remained firm in the year, despite wider uncertainty from consumers and retailer alike. However, retailers are facing a more challenging environment with cost pressures from a number of sources increasing the National Living Wage, the recent business rates revaluation, an increase in import costs due to the weakening pound and from the requirements of omni-channel. These pressures mean that retailers are increasingly focusing on the most profitable stores, where they can grow sales with lower occupancy costs. Our continued upgrading of our retail properties and targeted engagement with occupiers, positions us well to benefit from increasing polarisation. While occupier demand in the London office market has been more cautious post-referendum, take-up has since picked up with overall take-up over the year in-line with the 10-year average. London's broad appeal means that demand has continued to originate from a range of industries including strong demand from the creative and technology sectors. We have seen vacancy rates rising in both the City and West End following recent development completions and expect this to apply downward pressure on market rents; however accelerating polarisation towards higher quality places will provide support for rents in the best locations. As well as policy and regulatory changes arising from the UK's departure from the EU, such as migration controls and passporting, office occupiers also face challenges as they adapt to economic, social and technology challenges. Our focus on London campuses providing attractive and engaging environments are increasingly flexible to suit the changing requirements and scale of central London office occupiers and positions us well to benefit from any shift in demand.
Availability and cost of finance	Reduced availability of finance may adversely impact ability to refinance debt and/or drive up cost. These factors may also result in weaker investor demand for real estate. Regulation and capital costs of lenders may increase cost of finance.	· Market borrowing rates and real estate credit availability are monitored by the Risk Committee quarterly and reviewed regularly in order to guide our financing actions in executing our strategy · We monitor our projected LTV and our debt requirements using several internally generated reports focused on borrowing levels, debt maturity, available facilities and interest rate exposure · We maintain good long term relationships with our key financing partners · The scale and quality of our business enables us to access a diverse range of sources of finance with a spread of repayment dates. 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 on emerging finance regulations where our interests and those of our industry are affected	←→ There has been market volatility reacting to macro economic and political uncertainties. However, there remains good availability of finance in debt and capital markets (secured and unsecured) to UK REITs and other good quality real estate investors. Development finance without pre-lets is more difficult to obtain. We have continued to achieve attractive financings and agreed one year extensions on a total of £1.4 billion of our unsecured facilities and agreed a new £100 million bi-lateral facility in the year.
Catastrophic business event	An external event such as a civil emergency, including a large-scale terrorist attack, cyber crime, extreme weather occurrence, environmental disaster or power shortage 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 · Our Sustainability Committee monitors environmental and climate change risks. Asset risk assessments are carried out to assess a range of risks including security, flood, environmental, health and safety · We have implemented corporate cyber security systems which are supplemented 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. We are mindful of cyber security risks and have enhanced our security position as well as rolling out cyber awareness training across both British Land and Broadgate Estates. We continue to monitor the cyber threat landscape including the impact on our supply chain and any implications of new regulations.

Risks and
impacts

How we monitor and manage the risk

Change in the year

Economic
outlook

The UK economic climate and future movements in interest rates present risks
and opportunities in property and financing markets and the businesses of our occupiers which can impact both the delivery of our strategy and our financial performance.

· 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 risk appetite of the business

· Key Indicators include 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 stress test our business plan against a downturn in economic outlook to ensure our financial position is sufficiently flexible and resilient

· Our resilient business model focuses on a high quality portfolio, with secure income streams and robust finances

↑ The UK economy has remained robust and fared better than many expected following the EU referendum, with economic activity improving in the second half of 2016, albeit we have seen some evidence of softening retail spend in the first part of 2017. There is continuing uncertainty associated with the UK's future exit from the EU and other geopolitical changes, with a wide spectrum of views about future economic performance. Equity and foreign exchange markets have been volatile. Interest rates have remained low; but UK inflation is increasing, partly driven by the devaluation of sterling.

We remain mindful of potential headwinds and have the flexibility to scale our development activity and risk exposures up or down to respond to market conditions, to ensure the business remains both resilient and well positioned to capture upside in the future.

Political and regulatory
outlook

Significant political events and regulatory changes, including the decision to leave the EU, brings risks principally in
two areas:

· reluctance of investors
and businesses to make investment and occupational 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
or our customers

· 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

· Internally we review and monitor proposals and emerging policy and legislation to ensure that we take the necessary steps to ensure compliance. Additionally 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 and representative bodies to
contribute to the debate on regulatory changes

↑ There remains uncertainty about the nature of Britain's exit from and future relations with the EU, alongside how this could impact the UK economy. Furthermore, the global geopolitical and trade environment remains uncertain.

We are confident that the natural resilience of our business, with its long leases, high occupancy and robust financial position, together with the actions we have taken, leaves our business well positioned.

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, and

· 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 and our capital allocation plan. 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 be less susceptible over the medium term to a reduction in occupier and investor demand

· Strong relationships with agents and direct investors active in the market

· We stress test our business plan for the effect of a change in property yields

↑ Investment volumes were lower in 2016, although there has been a pick-up in activity more recently, particularly in central London offices. UK property continues to appeal to certain investors underpinned by the relatively wide yield gap between property yields and long term interest rates, further supported by currency movements.

The market for the most attractive assets remains liquid and in the central London office market there have been a number of high profile transactions including our sale of The Leadenhall Building.

Prime yields have remained broadly stable, although market pricing is becoming increasingly polarised with some softening in demand for more secondary assets. We have continued to be active and successfully sold £1.5 billion of assets, overall at 9% ahead of valuation.

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 high quality, diversified occupier base and monitor concentration of exposure to individual occupiers or sectors. We perform rigorous occupier covenant checks ahead of approving deals and 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, energy 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

↑ In retail, demand remained firm in the year, despite wider uncertainty from consumers and retailer alike. However, retailers are facing a more challenging environment with cost pressures from a number of sources increasing the National Living Wage, the recent business rates revaluation, an increase in import costs due to the weakening pound and from the requirements of omni-channel. These pressures mean that retailers are increasingly focusing on the most profitable stores, where they can grow sales with lower occupancy costs. Our continued upgrading of our retail properties and targeted engagement with occupiers, positions us well to benefit from increasing polarisation.

While occupier demand in the London office market has been more cautious post-referendum, take-up has since picked up with overall take-up over the year in-line with the 10-year average. London's broad appeal means that demand has continued to originate from a range of industries including strong demand from the creative and technology sectors. We have seen vacancy rates rising in both the City and West End following recent development completions and expect this to apply downward pressure on market rents; however accelerating polarisation towards higher quality places will provide support for rents in the best locations.

As well as policy and regulatory changes arising from the UK's departure from the EU, such as migration controls and passporting, office occupiers also face challenges as they adapt to economic, social and technology challenges. Our focus on London campuses providing attractive and engaging environments are increasingly flexible to suit the changing requirements and scale of central London office occupiers and positions us well to benefit from any shift in demand.

Availability
and cost
of finance

Reduced availability of finance may adversely impact ability to refinance debt and/or drive up cost. These factors may also result in weaker investor demand for real estate.

Regulation and capital costs of lenders may increase cost
of finance.

· Market borrowing rates and real estate credit availability are monitored by the Risk Committee quarterly and reviewed regularly in order to guide our financing actions in executing our strategy

· We monitor our projected LTV and our debt requirements using several internally generated reports focused on borrowing levels, debt maturity, available facilities and interest rate exposure

· We maintain good long term relationships with our key financing partners

· The scale and quality of our business enables us to access a diverse range of sources of finance with a spread of repayment dates. 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 on emerging finance regulations where our interests and those of our industry are affected

←→ There has been market volatility reacting to macro economic and political uncertainties. However, there remains good availability of finance in debt and capital markets (secured and unsecured) to UK REITs and other good quality real estate investors. Development finance without pre-lets is more difficult to obtain.

We have continued to achieve attractive financings and agreed one year extensions on a total of £1.4 billion of our unsecured facilities and agreed a new £100 million bi-lateral facility in the year.

Catastrophic business
event

An external event such as a civil emergency, including a large-scale terrorist attack, cyber crime, extreme weather occurrence, environmental disaster or power shortage 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

· Our Sustainability Committee monitors environmental and climate change risks. Asset risk assessments are carried out to assess a range of risks including security, flood, environmental, health and safety

· We have implemented corporate cyber security systems which are supplemented 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.

We are mindful of cyber security risks and have enhanced our security position as well as rolling out cyber awareness training across both British Land and Broadgate Estates. We continue to monitor the cyber threat landscape including the impact on our supply chain and any implications of new regulations.

Internal risks

Risks and impacts		How we monitor and manage the risk	Change in the year
Investment strategy Responsible executives: Chris Grigg, Charles Maudsley, Tim Roberts	In order to meet our strategic objectives we aim to invest in and exit from the right properties at the right time. Underperformance could result from changes in market sentiment as well as inappropriate determination and execution of our property investment strategy, including: · sector selection and weighting · timing of investment and divestment decisions · exposure to developments · 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 · The Board carries out an annual strategic review of the overall corporate strategy including the Group's current and prospective asset portfolio · 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	←→ Whilst the outlook in our markets will remain uncertain for some time, we have an enduring strategy which is based on long term trends and this positions our high quality portfolio to benefit from increasing polarisation and to attract a broader range of occupiers. In line with our strategic priorities, we have accelerated our focus on lifestyle oriented real estate; we have recycled capital to maximise returns and we are getting closer to our customers. During the year we have made £1.5 billion of asset disposals at 9% above valuation. We have been disciplined in our investment activity, with £195 million of acquisitions of properties which are complementary to existing assets and £292 million capital spend on developments and placemaking.
Development strategy Responsible executives: Chris Grigg, Charles Maudsley, Tim Roberts	Development provides an opportunity for outperformance but usually brings with it elevated risk. This is reflected in our decision-making process around which schemes to develop, the timing of the development, as well as the execution of these projects. The Development Strategy addresses several development risks that could adversely impact underlying income and capital performance including: · development letting exposure · construction timing and costs (including construction cost inflation) · major contractor failure · adverse planning judgements	We manage 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-lets are used to reduce development letting risk where considered appropriate · Competitive tendering of construction contracts and, where appropriate, fixed price contracts entered into · Detailed selection and close monitoring of contractors including covenant reviews · Experienced development management team closely monitors design, construction and overall delivery process · Early engagement and strong relationship with planning authorities · We also 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 Supply Chain Charter, Sustainability Brief for Developments and Health and Safety Policy	↓ Development has been an important driver of returns and we have assembled a pipeline of development opportunities with the optionality to progress when the time is right. In a more uncertain environment, we have moderated our current speculative development exposure to only 4% of the portfolio. We are progressing planning and pre-let discussions across the pipeline and positioned ourselves to make timely decisions on our developments going forward.
People Responsible executives: Chris Grigg	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 (including the 'Best Companies survey), 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 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.	←→ Expert People is one of the four core focus areas of our strategy. We empower our people to make the most of their potential. During the year, we have introduced a number of initiatives to improve organisational effectiveness across the business and to promote wellbeing and health, including offering enhanced Shared Parental Pay to employees. Also, we are focused on creating a culture which encourages diversity and inclusion and are working towards the National Equality Standard.
Capital structure - leverage Responsible executives: Lucinda Bell	Our capital structure recognises the balance between performance, risk and flexibility. · Leverage magnifies capital 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 use of debt and equity finance to balance the benefits of leverage against the risks, including a magnification of the impact of property valuation movements. · We aim to manage our LTV through the property cycle such that our financial position would remain robust in the event of a significant fall in property values. This means we do not adjust our approach to leverage based on changes in market property yields · 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 by debt without recourse to British Land	↓ Balance sheet metrics remain strong. Our LTV and weighted average interest rate on drawn debt have reduced and interest cover has improved. The impact of investment activity in the year was a net decrease in debt of £0.5 billion. The strength of the Group's balance sheet is reflected in our senior unsecured credit rating which was reaffirmed by Fitch at A- and outlook was upgraded to 'Positive'.
Finance strategy Responsible executives: Lucinda Bell	Our Finance Strategy addresses risks both to continuing solvency and profits generated Failure to manage refinancing requirement may result in a shortage of funds to sustain the operations of the business or repay facilities as they fall due.	We have five key principles guiding our financing which are employed together 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 financial covenant headroom · 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	←→ Given the quality of our business, we have continued to achieve attractive financings which improve earnings and liquidity. As well as being well priced, our financing is robust with an average term of eight years on drawn debt and no requirement for the Group to refinance until early 2021. Our committed bank facilities total £1.8 billion of which £1.3 billon was undrawn at 31 March 2017.
Income sustainability Responsible executives: Lucinda Bell Charles Maudsley Tim Roberts	We are mindful of maintaining sustainable income streams which underpin a stable and growing dividend and provide the platform from which to grow the business. 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 high quality and 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	↑ Despite the uncertainty, the quality of our portfolio and environments has continued to attract strong occupier interest with good leasing performance. Our income streams are secure; underpinned by a high quality, diverse occupier base with 98% occupancy and an average lease length of 8.3 years. We are actively managing the impact of our investment strategy and office lease expiry profile on our income profile. Looking forward, we're conscious of potential headwinds for our occupiers, however we continue to expect our high quality portfolio to benefit from increasing polarisation.

Risks and
impacts

How we monitor and manage the risk

Change in the year

Investment strategy

Responsible executives:
Chris Grigg,
Charles Maudsley,
Tim Roberts

In order to meet our strategic objectives we aim to invest in and exit from the right properties at the right time. Underperformance could result from changes in market sentiment as well as inappropriate determination and execution of our property investment strategy, including:

· sector selection
and weighting

· timing of investment and divestment decisions

· exposure to developments

· 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

· The Board carries out an annual strategic review of the overall corporate strategy including the Group's current and prospective asset portfolio

· 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

←→ Whilst the outlook in our markets will remain uncertain for some time, we have an enduring strategy which is based on long term trends and this positions our high quality portfolio to benefit from increasing polarisation and to attract a broader range of occupiers. In line with our strategic priorities, we have accelerated our focus on lifestyle oriented real estate; we have recycled capital to maximise returns and we are getting closer to our customers.

During the year we have made £1.5 billion of asset disposals at 9% above valuation. We have been disciplined in our investment activity, with £195 million of acquisitions of properties which are complementary to existing assets and £292 million capital spend on developments and placemaking.

Development strategy

Responsible executives:
Chris Grigg,
Charles Maudsley,
Tim Roberts

Development provides an opportunity for outperformance but usually brings with it elevated risk.

This is reflected in our decision-making process around which schemes to develop, the timing of the development, as well as the execution of these projects.

The Development Strategy addresses several development risks that could adversely impact underlying income and capital performance including:

· development letting exposure

· construction timing
and costs (including construction cost inflation)

· major contractor failure

· adverse planning judgements

We manage 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-lets are used to reduce development letting
risk where considered appropriate

· Competitive tendering of construction contracts and, where appropriate, fixed price contracts entered into

· Detailed selection and close monitoring of contractors including covenant reviews

· Experienced development management team closely monitors design, construction and overall delivery process

· Early engagement and strong relationship with planning authorities

· We also 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 Supply Chain Charter, Sustainability Brief for Developments and Health and Safety Policy

↓ Development has been an important driver of returns and we have assembled a pipeline of development opportunities with the optionality to progress when the time is right. In a more uncertain environment, we have moderated our current speculative development exposure to only 4% of the portfolio. We are progressing planning and pre-let discussions across the pipeline and positioned ourselves to make timely decisions on our developments going forward.

People

Responsible executives:
Chris Grigg

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 (including the 'Best Companies survey), 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 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.

←→ Expert People is one of the four core focus areas of our strategy. We empower our people to make the most of their potential. During the year, we have introduced a number of initiatives to improve organisational effectiveness across the business and to promote wellbeing and health, including offering enhanced Shared Parental Pay to employees.

Also, we are focused on creating a culture which encourages diversity and inclusion and are working towards the National Equality Standard.

Capital structure - leverage

Responsible executives:
Lucinda Bell

Our capital structure recognises the balance between performance,
risk and flexibility.

· Leverage magnifies
capital 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 use of debt and equity finance to balance the benefits of leverage against the risks, including a magnification of the impact of property valuation movements.

· We aim to manage our LTV through the property cycle such that our financial position would remain robust in the event of a significant fall in property values. This means we do not adjust our approach to leverage based on changes in market property yields

· 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 by debt without recourse to British Land

↓ Balance sheet metrics remain strong. Our LTV and weighted average interest rate on drawn debt have reduced and interest cover has improved. The impact of investment activity in the year was a net decrease in debt of £0.5 billion. The strength of the Group's balance sheet is reflected in our senior unsecured credit rating which was reaffirmed by Fitch at A- and outlook was upgraded to 'Positive'.

Finance
strategy

Responsible executives:
Lucinda Bell

Our Finance Strategy
addresses risks both to continuing solvency and profits generated

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

We have five key principles guiding our financing which are employed together 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 financial covenant headroom

· 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

←→ Given the quality of our business, we have continued to achieve attractive financings which improve earnings and liquidity. As well as being well priced, our financing is robust with an average term of eight years on drawn debt and no requirement for the Group to refinance until early 2021. Our committed bank facilities total £1.8 billion of which £1.3 billon was undrawn at 31 March 2017.

Income sustainability

Responsible executives:
Lucinda Bell
Charles Maudsley
Tim Roberts

We are mindful of maintaining sustainable income streams which underpin a stable and growing dividend and provide the platform from which to grow the business.

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 high quality and 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

↑ Despite the uncertainty, the quality of our portfolio and environments has continued to attract strong occupier interest with good leasing performance. Our income streams are secure; underpinned by a high quality, diverse occupier base with 98% occupancy and an average lease length of 8.3 years.

We are actively managing the impact of our investment strategy and office lease expiry profile on our income profile. Looking forward, we're conscious of potential headwinds for our occupiers, however we continue to expect our high quality portfolio to benefit from increasing polarisation.

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

This information is provided by RNS

The company news service from the London Stock Exchange

END

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