British Land Company PLC

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Partnerships

British Land's net investment in Funds and Joint Ventures is £952 million (2008: £1,532 million) at 31 March 2009. This investment is principally in three active funds and 14 active Joint Ventures, which hold in total £6.2 billion (2008: £6.9 billion) of properties in retail, offices and development. The Funds and Joint Ventures are financed by £4.1 billion (2008: £3.3 billion) of external debt, all of which is without recourse to British Land.

The Funds provide British Land with interests in properties in our key sectors. British Land acts as property adviser to the Funds and receives performance and management fees.

HUT

Hercules Unit Trust ('HUT') was established in 2000 as a Jersey based closed-ended property unit trust with a fixed life which has been extended to September 2020 and subject to further extension with consent of unitholders. HUT's aim is to acquire and own retail warehouse and shopping park investment properties throughout the UK, with a view to providing an annual total return on the portfolio in excess of the IPD Retail Warehouse Quarterly Universe over the life of the Trust.

Although the Trust return for the year to 31 December 2008 was -41.6%, the five year annualised return was -1.9% per annum. At the property level, without the effect of gearing, the portfolio returned 23.6% for the year; this compares favourably with the IPD Retail Warehouse Quarterly Universe (excluding HUT) of -25.4% for the same period. This is attributable to:

• rental value growth of the portfolio of 1.0% over the year (IPD Retail Warehouse Quarterly Universe -0.4%) and
• low vacancy rate at 3.3% (IPD Retail Warehouse Quarterly Universe 5.0%).

In the year to December 2008:

• the distribution yield has risen from 2.2% to 4.8%; and
• there was repayment of debt of £95 million following sales.

At 31 December 2008, gearing had increased to 44.1% of the aggregate Trust value, well within the Trust's limit of 60%, as a result of falling capital values. Since its year end, a further four asset sales were completed, realising £172 million, to help ensure compliance with banking covenants.

The secondary market has continued to be active; a total of 13,492 units were traded over the year with a total value of £12 million. No new units were issued in the year.

British Land is HUT's property adviser, and Schroder Property Managers (Jersey) Ltd is the Fund Manager.

PREF

Pillar Retail Europark Fund ('PREF') was created in March 2004 as a closed-ended Luxembourg based Fonds Commun de Placement to invest in out-of-town retail parks in the Eurozone and Switzerland and in particular France, Spain, Portugal and Italy. Including outstanding contracted acquisitions, the portfolio reached €1.1 billion in value in autumn 2007 following the purchase of Nueva Condomina Shopping Centre, Murcia (in conjunction with British Land). In January 2008, five non-core assets, together with half of PREF's holding in Nueva Condomina, were sold in a portfolio transaction with a combined value of €300 million. At 31 December 2008, PREF's portfolio comprised 12 assets valued at €595 million.

The annualised total return for the year to 31 December 2008 was -19.6%. Gearing at 31 December 2008 was 44%, following a reduction in early 2008 from the portfolio sale. PREF gears up to 60% loan to value with debt provided by a syndicate of banks.

The Investment Manager is BL European Fund Management LLP.

HIF
Hercules Income Fund ('HIF') was established in September 2004 as a Jersey based closed-ended property unit trust with a fixed life of 10 years, subject to extension with unitholder consent. Its objective is to target smaller retail park assets, and with an emphasis on a higher distributable yield.

The Trust return for the year to 31 December 2008 was -34.8% and the property return was -30.4% compared with the IPD Annual Retail Warehouse Universe of -25.6%. HIF's loan to value is currently very low at 16%, which allows it to operate without being a forced seller, although asset sales are being considered to further increase liquidity.

British Land is the property adviser, and Pillar Property Management (Jersey) Ltd is the Fund Manager.

Joint Ventures provide British Land with access to desirable properties (often off market) or introduce third party investors to assets owned by us, enabling us to create further opportunities. Each joint venture is a separate entity for the purpose, controlled by a board carrying equal representation from each partner. The entities are able to raise finance on the strength of their assets, with no support from the partners, thereby significantly lowering the initial equity investments. The enterprise is shared by the partners, over a specific agreed lifetime for the venture.

Activity since 31 March 2008 included:

• sale of a 50% share in Meadowhall Shopping Centre by formation of our new joint venture with London & Stamford Property Green Park Property Trust; and
• distributions to British Land from the Joint Ventures of a total of £18 million over the year.

Although some of the Joint Ventures have different year ends from British Land, the accounting periods recognised are aligned to the Group's March year end using management accounts, to assist the requirements of quarterly reporting.

Summary details of the principal Joint Ventures in which we have a 50% share are shown below.