Business Review
British Land's activity in 2007/08
This was a year dominated by the global ‘credit crunch’ and its actual and possible impacts on real estate markets. British Land continued implementation of our activist strategy producing outperformance at property level, in rental growth and underlying profits. We also mitigated market-led damage to our business by reducing gearing ahead of price falls, by exceptional balance sheet and debt structuring and by moving our property portfolio to reduce exposure to assets with weaker occupancy and growth prospects. None of these actions came at the cost of future growth.
However, despite our actions, activity at the customer and investment market level clearly slowed as the year progressed. And market declines hit our asset valuations which we strive to keep ‘realistic’ in the face of significant adverse moves. We have every confidence in our strategies and the Company’s robustness in the face of external stress. Growth and upside will return and we plan to capture it. But for the present, we need to weather the passing storm.
The commentary in this Review highlights the actions we have taken in our aim to outperform, in line with the strategy we describe above. These actions rest on the effectiveness of our people and as before, much work has gone into building still further our human capital and a performance culture with which to execute our business plans.
Under ‘Sector and asset selection’ we report on over £3.7 billion (gross) property purchases and sales. These reduced our total exposure to a property market we judged expensive. We also adjusted holdings in market sectors and individual assets where we forecast weaker customer demand and reinforced our market leadership positions where prospects are strong. It also shows how, even in favoured markets, we keep capital working hard by investing in property best placed to capture demand trends, whilst reducing our holdings in more mature assets where we cannot do much more to improve them.
We update on our newer initiatives in Europe which leverage our existing retail market skills into areas where customer demand can drive growth and we perceive rental growth prospects to be attractive.
Under ‘Asset management’ we show the range of work we undertake to better tailor our existing buildings to areas of greatest customer demand. In turn this results in the above market rental growth we delivered again this year.
The ‘Development’ section reviews one of our more distinctive added-value areas. By creating new buildings at the forefront of modern service industry needs, we use our property skills and financial strength to target incremental return.
Under ‘Portfolio valuation’ we report on the valuation movement of each sector, together with data regarding occupancy and yields across the portfolio.
Our ‘Retail Sector’ and ‘Office Sector’ market commentaries explain in more detail the implementation of strategy and its rationale.
In the ‘Financial performance’, ‘Financing and capital structure’ and ‘Partnerships’ sections, the ways we have added value to supplement our property activity are described alongside an explanation of the financial results of this activity and the KPIs that show its effectiveness. Our balance sheet and debt management continue to be distinctive strengths, particularly relevant in these stressed financial market times. And by working with others, inter alia through Joint Ventures and Unit Trusts, we earn valuable extra income, leverage our skills and capital and increase manoeuvrability in the property markets.
We also highlight, in our Corporate Responsibility Report, our actions on sustainability including the commitment to lead our industry and become carbon neutral. We are a business of the built environment. Our careful use of scarce resources and our buildings’ impact in improving our communities and facilitating growth remain integral to our business success. The CR Report may be viewed in full on our website www.britishland.com/crReport/2007/.
