Joint Ventures Review

Introduction   Joint venture model   Joint venture rationale   Joint venture activity   BL Universal   Joint ventures with Tesco plc   BLT Properties   Tesco British Land Property Partnership

Tesco BL Holdings   BL Davidson   BL West companies   BL Fraser   The Public House Company   BL Gazeley   BVP Developments

Introduction
British Land currently has 12 (2002: 14) active joint ventures which hold £2.8 billion (2002: £3.2 billion) of properties in the principal areas of retail, office and development. British Land's share of £1.4 billion (2002: £1.6 billion), is financed to the extent of £632 million (2002: £792 million) by external net debt, of which only £12 million (2002: £33 million) is guaranteed by British Land. The net investment in joint ventures at the year end is £700 million (2002: £727 million).

Joint venture model
All British Land's joint ventures share a common framework:

• a separate entity formed to own property;
  
• the joint venture entity is controlled on a 50:50 basis by a board on which each partner is equally represented (with no casting votes);
  
• the joint venture is established with a specific term, at the expiry of which, unless otherwise agreed, it will terminate in accordance with the terms agreed at the outset. There are, however, provisions for early termination if the partners reach deadlock; and
  
• the joint venture is funded by a varying combination of equity and subordinated loans (which enable income to be received gross) from the two joint venture partners, and by external debt.

British Land has proven its sustained ability to work constructively with other major companies, and its reputation enables it to continue to attract new ventures.


Joint venture rationale
Joint ventures benefit British Land because:

• they have provided access to desirable properties that were not on the market and enhance contacts with tenants across a greater number of locations;
  
• they are able to raise finance on the strength of their own balance sheets with minimal or no support from either partner, thereby significantly lowering the initial equity investments and enhancing the returns on capital;
  
• they restrict the risks associated with a specific property investment or development by sharing the investment with a partner; and
  
• British Land earns fees from services provided to joint ventures.
  

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Joint venture activity
The key activities of the joint ventures during the year are:

• the acquisition in December 2002 of the remaining 50% interest in London & Henley, from the joint venture partner, Security Capital, for approximately £27 million; this residential portfolio is now entirely owned by British Land;
  
• BL Universal has further rationalised its portfolio, with sales of 27 properties, primarily high street shops, realising proceeds of £55 million;
  
• BL Rank Properties disposed of the remaining properties in its leisure portfolio, with the proceeds of £109 million being used to repay debt and return funds to the joint venture partners;
  
• The Public House Company continued with its programme of auction sales, in which 24 public houses were sold in the year, raising £29 million. Additionally, a further 79 public houses were sold to Scottish & Newcastle for £90 million in March 2003;
  
• BL Gazeley sold completed developments at Enfield and Thatcham, realising total proceeds of £71.9 million, substantially above cost; and
  
• British Land's interest in the Cherrywood joint venture, comprising the Dublin mixed commercial development, was sold in April 2003 to Dunloe Ewart the joint venture partner.

Other joint ventures have continued to rationalise and upgrade their portfolios through acquisitions, disposals and development of assets.

The summary profit and loss account and balance sheet information for the major joint ventures is set out later in this report.

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When this joint venture was established, it acquired 982 properties from the GUS group.Since then, the joint venture has sold or relinquished 861 properties and has reinvested the proceeds primarily in retail parks, as well as using the proceeds to repay debt and return cash to the partners. The largely repositioned portfolio now totals 121 properties, comprising retail warehouse parks, prime high street shops, shopping centres, superstores and offices.

During the year, 27 properties have been sold, for total proceeds of £55 million. Additionally, at the year-end, three further sales were exchanged and three agreed at an aggregate price of £15 million.

A redevelopment was completed in Donegall Place, Belfast to provide an 800 sq m (8,600 sq ft) shop for River Island. At New Cross Gate, London, a 2,300 sq m (25,000 sq ft) former bingo unit has been refurbished to provide retail-warehousing accommodation, divided and let to Currys and JJB Sports.

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Joint ventures with Tesco plc
British Land has three joint ventures with Tesco plc, which together own £717 million of retail properties, comprising 13 superstores, four retail parks and four shopping centres, all of which are anchored by Tesco stores.

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This joint venture was established to acquire and leaseback 15 House of Fraser freehold and long leasehold department stores, mostly in major provincial towns and cities. In 2001, the joint venture purchased a further store in Bristol from Bentalls, funded by an increase in the bank loan, which also assisted with a significant redevelopment of the Guildford store resulting in higher rental income for the joint venture.

All properties are let on 40 year full repairing and insuring leases to House of Fraser with minimum guaranteed uplifts for the first two rent reviews, based on the higher of 3% per annum uplift (since 1999) or open market value. During the year, the stores in Doncaster (4,800 sq m/51,700 sq ft) and Perth (5,500 sq m/59,200 sq ft) were sold for total proceeds significantly above their valuations.

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Since formation in 1995 to acquire a portfolio of 306 public houses let to Scottish & Newcastle, this joint venture has rationalised its portfolio through a large number of sales of smaller portfolios and single properties and purchase of further public houses. In June 2001 the joint venture completed the sale of 151 public houses to Scottish and Newcastle for £111 million.

In the current year, a further 79 public houses were sold to Scottish and Newcastle for £90 million in March 2003, while, as part of the on-going disposals programme, 24 sales at auction have realised £29 million, well above valuation. In each case the sales proceeds have been utilised to repay debt and to return funds to the joint venture partners, with the result that the bank loan of £85 million has now been fully repaid.

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This joint venture is funded by the shareholders to acquire and develop sites at Thatcham, Redditch and Enfield, providing principally distribution and warehouse accommodation.

During the year the joint venture built, pre-let to Scottish & Newcastle and subsequently sold a distribution unit of 33,060 sq m (356,000 sq ft) at Thatcham for £38.5 million. At Enfield, the joint venture has developed over 21,500 sq m (232,000 sq ft) of distribution units, of which 18,300 sq m (197,000 sq ft) has been let. The completed investment has been sold to Legal & General for £25.3 million. A further 10,500 sq m (113,000 sq ft) has been developed and pre-sold to Warburtons. Both sales showed a significant surplus over cost.

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A total of 36,200 sq m (390,000 sq ft) of development has been completed to date. During the year, 1,760 sq m (19,000 sq ft) has been completed, of which approximately 700 sq m (8,000 sq ft) has been let. Additionally, negotiations are at a detailed stage for a 200 sq m (2,200 sq ft) retail/café facility to service the current park tenants. Terms have been agreed for pre-let of a further 6,000 sq m (65,000 sq ft) and solicitors instructed.

In August 2002 the company purchased approximately four hectares (ten acres) of development land within the park, with planning consent for 15,500 sq m (167,000 sq ft) from Oracle Corporation.

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