Foreword
British Land at a Glance
Corporate Strategy
Sponsorship
Glossary of Terms
The Illustrators
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British Land at a Glance
Overview
British Land is a property investment company based in London and
listed on the London Stock Exchange, investing in prime, modern
properties. The portfolio is valued at £10.6 billion: the majority is directly
owned and managed; the balance is held in joint ventures and
partnerships, of which British Land’s share is valued at £1.2 billion.
The Group employs 167 staff at its head office who are focused on
the integrated core disciplines of strategic property investment,
management, development and financing. A further 546 staff are
employed on-site at the Group’s properties, principally Meadowhall
Shopping Centre, Sheffield and Broadgate Estates, London. The Group
outsources the day-to-day operational management for the portfolio
and non-core disciplines.
Our portfolio
Our investment approach is to concentrate on the fundamentals of each
asset. A key criterion is a property’s enduring attraction to occupiers,
because of its business suitability, location and efficiency.
The portfolio focuses on areas where the principles of supply and
demand are strong over the long term. Some 41% is invested in out
of town retail properties, including Meadowhall Shopping Centre (one of
only six regional centres in the UK), 88 supermarkets and 66 retail
warehouses. A further 40% is invested in Central London offices,
including Broadgate, the premier City office estate.
Our high quality properties, balanced portfolio and long lease profile
have secured total compound ungeared property returns of 10.8%
per annum over the last 10 years.
Principal assets
Shopping centres 20% Supermarkets 14% Retail warehouses 13%
Broadgate 25% Regent’s Place 5% Developments 6%
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Portfolio split by value†
Total portfolio: £10,639m
†Developments classified by end use
d
Out of town retail
The prospects for out of town retail continue to be sound with consumer
preference, apart from major provincial centres, moving away from high
street shopping. Retailers continue to seek space in these locations,
which offer better accommodation to display their full range of goods.
This growing demand coupled with a restrictive planning regime that
limits the supply of new out of town retail space, maintains upward
pressure on rents and hence values. Out of town shopping is continuing
to take an increasing share of total consumer spending.
Central London offices
While demand from occupiers has been subdued over the short-term,
constrained by the slowdown in various economies and financial
markets, the long-term fundamentals of the Central London economy
remain sound.
London is a financial centre of global importance and is a major
contributor to the UK economy in terms of output and employment. For
global businesses London provides a relatively liberal, open, stable and
low-tax environment. Its key competitive advantages include the highly
skilled and flexible labour force; its ideally located time zone; a stable
political, economic and legal system; a home language which is also the
international language of business; cultural diversity; the availability of
relatively low-cost telecommunications; and an effective but not overly
onerous regulatory environment.
We believe the market is at the beginning of an upturn. There is limited
new supply, and recruiting starting again in both the financial and business
services sectors has led to increased demand from prospective tenants.
Tenants are withdrawing surplus space from the market and take up is
improving from previous years. Overall, sentiment in the City is improving.
British Land’s office portfolio, with high quality buildings in the best
locations, and long leases with contracted rents from strong covenants,
well placed to benefit from these expected improvements.
Our business model
Our investment strategy prefers long leases with strong tenants. They
provide secure income flows with low risk, enabling after-tax returns to be
enhanced through gearing and long-term finance at low rates.
Long leases with upwards only rent reviews provide downside
protection when rental values decline and perform well in rising rental
markets. The average unexpired lease term in our portfolio is 16 years,
assuming breaks are exercised at the earliest date.
Our development programme adds significantly to our growth potential.
Rent reviews, the expiry of rent free periods and the letting of vacant
space including committed developments would bring in further rents,
measured at 31 March 2004 rental values of £103 million per annum of
which £49 million is already secured. These contracted amounts would
lift our annualised net rents at 31 March 2004 from £568 million to
£617 million, as the developments complete and the rent reviews or rent
free periods are settled or expire.
Our prospective development programme could provide an
additional rental income of £175 million measured at year end rental
values and will be progressed when pre-lets are agreed or when
market conditions are right.
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Rental income profile (assuming no rental value growth)
as at 31 March 2004 (£m)
The graph provides a snapshot of committed income and estimated income based on ERV
at 31 March 2004, including our share of joint ventures and is not a forecast. The main
assumptions which underlie the graph are outlined in the Financial Review.
Net asset value per share†
as at 31 March
pence
† adjusted, diluted
d
Dividends per share
year ended 31 March
pence
d
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| Total return |
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| Over |
1yr |
3yrs |
5yrs |
10yrs |
| Compound total return pa |
14.1% |
9.1% |
10.5% |
10.1% |
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Our financing
British Land has an efficient capital structure. Approximately 50% of the
value of the Group’s property and investments is financed by borrowings.
Gearing enhances returns on equity as debt finance is cheaper than
equity, and is tax deductible.
British Land uses a variety of methods to finance property assets with
the aim of employing the most capital efficient method for each asset’s
particular characteristics. Financing is raised through a mixture of
securitisations, public and private debt issues, convertible bonds and
bank borrowings.
The Group’s financing is risk averse with a long average debt
maturity, 17 years, low average cost of debt, 6.4%, and with some 64% of
debt ringfenced with no recourse for repayment to other Group
companies or assets. Over the medium term, approximately 85% of debt
is protected against upward movements in interest rates. Interest cover
is 1.6 times.
The Group continues to maintain a significant level of committed
undrawn bank facilities to enable it to respond rapidly to opportunities in
the market and to fund developments without the need for project
specific financing.
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Land ahoy!
We had a good deal of trouble with
steam-launches; I suppose every rowing man does.
I never see a steam-launch but I feel I should like to
lure it to a lonely part of the river and there, in the
silence and the solitude, strangle it.
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Jerome K Jerome, Three Men in a Boat (1889)
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