British Land Company PLC

		Footnote		2009 £m	2008 £m
Secured on the assets of the Group
Class A1 4.986% Bonds 2037		1.1, 2			602
Class A2 Floating Rate Bonds 2037		1.1, 2			60
Class B 4.988% Bonds 2037		1.1, 2			171
Class A4 4.821% Bonds 2036		1.2		396	396
Class C2 5.098% Bonds 2035		1.2		217	217
Class B 4.999% Bonds 2033		1.2		365	365
Class A3 4.851% Bonds 2033		1.2		174	174
Class A1 Floating Rate Bonds 2032		1.2		224	224
Class A2 4.949% Bonds 2031		1.2		288	295
Class D Floating Rate Bonds 2025		1.2		112	130
Class C1 Floating Rate Bonds 2022		1.2		215	235
9.125% First Mortgage Debenture Stock 2020		1.3		40	40
6.125% First Mortgage Debenture Stock 2014		1.3		45	45
10.3125% First Mortgage Debenture Stock 2011		1.3		42	44
5.264% First Mortgage Debenture Bonds 2035				327	327
5.0055% First Mortgage Amortising Debentures 2035				104	105
5.357% First Mortgage Debenture Bonds 2028				307	307
6.75% First Mortgage Debenture Bonds 2020				204	204
6.75% First Mortgage Debenture Bonds 2011				99	100
Floating Rate Secured Loan Notes 2035				256	256
Loan notes				5	5
				3,420	4,302
Unsecured
5.50% Senior Notes 2027				98	98
6.30% Senior US Dollar Notes 2015		3		108	77
Bank loans and overdrafts				139	785
				345	960
Gross debt		4		3,765	5,262
Interest rate derivatives: liabilities				109	31
Interest rate derivatives: assets				(16)	(17)
				3,858	5,276
Cash and short-term deposits		5		(616)	(244)
Net debt				3,242	5,032
Maturity analysis of net debt
Repayable	within one year and on demand			49	111
between:	one and two years			148	51
	two and five years			439	712
	five and ten years			553	1,117
	ten and fifteen years			436	613
	fifteen and twenty years			835	943
	twenty and twenty-five years			930	912
	twenty-five and thirty years			375	803
				3,716	5,151
Gross debt				3,765	5,262
Interest rate derivatives				93	14
Cash and short-term deposits				(616)	(244)
Net debt				3,242	5,032

Total borrowings where any instalments are due after five years are £1,702m (2008: £3,084m).

1. These borrowings are obligations of ring-fenced, special purpose companies, with no recourse to other companies or assets in the Group:

   	2009 £m	2008 £m
   1.1 Meadowhall Finance PLC		833
   1.2 Broadgate Financing PLC	1,991	2,036
   1.3 BLD Property Holdings Ltd	127	129

   
   
2. The Meadowhall Finance PLC securitisation group is owned indirectly by MSC Property Intermediate Holdings Limited which on 11 February 2009 became a joint venture with LSP Green Park Property Trust.
3. Principal and interest on this borrowing was fully hedged into Sterling at the time of issue.
4. The principal amount of gross debt at 31 March 2009 was £3,746m (2008: £5,275m). Included in this, the principal amount of secured borrowings and other borrowings of non-recourse companies was £3,412m (2008: £4,294m).
5. Cash and deposits not subject to a security interest amount to £215m (2008: £78m).

Financial Covenants

The two financial covenants applicable to the Group unsecured debt are:

Net Borrowings not to exceed 175% of Adjusted Capital and Reserves.

At 31 March 2009 the ratio is 83%:

• Net Borrowings are £3,186m, being the principal amount of gross debt of £3,746m plus amounts owed to joint ventures of £33m and TPP Investments Ltd of £23m (see note 24), less the cash and short-term deposits of £616m; and
• Adjusted Capital and Reserves are £3,831m, being share capital and reserves of £3,209m (see note 21), adjusted for £25m of deferred tax (see note 2), £444m exceptional refinancing charges (see note 21) and £153m mark to market on interest rate swaps (see note 2).

Net Unsecured Borrowings not to exceed 70% of Unencumbered Assets.

At 31 March 2009 the ratio is 6%:

• Net Unsecured Borrowings are £152m, being the principal amount of gross debt of £3,746m plus amounts owed to joint ventures of £33m less cash and deposits not subject to a security interest of £215m less the principal amount of secured and non-recourse borrowings of £3,412m; and
• Unencumbered Assets are £2,549m being properties of £5,810m (see note 11) plus investments in funds and joint ventures of £952m (see note 12) and other investments of £38m (see note 13) less investments in joint ventures of £585m (see footnote to note 12, page 84) and encumbered assets of £3,666m (see note 11).

Reconciliation of movement in Group Net Debt to Cash Flow Statement

	1 April 2008 £m	Disposals† £m	Cash flow £m	Non cash movement £m	31 March 2009 £m
Per cash flow statement:
Cash and short-term deposits	(244)		(372)		(616)
Overdrafts	5		(5)
Cash and cash equivalents	(239)		(377)		(616)
Term debt (excluding overdrafts)	5,257	(835)	(714)	57	3,765
Fair value of interest rate derivatives	14			79	93
Net debt	5,032	(835)	(1,091)	136	3,242
	1 April 2008 £m	Disposals† £m	Cash flow £m	Non cash movement £m	31 March 2009 £m
Per cash flow statement:
Cash and short term deposits	(198)		(46)		(244)
Overdrafts	7		(2)		5
Cash and cash equivalents	(191)		(48)		(239)
Term debt total (excluding overdrafts)	6,664	(721)	(686)		5,257
Fair value of interest rate derivatives	(69)			83	14
Net debt	6,404	(721)	(734)	83	5,032

^† Excluding cash and overdrafts. Represents the principal of securitised debt in MSC Property Intermediate Holdings Ltd (2008: BL Sainsbury Superstores Ltd) on formation of the joint venture.

Comparison of market values and book values

		2009				2008
		Market value £m	Book value £m	Difference £m		Market value £m	Book value £m	Difference £m
Securitisations		1,383	1,991	(608)		2,495	2,869	(374)
Debentures and unsecured bonds		1,091	1,374	(283)		1,213	1,347	(134)
Bank debt and other floating rate debt		400	400			1,046	1,046
Cash and short-term deposits		(616)	(616)			(244)	(244)
		2,258	3,149	(891)		4,510	5,018	(508)
Other financial (assets) liabilities:
	- interest rate derivative assets	(16)	(16)			(17)	(17)
	- interest rate derivative liabilities	109	109			31	31
		93	93			14	14
Total		2,351	3,242	(891)		4,524	5,032	(508)

The carrying values of trade debtors, other investments, trade creditors, finance leases and amounts owed to joint ventures represent their fair values at the balance sheet date.

These financial instruments are excluded from the above analysis.

The fair values of securitised debt and debentures have been established by obtaining quoted market prices from brokers. The bank debt and loan notes have been valued assuming they could be renegotiated at contracted margins. The derivatives have been valued by calculating the present value of expected future cash flows, using appropriate market discount rates, by an independent treasury adviser.

Capital risk management

The Group's objectives, policies and processes for managing capital are set out in the Financing Policy. The capital structure of the Group consists of net debt and equity attributable to the equity holders of The British Land Company PLC, comprising issued capital, reserves and retained earnings.

Loan to value ratio

A 45-55% loan to value ratio (LTV) is targeted, subject to the Board's view of markets, the prospects of and risks within the portfolio and the recurring cash flows of the business.

During the year ended 31 March 2009 the Group completed a Rights Issue, the formation of a joint venture containing Meadowhall and its securitised debt, and sold selected assets. Despite the mark downs in the valuation of the portfolio, LTV was 46% at year end (2008: 41%).

Categories of financial instruments

	2009 Book value £m	2008 Book value £m
Financial assets
Derivatives in designated hedge accounting relationships	16	17
Loans and receivables
Trade and other debtors	103	101
Cash and short-term deposits	616	244
Available for sale financial assets
Other investments	38	196
	773	558
Financial liabilities
Fair value through income statement
Held for trading - derivatives	(3)	(2)
Derivatives in designated hedge accounting relationships	(106)	(29)
Amortised cost
Gross debt	(3,765)	(5,262)
Finance lease payable	(14)	(35)
Trade and other creditors	(156)	(90)
Amounts owed to joint ventures	(33)	(29)
	(4,077)	(5,447)
Total	(3,304)	(4,889)

Gains and losses on financial instruments, as classed above, are disclosed in note 7 (net financing costs), note 14 (debtors) and the consolidated statement of recognised income and expense.

Interest rate risk management

The Group uses interest rate swaps to hedge exposure to the variability in cash flows on floating rate debt, such as revolving bank facilities and floating rate bonds, caused by movements in market rates of interest. At 31 March 2009 the market value of these derivatives, which have been designated as cash flow hedges under IAS 39, is a net liability of £106m (2008: asset of £3m). The valuation movement reflects the reduction in Sterling interest rates since 31 March 2008.

The cross currency swap, which fully hedges the foreign exchange exposure on the US Private Placement, has been designated as a cash flow hedge. The market value of this is an asset of £16m (2008: liability of £15m).

Following substantial deleveraging through asset sales and the Rights Issue, a number of hedges were no longer required and were closed out. As a result, the ineffectiveness recognised in the income statement on cash flow hedges in the year ended 31 March 2009 was £119m (2008: £nil).

The cash flows occur and enter into the determination of profit and loss until the maturity of the hedged debt. The table below summarises foreign currency denominated and variable rate debt hedged at 31 March 2009.

Cash flow hedged debt

		2009 £m	2008 £m
Outstanding:	after one year	1,001	2,189
	after two years	1,064	2,751
	after five years	1,002	2,439
	after ten years	434	519

Interest rate profile - including effect of derivatives

	2009 £m	2008 £m
Fixed rate	3,879	5,248
Variable rate (net of cash)	(637)	(216)
Net debt	3,242	5,032

All the debt is effectively Sterling denominated except for £139m (2008: £181m) of Euro debt, which is at a fixed rate (2008: £179m fixed, and the balance floating). At 31 March 2009 the weighted average interest rate of the Sterling fixed rate debt is 5.23% (2008: 5.23%). The weighted average period for which the rate is fixed is 17.5 years (2008: 16.0 years). The weighted average interest rate for the Euro fixed rate debt is 4.56% (2008: 4.50%) and the weighted average period for which the rate is fixed is 7.1 years (2008: 8.2 years). The floating rate debt is set for periods of the Company's choosing at the relevant LIBOR (or similar) rate.

The proportion of gross debt at fixed or capped rates of interest was 100% at 31 March 2009 (2008: 100%). This proportion is expected to reduce as floating rate debt is redrawn to fund committed development expenditure and selected property purchases. Based on the Group's interest rate profile at the balance sheet date a 436 basis point increase in interest rates would increase annual profits by £28m (2008: £9m increase). Similarly, a 436 basis point reduction would reduce profits by £11m (2008: £9m reduction). The change in interest rates used for this sensitivity analysis is based on the largest annual change in three month Sterling LIBOR over the last 10 years.

Upward movements in medium and long-term interest rates, associated with higher interest rate expectations, increase the value of the Group's interest rate swaps that provide protection against such moves. The converse is true for downward movements in the yield curve. The Group's interest rate swaps qualify as effective hedges under IAS 39, with one exception which is classified as held for trading, therefore movements in their fair value are recognised directly in equity rather than the income statement. At 31 March 2009 a 186 basis point parallel upward shift in swap rates would increase the value of the Group's interest rate swaps by £159m (2008: £282m). A 186 basis point downward shift in swap rates would reduce the value of the interest rate swap portfolio by £216m (2008: £353m). Because the interest rate swaps are matched by floating rate debt, the overall effect on Group cash flows of such movements is minimal. A 186 basis point shift represents the largest annual change in the seven year Sterling swap rate over the last 10 years.

Foreign currency risk management

Group policy is to have no material unhedged net assets or liabilities denominated in foreign currencies. The currency risk on overseas investments is hedged via foreign currency denominated borrowings and derivatives. The Group has adopted net investment hedging in accordance with IAS 39 and therefore the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity. The ineffective portion of the gain or loss on the hedging instrument is recognised immediately in the income statement.

The table below shows the carrying amounts of the Group's foreign currency denominated assets and liabilities. Provided contingent tax on overseas investments is not expected to occur it will be ignored for hedging purposes, as will the requirement to fair value interest rate swaps. This explains the excess of Euro denominated liabilities over assets. Based on the 31 March 2009 position a 33% appreciation (largest annual change over the last 10 years) in the Euro relative to Sterling would result in a £4m reduction (2008: £3m reduction) in reported profits.

	Assets			Liabilities
	2009 £m	2008 £m		2009 £m	2008 £m
Euro denominated	126	172		139	181

Credit risk management

The carrying amount of financial assets recorded in the financial statements represents the Group's maximum exposure to credit risk without taking account of the value of any collateral obtained.

Cash and short-term deposits at 31 March 2009 amounted to £616m (2008: £244m). Deposits were placed with financial institutions with A+ or better credit ratings.

At 31 March 2009 the fair value of all interest rate derivatives which had a positive value was £16m (2008: £17m). The counterparty has an investment grade credit rating.

At 31 March 2009, prior to taking into account any offset arrangements, the largest combined credit exposure to a single counterparty arising from money market deposits and interest rate swaps was £245m (2008: £217m). This represents 3.2% (2008: under 2%) of gross assets.

The deposits and interest rate derivative exposure are with Uk High street banks.

The Group's exposure to credit risk in respect of its trade receivables is analysed in note 14. Included within trade and other debtors is deferred consideration of £43m. Management has made due consideration of the credit risk associated with this, resulting in no impairment for credit risk being made.

Liquidity risk management

The Group's approach to liquidity risk management is discussed in the financing policy.

The table below presents a maturity profile of the contracted undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay.

The table includes both interest and principal flows. Where the interest payable is not fixed, the amount disclosed has been determined by reference to the projected interest rates implied by yield curves at the reporting date. For derivative financial instruments that settle on a net basis (e.g. interest rate swaps) the undiscounted net cash flows are shown and for derivatives that require gross settlement (e.g. cross currency swaps) the undiscounted gross cash flows are presented. Where payment obligations are in foreign currencies, the spot exchange rate ruling at the balance sheet date is used. Trade creditors and amounts owed to joint ventures, which are repayable within one year, have been excluded from the analysis.

The Group expects to meet its financial liabilities through the various available liquidity sources, including a secure rental income profile, asset sales, undrawn committed borrowing facilities and, in the longer-term, debt refinancings.

The Group leases out all its investment properties under operating leases with a weighted average lease length of 13 years. This secure income profile is generated from upward only rent reviews, long leases and high occupancy rates. The future aggregate minimum rentals receivable under non-cancellable operating leases is also shown in the table below.

			2009
	Within 1 year £m	One and two years £m	Two and five years £m	Over five years £m	Total £m
Debt†	46	145	436	3,129	3,756
Interest on Debt	169	174	494	2,052	2,889
Derivative Payments	37	30	52	159	278
Finance Lease Payments	1	1	3	108	113
Total Payments	253	350	985	5,448	7,036
Derivative Receipts	(7)	(7)	(20)	(124)	(158)
Net payment	246	343	965	5,324	6,878
Operating leases with tenants (see note 19)	382	383	1,125	3,602	5,492
Liquidity surplus (deficit)	136	40	160	(1,722)	(1,386)
Cumulative liquidity surplus (deficit)	136	176	336	(1,386)
			2008
	Within 1 year £m	One and two years £m	Two and five years £m	Over five years £m	Total £m
Debt†	103	49	707	4,396	5,255
Interest on Debt	288	263	745	2,731	4,027
Derivative Payments	6	18	26	134	184
Finance Lease Payments	2	2	8	220	232
Total Payments	399	332	1,486	7,481	9,698
Derivative Receipts	(19)	(6)	(21)	(103)	(149)
Net payment	380	326	1,465	7,378	9,549
Operating Leases with tenants (see note 19)	538	527	1,565	5,756	8,386
Liquidity surplus (deficit)	158	201	100	(1,622)	(1,163)
Cumulative liquidity surplus (deficit)	158	359	459	(1,163)

^†Gross debt of £3,765m (2008: £5,262m) represents the total shown, less unamortised issue costs of £17m (2008: £21m), plus the fair value adjustment arising on acquistions of £26m (2008: £28m).

The medium-term liquidity gap between the net payments required and the rentals receivable can be met through other liquidity sources available to the Group. The Group currently holds cash and short-term deposits of £616m, of which £215m is not subject to a security interest (see footnote 5 to net debt table). Further liquidity can be achieved through sales of property assets or investments and debt refinancings. The Group's property portfolio is valued externally at £5,810m (see note 11) and the share of Funds and Joint Ventures' property at £2,815m (see Table A). The undrawn committed borrowing facilities available to the Group are a further source of liquidity. The maturity profile of committed undrawn borrowing facilities is shown below.

Maturity of committed undrawn borrowing facilities

		2009 £m	2008 £m
Expiring:	within one year	89	77
between:	one and two years	265	80
	two and three years	775	221
	three and four years	80	709
	four and five years	905	80
	over five years	836	1,266
Total		2,950	2,433

The above facilities are those freely available to be drawn for Group purposes. There is an additional undrawn 364 day revolving liquidity facility of £185m which is only available for the requirements of the Broadgate securitisation.