Final Results - Part 1

British Land Co PLC 29 May 2002 PART 1 29 May 2002 PRELIMINARY ANNOUNCEMENT BY THE BRITISH LAND COMPANY PLC RESULTS FOR THE YEAR ENDED 31 MARCH 2002 HIGHLIGHTS â€¢ Net Asset Value* undiluted up 3.9% to 833 pence per share (2001: 802 pence). â€¢ Net Asset Value* per share fully diluted up 3.7% to 803 pence (2001: 774 pence). â€¢ Net Asset Value*, fully diluted, post expected redemption of Â£323 million Convertible Bonds (announced on 16 May 2002) will rise 11 pence to 814 pence per share. â€¢ Profits before tax up 96% to Â£171.3 million (2001: Â£87.5 million post-exceptional). â€¢ Earnings per share up 161% to 30.8 pence (2001: 11.8 pence post-exceptional). â€¢ Final Dividend up 8.9% to 8.6 pence per share (2001: 7.9 pence). The total distribution for the year is up 7.8% at 12.4 pence (2001: 11.5 pence). â€¢ Net Rents up 5.8% to Â£477 million, including share of joint ventures (2001: Â£451 million). â€¢ Portfolio Valuation up 0.8% (on a like for like basis) to Â£9.3 billion. â€¢ Continued Portfolio Management and Development with profitable sales of Â£378 million, purchases of Â£608 million and development expenditure of Â£157 million. * NAV adjusted to exclude the effects of the FRS 19 deferred tax provision relating to capital allowances. The Board Cyril Metliss will be standing down from the main Board at the 2003 AGM. Graham Roberts joined the Board in January 2002 and became Finance Director on 31 March 2002. John Weston Smith became Chief Operating Officer, remaining an executive director, on 31 March 2002. Robert Bowden's contract expires on 5 May 2003. Nicholas Ritblat has voluntarily agreed to reduce the period of his contract, without compensation, to one year. Annual General Meeting 2002 The Company has received three resolutions, two concerned with share buy-backs and one with property management, to be moved at the Annual General Meeting to be held on 16 July 2002. The Board does not consider that passing these resolutions is in the interest of shareholders and will issue its detailed response with the Notice of Meeting, not later than 17 June 2002. Performance Benchmarking Performance Relative to IPD - Ungeared Total Returns British Land IPD* Threshold to Enter IPD Upper Quartile 10 years to 31 March 2002 12.8% pa 10.8% pa 11.4% pa 12 months to 31 March 2002 12 months to 31 March 2001 British Land IPD* British Land IPD % pa % pa % pa % pa Offices 3.9 6.1 25.5 15.1 Retail 9.1 6.9 4.7 3.9 Industrial 8.6 7.9 9.9 12.2 Other Commercial 10.5 8.1 6.5 9.5 Total Portfolio 6.5 6.8 14.2 10.2 * IPD All Fund Universe March 2002 (unfrozen) Source: IPD PORTFOLIO VALUATION Â£m Total % Change %* Offices City 3,359.3 36.1 -2.2 West End 670.4 7.2 +1.2 Other 238.5 2.6 +2.3 All offices 4,268.2 45.9 -1.4 Retail Shopping centres 1,723.0 18.5 -0.1 Shops 380.8 4.1 +3.4 Retail warehouses 882.2 9.5 +3.8 Supermarkets 1,091.0 11.7 +6.5 All retail 4,077.0 43.8 +2.8 Industrial and Distribution 110.3 1.2 +1.0 Leisure and other 215.3 2.3 +0.8 Residential 131.8 1.4 +6.3 Development 497.7 5.4 +3.4 Total Valuation 9,300.3 100 0.8 *after adjustment for purchases, properties awaiting development, sales and other expenditure. Total funds under British Land property management, including partners' shares of joint ventures, now Â£11.1 billion. PORTFOLIO ANALYSIS Value by location Â£m Total % London: City 3,645.2 39.2 West End 700.5 7.5 Greater London 397.3 4.3 Total London 4,743.0 51.0 South East England 985.9 10.6 Wales & South West England 472.2 5.1 Midlands & East Anglia 710.4 7.7 North of England 1,984.6 21.3 Scotland & Northern Ireland 299.9 3.2 Republic of Ireland 104.3 1.1 9,300.3 100.0 Current Reversionary Net Reversionary potential Net Yield % Yield % City offices 5.7 6.7 West End offices 4.8 8.1 Shopping centres 5.6 6.7 Supermarkets and Retail warehouses 6.5 6.8 Other 7.1 8.0 Overall portfolio (excluding developments) 6.0 7.0 Reversionary income Â£88.5 million 31 March 2002 31 March 2001 Portfolio Statistics Annualised net rents Â£524.6m Â£492.9m of which, share of joint ventures Â£100.8m Â£97.0m Weighted average lease length 18.3 years 19 years Current net yield 6.0% 5.9% Reversionary net yield 7.0% 7.3% Rental Income British Land - Group only: Gross Rents rose by 6.5% to Â£415.3 million (2001: Â£390.1 million) Net Rents up 4.0% to Â£386.6 million (2001: Â£371.8 million) British Land - including share of Joint Ventures: Gross Rents rose by 8.0% to Â£513.8 million (2001: Â£475.6 million) Net Rents up 5.8% to Â£476.9 million (2001: Â£451.3 million) FINANCIAL HIGHLIGHTS 31 March 2002 31 March 2001 (restated) Profit and Loss Account Gross rental income Â£513.8m Â£475.6m Gross rental income - Group Â£415.3m Â£390.1m Net rental income Â£476.9m Â£451.3m Net rental income - Group Â£386.6m Â£371.8m Profits on property trading and Â£43.8m Â£35.2m disposal of fixed assets Other income Â£9.5m Â£27.5m Net interest payable Â£317.9m Â£311.3m Profit before taxation Â£171.3m Â£87.5m (post-exceptional) (Â£171.1m) (pre-exceptional) Tax charge Â£11.9m Â£26.3m Balance Sheet 31 March 2002 31 March 2001 (restated) Total properties* Â£9,300.3m Â£8,859.9 Adjusted: + Net assets (basic) Â£4,320.8m Â£4,153.4m Net asset value per share (basic) 833 pence 802 pence Net asset value per share (fully diluted) 803 pence 774 pence Debt/equity ratio - Group 89% 91% Mortgage ratio - Group 46% 46% * Pre adjustments for UITF 28 + Adjusted to include the external valuation surplus on development and trading properties and to exclude the effects of the FRS 19 deferred tax provisions relating to capital allowances Total Return for the year 5.5% (2001: 17.2% post-exceptional, 19.3% pre-exceptional) All figures include British Land's share of joint ventures unless stated as Group. Save as noted above, the Preliminary Results for the year ended 31 March 2002 have been prepared in accordance with Financial Reporting Standard 19 (Deferred Tax) and Urgent Issues Task Force Abstract 28 (Operating Lease Incentives) and the comparatives for the year ended 31 March 2001 have been restated accordingly. 31 March 2002 31 March 2001 Financing statistics - Group Net debt Â£3,840m Â£3,717m Weighted average debt maturity 19.8 years 17.8 years Weighted average interest rate 6.62% 6.91% - post redemption of 6.5% Convertible Bonds 2007 6.5% Undrawn committed bank facilities, cash and deposits Â£2,046m Â£1,323m % of net debt at fixed/capped interest rates 95% 89% CONTACTS The British Land Company PLC John Ritblat, Chairman ) 020 7467 2831/2829 Graham Roberts, Finance Director ) 020 7467 2948 Finsbury Limited Edward Orlebar ) 020 7251 3801 Faeth Finnemore ) STATEMENT BY THE CHAIRMAN, JOHN RITBLAT In the year to 31 March 2002, British Land earned record pre-tax profits of Â£171.3 million and net assets rose to the record level of 833p per share and 803p fully diluted. After the convertible buy-back announced on 16 May, the NAV per share on a fully diluted basis would rise to 814p. Rents are the principal source of our revenue and, for the first time, gross rents exceeded half a billion pounds at Â£514 million, with net rents at Â£477 million. Joint ventures brought in Â£36 million and sale of fixed assets, including the Haslemere shares, produced Â£37 million. The 26th successive year of property trading profits this time contributed Â£6.8 million. In the light of these results the Board is recommending a final dividend up 8.9% to 8.6p per share, making a distribution for the year of 12.4p per share, and the 23rd successive year of increasing payouts. With rental reversions to come of some Â£88.5 million we expect to sustain a higher rate of dividend growth. Notable Events in the Year The Â£323 million 6.5% Convertible Bonds 2007 are being redeemed removing the potentially dilutive issue of 48.1 million shares. A Â£575 million securitisation was completed on 35 Sainsbury supermarkets at 6.8% with an average term of 17 years and an Â£825 million securitisation on Meadowhall, at 5.5% with an average term of 21 years. The 543,000 sq ft development at Plantation Place, London EC3 is now under construction with a 375,000 sq ft pre-let to Accenture. Planning consent was obtained for a 162,400 sq ft office building at 10 Exchange Square (formerly 83,000 sq ft Hamilton House) at Broadgate, London EC2. Abbey National's new 200,000 sq ft headquarters was completed at Regent's Place, London NW1. A new joint venture, BL Davidson, was formed to own the Â£488 million Asda Property Holdings which has a portfolio of offices and retail warehouses. Swindon Orbital Shopping Park was purchased for an anticipated total of Â£53 million. Total property purchases were Â£608 million and property sales in the year were Â£378 million. The Portfolio After strong growth in the previous year, this latest year has produced more modest gains in the portfolio, which has risen 0.8% (2001: 6.7%), in money terms a rise of Â£72 million. City of London offices, having risen 19.7% in the previous year, relinquished some of that increase with a decline of 2.2%. Shopping centres were unchanged. Supermarkets were up 6.5%, retail warehouses up 3.8%, shops up 3.4%. Our continuing investment in the residential sector again had good growth, being up 6.3%. We remain entirely confident that our prime assets, Broadgate and Meadowhall, will bring further rewards to shareholders. Value does not accrue evenly in the property business, and high transaction costs, particularly Stamp Duty, inhibit and penalise rapid changes of direction. We believe that our selected mix of assets can collect the best of the upwards trend now under way. We multiply actual property performance by employing debt to add growth to shareholders' funds, so that with the benefit of retained profits, a portfolio rise of under 1% has translated into a net asset per share rise of 3.7%. The business continues to suffer the consequences of UK fiscal policy for property companies, notably in the potential burden of Stamp Duty and contingent tax. However these two items together do provide about Â£800 million of "free" funding to shareholders, who have the use of this amount only on the basis of the Company's continuance. The "mark to market" element of our debt, with other early repayment costs, amounts to a further Â£304 million of extra funding which also is dependent on the business being on-going. It is salutary that prospective Stamp Duty now accounts for no less than Â£370 million as a deduction from our latest valuation. This is a retrospective anti-savers tax - we are mostly owned by institutions looking after small investors' money - and uncertain, because it can be raised at any time. Government is savaging liquidity in property with little or no reward to show for it. Managing Property In addition to British Land's own portfolio, major British companies such as Tesco, Scottish & Newcastle, House of Fraser and GUS have entrusted Â£3.2 billion of their property assets to British Land's property management skills through joint ventures. We manage the continuing expansion of 15 current joint ventures and expect to add more of these useful fee-earners in the future. Broadgate Estates, our own specialist building and estate management company, provides its services to British Land and to more than 60 clients in Greater London. Over half its profits arises from outside the Group. We continue to investigate and promulgate technology opportunities for property. Current projects include Asite (on-line construction procurement), Go Shop (Meadowhall loyalty card), Pisces (standardised information exchange), Propex (on-line property market) and HSO (high speed cabling for offices, jointly with other landlords). Our policy remains cautious, but we have the scope for economies of scale afforded by portfolio size. We are not afraid to put our resources and energies to good use, especially now that the technology sector has been subjected to such heavy rationalisation. Developments take many years from concept to completion, particularly as they often involve at the outset site assembly, negotiations with existing tenants, and then of course the planning process coupled with design, all before actual construction can start. Over 1.2 million sq ft of developments were completed during last year, with an estimated rental value of Â£25 million at a cost of Â£188 million. The main projects were 350 Euston Road, London NW1, where lettings are well advanced, and the new headquarters for the Abbey National at 2 /3 Triton Square, London NW1. The current development programme now stands at 8.3 million sq ft with total construction costs of Â£1.6 billion in 26 projects. Development is lucrative but not quickly accomplished. We have to have committed money available to meet development costs and to service related loans and without endangering our ability to pay - and raise - dividends throughout the non-earning, pre-construction stages and during building. Managing Finance Property investment, management, trading and development are only part of our job. Optimising the liability side of our balance sheet is just as important. A range of financing techniques has enabled the Company to sustain its Â£9.3 billion portfolio on an equity base of only Â£4.3 billion. Since 1980, this capital base has expanded from Â£119 million to over Â£4 billion with only 24% of that expansion subscribed by shareholders. The remainder, Â£3.2 billion, has been generated by management from asset and profit growth within the business. Securitisations during the last three years on Broadgate, on 35 Sainsbury superstores and on the Meadowhall Shopping Centre, have tapped an entirely new source of funding for Â£2.9 billion, and we will be able to extract more on these assets. The Company has also retained access to unsecured bank facilities totalling Â£1.9 billion, all on uniform loan documentation. We run our debt and bank facilities so that, without impairing essential liquidity, we were able to afford to fund from our own resources early repayment of some Â£725 million in Unsecured Bonds and 6.5% Convertible Bonds to reduce debt servicing costs. With the Convertible, which had a call provision built in some 5 years ago, we were able to cut interest charges and also to remove the dilutive effect of the potential issue of 48.1 million shares arising from conversion. Debt management in British Land is planned on a strategic and cautious approach with regard to variable interest rates. 95% is at fixed or capped rates, and wherever possible our finance is long-term; the weighted average debt maturity is now 19.8 years and the average interest rate is 6.62%, falling to 6.5% when the Convertible is redeemed. In our counter-cyclical business the most advantageous purchases become available at unpropitious times when sentiment is against property investment. We need accessible funding to protect shareholders - and to pick up bargains for them. It is in the nature of all markets that growth occurs irregularly in spurts and spikes, and in ours neither rental shifts nor yield changes arise in smooth progression. Our best acquisitions can take time to prove their merits through periods of fluctuation in tenant and investor demand, and through perceived demographic shifts. British Land's size and financial muscle allow it to grasp the opportunities and hold assets through the germination period. Strategic Management Management at British Land has established a clearly entrepreneurial but risk-averse strategy: â€¢ To focus primarily on prime, large scale assets in the office, retail and development areas, which provide exceptional long-term investments where we can reduce shareholders' capital employed to the minimum by financing. â€¢ To create a modern portfolio enjoying the combination of excellent growth potential and the security from high quality covenants and long leases. â€¢ To recycle capital and enhance returns through acquiring assets which offer the scope to add value through active management. â€¢ To maximise equity returns through optimal leverage, innovative financing and joint ventures. To that may be added an opportunistic approach to a deal through a willingness to pursue real estate investments in other forms, such as the share stakes in Haslemere and Selfridges, which together have brought in realised gains of over Â£64 million over the last two years. Property is a long-term business. With investment properties there will often be a holding period before purchase and improvement costs are absorbed, and the rewards of quality discerned at the outset can be turned into higher value. And higher value there will be: we have not lost our touch. Companies which have been tempted by short-term prospects in unproven, fashionable activities elsewhere have lost a lot of money. By contrast, well located modern properties let on long leases to reliable tenants bring strong downside protection to the balance sheet, and if well chosen and imaginatively managed, have excellent upside potential. Broadgate is a case in point. We acquired it in tranches in 1982, 1991, 1994, 1995, 1996, 1997, 1998 and 1999, initially through unravelling a highly intricate corporate situation. Broadgate cost Â£1.9 billion and is now producing an annual income of Â£156 million, with a current estimated rental value of Â£191 million. It has been financed through securitisations to the extent of Â£1.68 billion (with scope for more) and has risen in value by Â£900 million. The public and retail spaces of this 32 acre site are going through a major Â£40 million enhancement programme. Hamilton House (83,000 sq ft) is being demolished and rebuilt as 10 Exchange Square to provide 162,400 sq ft, and in other perimeter areas we are able to add even more extra space. A similarly active approach has been adopted at Regent's Place, where initial corporate purchases in 1984 and 1987 were followed by extensive demolition and redevelopment of the 1960s offices and shops, and their continuing replacement, providing to date 1 million sq ft of new buildings with attractive public spaces and modern facilities. There is potential for considerably more. Throughout our period of ownership there has been capital growth. The rental growth has serviced our investment without deficit. Share Buy-Backs Further to the comments in my Chairman's Statement last year, I want to emphasise again and expand upon our policy towards share buy-backs. Our function is to maximise long-term returns for all shareholders. In achieving this objective, we believe there are two circumstances where share buy-backs should be considered, and I would like to make the Board's views on both absolutely clear. The first is if we have surplus capital. In this circumstance, we are totally committed to return such capital to shareholders by the most effective means available at the time. The second is when the share price is at a level that offers a good, low risk investment opportunity. Here we are committed to buy back shares if at any time we feel that net asset and earnings per share enhancing buy-backs offer better returns than new property investment. Funds are available, or can be made available, for instance by asset sales. The other aspect to our share buy-back policy is our policy on share issuance. So I want to be absolutely clear here too, that we do not presently foresee any requirement for extra equity in the business. Corporate and Social Responsibilities We devote considerable attention to the management of environmental matters and the wider aspects of our corporate and social responsibilities. It is pleasing to be able to report that British Land was placed first among the property sector in both the Business in the Community and the Property and Environment Group's latest annual ratings. We aim for the highest standards through our ongoing rolling programme. It is now time that the various constituents of the environmental lobby reach agreement over the questions to which they seek answers. Government has given a lead on this. At the moment we receive a proliferation of questionnaires, each just a bit different, from a multiplicity of bodies. This should be codified and then we could all put the responses on our websites in an environmentally friendly way. Environmentalists must practise green policies in their own endeavours as well as preach. This is a real chance for them to show that "more could be less". This year we have again sponsored the British Land UK Chess Challenge for 56,000 schoolchildren, and British Skiing, which had its best ever Olympic performance. For London Zoo we designed and printed an educational broadsheet and sent it to 30,000 primary schools, where it has been well received by children and teachers. Prospects I cannot recall a time since the exuberance of the late 80s when there was greater enthusiasm for investing in property. Good property assets are in short supply in the market. Though there has been some weakness in rents, the investment side has remained firm in the expectation that yields will fall and that further capital appreciation will thus arise in addition to normal growth. British Land has a blended portfolio of high quality, divided primarily between the office and retail sectors, a wise choice for shareholders. We remain, as I have said before, well placed to get the best of whatever growth is going. Board and Management Cyril Metliss will be standing down from the Board at the 2003 Annual General Meeting and I am glad that he will remain a director of a number of subsidiaries. Graham Roberts, who joined us at the start of the year, became Finance Director on 31 March 2002. His extensive professional experience covered a variety of property interests, and we are glad to have him as a senior member of our executive management. We are pleased that we are retaining the experience and expertise of his predecessor, John Weston Smith, who remains an executive director and Chief Operating Officer. My thanks go to them and my other colleagues, executive and non-executive, on the Board and on the Boards of our management subsidiaries. Our teams at Head Office and at Broadgate, Meadowhall and our other outposts have made a major contribution this year, as have all the outsourced professionals and agents on whom we extensively rely. I thank them all. Financial Review Operating Performance Profit before tax rose by Â£83.8 million to Â£171.3 million (2001: Â£87.5 million), including our fifty percent share of joint venture profits. Profit after tax rose from Â£61.2 million to Â£159.4 million. Total return on adjusted basic net assets was Â£231.7 million, representing 5.5% for the year. The portfolio valuation including our share of joint ventures rose by 0.8% on a like for like basis. The table below analyses the contribution to gross rental income and to total return for the year between the British Land Group and our share of joint ventures. The Group contributed 78.9% of total return (2001: 97.5%). Joint ventures contributed 19.2% (2001: 18%) of gross rental income and 21.1% (2001: 2.5%) of total return in the year. Group Joint Ventures Total Â£m Â£m Â£m Gross rental income 415.3 98.5 513.8 Operating profit 363.6 88.6 452.2 Net Interest payable (251.8) (66.1) (317.9) Income Return 111.8 22.5 134.3 Disposal of fixed assets 39.5 (2.5) 37.0 Revaluation and other surpluses 37.1 35.2 72.3 Capital surpluses 188.4 55.2 243.6 Taxation (5.6) (6.3) (11.9) Total return 182.8 48.9 231.7 Total return 2001 600.3 15.3 615.6 Rental Income Group gross rental income grew by Â£25.2 million to Â£415.3 million and our share of joint venture gross rents grew Â£13 million to Â£98.5 million. Group net rents grew by Â£14.8 million to Â£386.6 million. The increase in rents was after the effect of acquisitions in the current and prior year (Â£18 million), rent reviews settled and new lettings (Â£18.4 million) and reduced by sales of properties in the current and prior years (Â£16.6 million). British Land's share of the net rents of joint ventures rose from Â£79.5 million to Â£90.3 million. Disposals Group investment property disposals during the year realised gains of Â£14.9 million (2001: Â£7.4 million) over their book values. In addition, the Group sold its stake in Haslemere NV in March 2002 for Â£93.1 million, realising a profit on its investment of Â£25.6 million against book value, overall a 51.3% return on cost. Interest Net interest costs including share of joint ventures rose to Â£317.9 million from Â£311.3 million in 2001. Group net interest payable increased by only 0.9% to Â£251.8 million (2001: Â£249.6 million) despite an increase in net debt of 3.3% from Â£3,716.8 million to Â£3,840.4 million. This reflects the benefit of debt restructuring including the Group's repurchase of unsecured bonds in May 2001, which were replaced by less expensive finance. Interest capitalised on developments was Â£5.9 million (2001: Â£4 million). The core interest cover of 1.53 times (Group net rents to Group net interest) compares to 1.49 times in 2001. At 31 March 2002 the average cost of debt was 6.62%. After the buy back of the 6.5% Convertible Bonds 2007 announced for June 2002, the interest rate reduces to 6.5%. The Group's share of joint ventures' net interest payable was Â£66.1 million compared to Â£61.7 million in 2001. The average joint venture interest cover (net rents/interest on external debt) was 1.81 times (2001: 1.74 times). Taxation FRS 19, Accounting for Deferred Taxation has been implemented for the current year and the comparative has been restated. The Group charge comprises a current year corporation tax charge of Â£7.4 million, deferred tax of Â£22 million and Â£6.3 million attributable to joint ventures, equivalent to a current year charge of 20.8%. This charge has then been reduced by Â£23.8 million as a result of the satisfactory resolution of items relating to earlier accounting periods. The overall charge of Â£11.9 million represents a tax rate of 6.9%. The tax which would arise on the disposal of properties and investments at their current market value is estimated at Â£510 million, after taking account of available losses and provisions, which is more fully explained in the notes to the balance sheet. The basis of calculating contingent tax has changed as a result of FRS 19. Dividends and Earnings The Directors propose a final dividend of 8.6 pence per share, making a total dividend of 12.4 pence per share in the year, an increase of 7.8%. Basic earnings per share rose by 161% to 30.8 pence per share (2001: 11.8 pence per share). On a fully diluted basis earnings have increased to 30.2 pence per share (2001: 11.8 pence per share). Adjusted earnings per share in 2002 have increased by 136% to 32.1 pence per share (2001: 13.6 pence per share). On a fully diluted basis adjusted earnings have increased to 31.5 pence per share (2001: 13.6 pence per share). Cash Flow Net cash inflow after taking into account dividends received, net interest and tax paid was Â£98.8 million. Sales of properties and investments realised Â£307.3 million. Investment in properties, amounted to Â£426.1 million of which Â£125.2 million related to developments. The investment in the BL Davidson joint venture was Â£72.2 million. Securitisations raised Â£1.4 billion which was used substantially to reduce bank and other borrowings. Financial Position - Adjusted Net Assets Adjusted net asset value is defined as net assets adjusted to include the revaluation surplus on trading and development properties and to exclude deferred taxes provided on capital allowances, where no tax payment is expected to crystallise. In 2002, adjusted net asset value rose by 4% to Â£4,320.8 million (2001: Â£4,153.4 million). Adjusted Net Asset Value Per Share Adjusted net asset value per share grew by 31 pence to 833 pence (2001: 802 pence). Adjusted fully diluted net asset value per share was up by 3.7% to 803 pence (2001: 774 pence). The Company has announced that it will redeem the 6.5% Convertible Bonds 2007 on 24 June 2002. The pro forma impact on fully diluted adjusted net asset value per share of this redemption is to increase it by 11 pence from 803 pence to 814 pence. This assumes no conversion occurs of the Bonds prior to redemption. Properties 2002 has been another active year. A comprehensive report is included in the Property Review. The valuation uplift at 31 March 2002 represented a 0.8% increase on a like for like basis on the previous year. Our approach to property development is unchanged and developments are undertaken in controlled stages with construction commitments made either on pre-let or on anticipated market demand. At 31 March 2002 our committed future development expenditure totalled Â£336 million. Joint Ventures At 31 March 2002 the joint ventures' investment portfolios were valued at Â£3,213.6 million (2001: Â£3,051.8 million). The joint ventures are an important part of our business and comprehensive operating and financial details are included in the Joint Ventures Review. This includes the acquisition of Asda Property Holdings plc in September 2001 in joint venture with the Davidson family interests (BL Davidson). The price paid by the joint venture was some Â£40 million less than the fair value of the assets and liabilities acquired. This gave rise to negative goodwill of Â£20 million, which will be recognised through the profit and loss account in future periods. Other Investments Other investments reduced in the year from Â£73.7 million to Â£12.4 million. This was largely due to the sale of our investment in Haslemere NV. Net Debt Net debt of Â£3,840.4 million at the year end was marginally higher than that at the end of 2001 of Â£3,716.8 million. The mortgage ratio remained the same as the previous year at 46%. At 31 March 2002 the market values of net debt and interest rate derivatives were Â£304 million more than their book values. This compares to Â£232 million last year. After notional tax relief of 30%, the effect on net assets would be 41.1 pence per share (2001: 31.3 pence per share). Our share of joint venture debt at 31 March 2002 is Â£845.9 million (2001: Â£782.8 million). The debt in joint ventures is non-recourse except for guarantees up to Â£33 million in total. The Group's net debt comprises securitisations, debentures, unsecured and convertible bonds, bank borrowings and overdrafts less cash and deposits. Securitisations In June 2001 the Group securitised the rental income of 35 Sainsbury supermarkets, raising Â£575 million against a value then of Â£677 million, a loan to value ratio of 85%, with a weighted average interest rate of 6.8% and weighted average maturity profile of 17 years. In December 2001 the Group securitised the rental income at Meadowhall shopping centre, which raised Â£825 million, with a further tranche available for marketing of Â£50 million. The weighted average interest rate was 5.51% and the average life 21 years. The proceeds raised from the two securitisations were used largely to repay bank borrowings. The securitisations are repayable only out of the income generated by the underlying assets. There is no recourse to the Company in the event of a default. The effective interest rate and maturity profile of the Group's securitisations as at 31 March 2002 are set out in the table below: Amount Date issued Effective Weighted average maturity interest rate profile Â£m Broadgate 1,416 May 1999 6.2% 18 years Meadowhall 814 Dec 2001 5.5% 21 years Sainsbury 563 Jun 2001 6.8% 16 years 135 Bishopsgate 128 Sep 1996 & 7.9% 10 years April 1999 Convertible Bonds The Company has two convertible bonds in issue. The Â£150 million 6% Subordinated Irredeemable Convertible Bonds carry a Bondholder conversion right exercisable at any time into Ordinary Shares of the Company at 500p per share. The Company has the right to redeem, at its discretion, the Bonds at par if after 9 April 2001 the average ordinary share price attains 650p and after 9 April 2008 without conditions. The Company has an option to exchange the Bonds for 6% Convertible Preference Shares with the same conversion terms. The Company has a further option to exchange the preference shares back to convertible bonds after these preference shares have been in issue for six months. On conversion of the entire issue into Ordinary Shares of the Company 30 million Ordinary Shares would be issued. Full details are provided in the notes to the Accounts. The Â£323 million 6.5% Convertible Bonds 2007 carry a Bondholder right of conversion, exercisable at any time, into Ordinary Shares of the Company at 672p per share. The Company has announced that it will redeem all the Bonds at par on 24 June 2002. Bondholders have the right to elect for conversion into the underlying Ordinary Shares. On conversion of the entire issue into Ordinary Shares of the Company 48.1 million Ordinary Shares would be issued. Bank Debt and Other Bonds The Group has Â£1.9 billion of committed bank facilities of which Â£1.68 billion is undrawn at 31 March 2002. All Group bank borrowing is unsecured and on the basis of uniform lending terms. The Group also has in issue a number of debentures and bonds to a value of Â£576.3 million (2001: Â£977.6 million). Further details including maturity analysis is provided in the notes to the Balance Sheet. Financial Policies The Group operates within clear financial policies which remain unchanged from the prior year. The key financial ratios and measures are summarised below. 31 March 2002 31 March 2001 Net Debt Â£3,840.4m Â£3,716.8m - Weighted average debt maturity 19.8yrs 17.8yrs - Weighted average interest rate 6.62% 6.91% - At fixed or capped rates 95% 89% - % unsecured 84% 85% Mortgage ratio (debt/property & investments) 46% 46% Interest cover (net rents/net interest) 1.53 times 1.49 times Cash and available committed facilities Â£2,286.4m Â£2,217.1m - Of which drawn Â£240.4m Â£894.2m Accounting Issues Several accounting standards and exposure drafts were published during the year but only three, Financial Reporting Standard (FRS 17) 'Retirement Benefits', FRS 19 'Deferred Tax' and Urgent Issues Task Force Abstract 28 (UITF 28) 'Operating Lease Incentives', had any significant impact on our accounting procedures or the disclosures in this year's financial statements. UITF 28 requires that lease incentives, such as rent free periods or up-front cash payments, are treated as a reduction of rental income and allocated over the lease term (or the period to first rent review if shorter). The Group's previous policy had been to recognise rent from the conclusion of the rent free period and to capitalise the cost of other incentives. The impact of the adoption of UITF 28 is to increase net rental income by Â£0.6 million (2001: Â£1.3 million). The Group has adopted the transitional arrangements permitted under FRS 17 disclosing the financial assumptions and position of the pension schemes assets and liabilities. The Group's defined benefit pension scheme were actuarially valued as at 31 March 2000 and updated to 31 March 2002, this valuation showed that the scheme has a surplus of Â£1.4 million. FRS 17 will be adopted in full in 2003. FRS 19 requires that deferred tax should now be provided on a full provision basis for all non-permanent timing differences. Previously deferred tax was provided on a partial provision basis where tax was provided only to the extent that an asset or liability is expected to crystallise. In accordance with FRS 19 full provision has now been made for deferred tax on the benefit of capital allowances taken to date and for tax losses to be recognised where their realisation can be reasonably anticipated. The net effect of these changes has caused the tax charge for 2002 and 2001 to be increased by Â£7.2 million and Â£15.3 million respectively. FRS 19 does not permit deferred tax to be provided on revaluation surpluses and no provision has been made for the tax that would arise on a disposal of properties at their market values. However if at the Balance Sheet date a binding contract for sale exists FRS 19 does require a provision. Our experience is that FRS 19 has no impact on the tax we pay and that the liabilities in respect of capital allowances provided are unlikely to crystallise in practice and are therefore excluded when arriving at adjusted net assets and adjusted earnings per share. Long Term The Group is well financed for the long term, with debt maturity on average at 19.8 years (2001: 17.8 years) and with a high percentage of fixed rates. The table below shows the average proportion of fixed and variable-rate debt and the corresponding fixed interest rates. Long-term interest rate profile and fixed interest rates as at 31 March 2002 years 0 - 1 2 - 5 5 - 10 10 - 15 15 - 20 20 - 25 Average profile - fixed or capped 91% 83% 73% 67% 67% 65% - variable 9% 17% 27% 33% 33% 35% Average fixed rate, p.a. 6.9% 6.8% 6.8% 6.9% 7.1% 7.3% Debt service is underpinned by our portfolio's quality, with leases that have an average unexpired term of 18.3 years, substantially all on upwards only rent reviews. The Directors believe the Group to be well placed to realise the returns expected from its property investment strategy. Graham Roberts Finance Director 28 May 2002 PROPERTY REVIEW British Land's property investment strategy is to invest for the long term, either by acquisition or development, in high quality assets let on long leases to good covenants, with a concentration on retail and offices. The office portfolio is focussed on Central London and out of town 'campus' business parks. The retail portfolio comprises mainly out of town retail and large shopping centres. Developments are undertaken to complement the investment strategy. The current portfolio sectors are (by value) 46% offices, 44% retail with the remaining 10% in residential, industrial and leisure. A substantial proportion, 83%, of the total portfolio has been acquired in the last 10 years. Offices 94% of the total office portfolio is in Central London. The long term fundamentals of the London economy are sound, it being one of the leading financial centres of the world. Greater London has a population of 7.37 million and 4.2 million people in employment, which is expected to grow at the rate of 1.2-1.4% per annum over the next 5 years. Greater London has a total office space of 25.4 million sq m (273 million sq ft) and this space has been growing at 1.7% per annum (1986 - 2001). On each working day, over one million people commute by public transport into Central London and the key for location is of course transport links. All our Central London properties are sited at or close to transport interchanges. The investment market in Central London is highly liquid; transactions last year amounted to Â£6.27 billion. For the first quarter 2002 transactions were markedly down at Â£1 billion. This is a result not of reduced demand but of lack of available stock. The Group's major office investments in Central London are Broadgate, Regent's Place, Ludgate and Leadenhall Street. It is our policy to increase our investments in this sector by purchases or development of existing assets. During the year we acquired Caroone House, Farringdon Road, London EC4 and have applied for planning consent to rebuild 11,800 sq m (126,000 sq ft) of offices. Planning consent has been obtained to redevelop 10 Exchange Square (formerly known as Hamilton House) at Broadgate to provide 15,100 sq m (162,400 sq ft), an increase of more than 90% over the existing building. The out of town business park portfolio has been increased by the acquisition of New Century Park, Coventry, 60.7 hectares (150 acres), where it is proposed to develop 'campus' offices over a phased programme. Two provincial in town office buildings at Birmingham and Haywards Heath have been sold. Retail Retail represents 44% of the Group portfolio; of this 80% is out of town retail investments, 11% is in town centre shopping schemes and 9% is high street retail. In accordance with investment policy, further investments have been made in out of town retail, including the purchase of 22 Homebase stores and Orbital Retail Park, Swindon. The fundamentals for out of town retail are sound with consumer preference, apart from major provincial conurbations, moving away from high street shopping and this, coupled with the Government's resolve to restrict out of town developments, means reduced supply against a background of increasing demand from retailers. In particular, supermarket operators have focused on achieving more trading floor space by extending existing stores. Across our portfolio, since acquisition, 28 extensions have been completed, adding 37,500 sq m (403,000 sq ft). During the year we have completed further extensions at 2 stores of total 3,000 sq m (32,600 sq ft), committed to an additional 11,200 sq m (121,000 sq ft) and agreed in principle a further 4,300 sq m (46,500 sq ft), bringing the total supermarket extension programme completed and in hand this year to 18,500 sq m (200,000 sq ft). Disposals of secondary retail properties have continued where it is considered that growth prospects are limited due to strong competition from major town centre and out of town locations. Over the year 102 such properties have been sold. Three shopping centres in Belfast, Lisburn and Dublin have been sold. A 50% share in the Ilac Centre, Dublin has been acquired, where it is intended to promote a reconfiguration and refurbishment programme. The Group's holding at the Peacocks Centre, Woking has been increased to 100%, by the purchase of our partner's 50% interest. Major investments in retail are: The Meadowhall Shopping Centre, Sheffield where we have recently acquired an additional 18 hectares (44 acres) of surrounding land; 42 retail parks; 31 solus retail warehouse units including 22 let to Homebase; 91 superstores; out of town shopping centres at Peterborough, Northampton and Leicester; and town centre shopping schemes at East Kilbride, Basildon, Woking and Dublin. The Group's in town shopping centres are located in large conurbations and have a wide tenant mix to create destinations of significant retail strength appealing to a high proportion of the local catchment population. Portfolio Acquisition In September 2001, a new joint venture, BL Davidson, was formed with Manny Davidson and his family interests to purchase Asda Property Holdings Plc with assets of Â£488 million complementing our portfolio, including 47% out of town retail investments and 25% Central London offices. Other Sectors The Group continues to take an interest in all types of properties where it is considered there are good investment opportunities. The London & Henley joint venture has a residential portfolio of Â£175 million, 100% focused in Greater London. Residential prices are still increasing. Leisure investments are held mainly via our joint venture with Scottish & Newcastle, which now owns 152 public houses, having reshaped the portfolio during the year by the sale of a portfolio of Â£112 million and the acquisition of 24 public houses. Investments have been made in distribution serving the London area by way of development at Thatcham, Enfield and Feltham. Developments The primary focus of the company's development activity is to add high quality assets to the investment portfolio while generating added value through the development process. The development programme is undertaken in controlled stages, over a period of years, with construction commitments made either on pre-lets or on the basis of anticipated market demand. A proportion of the development programme is carried out through joint ventures, which serve to leverage our resources and to spread risk. During the year, a total of 112,680 sq m (1,213,000 sq ft) of developments has been completed, of which 90% is pre-let or under offer. British Land's share of the cost was Â£155 million. We currently have 147,700 sq m (1,590,000 sq ft) of committed development, of which 58% is pre-let, and a programme of a further 622,900 sq m (6,700,000 sq ft) for the next stage. Lease Lengths British Land's aim is to achieve secure income streams by acquisitions of properties let on long leases coupled with a letting policy to also seek long leases on completed developments. The weighted average lease length across the portfolio is currently 18.3 years. A more detailed review of the Group's investments and development programme follows in this Report. VALUATION The valuation of all properties in the British Land portfolio and situated in the United Kingdom (excluding Tesco British Land Property Partnership and Tesco BL Holdings which are separately valued) was undertaken by Chartered Surveyors, Atis Real Weatheralls. The full valuation certificate appears later in this review, together with our letter of instruction. Weatheralls have also produced separate certificates in respect of each of the joint ventures valued by them. Overall, the portfolio has increased in value by 0.8% (Â£72 million) to Â£9.3 billion. Rental values for offices generally in the City and West End of London have come under pressure in the last few months which has resulted in a small decrease of 2.2% in the value of our City office holdings (having risen by 19.7% last year). Our West End offices have risen in value by 1.2%, reflecting the successful completion and letting of 2/3 Triton Square and the completion of 350 Euston Road. Other office properties have increased in value by 2.3%. The retail portfolio has increased in value, with the retail warehouse investments rising by 3.8% and the supermarket portfolio showing an increase of 6.5%, reflecting strong demand from both institutions and property companies seeking investment in this sector. The high street portfolio increased in value by 3.4%. Shopping centres were unchanged. The values of leisure and similar properties increased by almost 1% and those in the residential sector were up by 7.2 %. Generally the market is experiencing slow rental growth but with considerable unsatisfied investor demand. We anticipate this will result in an upward pressure on values in the forthcoming year. Property Asset Management At March 2002, the portfolio, including joint ventures, comprised approximately 848 properties (2001: 990 properties) with a total of 3,247 leases (2001: 3,055 leases). The day-to-day proactive management of the portfolio involving rent reviews, new lettings, surrenders of leases and refurbishments and extensions, continues to drive rental income growth. Rent Reviews and Lettings Some 297 rent reviews, including the joint venture properties, have been concluded during the year at rents some 25% above those passing, resulting in an increase in rental income from those leases of Â£28 million per annum, exceeding the external valuers' estimated rental values at the dates of the reviews. A total of 442 new leases and lease renewals have been entered into across the portfolio during the year, and these now generate Â£25.5 million per annum. New lettings, in addition to improving overall income, also generate evidence to increase rental values on the existing portfolio. Letting activity at Broadgate and Meadowhall is summarised below. Also of particular interest is the achievement of Â£219 per sq m (Â£20.35 per sq ft) on rent review at a supermarket in Islington, which is the highest rent for such a property awarded at arbitration. Broadgate, London EC2 - During the year rent reviews on a total of 63,000 sq m (678,000 sq ft) of office accommodation have been settled, with a total uplift achieved of some Â£8.1 million per annum to the rents passing. A notable review related to the 21,400 sq m (230,200 sq ft) in Exchange House occupied by solicitors Herbert Smith, where the rent review as at December 2000 was settled at Â£586.50 per sq m (Â£54.50 per sq ft), an increase of 24%. Another review, due December 2001 in respect of 175 Bishopsgate, where the tenant is the European Bank for Reconstruction and Development occupying 33,500 sq m (361,000 sq ft), settled at Â£565 per sq m (Â£52.50 per sq ft), an increase of 32%. The rents achieved overall on the recent reviews at Broadgate can be analysed to show headline rents of between Â£55.00 and Â£60.00 per sq ft. Two more reviews are outstanding, in respect of Lehman Brothers at 1 and 2 Broadgate and Hendersons at 4 Broadgate where the effective dates are December 2001 and a total of 42,900 sq m (462,000 sq ft) is involved. The Group has recently completed a surrender of 1,130 sq m (12,100 sq ft) on Level 7 of 6 Broadgate and has contracted to take vacant possession of 3,500 sq m (38,000 sq ft) on Level 6 of 155 Bishopsgate by October 2002. After refurbishment new tenants will be sought for both areas, with the expectation of letting at higher rents. The programme of enhancement of the external circulation areas at Broadgate continues and the first phase at Broadgate Circle is substantially complete, with the extended Corney and Barrow Wine Bar open for trade. Works to the second phase in The Octagon (the principal entrance to Broadgate and Liverpool Street Station) has commenced and completion is expected in early 2003. Meadowhall Shopping Centre, Sheffield - 41 rent reviews were completed in the year, resulting in an uplift of Â£3.7 million per annum in the rents passing. A further 33 rent reviews in the current phase are outstanding at 31 March 2002. 16 lettings have been concluded in the year, including to Ted Baker and French Connection; new restaurants include Harry Ramsden's and Pizza Express. In addition, the Allders Home concept has opened in the majority of the space previously let to C&A and the balance of the space has been let to Argos, enabling them to extend their existing store. Refurbishments and extensions Building extensions and refurbishments are undertaken where they are expected to prove profitable, which has been the case particularly in the retail portfolio. For example, in addition to the supermarket extensions referred to earlier, an extension of 5,650 sq m (60,800 sq ft) to Beaumont Leys Shopping Centre, Leicester has been completed and fully let. Tollgate Centre, Colchester, a retail park, is being improved by the replacement of elevations and by extensions to create three larger units, which have been pre-let. Sales During the Year British Land and the joint ventures (100%) sold Â£559 million of property, including: â€¢ 102 in town shops, Â£130 million â€¢ 2 in town office buildings, Birmingham and Haywards Heath, Â£45.5 million â€¢ Industrial unit in Redditch, Â£8.4 million â€¢ Residential property, Â£15 million â€¢ Connswater Shopping Centre, Belfast, Â£47.3 million â€¢ St Stephens Green Shopping Centre, Dublin (73% interest), Â£80 million â€¢ Bow Street Mall, Lisburn, Â£30.4 million â€¢ 152 Public Houses, Â£112 million â€¢ 4 Bingo Clubs and a Cinema, Â£19.3 million â€¢ Department Store, Doncaster, Â£4.9 million New Investments Investments by British Land and the joint ventures (100%) during the year amounted to Â£851 million and included: Out of Town Retail â€¢ Swindon Orbital Retail Park, Â£53 million â€¢ 22 Homebase Stores, Â£156 million â€¢ 3,000 sq m (32,000 sq ft) completed extensions to superstores, Â£11.4 million â€¢ Meadowbank Retail Park, Edinburgh, Â£31 million (post year end, April 2002) â€¢ 18 hectares (44 acres) of land adjacent to Meadowhall Shopping Centre, Â£13.75 million Shopping Centres â€¢ Our partner's 50% interest in The Peacocks Centre, Woking, Â£31 million â€¢ Ilac Centre, Dublin (50%) interest, Â£33 million City of London Offices â€¢ Caroone House, Farringdon Road, EC4, Â£24.5 million â€¢ 6 Eldon Street (adjoining Broadgate), Â£6 million Campus Offices and London Distribution â€¢ Coventry, New Century Park, Â£21 million â€¢ Delta Park, Enfield, Â£13.5 million Leisure â€¢ 24 Public Houses, Â£24 million. Corporate Acquisitions â€¢ A new joint venture, BL Davidson, acquired Asda Property Holdings Plc with assets of Â£488 million, split 47% out of town retail, 25% Central London offices. Development Completed during the year: 112,680 sq m (1,213,000 sq ft). Committed projects, at 31 March 2002: 147,700 sq m (1,590,000 sq ft). Development programme, next stage: 622,900 sq m (6,700,000 sq ft). Completed Developments, Year to 31 March 2002 Project Tenant Net Area Rent ERV Construction sq m pa pa Cost Regent's Place 350 Euston Road (3,000 sq m under 12,000 Â£5.7m Â£45.4m offer) 2/3 Triton Square Abbey National Plc 18,500 Â£6.4m Â£8.2m Â£63.7m Teesside Phase 2 Frankie & Bennys 330 Â£0.1m Â£0.1m Â£0.5m Feltham Phase 1 Consignia plc 20,500 Â£1.7m Â£2.3m Â£13.8m Phase 2 EGL Logistics Ltd 11,300 Â£1.1m Â£1.4m Â£6.2m Blythe Valley Park (BVP Developments) Vodafone Ltd 3,700 Â£0.7m Â£0.7m Â£5.1m Plot D3 Plot E1 BG Holdings T/A 11,150 Â£2.2m Â£2.2m Â£13.0m Centrica Plot P1 Virgin Active Ltd 5,100 Â£0.5m Â£0.5m Â£3.2m Plot D1 St James Place 1,850 Â£0.4m Â£0.4m Â£2.5m Capital Plc Redditch (BL Gazeley) SP Group Ltd 10,600 Â£0.7m Â£0.7m Â£5.0m Plot 2 Cambridge Asda Stores plc 6,500 Â£1.3m Â£1.3m Â£7.7m (BL Universal) Cherrywood (Cherrywood Properties) Block H (under offer) 6,900 Â£1.1m Â£12.8m Block E (784 sq m u/o) 2,350 Â£0.4m Â£4.0m Block D Giraffe nursery 530 Â£0.1m Â£0.1m Â£5.0m (418 sq m u/o) 1,370 Â£0.2m TOTAL 112,680 Â£15.2m Â£25.3m Â£187.9m British Land's share Â£12.2m Â£21.2m Â£155.1m 90% by area of completed development is let or under offer. Committed Projects, as at 31 March 2002 Project Prime Use Size Cost * PC + ERV Pre-lettings sq m (est.) (sq m if part) 1 Plantation Office 50,500 Â£201.4m Q2 2004 Â£27.9m Accenture Place (34,800) 2 Plantation Office 14,500 Â£75.2m Q2 2004 Â£8.4m Place 10 Exchange Office 15,100 Â£52.7m Q2 2004 Â£8.7m Square Centre West, Retail 26,600 Â£67.8m Q1 2003 Â£6.1m Debenhams East Kilbride (net) Next (13,025) Teesside Retail 3,900 Â£2.9m Q3 2002 Â£0.7m Comet (2,800) Dumbarton Retail 200 Â£0.4m Q3 2002 Â£0.1m KFC Colchester Retail 1,350 Â£6.6m Â£0.6m Comet BlytheValley, Office 1,850 Â£2.8m Q4 2002 Â£0.3m Plot 3 (BVP Developments) Cambridge Retail 600 Â£0.9m Q3 2002 Â£0.1m Multiyork (BL Universal) Thatcham Distrib- 33,100 Â£13.3m Q4 2002 Â£2.9m Scottish & (BL Gazeley) ution Newcastle Total 147,700 Â£424m Â£55.8m 85,875 Cost to Complete Â£344m British Land's share Â£336m Â£54.2m * Construction cost + Practical completion 58% by area of committed projects are pre-let. London, City - Offices: 1 Plantation Place, Fenchurch St EC3 - comprises 50,500 sq m (543,750 sq ft) net of which 34,800 sq m (375,000 sq ft) of offices was pre-let to Accenture in September 2001. Accenture has options to take up to a further 14,000 sq m (150,000 sq ft) prior to practical completion. Construction commenced in October 2001 and the works remain on programme to complete in Q2, 2004. Some 75% of the project has now been procured within budget. 2 Plantation Place, Mincing Lane EC3 - Planning permission for an enlarged second phase comprising 14,500 sq m (156,500 sq ft) has been obtained. Construction is programmed to commence in September 2002. 10 Exchange Square, Broadgate EC2 - will comprise 15,100 sq m (162,400 sq ft) net of offices and other accommodation on the western side of Exchange Square. Demolition of the building known as Hamilton House has commenced. Procurement of construction is underway to facilitate a start in September of this year with completion in Q2 2004. The new building will provide a valuable addition to the Broadgate estate. Provincial - Retail: Centre West, East Kilbride - Construction of this 26,600 sq m (286,600 sq ft) shopping centre adjoining The Plaza, commenced in March 2001 and is scheduled for completion Q2, 2003. The scheme is anchored by an 11,150 sq m (120,000 sq ft) Debenhams Department Store and a 1,400 sq m (15,000 sq ft) Next Store. Letting of the remaining units is progressing well. The development is being undertaken in partnership with South Lanarkshire Council. Teesside Retail Park, Stockton-on-Tees - A further phase of development totalling 3,900 sq m (42,000 sq ft) of retail warehouse accommodation has commenced, of which 2,800 sq m (30,000 sq ft) has been pre-let to Comet. Provincial - Industrial and Distribution: Mill Park, Thatcham - BL Gazeley secured planning consent for 65,870 sq m (709,000 sq ft) of industrial and distribution accommodation and entered into a pre-letting agreement with Scottish & Newcastle PLC for the construction of a 33,100 sq m (356,000 sq ft) distribution facility. Construction commenced on site in March 2002. Development Programme, next stage Project Location Prime Use Planning Size Status sq m Lime Street City Office Application 49,600 Caroone House City Office Application 11,800 York House West End Office Detailed 12,800 Swiss Centre West End Office - 9,800 Feltham Phase 3 Provincial Distribution Detailed 9,000 Theale Provincial Office Detailed 11,700 Teesside Phase 3 Provincial Retail - 16,600 Coventry Provincial Office Outline 79,000 Dumbarton Provincial Retail Detailed 1,900 201 Bishopsgate City Office Revised 68,500 (Broadgate Plaza) Application Cambridge Provincial Retail Detailed 1,800 (BL Universal) Blythe Valley Park Provincial Office Outline 56,700 (BVP Developments) Enfield, Redditch & Provincial Distribution Outline 112,400 Thatcham (BL Gazeley) Cherrywood Ireland Office Zoning 181,300 TOTAL 622,900 The total estimated rental value of this next stage of the development programme is Â£145 million and the construction cost is in the region of Â£1.15 billion. London, City - Offices: 201 Bishopsgate, EC2 - A revised planning application has been submitted which increases the net accommodation to 68,500 sq m (737,300 sq ft). The building will offer unrivalled accommodation for both professional and financial occupiers. 51 Lime Street, EC3 - An application for planning permission for a building of 49,600 sq m (534,000 sq ft) was submitted in March 2002 following a period of consultation with the Corporation of London. Caroone House, EC4 - Detailed discussions with the Corporation of London have been concluded and an application for planning permission for a building of 11,800 sq m (127,000 sq ft) has recently been submitted. London, West End - Offices: York House, Great Cumberland Place, W1 - Detailed design work is well advanced permitting a start on site in Q2, 2003, to construct 8,500 sq m (91,500 sq ft) of offices, 2,400 sq m (26,000 sq ft) of residential and 1,900 sq m (20,500 sq ft) of retail, leisure and storage. Provincial Developments: Blythe Valley Park, Solihull - A Business Park development on a 69 hectare (170 acres) site with direct access from the M42 motorway. Of the 111,500 sq m (1.2 million sq ft) potential, 34,400 sq m (370,000 sq ft) has been completed to date including 21,800 sq m (235,000 sq ft) completed during the year, with further lettings to Logica and St James Place Capital PLC. Lakeside, Theale - In partnership with Countryside Properties, the Company has secured a revised planning approval for an 11,700 sq m (126,000 sq ft) net office development. Initial site preparation works have commenced. New Century Park, Coventry - This 60.7 hectare (150 acre) site currently occupied predominantly by Marconi was purchased in August 2001. 4 hectares (10 acres) was immediately sold for residential development. The Company has obtained outline planning permission for 79,000 sq m (850,000 sq ft) of new office and industrial development. The project will be developed on a phased basis. Heathrow Gateway, Feltham - Following completion of a 20,500 sq m (221,000 sq ft) distribution centre for Consignia and a 11,300 sq m (121,500 sq ft) distribution unit, which was let on completion to EGL Global Logistics, an improved planning consent is now being sought for the final phase of development comprising a 9,000 sq m (97,000 sq ft) unit. Delta Park, Enfield - BL Gazeley purchased an 8.9 hectare (22 acre) site with an 8,400 sq m (90,000 sq ft) building at Delta Park for the development of up to a further 31,700 sq m (341,000 sq ft) of warehouse and distribution facilities. Ravensbank Business Park, Redditch - On this 14 hectare (35 acre) site BL Gazeley has built, let and sold a unit of 10,600 sq m (114,000 sq ft) and has planning consent for a further 59,000 sq m (636,000 sq ft) of warehouse and distribution facilities. Cherrywood, Dublin - This is a master-planned mixed use development on a site of 170 hectares (420 acres) situated 8 miles south of Dublin at Loughlinstown being undertaken in joint venture with Dunloe Ewart PLC. The development incorporates a Science and Technology Park totalling 102,000 sq m (1.1 million sq ft) of accommodation with scope for significant further expansion, a golf course and a district centre of mixed use, including retail, offices, residential, hotel and leisure. During the course of the year the joint venture has completed the development of 11,150 sq m (120,000 sq ft) in three buildings. Lettings in respect of each building have been agreed. Robert Bowden Property Investment Director 28 May 2002 Principal Investment Properties Central London Offices The Broadgate Centre, London EC2 All Broadgate properties are freehold or virtual freehold (999 year leases at rents of Â£50 or less per annum without review) unless otherwise stated. The present estate was completed in phases between 1984 and 1991, incorporating mechanical and electrical services which permit ongoing flexible updating of tenants' space as technology and operating requirements change. This approach to construction will continue with 10 Exchange Square and 201 Bishopsgate which are being prepared for development as the next phases of the scheme. Broadgate now provides office, retail and leisure accommodation totalling some 360,000 sq m (3,900,000 sq ft) on 13 hectares (32 acres) which will increase to 446,000 sq m (4,800,000 sq ft) on completion of the next phases. The Estate adjoins the major transport interchange of Liverpool Street, with mainline and underground stations, in the City of London. It is a distinctive environment, for approximately 30,000 employees of some of the world's largest corporations and leading professional practices. Building Area Principal Tenants Next Rent sq m Review Dates 1, 2 and 3 Finsbury 44,600 UBS Warburg and June - Avenue Henderson Administration Sept 2002 1-3, 4, 6 Broadgate and 74,800 Lehman Bros, Tokyo Mitsubishi and Dec 2001 - Broadgate Circle Henderson Administration Feb 2004 100 Liverpool Street 35,400 UBS Warburg Dec 2003 135 Bishopsgate 33,400 NatWest Feb 2004 155 Bishopsgate 38,100 Baring Investment Services July 2004 - March 2006 175 Bishopsgate 35,750 European Bank for Reconstruction & Dec 2006 Development 199 Bishopsgate 13,400 ABN AMRO Holdings Sept 2003 - Sept 2005 Broadwalk House 27,800 Credit Lyonnais and July 2004 Ashurst Morris Crisp Exchange House 35,700 Herbert Smith, Foreign & Colonial and Oct 2005 Societe Generale 10 Exchange Square Demolition/preparation for redevelopment - planning consent (Hamilton House) granted for 15,100 sq m 1 Exchange Place (125 year 4,000 The Broadgate Club June 2003 leasehold) 1 Appold Street 17,100 Deutsche Bank 201 Bishopsgate Site held for development - planning (50% owned in joint consent granted for building 66,000 venture) sq m Broadgate Estates Limited, a wholly owned subsidiary of British Land, maintains the external and common areas, which are undergoing further improvements. The community website, www.vicinitee.com developed by Broadgate Estates, is expanding. A registered user base in excess of 6,000 people has access to its range of information which includes local travel, events and special offers. Aggregate passing rent from Broadgate is Â£156 million per annum; the weighted average lease length is 16.4 years. The value at March 2002 is Â£2.836 billion. The following Sensitivity Analysis has been prepared by Atis Real Weatheralls and illustrates the possible impact on value that changes in yield and rental might have. BROADGATE SENSITIVITY ANALYSIS (MARCH 2002) Nominal Capital Values at various rentals and yields (Â£ million) Equivalent Yields 5.50% Â£3,102 Â£3,221 Â£3,351 Â£3,480 Â£3,610 5.75% Â£2,964 Â£3,078 Â£3,201 Â£3,324 Â£3,447 6.00% Â£2,839 Â£2,946 Â£3,064 Â£3,181 Â£3,298 6.23% Â£2,773 Â£2,836 Â£2,948 Â£3,060 Â£3,173 6.50% Â£2,613 Â£2,711 Â£2,817 Â£2,924 Â£3,031 Net Effective Â£52.50 Â£55.00 Â£57.50 Â£60.00 Â£62.50 Estimated Rental Values (per sq ft) Notes: Estimated Prime Zone A: An Estimated Rental Value of Â£55.00 per sq ft was used as a base. This is the rate applied to the majority of the accommodation at Broadgate in our reported book value. Percentage adjustments were applied to this base to reach Â£52.50, Â£57.50, Â£60.00 and Â£62.50. The sensitivity applies as equal proportional change in all rental values across the scheme. Values have been rounded to the nearest million. Nominal Equivalent Yields: The Nominal Equivalent Yields are calculated assuming rents are received annually in arrears which is usual valuation methodology. In practice, however, rents are received quarterly in advance. Properties Included: 1 Finsbury Avenue 6 Broadgate 199 Bishopsgate 2 Finsbury Avenue 8-12 Broadgate Broadwalk House 3 Finsbury Avenue 135 Bishopsgate Exchange House 1, 2, 3 Broadgate 155 Bishopsgate Broadgate Health Club 4 Broadgate 175 Bishopsgate Regent's Place, London NW1 This thriving West End business quarter is now home to major tenants including HM Government, Abbey National, Bank One, Sema and Hodder Headline. Regent's Place is a 4.2 hectare (10.4 acre) mainly freehold site with a major Euston Road frontage and close to Euston mainline and underground stations. Two new buildings, the 18,500 sq m (199,000 sq ft) headquarters building for Abbey National plc at 2 & 3 Triton Square and the 350 Euston Road building with 12,000 sq m (130,000 sq ft) offices and retail accommodation are complete, incorporating broadband technology. The total floor area of the estate is now 114,100 sq m (1,228,000 sq ft), which will increase with the redevelopment of the north-east quadrant of the site, currently the subject of initial master planning and massing studies. Ultimately the site is projected to cater for a working population of some 10,000 people. The needs of the working community are currently met within Regent's Place by a Sainsbury's convenience supermarket, Holmes Place Health Club and food and coffee outlets provided by Starbucks and Pret a Manger, plus a large creche. 350 Euston Road incorporates further retail units which will be available for letting to a mix of tenants. The large public square, expected to be completed shortly, will provide landscaped open space facilities for all occupiers of the estate. Broadgate Estates continues to manage the external and common areas. The www.vicinitee.com community website, referred to under Broadgate, also extends to Regent's Place. Since the launch of the Regent's Place Travel Plan in April 2001, local transport issues have been regularly reviewed between the estate occupiers, Camden Council, the Metropolitan Police, surrounding businesses and Transport for London. The transport initiatives at Regent's Place are now featured in two Government best practice guidance documents on Travel Plans. Building Area Principal Tenants Next Rent Review Dates sq m 1, 4 & 7 Triton 16,550 offices Bank One and Sema Feb 2002 - Square 2,900 retail Holmes Place and Sept 2003 & leisure Kids of Wilmslow (creche) 2/3 Triton Square 18,500 offices Abbey National April 2007 338 Euston Road 10,330 offices BT, Hodder Headline and Regus April 2001 - Nov 2003 350 Euston Road 11,100 offices 900 retail Euston Tower 32,500 offices Secretary of State for the Environment March - Sainsburys, Pret a Manger and May 2005 1,000 retail Starbucks North East Quadrant 16,100 educational, University of Westminster and West For redevelopment residential & Hampstead Housing Association commercial Jellicoe House 4,200 residential & Private individuals For redevelopment retail Total current net annual income from Regent's Place (excluding properties for redevelopment and properties where rent free periods are unexpired) is Â£18 million; the weighted average lease length is 16.5 years. Ludgate and Watling House, London EC4 (50% owned in joint venture) Located in the much improved Mid-Town, the Ludgate Estate consists of 4 office and retail buildings. The tenure for Fleet Place and New Bridge Street is a virtual freehold 999 year leasehold at a peppercorn rent without review. Watling House is held on a 150 year head lease. The development of 1 and 10 Fleet Place and 100 New Bridge Street, completed in 1992, was an urban regeneration of land previously occupied by railway lines which are now re-sited below ground. Watling House was developed in 1998. The standards of construction, finish and services are similar to those found at Broadgate. The principal tenants include Denton Wilde Sapte, Scottish Widows, Clydesdale Bank, Dow Jones, MCI WorldCom, Baker & McKenzie and CrestCo (the Stock Exchange settlement company). The total net rental income from Ludgate is Â£23.3 million per annum. 122 Leadenhall Street, London EC3 This 16,650 sq m (179,150 sq ft) office building is on a freehold site of nearly 0.4 hectares (1 acre) situated opposite the Lloyds of London building in the City's insurance district. Tenants include Credit Agricole and Banque Indosuez with the retail space of 812 sq m (8,740 sq ft) principally let to Marks & Spencer. The building was first constructed in 1969 and substantially rebuilt in 1996. The passing rent for this property is Â£6.7 million per annum. Retail Meadowhall Shopping Centre, Sheffield Meadowhall is one of the largest and most successful shopping centres in the United Kingdom. The freehold Centre has excellent transport links, with direct access to junction 34 of the M1 motorway, free parking for more than 12,000 vehicles, and an on site transport interchange with train, tram and bus services which are used by around 20% of visitors. Following the recent purchase of additional adjoining land of 18 hectares (44 acres) the total Meadowhall site is 68 hectares (167 acres). The fully enclosed two level mall has a gross lettable area of 132,000 sq m (1,420,000 sq ft). There are 195 shop units, 10 anchor stores, an 11 screen Warner Village cinema, 28 speciality kiosks and 21 mall kiosks, all arranged in several distinctive areas; 27 restaurants and cafes, including the Oasis food court, together provide seating for some 3,300. Anchor stores are Marks & Spencer, House of Fraser, Debenhams, Next, Allders Home, Sainsburys, WH Smith, Boots, H&M and BHS. Meadowhall continues to be attractive to both retailers and their customers. For multiple retailers at Meadowhall, 80% of their units are in the top 10 performing outlets of their company, for 26% they are the retailers' best performing outlet in the country. Customer visits continue to increase, up by a further 300,000 visits in the year to December 2001 to a total of 24.1 million. Average spend per party in the December 2001 peak survey was Â£146.40 per visit, up 0.4% on the equivalent period in the previous year. During the off-peak survey in June 2001, spend was Â£98.93, up 12.4%. Several initiatives were successfully launched in the last twelve months: the remodelled Meadowhall website won Business Internet Magazine's "Best Website Design" and "Best Overall Website" awards and now receives up to 78,000 "hits" per day; Go Shop, the customer loyalty programme launched Autumn 2001, has already attracted more than 50,000 subscribers who are incentivised to visit the Centre to find out about special offers and events via email, text message and interactive kiosks located throughout the Centre; the installation of a fibre optic network has facilitated the introduction of the Go Shop kiosks as well as a retailer intranet which enables fast and efficient communication at the Centre and already has 170 retailers connected; and the centre management team has built upon their earlier successes in being awarded the British Safety Council's 5 Star Environmental Management Audit and Sword of Honour in recognition of achievement of high standards of safety. The rents passing are Â£62.4 million per annum and this is expected to increase to approximately Â£67 million per annum when the outstanding rent reviews and lettings have been completed. The weighted average lease length is 18 years. The value at March 2002 is Â£1.28 billion. Eastgate Shopping Centre, Basildon The Eastgate Centre represents a major part of Basildon town centre. The total floor area is 68,100 sq m (732,750 sq ft). The retail malls contain 2 anchor stores and 116 units, with a multi-storey car park. The major stores are let to Allders (18,600 sq m/200,000 sq ft), Savacentre (15,300 sq m/164,200 sq ft) and Primark. The 3 office buildings provide 11,800 sq m (127,000 sq ft), let to tenants including CGNU and the Secretary of State. After current rent reviews the total rent from this freehold Centre is expected to be Â£8.23 million per annum. The Plaza Centre and Plaza Tower, East Kilbride, Scotland This enclosed freehold shopping centre was originally constructed in 1972 and refurbished in 1989. In 2000 the Centre was enhanced by the creation of a new atrium which in addition to providing further floor area, will provide the link to the current phase of new development known as Centre West, referred to in the Development section of this report. The existing Centre contains 28,000 sq m (300,000 sq ft) of retail space. The Plaza Tower office building has 15,000 sq m (161,000 sq ft). There is also a 990 space multi-storey car park. Major retailers including Marks & Spencer, BHS, Boots, Somerfield and WH Smith are represented at the Centre. Total rents passing from The Plaza retail and offices are approximately Â£5.48 million per annum. The Peacocks Centre, Woking This long-leasehold property is now wholly owned (excluding the leisure centre) by British Land. Completed in 1992, the Centre is fully enclosed and is the prime scheme in Woking. There are three principal levels of retail trading around a glazed atrium. The total floor area is 29,700 sq m (320,000 sq ft) with car parking for 2,350 cars. The scheme is anchored by Allders (12,700 sq m/137,000 sq ft), Marks & Spencer Food Store, Primark, TK Maxx and Woolworths. In a further 80 retail units tenants include Next, Monsoon, Accessorize, River Island and Virgin. There is also a direct link to the adjacent Toys R Us Superstore, which is not in the Company's ownership. The lower trading level has a 400 seat food court with popular offers from Aroma, Sbarro and KFC plus some independent specialists. The total rent passing is approximately Â£5.5 million per annum. Serpentine Green Shopping Centre, Hampton, Peterborough (50% owned in joint venture) Serpentine Green is located in Hampton on the southern outskirts of Peterborough at the junction of the A15 and A1139 and a short distance from the A1. The covered Centre, completed in 1999, comprises a Tesco Extra superstore of 12,100 sq m (130,000 sq ft) plus a further 26 units, including a dedicated catering area, adding a further 15,600 sq m (168,000 sq ft). Tenants include Boots, H & M Hennes, Carphone Warehouse, New Look, Gap, Next and WH Smith. The Centre has 2,158 car spaces and a petrol station operated by Tesco. Total annual rent will be Â£5 million per annum when the letting of the remaining small vacant unit is concluded. Supermarkets British Land's supermarket portfolio contains a total of 91 properties well spread across locations in England, Wales and Northern Ireland. Floor Area Site Area Number of Stores sq m hectares Car Spaces Wholly Owned Sainsburys 41 263,200 93.1 16,822 Somerfield 28 58,960 11.5 3,231 Other 2 4,250 0.8 207 Total 71 326,410 105.4 20,260 50% Owned in joint venture Sainsburys (BL Universal) 3 17,290 5.4 1,777 Tesco (BL Tesco joint ventures) 14 95,060 51.1 7,624 Safeway (BL Universal) 3 10,740 3.3 663 Total 20 123,090 59.8 10,064 Combined Total 91 449,500 165.2 30,324 The average rent from the properties is Â£197 per sq m (Â£18.29 per sq ft). A further 14 supermarkets are included in the retail park portfolio, with a total of 53,600 sq m (577,000 sq ft). Out of Town Retail Warehouses British Land's portfolio includes 42 retail parks with a total of 286 units, plus 31 solus units on a total site area of 204 hectares (503 acres) with a floor area of 511,000 sq m (5,500,000 sq ft). Teesside Retail Park, Stockton on Tees This freehold property is located at the intersection of the A66 and A19 trunk roads between Stockton on Tees and Middlesbrough. Phase 1 was purchased in 1992 and following extension in 1998 provides 31,500 sq m (340,000 sq ft) of open A1 retail floor space on a site of 19 hectares (47 acres). There are 28 units where retailers include Currys, PC World, Boots, JJB Sports, Carpetright, Sports Soccer, Homebase and Mothercare. The total rent passing has increased to Â£5 million per annum. Phase 2 is a 3.3 hectare (8.1 acre) site, purchased in 1998. Located on the Park's principal access, it has planning consent for 1,500 sq m (16,300 sq ft) of restaurant and 3,900 sq m (42,000 sq ft) of retail floor space. Units of total 1,090 sq m (11,700 sq ft) have been constructed and let to KFC, TGI Fridays and Frankie and Benny's. In respect of the retail space, construction has commenced and 2,800 sq m (30,000 sq ft) is pre-let to Comet. Phase 3, an 11 hectare (27 acre) site, surrounds the existing leisure development (not in the Company's ownership) and is available for development for commercial uses. A planning consent in respect of part of the site for a 100 bedroom hotel and a public house is in place. The development plan includes further commercial use and a second Park access, as well as a bus interchange. The Pets at Home unit comprising 740 sq m (8,000 sq ft) and the reversionary interest in the adjoining Toys R Us are also in the Company's ownership. Greyhound Retail Park, Chester This freehold retail park investment was purchased in 1992 and is located to the west of the Town Centre close to other areas of retail warehousing. The Park extends to 19,100 sq m (205,000 sq ft) of mainly retail floor space. There are also two leisure units (cinema and bowling alley) where the rents are based on retail values. Tenants include Carpetright, Kingsbury Furniture, DFS, Pets at Home and Powerhouse. Almost all the retail units have a valuable open A1 non food planning consent. The total passing rent is Â£3.4 million per annum. The Kingston Centre, Kingston, Milton Keynes (50% owned in joint venture) The Kingston Centre was constructed in 1992 on a freehold 14 hectare (35 acre) site on the A421, close to junctions 13 and 14 of the M1 motorway and provides a total of 21,200 sq m (228,000 sq ft) of open A1 retail space. The Centre includes a 12,700 sq m (136,400 sq ft) Tesco Extra superstore with a petrol filling station and five retail warehouses totalling 7,400 sq m (79,300 sq ft). In addition, there is a covered shopping mall with 12 units totalling a further 1,150 sq m (12,400 sq ft), a drive-thru McDonalds, a public house, a car showroom and a car wash. Tesco have an overriding lease covering the superstore and mall units. Tenants of the retail warehouses are Boots, Mothercare, Benson's Bed Centre, Focus DIY and Holiday Hypermarket. Planning consent has recently been granted for a further retail warehouse unit. The total current rent is Â£3.5 million per annum. The Beehive Centre, Coldhams Lane, Cambridge (50% owned in joint venture) The site extends to 7 hectares (17 acres) with a frontage to Coldhams Lane, off Newmarket Road, where other major retailers are represented. Accommodation includes 11 non-food retail units totalling 14,200 sq m (152,800 sq ft) and a newly constructed supermarket of 6,500 sq m (70,000 sq ft) let to Asda. A further retail unit of 570 sq m (6,100 sq ft) is under construction, having been pre-let to Multiyork Furniture. Other tenants include Carpetright, Homebase, JJB Sports and Currys. Rental income will be Â£3.76 million per annum following completion of the Multiyork unit later this year. Homebase D.I.Y. Stores The Company purchased during the year a predominantly freehold portfolio of 22 Homebase stores located mainly in the South East of England. Annual rents total Â£11.5 million which averages Â£143.30 per sq m (Â£13.32 per sq ft) and all are let on 20 year leases from December 2000. Total floor area is 80,400 sq m (865,000 sq ft). Joint Ventures Introduction British Land has entered into 15 joint ventures to hold Â£3.2 billion of properties primarily in the areas of retail, leisure, residential and development. British Land's share of Â£1.6 billion (2001: Â£1.5 billion) is financed to the extent of Â£0.8 billion (2001: Â£0.8 billion) with external debt, of which only Â£33 million is guaranteed by British Land. The net investment in joint ventures at the year end is Â£0.7 billion (2001: Â£0.7 billion). Joint Venture Model All British Land's joint ventures share a common framework: - A separate entity formed to own property; - The joint venture company 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 specified 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 partners, and by third party finance. 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 negotiations 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. Joint Venture Activity The key activities of the joint ventures during the year are: - Acquisition of the remaining 50% interest in the Peacocks Centre Partnership, from our joint venture partner, Alecta, for approximately Â£31 million. The Peacock Centre, Woking is now 100% directly owned by British Land. - Establishment of a new joint venture, BL Davidson with Manny Davidson (and his family interests) in September 2001, to acquire Asda Property Holdings plc. The Asda portfolio of circa 80 properties comprises principally retail warehousing and Central London offices totalling approximately Â£480 million. - BL Universal has continued to rationalise its portfolio, with sales in excess of 100 properties, principally high street shops, for total proceeds of Â£177 million. - BL Rank Properties has reduced its leisure portfolio following the disposal of 4 bingo clubs and a cinema for Â£19.3 million. - Following the sale of 151 public houses in June 2001 to Scottish & Newcastle for Â£111 million, The Public House Company has purchased 24 new public houses at a cost of Â£24 million in March 2002. Other joint ventures have continued to rationalise and upgrade their portfolios through acquisitions, disposals and redevelopment of assets. Summary of British Land's share in joint ventures 2002 2001 Change Â£m (restated) Â£m Â£m Profit and loss account Gross rental income 98.5 85.5 13.0 Operating profit 88.6 76.5 12.1 Disposal of fixed assets (2.5) 3.7 (6.2) Net interest - external (50.0) (45.7) (4.3) Net interest - shareholders (16.1) (16.0) (0.1) Profits before tax 20.0 18.5 1.5 Balance Sheet Gross assets 1,689.6 1,580.6 109.0 Gross liabilities (962.4) (876.4) (86.0) Net investment 727.2 704.2 23.0 Number of joint ventures 15 15 Investment Joint Ventures A Company profile for each investment joint venture is set out below. British Land also has four joint ventures for sharing the skills, risks and rewards of carrying out specific development projects with our partners. These joint ventures are discussed within the Developments section of this report. BL Universal PLC JV Partner: The Great Universal Stores P.L.C. Date Established: February 1997 Portfolio: 149 principally retail properties with a value of Â£812.6 million Gross rental Operating Gross Gross Net BL's share Net debt/ income profits assets liabilities Investment investment properties Â£m Â£m Â£m Â£m Â£m Â£m % 62.4 53.3 849.0 (402.6) 446.4 223.2 40.1 BL Universal was established in February 1997 when it acquired 982 properties from the GUS group. Since then the joint venture has repositioned its portfolio, which currently stands at 149 predominately retail properties, comprising retail warehouse parks, prime high street shops, shopping centres and superstores. In total, the joint venture has sold around 828 properties and reinvested the proceeds primarily in retail parks. More recently sales have repaid debt and returned cash to the partners. The core portfolio includes: an office building at 133-137 Houndsditch, London EC3; a 50% interest in the Microsoft Campus at Thames Valley Park; The Beehive Centre, Cambridge retail park; retail parks in Castle Vale, Birmingham, Westgate Retail Park, Wakefield, and Westside Retail Park, Leeds; and a number of large high street shops in major cities such as London, Glasgow, Manchester, Leeds, Liverpool and Newcastle. Activity in the year During the year, the joint venture has disposed of a total of 103 properties for Â£177.3 million, including the Connswater Shopping Centre and Retail Park in Belfast for Â£47.3 million. At the year end, 5 further sales were exchanged and 4 agreed at an aggregate price of Â£20 million. At the Beehive Centre, Cambridge, the joint venture has completed a 6,500 sq m (70,000 sq ft) foodstore pre-let to Asda Stores PLC. Financing Following property sales, the joint venture has fully repaid the Â£125.6 million revolving bank loan and has returned Â£42 million to each partner. At 31 March 2002, the joint venture was financed by Â£300 million publicly listed debentures and a Â£45 million bank loan. Tesco plc British Land has two joint ventures and a partnership with Tesco plc, which together own Â£677.7 million of retail properties, comprising 13 superstores, 4 retail parks and 4 shopping centres, all of which are anchored by Tesco Stores, and 2 distribution centres. BLT Properties Limited JV Partner: Tesco plc Date Established: November 1996 Portfolio: 12 principally retail properties with a value of Â£238.3 million Gross rental Operating Gross Gross Net BL's share Net debt/ income profits assets liabilities Investment investment properties Â£m Â£m Â£m Â£m Â£m Â£m % 16.2 15.9 252.0 (142.2) 109.8 54.9 49.7 This joint venture owns: 2 retail parks at Harlech and Plymouth; 2 distribution centres in Southampton; and 8 Tesco Superstores. Activity in the year Two extensions to superstores at Newport and Formby totalling 3,240 sq m (34,840 sq ft) have been completed. In addition, rent reviews have been settled on 2 superstores and 7 non-food units on the retail parks, with a net increase to rental income of Â£1.5 million per annum. The high street store at Southend-on-Sea was sold for Â£5.9 million, following which the bank loan was reduced. Financing The joint venture is now financed by a Â£130.9 million bank loan. Recourse to each partner on the bank loan is limited to Â£12 million. The Tesco British Land Property Partnership Partner: Tesco plc Date Established: February 1998 Portfolio: 2 shopping centres with a value of Â£94.3 million Gross rental Operating Gross Gross Net BL's share Net debt/ income profits assets liabilities Investment investment properties Â£m Â£m Â£m Â£m Â£m Â£m % 8.6 7.9 102.1 (13.9) 88.2 44.1 0.0 The partnership with Tesco plc was established to acquire 12 retail properties from the partners, and in November 1999 sold 9 properties to a newly formed joint venture company, Tesco BL Holdings Limited. The Partnership retains 2 shopping centres at Leicester and Northampton. Activity in the year The partnership has sold the Bow Street Shopping Mall, Lisburn to a private Irish investor for Â£30.4 million. The 8,040 sq m (86,490 sq ft) extension to Beaumont Leys Shopping Centre, Leicester, including a 2,380 sq m (25,660 sq ft) extension to the Tesco Superstore, has now been successfully completed and is fully let. At the Weston Favell Shopping Centre, Northampton, an extension is currently under construction adding 5,110 sq m (55,000 sq ft) with completion expected in November this year. The anchor units have been pre let to Wilkinsons and Peacocks. Financing The Partnership is funded by the partners' contributions. Tesco BL Holdings Limited JV Partner: Tesco plc Date Established: November 1999 Portfolio: 9 retail properties with a value of Â£345.1 million Gross rental Operating Gross Gross Net BL's share Net debt/ income profits assets liabilities Investment investment properties Â£m Â£m Â£m Â£m Â£m Â£m % 21.6 20.7 350.5 (217.0) 133.5 66.8 59.3 This joint venture was established to acquire 9 properties from The Tesco British Land Property Partnership comprising: 5 Tesco Superstores; 2 retail parks at Milton Keynes and Bury; a district shopping centre at Lisnagelvin, Londonderry; together with Serpentine Green, a major out of town shopping centre at Peterborough. Activity in the year Planning has been received for an additional non-food retail unit at The Kingston Centre, Milton Keynes. Financing The joint venture has a loan of Â£210 million, without recourse to the partners. BL Davidson Limited JV Partner: Manny Davidson, his family and family trusts Date Established: September 2001 Portfolio: c.80 mixed retail and office properties with a value of Â£457.2 million Gross rental Operating Gross Gross Net BL's share Net debt/ income* profits* assets liabilities Investment investment properties Â£m Â£m Â£m Â£m Â£m Â£m % 9.5 7.1 485.2 (334.1) 151.1 75.6 58.4 * For the period from September 2001 to December 2001 This joint venture was established in September 2001 to acquire Asda Property Holdings plc which owns a portfolio of circa 80 properties, comprising principally retail warehousing and Central London offices. The assets include: Forster Square Retail Park, Bradford; The Wheatley Centre, Doncaster; Standard House, 15/16 Bonhill Street, London, EC2; and Lion Retail Park, Woking. Financing The total investment of approximately Â£238 million is financed by Â£72 million from each partner and acquisition finance of Â£94 million, which was initially provided by British Land. This was repaid in February 2002 by a Â£114 million facility provided by Royal Bank of Scotland, which includes finance for the ongoing development programme and working capital, and is without recourse to the partners. BL West Limited JV Partners: WestLB, WestImmo and Provinzial Date Established: September 2000 Portfolio: 4 city offices with a value of Â£365.2 million Gross rental Operating Gross Gross Net BL's share Net debt/ income profits assets liabilities Investment investment properties Â£m Â£m Â£m Â£m Â£m Â£m % 23.9 22.6 380.5 (276.6) 103.9 51.9 68.3 In September 2000, British Land sold a 50% interest in 4 prime city offices to a new joint venture with WestLB, WestImmo and Provinzial for a total consideration of Â£357.5 million. British Land retains a 50% interest in the venture and received Â£307.5 million in cash. The properties comprise: three office buildings developed in 1992; 1 Fleet Place, Ludgate EC4, 10 Fleet Place, Ludgate EC4, 100 New Bridge Street, Ludgate EC4; and Watling House, 33 Cannon Street EC4, an office building constructed in 1998. Activity in year Since March 2001, the joint venture has completed 4 rent reviews on 5,100 sq m (55,000 sq ft), resulting in an increase of Â£0.6 million per annum to the rents passing. The joint venture has also granted a new lease to a retail unit and regeared and extended another lease in 1 Fleet Place, and granted a new lease of an atrium base in 100 New Bridge Street, resulting in additional income of Â£0.1 million per annum. Financing The joint venture is financed by a bank loan of Â£265 million, without recourse to the partners. BL Fraser Limited JV Partners: House of Fraser PLC Date Established: July 1999 Portfolio: 16 department stores with a value of Â£209.6 million Gross rental Operating Gross Gross Net BL's share Net debt/ income profits assets liabilities Investment investment properties Â£m Â£m Â£m Â£m Â£m Â£m % 14.6 14.1 212.1 (148.0) 64.1 32.1 65.2 This joint venture was established to acquire and lease back 15 of House of Fraser's freehold and long leasehold department stores. Following the acquisition of an additional department store in Bristol last year, the joint venture owns 16 department stores at the year end, comprising some 204,390 sq m (2.2 million sq ft) in high street locations, mostly in major provincial towns and cities. The properties are all let on 40 year full repairing and insuring leases to House of Fraser with minimum guaranteed uplifts for the first two rent reviews, based upon the higher of a 3% uplift per annum or open market value. The first rent review is due in June 2004. Activity in year A profitable sale of the 4,800 sq m (51,300 sq ft) department store in Doncaster was completed in May 2002, at a price of Â£4.9 million. Financing The joint venture is financed by a Â£139.75 million bank loan, which is without recourse to the partners. London and Henley Holdings Limited JV Partners: Security Capital European Realty Date Established: December 2000 Portfolio: 66 blocks of flats with a value of Â£175.4 million Gross rental Operating Gross Gross Net BL's share Net debt/ income profits assets liabilities Investment investment properties Â£m Â£m Â£m Â£m Â£m Â£m % 11.5 7.2 186.3 (121.7) 64.6 32.3 60.2% In December 2000, British Land acquired a 50% interest in London and Henley Holdings Limited with its former owner, Security Capital European Realty, retaining the other 50%. Each partner contributed Â£18 million and acquisition finance of Â£114.5 million was raised. London and Henley owns a portfolio of 66 properties in Greater London, containing a total of 733 apartments. 70% of the portfolio is located in the Central London area. The principal assets include: St Marks Apartments, City Road, EC1 and Market View, West Smithfield, EC1. Activity in year Since March 2001, the joint venture has sold 3 properties containing 25 apartments for a total of Â£6 million. A fourth property, containing 114 apartments, is currently being sold, and total expected sale proceeds are Â£25 million. In addition, a number of medium term leases have been entered into with serviced apartment operators, and as a result 8 properties containing 258 apartments are now let on this basis, representing approximately 43% of the total rent roll. This has the dual benefit of eliminating vacancies and reducing related maintenance and overhead costs. The portfolio showed a strong uplift in value of 7.1% to Â£175 million at 31 March 2002. Financing The bank loan is Â£114.2 million at the year end, and is without recourse to the partners. The Public House Company Limited JV Partner: Scottish & Newcastle plc Date Established: April 1995 Portfolio: 152 public houses with a value of Â£156.2 million Gross rental Operating Gross Gross Net BL's share Net debt/ income profits assets liabilities Investment investment properties Â£m Â£m Â£m Â£m Â£m Â£m % 11.9 11.2 169.7 (100.7) 69.0 34.5 50.2 This joint venture with Scottish & Newcastle plc was established to acquire a portfolio of 306 public houses leased to its subsidiary. Since 1995, the joint venture has rationalised its portfolio and now owns 152 public houses, totalling approximately 29,080 sq m (313,000 sq ft) of trading area, which are predominately freehold and located in the South of England. Activity in the year The joint venture completed the sale of 151 public houses in June 2001 to Scottish & Newcastle for Â£111 million, and has reinvested Â£24 million in 24 new public houses. Also, 1 further public house was disposed of for Â£0.5 million in August 2001. During the year, the joint venture has settled 22 rent reviews with a net increase to rental income of over Â£0.1 million per annum. Financing The amortising bank loan has been reduced from the proceeds from sales to Â£88 million. Recourse to each partner on this loan is limited to Â£16 million. BL Rank Properties Limited JV Partners: The Rank Group Plc Date Established: August 1997 Portfolio: 14 leisure properties with a value of Â£111.6 million Gross rental Operating Gross Gross Net BL's share Net debt/ income profits assets liabilities Investment investment properties Â£m Â£m Â£m Â£m Â£m Â£m % 10.9 10.5 132.2 (100.8) 31.4 15.7 65.1 The joint venture initially acquired 21 leisure properties, principally let to Rank, and now retains 13 of those properties comprising 6 bingo clubs, 3 leisure parks, 1 cinema and 3 multi-leisure centres. Activity in year The joint venture has sold 4 bingo clubs and a cinema for Â£19.3 million (including 1 disposal post the joint venture year end), reducing the current number of properties to 13. Financing The proceeds from these disposals have been applied in repaying the bank loan, which has been reduced to Â£75 million following the joint venture year end. Recourse to each partner on this loan is limited to Â£5 million. G.E.H. Properties Limited This joint venture with Conran Holdings Limited and Wyndham International retains a 125 year head lease interest in the Great Eastern Hotel, the recently redeveloped 267 bedroom hotel and restaurants complex situated at Broadgate. Our Ref. MIG/ML 15 February 2002 Atis Real Weatheralls Norfolk House 31 St. James's Square London SW1Y 4JR For the attention of Mr. Graham Spoor, MRICS Dear Sirs Valuations for the year ending 31 March 2002 The British Land Company PLC and various Joint Venture Companies I confirm our instructions to prepare reports and valuations, for inclusion in the year end Report and Accounts, in respect of the properties owned by the above in the United Kingdom. For this purpose tenancy schedules have been provided to you and will be updated through to 31 March. Your valuation certificates are to include a schedule with all relevant information for each property. Your valuations are to be prepared on an Open Market basis in accordance with the current Appraisal and Valuation Manual (The Red Book) published by The Royal Institution of Chartered Surveyors which, inter alia, states that the surveyors undertaking the work are to be appropriately qualified. In accordance with usual market practice your valuations are to be reported net after the deduction of the prospective purchaser's costs, including stamp duty. You will conduct appropriate inspections of each of the properties and measure in those cases where you have not been provided with floor areas as agreed between the landlord and tenant at the time of rent review or the initial letting. In respect of planning, your surveyors will make their own enquiries of the various planning authorities. You will also refer to title reports and leases either in your possession or made available to you. These instructions are given on the basis, as previously, that your professional indemnity policy is in place and sufficient on a per claim basis to cover this instruction. Yours faithfully for and on behalf of The British Land Company PLC M.I. Gunston, FRICS Chief Surveyor Your ref: Our ref: GXS/rzn/012760 Norfolk House 31 St James's Square London SW1Y 4JR The Directors The British Land Company PLC Switchboard 020 7338 4200 10 Cornwall Terrace Fax: 020 7493 0746 Regent's Park LONDON Direct Dial : 020 7338 4286 NW1 4QP Personal Fax: 020 7930 9843 graham.spoor@atisweatheralls.com www.atisweatheralls.com 29 April 2002 DX 157 LDE BL Universal PLC 10 Cornwall Terrace Regent's Park LONDON NW1 4QP Dear Sirs UK PORTFOLIO VALUATION 31 March 2002 In accordance with your instructions we have carried out a valuation of certain freehold, heritable, and leasehold properties in the United Kingdom owned by The British Land Company PLC or its wholly owned subsidiaries in order to advise as to the open market value for balance sheet purposes of these property assets as at 31 March 2002. We are of the opinion that the total of the open market values of the properties listed on the attached schedules and owned by the Company as at that date is in the sum of: Â£7,696,619,173 (Seven billion, six hundred and ninety six million, six hundred and nineteen thousand, and one hundred and seventy three pounds) Freehold Long Short Leasehold Leasehold A. Held as investments Â£6,862,569,260 Â£250,637,100 Â£1,825,000 B. Held for development Â£148,237,813 C. Owner occupied Â£13,650,000 D. In the course of development Â£381,600,000 Â£38,100,000 Total value Â£7,392,407,073 Â£302,387,100 Â£1,825,000 The above figures represent the aggregate of the values attributable to the individual properties, and should not be regarded as a valuation of the portfolio as a whole in the context of a sale as a single lot. As in previous years, at 201 Bishopsgate we have as instructed included half of its value, reflecting the nature of the agreement with Railtrack Plc. Certain properties within the group are held on 999 year or similar length leases, some with the option to purchase the freehold for Â£1. Others are held predominantly on a freehold basis but include parts held on a long leasehold basis at a peppercorn or nominal ground rent. In calculating the apportionments between tenure types above, we have included these in the freehold category. Short leasehold properties are classified as having less than 50 years unexpired. City Of London Offices Although demand in the City fell by over 20% over the last quarter of last year as tenants placed expansion plans on hold, this year has seen several large lettings with take up for quarter one 2002 in the City Core in the order of 800,000 sq ft. Furthermore, the supply of prime space is still likely to be restricted over the next 2 to 3 years particularly as developments yet to start are unlikely to be completed until the end of 2003/mid 2004 at the earliest. There are very few grade A buildings immediately available; 70 Gracechurch Street, offering 11282 sq m (121,439 sq ft), being the only one complete and vacant in the City Core. Occupiers are still putting surplus accommodation on the market and this now totals over half the current supply but much of this space is secondary as occupiers consolidate into their better grade stock. Consequently, whilst there has been no prime rental growth since the letting of 21 Lombard Street in March 2001 at around Â£62 per sq ft, prime rentals have been steady, despite the limited occupier activity. For example, the letting at 100 Leadenhall Street to Ace Underwriting at Â£55 per sq ft, headline is encouraging especially in EC3 and indicates prime core rental levels have held up at pre September 11 levels. Several smaller lettings, for example, in Citypoint at Â£67.50 per sq ft, also shows that levels have been maintained. Incentives have however increased, along with supply, on secondary space. Yields for this type of stock are also under pressure. This is partly a function of the debt market, with swap rates and gilts both moving marginally higher. Prime yields have been, and are likely to be less affected, due principally to the favourable supply/demand conditions in this sub market. For example the only prime large lot size to be sold in the City, since our last valuation date, is 1 Plough Place, which showed 6.35% net initial allowing for 5% costs. 280 Bishopsgate, let for 25 years to Royal Bank of Scotland, has also been sold at an initial yield of 6.25%. What is notable is that this yield level has been sustained in a market where the institutions have so far not been evident, although they are expected to enter the market which may cause yields to fall. Historically prime City yields have been as low as 5.25%. Within the portfolio there is now a significant amount of new development either under construction or ready to start. Given the shortage of prime space this appears timely. At Broadgate, the recent EBRD review was settled at the lower end of expectations, but in very difficult market conditions. Income has none the less increased across the estate and there are still significant reversions due over the next 2 years or so. West End of London Offices Signs are already emerging that the softening of rents and asking terms that occurred toward the end of 2001, may be easing. Supply is still low, and just over 5million sq ft of mixed quality space was available at the end of 2001. The vacancy rate rose to just over 6%., but the amount of speculative space on stream is very low and the proportion of space available that is "Grade A" is largely limited to non core locations such as Paddington or the Company's Regent's Place. Take up here illustrates that occupiers have become less location sensitive, provided the appropriate standard of building and environment is available. The West End continues to benefit from a diverse range of occupiers and short term future supply, particularly in core locations, is limited. Just over 500,000 sq ft is due for completion in Mayfair and St James between now and 2004. Such grade A space is likely to achieve a net Â£75 per sq ft, representing a Â£10-15 psf decline from the previous peak, although smaller suites have let recently at higher levels. Previous concerns that the prime market may have further to fall have largely abated, against a background of a stable domestic economic outlook and signs of renewed growth in the US economy. We are seeing some encouraging signs that occupational enquiries are increasing following a period of very limited activity in the first quarter of 2002. Investment demand remained steady, reflecting the underlying strength of the market. Although institutional interest has so far remained muted, private buyers, taking advantage of cheap finance, together with the local specialists, helped prime yields stay at around 6-6.25%. Generally purchasers are looking for either long term secure income streams or are looking for refurbishment opportunities as comprehensive redevelopment becomes more difficult. The interest being shown in the Company's completed 350 Euston Road, indicates sustained demand for quality accommodation situated at good transport hubs. Retail Warehousing This sector remains the most popular with investors. In contrast to the mixed picture still emerging from the traditional high street, there seems a consensus that rental growth prospects out of town remains strong. This is driven by the relative scarcity of new planning consents for out of town schemes. Additionally, there is a willingness on the part of tenants to pay higher levels if need be and yet still trade profitably. Thirdly, the entrance of new players to the out of town occupational market, ensures continued competition for sites. Added to all this are the long leases and good covenants associated with this type of development. Several locations where rents seemed to stagnate around the Â£12psf level have moved forward recently to produce favourable rental evidence, usually as a result of active management initiatives. Arguably these locations may produce easier growth than the higher rented parks as these approach the levels of retailer affordability, at typically around Â£30 psf, for many non bulky retailers. As with supermarkets the trend is for extension and reconfiguration of parks to produce the current optimal unit sizes. Larger parks that allow potentially greater flexibility in this are, therefore most in demand with investors. Yields have generally remained as keen as they were around the time of our valuation in September last year. In a few cases they have sharpened still further - typically larger open A1 parks reflecting increased institutional interest or higher yielding smaller lots where weight of money from private investors has reduced yields. Provincial Offices The market, as ever, is location specific. Manchester and Liverpool have both shown increased tenant demand. There is good interest for such multi let properties from local specialist investors who typically adopt a "hands on" active management approach. Potential returns are relatively high, with such properties generally yielding 8% or better. Elsewhere within British Land's holdings development profits are being realised at such locations as Blythe Valley Business Park, near Solihul, which is one of the Company's joint ventures. The continued troubles of the telecoms and technology sector companies are reflected in the continuing supply overhanging the "Western Corridoor" - M3/M4 office markets. Debate as to how far rentals may have dropped is hampered by a lack of transactions, as many occupiers have put relocation plans on hold. For the time being, those who are seeking to sublet surplus space remain tight lipped as to incentives and deals available with no significant transactions concluded. High Street shops In summary, little news since September . The results of individual retailers remain mixed. Plainly the market is still very competitive and there are winners and losers where nearly all see margins under continuing pressure. Therefore rental growth is forecast to be very slight over the next few years. In some towns investors are concerned that underlying rentals have actually fallen. Institutional interest, has to date been limited and whilst they were the historical purchasers, we still see yields around 5.75% often for good properties. The biggest value shifts have occurred amongst smaller sub Â£2m lots where private investors have bid yields down to historically low levels. Either debt financed or simply seeking a more reliable home for cash than equities or formal pension funds. Such buyers have eroded the margins on properties with over 10 years unexpired good covenants and income. Industrial The yield covenant market has kept prices high for well let distribution buildings. We see prime yields for these, especially in Greater London or the South East, at about 6.5%. Rental growth is still forecast for this area, particularly in West London on the back of further expansion of the airport. Multi let propositions, although having the attraction of break up to owner occupiers, bolstered by cheap finance, have eased in yield terms, reflecting a slight correction from 6 months ago when even short term income streams were bid for based on relatively generous initial yields. Within British Lands various joint ventures substantial development profits are being realised as a number of speculative builds have been pre-let and completed. Supermarkets Like other sectors, foodstores have benefited from the eagerness of investors to acquire long, secure income streams. Foodstores have the added benefit of strong residual site values, based on sales to another A1 operator for both food or non food. High values for such buildings have been achieved. These transactions, reflecting trading potential as opposed to pure property investment values, illustrate how low rental levels remain. In yield terms, recently built prime stores, let to one of the top retailers, with around 20 years unexpired lease terms, will achieve around 6.25% or better. This is evidenced by J. Sainsbury Winchester, which was let off about Â£20psf, and sold at 6.3% initial yield by this firm on behalf of Lattice- British Gas' Pension Fund. Several similar sales over the past 9 months suggest that yields have generally improved by around on half per cent to their current level. Conversely, on the rental side, the occupiers are still succeeding in holding higher rents at what seems to be at unreasonably low levels, the benchmark late teens per square foot level. Growth is however still found amongst the mid range rented properties with the result that differentials between older and newer stores are narrowing. The operators themselves are still keenly seeking increased sales through extensions of existing sites, in turn creating extra value for landlords of leased stores. British Land has undertaken a number of these. Smaller store concepts such as Sainsbury's Central and Tesco's Express have also proliferated, taking units in locations and of a size that would previously have been let to independent or smaller regional operators. Shopping Centres Yields, in line with high street retail, have remained broadly steady. There has been a good deal of activity with institutional vendors typically selling to property company buyers. Few are purchasing simply in expectation of rental growth - this needs to be worked for, and most deals are said to have "angles". The most significant sale is arguably Hammerson's purchase of The Shires, Leicester. We calculate the equivalent yield here to be around 6.33% based on reversionary values established within the scheme. Within British Land's portfolio, numerous active management initiatives continue to be pursued at schemes ranging from Meadowhall to East Kilbride where the preletting of a new phase, Centre West, is now progressing very well. Basis of Valuation The properties have been valued on an open market basis with the exception of the owner occupied property at Cornwall Terrace, which has been valued on an existing use basis. Open market value is an opinion of the best price at which the sale of an interest in the property would have been completed unconditionally for cash consideration on the date of valuation, assuming: (a) a willing seller; (b) that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of the price and terms, and for the completion of the sale; (c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation; (d) that no account is taken of any additional bid by a prospective purchaser with a special interest; and (e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion. We would draw your attention to paragraph (b) of the above definition of open market value. Given market conditions as at the valuation date, a period of three to six months can be considered a reasonable time in which to effect a sale of any individual property. Our valuation does, however, assume that any sale would be as part of an orderly disposal of such assets and that the market would not be adversely affected by an attempt to dispose of a significant holding over a short period. Existing use value means an opinion of the best price at which the sale of an interest in property would have been completed unconditionally for cash consideration on the date of valuation, assuming: (a) a willing seller; (b) that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of the price and terms and for the completion of the sale; (c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation; (d) that no account is taken of any additional bid by a prospective purchaser with a special interest; (e) that both parties to the transaction had acted knowledgeably, prudently, and without compulsion; (f) the property can be used for the foreseeable future only for the existing use; and (g) that vacant possession is provided on completion of the sale of all parts of the property occupied by the business. Assumptions and Disclaimers In our valuation of those classified as completed properties in the portfolio, no account has been taken of any retentions, nor do our valuations make allowance for any outstanding development costs, fees, or other expenditure for which the company may be liable. Our valuation of the properties in the course of development reflects the stage reached in construction and the costs already incurred at the date of valuation, whilst having regard to the contractual liabilities of the parties involved in the development and any cost estimates which have been prepared by your professional advisers and supplied to us. This certificate and valuation and the detailed reports attached have been prepared in accordance with the current edition of the Appraisal and Valuation Manual (The Red Book) issued by The Royal Institution of Chartered Surveyors. Surveys and enquiries upon which all of our valuations are based are carried out by general practice surveyors making appropriate investigations having regard to the purpose of the valuation. The valuers responsible for the work are qualified asset valuers as defined in the new Red Book. Whilst we have not examined the title documents themselves, we have in all but a very few cases seen your solicitors reports on title and, we have therefore, assumed that, unless stated otherwise, the interests are not subject to any onerous restrictions, to the payment of any unusual outgoings or to any charges, or rights of way or easements, other than those to which we have referred. We have assumed that any outstanding requirements of the various repairing covenants will be met. Although we reflect our general understanding of a tenant's status in our valuation, we make no enquiries about the financial status of tenants, and rely upon you to advise us if tenants are in default of rental payments, or where there appear grounds for concern. We assume that appropriate enquiries were made when leases were originally exchanged, or when consent was granted to tenants to assign or underlet. Details of the nature and extent of the properties, the tenure and tenancies, permitted uses and related matters, have been supplied by you. Where possible this information has been confirmed during our inspection. We have assumed that these details are accurate and that the interests are in all respects good and marketable. Properties and accommodation occupied by the company or subject to inter-company leases have been valued assuming vacant possession. We have made oral enquiries of the local planning and highway authorities and the information obtained is assumed to be correct. We have been informed that there are no local authority planning or highway proposals that might involve the use of compulsory purchase powers or otherwise directly affect the properties. No formal searches have been instigated. The properties included in this report were inspected between February 2001 and March 2002, and were measured in accordance with The Royal Institution of Chartered Surveyors Code of Measuring Practice. The floor areas given are derived from measurements taken on site or have been scaled from the drawings supplied and checked by sample measurements on site. As we were not instructed to carry out structural surveys or to test any of the service installations, our valuations reflect only the general condition of the properties evident from our inspections and any defects of which we have been made aware as detailed in the individual reports. We assume that no materials have been used in the construction of the buildings which are deleterious, hazardous or likely to give rise to structural defects. We also assume that all relevant statutory requirements have been complied with. We were not instructed to carry out investigations into ground conditions, and unless otherwise indicated in the individual reports, our valuations assume that the sites are physically capable of development, or redevelopment, when appropriate, and that no special or unusual costs will be incurred in providing foundations and infrastructure. You have not instructed us to carry out any investigation into pollution hazards which might affect the properties and, unless otherwise indicated, our valuations assume that the properties are not adversely affected by any form of pollution. Our valuations assume that any building services which incorporate electronic devices necessary for their proper functioning, and the software which operates such devices, are Millennium compliant, or can be rendered so compliant at no significant cost. You have informed us that no such problems were encountered in the period immediately following the new Millennium. We include in our valuations those items of plant and machinery normally considered to be part of the building service installations and which would pass with the property on a sale or letting. We exclude all items of process plant and machinery and equipment, together with their special foundations and supports, furniture and furnishings, vehicles, stock and loose tools, and tenants fixtures and fittings. In arriving at our valuations, no allowance has been made for the costs of realisation, any liability for tax which might arise in the event of disposal or deemed disposal or for the existence of any mortgages or similar financial encumbrances over the properties. Our valuations are exclusive of any VAT. This valuation is provided for the stated purposes and is for the use only of those to whom it is addressed. No responsibility is accepted to any other party. No part of this certificate may be reproduced, or reference made to it, without our prior written approval. Furthermore, no reference may be made to the certificate in any other publication without our written approval. Yours faithfully This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOW FR UKUVRUURVURR

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