Third Quarter 2008/9 Results/media/Files/B/... · 5.3% 2.0x 51% 44% £804m (5,926m) Sept 2008...

Three months ended 31 December 2008

We are real estate investors and create value by actively managing, financing and developing prime commercial property to provide the environment in which modern business can thrive.


Third Quarter 2008/9 Results


Agenda

Introduction Chris Gibson-Smith, Chairman

Rights Issue Chris Grigg, Chief Executive

Q3 2008/9 Results Graham Roberts, Finance Director

Summary Chris Grigg, Chief Executive


British Land is announcing a pre-emptive 2 for 3 equity issue to:– Underpin its balance sheet at a time of unprecedented market dislocation– Position itself to be able to exploit future real estate buying opportunities

British Land’s asset portfolio and debt structure put it in a relatively strong position– Long leases and diversified customer base– High occupancy rate– Substantial, low cost debt facilities

Recent management actions have mitigated the impact of a severe market downturn– Sale of £5.7bn of assets over last 3 years– Continued focus on re-balancing asset portfolio (e.g. Meadowhall JV)– Continued fine-tuning of debt structure

British Land expects to see exceptional opportunities over next 2 years– Dislocation and distress will generate value for strong players– BL benefits from deep sectoral property expertise– All opportunities will be examined in a disciplined, cautious manner - and will use capital efficiently

(e.g. including further JVs)

Rights Issue

Executive Summary

1


Rights Issue

Transaction Details

2

12 FebruaryAnnouncement of Q3 Results and Rights Issue

25 FebruaryEx-dividend date for Q3 dividend

3 MarchEGM to approve Rights Issue

19 MarchDealings commence in New Shares

18 MarchRights Issue closes

4 MarchNil-paid rights trading commences (ex-rights date)

Proposed Timetable

374pTERP1

2 for 3 at 225p per new shareBasis

852mTotal number of shares following issue

£740mProceeds raised (net of expenses)

40%Issue price discount to TERP1

32%Gross proceeds as % of market capitalisation1

Rights Issue Highlights

1 As at close 11 February 2009 (adjusted for Q3 dividend)


New Investment Partner for Meadowhall

In February London & Stamford and its partner acquired 50% stake in Meadowhall for £587.7m (NIY 6.75%)

– JV will continue to benefit from Meadowhall’s £835m securitised third party debt at 4.98%

– £170m cash consideration

British Land will be property manager and will act jointly withLondon and Stamford as strategic advisors for the JV

The key benefits are:– Reduces exposure to our largest retail asset– Retain a substantial share in future upside from a

unique asset with enduring occupier appeal and long & strong cash flows

– Increases financial flexibility

Transaction values Meadowhall at £1.175bn

1 To first break 2 Underlying occupancy rate including accommodation subject to asset management and under offer

Meadowhall JV

3

Footfall up 1.5% in calendar year 2008

Lease length 12 years1; Occupancy rate 97.5%2


Financial SummaryPortfolio valuation reduced 13.3% in Q3 (9 months down 21.7%)

– Portfolio gross ‘top up’ initial yield 7.0%; net equivalent yield now 6.9% (up 85bps in Q3, 142bps in 9 months)

NAV per share1 down 31% at 718p - NNNAV per share 861p

Underlying EPS2 14% lower3 at 12p, mainly due to the accounting treatment of reducing interest capitalised on developments

– Underlying pre-tax profit2 £63m – Dividend up 7% to 9.375p4 for Q3 in addition to 18.75p for H1. Dividend policy remains progressive reflecting

strength of underlying cash flow. To be rebased for rights issue, maintaining pro forma dividend cover

Balance sheet strength with cash flow security– 13 years average lease length, 96% occupancy rate5, with just 4% for renewal before March 2011– Debt 100% fixed at 5.2%, 12 years average life. £2.4bn more committed and available

Customer focused business continues to operate positively– £169m of property sales (gross) in Q3 (9 months £890m) – In February, formed new 50:50 JV for Meadowhall– £4.5m pa6 of additional rent agreed from 1.3m sq ft of lettings & rent reviews, ahead of ERV– 3.8% like for like income growth (ahead of IPD) for 9 months Dec 2008 compared to 9 months Dec 2007

4

Q3 2008/9 Results

1 EPRA (European Public Real Estate Association) basis 2 Underlying pre-tax profit and EPS excludes gains on property revaluations and disposals & intangible asset movements3 Decrease on prior year4 Comprising 9.375p PID (subject to withholding tax of 20% for relevant shareholders) 5 Underlying occupancy rate including accommodation subject to asset management and under offer6 BL Share of increase in headline rent (before tenant incentives)


Underlying Profit £63m in Q3 (9 months £207m)

1 With proportional consolidation of Funds and Joint Ventures2 After lease determinations, expiries and new lettings on developments3 Fund management & performance fees Q3 2008 £3m (Q3 2007 £6m); 9 months 2008 £10m (9 months 2007 £16m)4 Gross financing cost recognised in Income Statement on developments (including post PC costs), in addition interest capitalised Q3 2008 £6m

(Q3 2007 £12m); 9 months 2008 £22m (9 months 2007 £33m) 5

Underlying profit £207m for 9 months, up 4% excluding

H1 2007 Songbird dividend. Q3 13% lower at £63m.

Key movements:

– Reduced management & performance fees

– Increased finance costs, following the accounting

treatment of less capitalisation of interest on

developments

– Reduced administration costs

– £1.7bn of sales agreed in last 12 months

Like for like rental income up 3.8% (ahead of IPD)– Retail up 3.5%; Retail Warehouses 5.6%,

Shopping Centres 2.3%, Superstores 1.5%

– Offices up 4.4%; City 3.4% & West End 9.4%20763Underlying Profit as at Dec 2008

(18)(8)Interest on developments4

8-Effect of property disposals

(6)(3)Management and Performance fees3

91Admin cost savings

(6)-Interest on REIT conversion charge

21572Underlying Profit as at Dec 2007

(16)-Songbird dividend

39p12pUnderlying EPS

-

21

199

9 months£m1

(2)

3

72

3 months£m1

Rent reviews and new lettings2

Recurring Profit

Other

Reconciliation of Underlying Profit

Q3 2008/9 Results


1 EPRA (European Public Real Estate Association) basis2 Includes valuation movements in developments, purchases and sales, net of capital expenditure3 Includes developments £497m, Q3 -18.8% (City –20.3%, West End –16.1%)4 Gross yield to British Land (without notional purchaser’s costs), adding back rent frees and contracted rental uplifts 6

Net Asset Value 718p – NNNAV 861p

West End

City

All Offices

Department Stores

Shopping Centres

Superstores

Retail Warehouses

All Retail

-21.0%

-24.3%

-23.6%

-24.0%

-18.4%

-14.3%

-22.6%

-20.2%

9 months23 months to 31 Dec 20082

6.9%All Retail

6.9%Retail Warehouses

6.2%Superstores

7.0%Shopping Centres

8.1%Department Stores

7.0%All Offices3

7.2%City Offices3

6.6%West End Offices3

Gross (Top-up) Initial Yield4

(14)Investment in Songbird

(9)Dividend paid

12Underlying profit after tax

(7)Other

(307)Property revaluations & asset disposals

718NAV1 per share at 31 Dec 2008

PenceMovement in NAV

1043NAV1 per share at 30 Sept 2008

13.3% Valuation mark-down in Q3 (9 months down 21.7%)

-13.0%

-14.1%

-9.7%

-12.3%

-12.9%

-16.2%

-13.6%

-13.8%

• Portfolio outperformed IPD in Q3, including at both Retail and Office levels

Q3 2008/9 Results


Income Longevity & Security

7.18Rent reviews and lease renewals

86Portfolio Reversion (within 5 yrs)

7.3700Total

Gross Yield %2

Rent£m pa

Rental income(cash flow basis)

7.334Letting of vacant space

7.044Contracted from fixed uplifts and expiry of rent frees

6.4614Annualised net rents

Secure rental income – Average lease length 13 years to first break

– Only 4% of rent due for renewal before March 2011

– High occupancy of 98%1 in Retail and 94%1 in Offices

– Over 90% of office vacancy is new Grade A space

– 97% of UK rent subject to upward only reviews.

Less than 1% of rent related to occupiers’ turnover

– Exposure to occupiers in administration at end of January

2.2% of rent; of which 1.3% from units still trading, to be

assigned, or income guaranteed

– 97% of December quarter rent collected within 10 working

days of due date

Average passing rents for prime property– Retail £20 psf and Offices £46 psf

7

1 Underlying occupancy rate including accommodation subject to asset management and under offer2 Gross yields to British Land (without notional purchaser’s costs)

Q3 2008/9 Results


Financial Strength

£2,698m

12.9 yrs

5.3%

2.0x

51%

44%

£804m

(5,926m)

Sept 2008

£2,437m

12.2 yrs

5.2%

1.9x

60%

54%

£765m

(£6,104m)

Dec 2008

£585mPositive mark to market on debt & derivatives

(£6,413m)Net Debt – book value

41%LTV – Group

£2,433m

12.9 yrs

5.3%

1.8x

47%

Mar 2008Key Financing Ratios1

Weighted average debt maturity

Average interest rate

Committed undrawn facilities - Group

Interest cover3

LTV – inc. share of Funds & JVs

1 With proportional consolidation of Funds and Joint Ventures (unless stated as Group)2 Pro forma for Meadowhall JV and Rights Issue – see covenant calculations in Appendix3 Underlying profit before interest and tax (UPBIT) / net interest 4 Includes US Private Placement5 As calculated in accordance with standard banking agreement – see covenant calculations in Appendix

8

Debt structure a unique ‘asset’

– £765m (149p per share) ‘mark to market value’

– LTV Group 54% (pro forma 39%2)

– Low cost of 5.2%, 100% fixed

– Long average maturity of 12 years

– Interest cover 1.9x3

– Only 13% of drawn debt unsecured4

£3.1bn of Group committed bank facilities at

average margin of 48bps, spread over 33 banks

– Only £677m currently drawn; £2.4bn undrawn

– Only £300m expiring in next 2 years

– £1.0bn is for a term of more than 5 years

– All unsecured debt agreements have only

2 standard financial covenants0%

63%

Pro forma2

29%

113%

Dec 2008

175%Net Borrowings to Adjusted Capital & Reserves

70%

Limit

Net Unsecured Borrowings to Unencumbered Assets

Unsecured Group Debt Covenant Ratios5

Q3 2008/9 Results


£169m (gross) sales in Q3 (9 months 2008 £890m)– £81m sale of Borehamwood Shopping Park & £42m of High Street sales

£4.5m pa1 of new rent added from 1.3m sq ft of lettings & rent reviews– 208,000 sq ft of Retail Park lettings & further 225,000 sq ft under offer

– Visitor numbers remain up at Meadowhall & across Retail Parks monitored

– Agreed lets to Hollister (Abercrombie & Fitch) and Yo! Sushi at Meadowhall

– 15,000 sq ft let at 201 Bishopsgate at £54 psf - now 88% let

– 5,500 sq ft let at 338 Euston Road let at £58.50 psf after refurbishment

– 24,000 sq ft under offer at the Broadgate Tower

– Like for like income growth 3.8% for 9 mths Dec 2008 vs 9 mths Dec 2007– Q3 ERV Growth flat in Retail (9 mths +0.9%); Offices -2.6% (9 mths -6.5%)

Committed development programme only 4% of portfolio– On-going projects progressing - some £230m remaining to spend

– Terms agreed for letting of significant part of the offices at Ropemaker

9

Capturing Value in Tough Markets

£169m of sales in Q3 (9 months 2008), plus new Meadowhall JV formed

1 BL Share of increase in headline rent (before tenant incentives)

Q3 2008/9 Results

Visitor numbers remain up at Meadowhall and across Retail Parks monitored

Committed developments only 4%, some £230m remaining to spend


10

Rights Issue

• Strengthens financial position

• Facilitates access to substantial, low cost debt facilities

• Maximises competitive position to take advantage of exceptional opportunities

• Disciplined approach to real estate acquisitions and efficient use of capital

Summary

British Land – Prime Property, Strong Customers, Long Leases, High Occupancy and Strong Balance Sheet

Prime Portfolio & Unique Debt Structure

Active Management

• Prime property with long leases and high occupancy, underpinning cash flow

• Diversified customer base

• No short-term refinancing needs, fixed debt and low interest costs

• Experienced management team, with deep sectoral property expertise

• Continued focus on re-balancing asset portfolio - £5.7bn of sales over last 3 years

• Continued fine-tuning of debt structure


Appendix


Retail London OfficesInvestment market characterised by small pockets of ‘genuine’ capital and severe scarcity of debt- Transactions focused on prime assets

offering secure long-term income

Occupier market remains largely negative with most retailers reporting like for like declines - Home-related & Electricals facing brunt.

Clothing & Food faring relatively well- However many of better operators are

protecting their profit & loss position

Tenant failures & near-term lease expiries increase possibilities of rental deflation, particularly within secondary where valuers forced to mark to market ‘true’ ERV

Portfolio focused on assets where retailers trade profitably, ensuring greater income security and longevity

Appendix

Investment market weak reflecting extreme difficulty of securing debt combined with rental value decline- But significant pool of equity targeting London, although sentiment uncertain

Secondary property most vulnerable where lacks occupier demand and income security

London vacancy (Q4: 5.1%3) to increase due to weak demand, development completions, and likely release of tenant controlled space

London F&BS will be at vanguard of thedownturn. Equally, due to London’scompetitive advantages, consensus forecasts expect it to bounce back

Portfolio modern and well located, offering relative income security & longevity. Developments high quality and only 4% of total portfolio

11

1

2

3

4

5

6

2001 2002 2003 2004 2005 2006 2007 2008Y

ield

Spr

ead

(%)

Shops Shopping Centres Retail Warehouses London Offices

Prime vs Secondary Yield Spreads1

-4

-2

0

2

4

6

2001 2003 2005 2007 2009 2011 2013

Gro

wth

(% p

a)

F&BS Output Retail Spend Manufactoring

F&BS & Retail expected to drive UK GDP2

1 IPD2 PMA Winter 2008 (Recession) Forecasts 3 Jones Lang LaSalle


Appendix

Gross rents 7.4% lower reflecting £1.7bn of sales in

last 12 months, offset by reduced financing costs

3.8% like for like rental income growth (ahead of IPD)

due to new lettings and rent reviews:

– Retail up 3.5%; Retail Warehouses 5.6%,

Shopping Centres 2.3%, Superstores 1.5%

– Offices up 4.4%; City 3.4% & West End 9.4%

6969Fixed and minimum uplifts2

1026Developments

8312Disposals

-7.4%

+3.8%

+1.5%

+4.4%

+3.5%

350364

44Other

121127Offices

Properties owned throughout1

225233Retail

81Other3

529490Total

9

Dec 2007 £m

18Acquisitions

Dec 2008 £m

Gross rental income(accounting basis)

1 Investment properties subject to open market reviews and owned throughout the current and prior period (proportional consolidation of Funds & JVs)2 Rental income from fixed and minimum guaranteed rent reviews is recognised on a straight line basis3 Includes surrender premiums, asset management determinations, back rents and other accounting adjustments

12

Rental Income Growth


Pro forma Group Balance Sheet

Unsecured Group Financial Covenant Calculations2:

1,268-2151,053Other non-current assets

39%54%Loan to Value (Group)

512p718pNAV per share1

63%113%Net Borrowings to Adjusted Capital & Reserves

4,086740(46)3,392Net Assets

0%29%Net Unsecured Borrowings to Unencumbered Assets

838

178

(1,277)

Adjustment for Meadowhall JV

-

740

-

Adjustment for Rights Issue

(4,279)

703

6,394

Pro forma

7,671Total properties (Group)

(215)Current assets less current liabilities

(5,117)Non-current liabilities

Dec 2008£m

13

Appendix

1 EPRA (European Public Real Estate Association) basis 2 As calculated in accordance with standard banking agreement


Unsecured Group Financial Covenant Calculations175% maximum ratio for Net Borrowings to Adjusted

Capital & Reserves – 113% as at 31 Dec 2008,63% pro forma for Meadowhall JV & Rights Issue

70% maximum ratio for Net Unsecured Borrowings to Unencumbered Assets – 29% as at 31 Dec 2008, 0% pro forma for Meadowhall JV & Rights Issue

4,150

257

468

33

3,392

Dec-08

4,820

252

449

33

4,086

PF2

(19)Exceptional refinancing charges

-Deferred tax on revaluations, capital allowances and derivatives

670Adjusted Capital & Reserves

(5)Mark to market on interest rate swaps

694Share capital & reserves

ChangeAdjusted Capital & Reserves (£m)

2,887

(5,288)

(500)

51

973

7,651

Dec-08

2,874

(4,030)

(715)

51

1,188

6,380

PF2

(215)Investments in Joint Ventures

215Investments in Funds & JVs

-Other Investments

1,258Encumbered Assets

(13)Unencumbered Assets

(1,271)Group properties

ChangeUnencumbered Assets (£m)

851

(4,258)

(53)

31

5,131

Dec-08

(10)

(3,423)

(914)

31

4,296

PF2

(861)Cash & Deposits not subj to sec interest

-Amounts owed to JVs

835Secured & Non-recourse Borrowings

(861)Net Unsecured Borrowings

(835)Gross Debt – Group

ChangeNet Unsecured Borrowings (£m)

4,710

(475)

23

31

5,131

Dec-08

3,036

(1,314)

23

31

4,296

PF2

-TPP Investments Limited1

-Amounts owed to JVs

(1,674)Net Borrowings

(839)Cash & Deposits

(835)Gross Debt - Group

Change Net Borrowings (£m)

1 TPP Investments Limited, a wholly owned ring-fenced special purpose subsidiary, is a partner in the Tesco British Land Property Partnership and, in that capacity, has entered into a secured bank loan under which its liability is limited to £23m and recourse is only to the partnership assets

2 Pro forma for Meadowhall JV & Rights Issue (based on net proceeds of £740m)

Finance and Capital Structure

14


Appendix

15

13713731 High Street Shops

3838Meadowbank Retail Park

2981Borehamwood Shopping Park, Borehamwood2

24242 Supermarkets

1818Portcullis House, Glasgow

116116Peacocks Centre, Woking

1645Colne Valley Retail Park, Watford2

1111Two Moorfields, Liverpool

890

20

400

Price£m

808Total

19Other

400The Willis Building, EC31

BL Share£m

Average Yield on disposals 5.9% assuming top-up of rent-frees3

1 Contract provides for top-up of rent free period to minimum uplift (NPV £60m) – loss calculated net2 HUT (Hercules Unit Trust)3 Net initial yield on disposals

£0.9bn of Sales (BL Share £0.8bn) for 9 months 2008


Excluding developments

7.0

9.7

7.0

6.6

7.2

6.9

8.1

7.0

6.2

6.9

Top-Up Initial Yield %1,2

6.4

8.7

6.3

6.1

6.4

6.4

7.0

6.3

6.2

6.6

Initial Yield %1

7.3

10.4

7.2

6.7

7.4

7.3

8.1

7.3

6.5

7.5

Reversionary Yield %1

6.6Shopping Centres

8.0Department Stores

Total

10.1Other4

7.0All Offices

6.8All Retail

7.1City

6.7West End

6.9

7.0Retail Warehouses

6.1Superstores

Net Equivalent Yield %3

1 Gross yield to British Land (without notional purchaser’s costs)2 Adding back rent frees and contracted rental uplifts 3 After purchaser’s costs4 Leisure, Industrial & Distribution 16

Yield Profile

Appendix


93.694.194.122.622.9Other2

92.594.199.49.411.6All Offices

95.196.498.413.214.6Total Portfolio

Dec 2008 (Underlying1)

99.1

92.5

98.0

100.0

96.5

100.0

98.1

Incl. completed developments

99.1

99.5

98.0

100.0

96.5

100.0

98.1

Excl. completed developments

97.69.612.2West End

96.815.016.0All Retail

97.211.713.0Retail Warehouses

100.018.418.4Superstores

93.811.812.5Shopping Centres

100.028.630.5Department Stores

OverallTo first breakTo expiryExcluding developments

90.99.311.4City

Average lease term (yrs) Occupancy Rate (%)

1 Underlying occupancy rate including accommodation subject to asset management and under offer2 Leisure, Industrial & Distribution

17

Appendix

Long Leases & High Occupancy


The information contained in this presentation has been extracted largely from the Results Announcement for the three months ended 31 December 2008. General property market data has been extracted from IPD, Jones Lang LaSalle, and PMA reports (please note that their definitions may differ slightly).

This document is an advertisement and not a prospectus and investors should not subscribe for any securities referred to in this document except on the basis of the information in the prospectus to be published by the Company in due course in connection with the admission of securities to the Official List of the Financial Services Authority. Copies of the prospectus will, following publication, be available from the Company’s registered office.

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

This presentation is made only to investment professionals as defined in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 ('the FP Order'). The content of this presentation has not been approved by a person authorised under the Financial Services and Markets Act 2000 (“FSMA”). Accordingly, this presentation may only be communicated in the UK with the benefit of an exemption set out in the FP Order. An investment professional includes:(i) a person who is authorised or exempt under FSMA; and(ii) a person who invests, or can reasonably be expected to invest, on a professional basis for the purposes of a business carried on by him; and(iii) a government, local authority (whether in the United Kingdom or elsewhere) or an international organisation; and(iv) any director, officer, executive or employee of any such person when acting in that capacity.

This presentation is published solely for information purposes. This presentation does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy any security, nor a solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of the securities referred to in this presentation in any jurisdiction in contravention of applicable law. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein.

This announcement does not contain or constitute an offer for sale or the solicitation of an offer to purchase securities in the United States. The securities referred to herein have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the United States absent registration under the Securities Act or an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. The British Land Company PLC does not intend to make a public offering of securities in the United States.

The distribution of this presentation in jurisdictions other than the UK may be restricted by law and therefore any persons who are subject to the laws of any jurisdiction other than the UK should inform themselves about, and observe, any applicable requirements. This presentation has been prepared for the purpose of complying with English law and the City Code and the information disclosed may not be the same as that which would have been disclosed if this presentation had been prepared in accordance with the laws of jurisdictions outside the UK.

All opinions expressed in this presentation are subject to change without notice and may differ from opinions expressed elsewhere.

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Third Quarter 2008/9 Results/media/Files/B/... · 5.3% 2.0x 51% 44% £804m (5,926m) Sept 2008...

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