Half Yearly Report - Part 1

RNS Number : 9196F

British Land Co PLC

17 November 2015

 



 

 

 

The British Land Company PLC Half Year Results

Chris Grigg, Chief Executive said: "We are reporting another strong set of results.  In recent years we have positioned our portfolio to benefit from long-term macro trends.  This focus has underpinned our performance in the last six months where we have benefited from strong occupational demand and a sound UK economy.  Moreover our high quality portfolio and attractive and flexible development opportunities, position us well for the future."

Strong first half results:

·      Total accounting return of 9.1% for 6 months to 30 September 2015 (H1 2014/15: 13.7%)

·      EPRA NAV +7.5% to 891 pence per share; IFRS Net Assets at £9.3 billion (31 March 2015: £8.6 billion)

·      Underlying PBT +10.3% to £171 million; IFRS PBT of £823 million (H1 2014/15: £1,043 million)

·      Quarterly dividend of 7.09 pence; bringing the half year to 14.18 pence (+2.5%)

Valuation growth reflecting robust markets and our initiatives   

·      Total portfolio valuation +4.7%; standing investments +4.5%; developments +8.5% 

·      Strong uplift in Offices & Residential +8.2%; continued growth in Retail & Leisure +1.8%

·      ERV growth of 2.3%; strengthening in Offices and positive in Retail

·      Continued outperformance vs IPD: all property returns +10 bps; capital returns +30bps

Strong operating metrics; letting space on good terms

·      573,300 sq ft of leasing across Retail and Offices; 5.7% ahead of ERV; total occupancy of 98.4%

·      365,100 sq ft Retail lettings and renewals; 6.6% ahead of ERV; further 326,600 sq ft under offer

·      208,200 sq ft Office lettings and renewals; 5.0% ahead of ERV; 41,500 sq ft under offer 12% ahead of ERV

·      Retail footfall +1.9% (300 bps ahead of market); retailer sales +3.3%

Allocating capital to our strongest assets

·      Net investment of £172 million into London and the South East; acquisition of One Sheldon Square, Paddington Central and investment in development more than outweighing sales (includes 39 Victoria Street, SW1); increases London and South East weighting to 65% 

·      On site at £825 million committed developments; includes Clarges Mayfair and 4 Kingdom Street, Paddington Central; further £80 million Retail capital spend

·      £258 million of non-core Retail disposals, including £60 million post period end; investing in our multi-let portfolio to drive performance

Creating opportunities which significantly enhance the scale of our assets

·      535,000 sq ft moved forward to the near-term development pipeline

·      Progressing the Broadgate Vision; planning granted on 100 Liverpool Street and resolution to grant planning consent received at 1 Finsbury Avenue; advancing plans on 2-3 Finsbury Avenue

·      230,000 sq ft of leisure extensions to retail assets including Drake Circus, Plymouth and New Mersey Shopping Park, Speke

·      Progressing medium-term opportunities including Canada Water

Strong financial position; maintaining capital discipline

·      LTV reduced to 34% in line with strategy of not gearing up on market yield shift

·      WAIR reduced 20 bps to 3.6%; issue of zero coupon £350 million convertible bond the key driver

·      Maintaining capital discipline with selective acquisitions in strong markets

Income statement	H1 2014/15	H1 2015/16	Change
Underlying profit before tax1,2	£155m	£171m	+10.3%
IFRS profit before tax	£1,043m	£823m
Diluted Underlying EPS2	15.3p	16.0p	+4.6%
Diluted EPS	97.9p	75.4p
Dividend per share	13.84p	14.18p	+2.5%
Balance sheet	YE 2014/15	H1 2015/16	Change
Portfolio at valuation	£13,637m	£14,384m	+4.7%3
EPRA Net Asset Value per share	829p	891p	+7.5%
IFRS net assets	£8,565m	£9,253m
Loan to value ratio	35%	34%

¹ Underlying profit before tax excludes capital and other one-off items and is the measure that is used internally to assess the Group's income performance.  This is presented on a proportionally consolidated basis.

² See Note 2 to the condensed set of financial statements

³ Valuation movement during the period (excluding effect of capital expenditure) of properties held at the balance sheet date, including purchases and sales

Investor Conference Call

A presentation of the results will take place at 9.30am today, 17 November 2015, and will be broadcast live via webcast (www.britishland.com) and conference call.  The details for the conference call are as follows:

UK Toll Free Number:                0808 109 0700

Password:                                British Land

A dial in replay will be available later in the day and will be available for 7 days.  The details are as follows:

Replay number:                         0208 196 1998

Access PIN:                             4574450#

For Information Contact

Investor Relations

Sally Jones, British Land                                 020 7467 2847

Media 

Pip Wood, British Land                                   020 7467 2838

Gordon Simpson, Finsbury                              020 7251 3801

Guy Lamming, Finsbury

Forward-Looking Statements

This Report contains certain 'forward-looking' statements.  Such statements reflect current views on, among other things, our markets, activities, projections, objectives and prospects. Such 'forward-looking' statements can sometimes, but not always, be identified by their reference to a date or point in the future or the use of 'forward-looking' terminology, including terms such as 'believes', 'estimates', 'anticipates', 'expects', 'forecasts', 'intends', 'due', 'plans', 'projects', 'goal', 'outlook', 'schedule' 'target', 'aim', 'may', 'likely to', 'will', 'would', 'could', 'should' or similar expressions or in each case their negative or other variations or comparable terminology. By their nature, forward-looking statements involve inherent risks, assumptions and uncertainties because they relate to future events and depend on circumstances which may or may not occur and may be beyond our ability to control or predict.  Forward-looking statements should be regarded with caution as actual results may differ materially from those expressed in, or implied by, such statements.

Important factors that could cause actual results, performance or achievements of British Land to differ materially from any outcomes or results expressed or implied by such forward-looking statements include, among other things: (a) general business and political, social and economic conditions globally, (b) industry and market trends (including demand in the property investment market and property price volatility), (c) competition, (d) the behaviour of other market participants, (e) changes in government and other regulation, including in relation to the environment, health and safety and taxation (in particular, in respect of British Land's status as a Real Estate Investment Trust), (f) inflation and consumer confidence, (g) labour relations and work stoppages, (h) natural disasters and adverse weather conditions, (i) terrorism and  acts of war, (j) British Land's overall business strategy, risk appetite and investment choices in its portfolio management, (k) legal or other proceedings against or affecting British Land, (l) reliable and secure IT infrastructure, (m) changes in occupier demand and tenant default, (n) changes in financial and equity markets including interest and exchange rate fluctuations, (o) changes in accounting practices and the interpretation of accounting standards and (p) the availability and cost of finance. The Company's principal risks are described in greater detail in the section of this Report headed Principal Risks and Uncertainties. Forward-looking statements in this Report, or the British Land website or made subsequently, which are attributable to British Land or persons acting on its behalf should therefore be construed in light of all such factors.

Information contained in this Report relating to British Land or its share price or the yield on its shares are not guarantees of, and should not be relied upon as an indicator of, future performance. Any forward-looking statements made by or on behalf of British Land speak only as of the date they are made. Such forward-looking statements are expressly qualified in their entirety by the factors referred to above and no representation, assurance, guarantee or warranty is given in relation to them (whether by British Land or any of its associates, Directors, officers, employees or advisers), including as to their completeness, accuracy or the basis on which they were prepared.

Other than in accordance with our legal and regulatory obligations (including under the UK Financial Conduct Authority's Listing Rules and Disclosure Rules and Transparency Rules), British Land does not intend or undertake to update or revise forward-looking statements to reflect any changes in British Land's expectations with regard thereto or any changes in information, events, conditions or circumstances on which any such statement is based. This document shall not, under any circumstances, create any implication that there has been no change in the business or affairs of British Land since the date of this document or that the information contained herein is correct as at any time subsequent to this date. 

Notes to Editors:

About British Land

We are one of Europe's largest publicly listed real estate companies. We own, manage, develop and finance a portfolio of high quality commercial property, focused on retail locations around the UK and London offices. We have total assets in the UK, owned or managed of £19.7 billion (of which British Land share is £14.4 billion), as valued at 30 September 2015. Our properties are home to over 1,200 different organisations ranging from international brands to local start-ups. Our objective is to deliver long-term and sustainable total returns to our shareholders and we do this by focusing on Places People Prefer. People have a choice where they work, shop and live and we aim to create outstanding places which make a positive difference to people's everyday lives. Our customer orientation enables us to develop a deep understanding of the people who use our places. We employ a lean team of experts, who have the skills to translate this understanding into creating the right places, and we have an efficient capital structure which is able to finance these places effectively.

UK Retail assets account for 51% of our portfolio. As the UK's largest listed owner and manager of retail space, our portfolio is well matched to the different ways people shop today. We are focused on being the destination of choice for retailers and their customers by being the best provider of spaces and services. Comprising around 22 million sq ft of retail space across shopping parks, superstores, shopping centres, department stores and leisure assets, the retail portfolio is modern, flexible and adaptable to a wide range of formats.

Our Office and Residential portfolio, which accounts for 49% of our portfolio is focused on London.  We have an attractive mix of high quality buildings in well managed environments and a pipeline of development projects which will add significantly to our portfolio. Increasingly, our Offices are in mixed-use environments which include retail and residential elements. Our 7.5 million sq ft of high quality office space includes Regent's Place and Paddington Central in the West End and Broadgate, the premier City office campus (50% share).

Our industry-leading sustainability strategy is a powerful tool to deliver lasting value for all our stakeholders. By supporting communities, improving environments and growing economies, we create Places People Prefer and enhance long-term returns. Further details can be found on the British Land website at www.britishland.com       

CHIEF EXECUTIVE'S REVIEW

Our business is performing well.  We have made great progress aligning our portfolio to benefit from the long-term macro trends we see driving our business today.  In line with the priorities set out in our full year results, we have focused our investment on London and the South East where population growth, urbanisation and infrastructure are driving regeneration and growth.  We have replenished our development pipeline to build on these opportunities.  Technology continues to influence the way we interact with our working and shopping environments, so we are investing in our capabilities, and designing space which is more in tune with people's changing lifestyles.  In line with our strategy, we are also getting closer to our customers and this understanding informs our capital allocation decisions, from how we manage and develop our assets to our acquisition and disposal activity.  We are focusing on our competitive advantages in mixed use schemes, which are sustainable and connect with local communities, such as our 46 acre site at Canada Water. 

Our EPRA net asset value was 7.5% ahead at 891 pence per share at the half year, reflecting the strength of the markets we are invested in, as well as our actions to improve and manage our portfolio for growth.  Valuations were up 4.7% at 30 September 2015 with Offices up 8.2% and Retail up 1.8%.  We generated total property returns of 6.9% for the six months, outperforming All Property IPD market benchmarks on both a capital (30 bps) and a total returns (10 bps) basis.

Underlying profits were 10.3% ahead at £171 million driven both by our successful leasing activity and our lower financing costs; diluted underlying EPS was up 4.6% at 16.0 pence per share.  In line with previous announcements, the second interim dividend is 7.09 pence per share, up 2.5%, bringing the dividend for the half year to 14.18 pence per share and total accounting return to 9.1%.  Our investment activity was broadly balanced, as we continue to maintain our capital discipline, and our LTV reduced to 34% in line with our strategy of not gearing up on yield shift.  Our average cost of financing was down 20 bps as a result of our refinancing activities including a zero coupon £350 million convertible bond issued in June.  

In strong occupational markets, we are seeing good levels of demand for our remaining space.  This is reflected in the investment lettings and renewals we are signing, which we agreed on average 5.7% ahead of ERV.  We signed 573,300 sq ft of lettings and renewals in the period.  Our entire portfolio is virtually full with occupancy of 98.4%. 

In Offices, we let or renewed terms on 208,200 sq ft of space on average 5.0% ahead of ERV.  Across the Office portfolio, we are making good progress enhancing and enlivening environments, strengthening long-term demand for our space, and appealing to a broader range of occupiers.  At the Leadenhall Building, we let 159,700 sq ft in the period, so the building is now 91% let or under offer, with just four floors remaining to be let; nine out of 16 occupiers have now moved in.  The building was recently named "Building of the Year" by the Worshipful Company of Chartered Architects, and was formally opened by the Duke of Cambridge and Prince Harry in October this year.  We are making good progress on our vision for Broadgate.  The recently redeveloped food offer at the Circle is trading well; 5 Broadgate completed, and was handed over to UBS and we are progressing our development opportunities here.  Elsewhere, our focus on creating Places People Prefer is driving public realm improvements at Paddington Central and will influence our plans at Regent's Place where we see further opportunities.  Affordability across our campuses is good, and the investment we are undertaking leaves us well positioned to capture rental growth going forward.

In Retail, we let or renewed terms on 365,100 sq ft of space on average 6.6% ahead of ERV.  This performance is a reflection of the stronger markets we are operating in as well as the quality of our assets.  We have strengthened our understanding of our customers and their catchments; this insight guides our investment decisions and helps us attract the most appropriate occupiers.  We signed some excellent names at Meadowhall ahead of a £55 million internal refurbishment and we are seeing strong demand for our leisure extensions including Drake Circus, Plymouth and New Mersey Shopping Park, Speke.  We saw good valuation gains and operational improvements at the sites where we have invested, including Whiteley Shopping in Hampshire, Mayflower Shopping Park in Basildon and Ealing Broadway Shopping Centre, but superstores were lower, as expected.  We are also attracting more people to our assets, with footfall across the portfolio up 1.9%, 300 bps ahead of market. 

Total gross investment for the six month period was £920 million, including our share of capital spend.  We continued to allocate more capital to London and the South East, investing a net £172 million.  Investment in development, along with our acquisition of One Sheldon Square, Paddington Central, more than outweighed sales (which included the sale of 39 Victoria Street, SW1).  London and the South East now accounts for 65% of the portfolio.  In Retail, in line with guidance, we made £258 million of disposals, primarily of assets where our ability to improve the broader environment was limited.  We would expect to make a similar amount of sales in the second half, as we increase our focus on the multi-let portfolio where we can put our placemaking skills to work to drive rental growth.

Development remains a core part of our business.  Our 2010 Programme is complete, with total profits generated across all projects completed since 2010 of £1.1 billion and an IRR of over 30%.  32,300 jobs have also been supported.  We are currently on site at £825 million of developments, including Clarges Mayfair, our super-prime residential scheme and 4 Kingdom Street at Paddington Central.   Across our London campuses we are embarking on a new phase of developments, with 1.3 million sq ft of potential development and refurbishment in our near-term pipeline, alongside public realm improvements.  At Broadgate, we are progressing our vision, with planning received on 100 Liverpool Street and a resolution to grant planning consent received at 1 Finsbury Avenue.  We have identified opportunities at Regent's Place including 1 Triton Square and at Paddington Central, including 5 Kingdom Street.  In Retail too, we have a clear and consistent approach to development, from small scale initiatives which enhance and enliven our assets to more substantial developments.  Our near-term pipeline includes leisure extensions at Drake Circus Shopping Centre, Plymouth and New Mersey Shopping Park, Speke, and our medium-term plans include our mixed use redevelopment of the Eden Walk Shopping Centre, Kingston.  These developments will significantly increase the scale of these properties. 

Looking forward, we have an exceptional opportunity at Canada Water to create a vibrant new destination for London.  Our site covers 46 acres, with potential for office, retail, residential, leisure and community space totalling around 5.5 million sq ft net internal area.  Our masterplan will focus on delivering an environment which complements people's lifestyles, so the proposal we are developing includes parks and green spaces, leisure and academic space as well as residential, retail and office space.  We are working closely with the London Borough of Southwark and local communities and expect to submit a planning application by the end of next year.

Throughout our portfolio, we continue to promote wellbeing and support local communities by providing employment opportunities and helping to develop skills.  In recognition of the good progress we have made, we received a number of awards in the half year.  We won our fourth Gold Award for sustainability reporting from the European Public Real Estate Association (EPRA) and were named Regional Sector Leader for Europe/Diversified in the Global Real Estate Sustainability Benchmark (GRESB) for the second year running.  We also scored in the top 94th percentile of the Dow Jones Sustainability Index (Europe & World) 2015. 

Outlook

Looking forward, we remain positive about occupational demand in our markets which is supported by UK economic performance.  We are, of course, mindful of increased volatility in a number of capital markets which could adversely impact our investment markets.  Looking beyond any near-term uncertainty, the business is in good shape. We have assembled a pipeline of development opportunities which gives us growth into the future, and we are able to take timely decisions on it to reflect changes in market conditions.  These include exciting opportunities across our three existing London campuses, the potential to create a new London campus at Canada Water, alongside significant investment opportunities in our existing Retail assets.   We expect to maintain our capital discipline with investment and development over the coming year being at least balanced by asset disposals. Overall, our business is more modern and more London-focused, we understand our customers better, and we have attractive opportunities in the near and medium-term, so we feel well positioned for the future.

BUSINESS REVIEW

Portfolio Overview

·      Portfolio valuation uplift 4.7% to £14.4 billion (FY15: £13.6 billion)

·      Total property return of 6.9%; ERV growth of 2.3% and capital return of 4.7%

·      Lettings and renewals 5.7% ahead of ERV

·      Occupancy of 98.4% (FY15: 98.3%); lease length to first break of 9.4 years (FY15: 9.5 years)

·      Gross investment activity of £920 million comprising: total capital investment (£160 million); acquisitions (£329 million); and disposals (£431 million)

Market Overview

UK property markets remained strong over the first half. Macro conditions were supportive, with UK interest rates and unemployment remaining low, and consumer confidence high.  Appetite for UK real estate remained robust with a record £30.7 billion of direct real estate investment in the first six months of 2015.  The market for the most attractive assets remained highly liquid reflecting the breadth and depth of demand.

London continued to outperform, driven by another period of strong activity in investment markets; it accounted for nearly 80% of total UK investment.  In Offices, vacancy rates in the City and West End are near historic lows with take up above the long-term average.  The development pipeline indicates that office supply will remain constrained in the near-term, and potentially longer, if proposed developments continue to be delayed.  Occupational demand is strong, with occupiers now thinking about requirements several years in advance.  In Residential, demand was subdued at the super-prime end reflecting changes in the tax regime, and in the mainstream market volumes reduced, although pricing was relatively firm.

In Retail, investor demand remained focused on the very best assets with a number of high profile shopping centre transactions pricing at tight yields.  There were fewer notable shopping park transactions reflecting the smaller number of prime assets coming to market.  Superstore transaction volumes were also low, with the investment market increasingly polarised, as investors were more discerning as to quality, local competition, lease length and trading performance.  Overall, the retail occupational market is strengthening against a positive economic background, with retailers actively seeking better located stores which optimise their physical footprint, while superstore trading was challenging but more stable.

Our portfolio performed well overall, benefiting from decisions we made in previous years to increase our focus on London, which now accounts for 58% of the total portfolio with a further 7% in the South East.  In Retail, multi-let assets now account for 70% of our portfolio compared to 60% five years ago, and our average scheme size is now £150 million up from £80 million five years ago.

Portfolio Performance

		Valuation Uplift (%)
HY 30 September 2015	Valuation £m	Investment Portfolio	Developments	Total Portfolio
Retail & Leisure	7,643	1.8	1.7	1.8
Offices & Residential	6,741	8.1	8.9	8.2
Total	14,384	4.5	8.5	4.7

Our portfolio generated a total property return of 6.9% comprising a capital return of 4.7% and an income return of 2.1%.  We continued to outperform IPD benchmarks by 10 bps on a total returns basis and 30 bps on a capital returns basis; we have now outperformed by 190 bps and 250 bps per annum on a total and capital returns basis respectively on a five year view.  ERVs were up 2.3% across the portfolio, in line with the market, with ERV growth of 4.5% in Offices and 1.4% across the Retail multi-let portfolio (0.9% total Retail).

Total portfolio valuation was up 4.7% to £14.4 billion, with yield shift remaining an important factor, but our actions contributing nearly 40% overall (over 50% in Retail and around 30% in Offices).  The standing portfolio was up 4.5% and accounted for c.90% of total uplift; the contribution from developments was lower with our 2010 programme completed and our current pipeline at an early stage.  Offices and Residential had a strong six months reflecting the continued outperformance of the London market as well as our actions to improve our campuses.  In Retail, shopping centre and shopping park performances outperformed IPD by 180 bps and 40 bps respectively, but overall performance was impacted by weaker superstore valuations and our relatively low central London retail weighting. 

Investment Activity

The gross value of our investment activity since 1 April 2015 as measured by our share of acquisitions, disposals and capital spend on developments and on our retail portfolio was £920 million.  On a net basis, our activity was broadly balanced.  We have taken advantage of strong investment markets to sell assets where we see less potential, and have maintained our capital discipline with selective acquisitions, continuing our strategy of adding adjacent properties or increasing our investment in assets we know and like.  We continue to allocate more capital to London and the South East, with net investment in the period of £172 million.  Our total capital investment of £160 million included £38 million Retail capital spend, which is in line with our investment plans. 

Acquisitions and Disposals

From 1 April 2015	Price (Gross)	Price (BL Share)	Annual Passing Rent1
	£m	£m	£m
Acquisitions
Retail	97	97	5
Offices	232	232	11
Residential	-	-	-
Total Acquisitions	329	329	16
Total Capital Investment	209	160	-
Disposals
Retail	395	258	14
Offices	139	139	5
Residential	42	34	-
Total Disposals	576	431	19

¹ BL share of net rent topped up for rent frees

The most significant addition was One Sheldon Square, Paddington Central, acquired for £210 million in April this year.  This brings our total ownership at the campus to 800,000 sq ft, with the potential to develop a further 387,000 sq ft.  We also acquired an additional £95 million interest (gross asset value) in the HUT (Hercules Unit Trust) portfolio of shopping parks, bringing our gross investment over the last two years to £492 million at an effective net initial yield of 6.0%.  Our holding now stands at 75.3% including units acquired post period end (74.8% at period end).  

In July, we sold 39 Victoria Street for a net price of £139 million to a Singaporean property company.  We acquired the building for £40 million in 2009 and it was let in its entirety to the Corporate Officer of The House of Commons in 2013 following a substantial refurbishment.  The disposal, at an attractive yield of less than 4% crystallised an IRR of over 20%.  In line with guidance at the full year, we have also continued to reshape the Retail portfolio, with £258 million of non-strategic asset disposals in the period.  Key transactions included the sale of HUT shopping parks in Rotherham and Leeds Birstall for £120 million and £31 million respectively (both our share).  We have also made selective disposals of standalone foodstores totalling £74 million including the £60 million sale of Tesco Bursledon post period end at a 5.0% net initial yield, reducing our total superstore exposure to under 6%.  We would expect to make a similar amount of non-strategic retail asset sales in the second half.

In Residential, we exchanged on £34 million (our share) of properties on average 6% ahead of valuation, and continued to achieve completions on exchanged units.  Nearly two thirds by value (our share) were at The Hempel Collection where marketing in the UK and internationally has been well received.  In line with our agreed strategy, no further sales have been made at Clarges Mayfair.  We have halted our successful pre-sales campaign at just over 50% by value and plan to wait until completion to continue marketing.

Development

Committed Developments & Pipeline
At 30 September 2015		BL Share
	Sq ft	Current Value	Cost to complete	ERV	Pre-let ERV	Resi End Value	Pre-sold Resi
	'000	£m	£m	£m	£m	£m	£m
Completed in Period	880	498	20	21.7	21.5	-	-
Under Construction	658	560	265	17.0	-	669	332
Near-Term Pipeline	2,026		1,351
Medium-Term Pipeline	6,691

Development has been an important driver of our returns, with developments completed since 2010 generating profits of £1.1 billion and an IRR over 30%.  Committed and near-term projects are currently expected to generate £685 million of profit, with £470 million still to come.  The pipeline is focused on our London campuses, which will benefit from growth and regeneration as well as extensions to our Retail assets which significantly enhance their scale. 

We completed 880,000 sq ft of developments in the period, with 5 Broadgate accounting for 710,000 sq ft.  This has been handed over to UBS who are fitting out and are expected to move in in the second half of 2016.  We also completed a retail extension at Glasgow Fort Shopping Park, which is open and trading well, and a leisure extension at Whiteley Shopping which opens this month. 

Total committed investment (including land) across our projects under construction is £825 million, covering 658,000 sq ft.  This includes 192,000 sq ft at our super prime residential development Clarges Mayfair, where both the relocation of The Kennel Club and the affordable housing element have now completed.  More than 40 local young people and homeless women have benefited from pre-employment training at Clarges and almost 60 local students are benefiting from work placements under the Construction Youth Trust's Budding Brunels programme.  We are on track to complete the office element next summer, with the residential to complete a year later in 2017.  Based on historic cost, our total residential exposure is £127 million (£222 million based on current valuations).  Yalding House, W1 will complete before the year end, delivering 29,000 sq ft of office space with variable floor plates, targeting small and medium sized businesses in the creative sectors.  The core at 4 Kingdom Street, Paddington Central has completed, and the building is on track to complete in early 2017. 

There are signs that increases in construction costs are moderating, reflecting lower raw material costs.  However, tender prices still reflect limited capacity in the industry with contractors seeking to restore margins and limit their risk exposure.  In central London, we are currently pricing in cost inflation of 5-6% per annum and for our projects under construction all our costs are fixed.

We recently updated our Sustainability Brief for Developments, increasing our focus on supporting local communities and developing skills and opportunities.  Our efforts in these areas make our places and our business more attractive to local communities and local authorities.

We are making good progress with our near-term development pipeline, which has increased from 1.5 million sq ft to 2.0 million sq ft.  We have received consent for a 517,000 sq ft redevelopment of 100 Liverpool Street at Broadgate and are currently reviewing the proposed mix of uses.  Our planning application for 347,000 sq ft of mixed use space at Blossom Street, Shoreditch has now been called in by the Mayor of London, following rejection by the local authority and a decision is expected early in the new year.  At 1 Finsbury Avenue, we have received a resolution to grant planning consent on a 303,000 sq ft redevelopment and at 1 Triton Square, we have the potential to refurbish or redevelop nearly 220,000 sq ft of space.  Both have moved forward into the near-term pipeline. 

In Retail, we have a strong pipeline of leisure extensions, including 100,000 sq ft at Drake Circus Shopping Centre, Plymouth and 66,000 sq ft at New Mersey Shopping Park, Speke.  We have also received planning consent at Ealing Broadway Shopping Centre for the conversion of an office block to 34,000 sq ft of private rented residential apartments.  This marks the next stage in our development plan for this asset, and follows a successful £12.5 million refurbishment of the centre completing in November 2015. 

Looking ahead to our medium-term pipeline, we are planning a £270 million (our share £135 million) significant mixed use redevelopment of Eden Walk, Kingston with our joint venture partner USS (Universities Superannuation Scheme).  The 562,000 sq ft development will include public space, leisure, retail and residential and a planning application was submitted in October.  We are also drawing up plans for a 330,000 sq ft leisure scheme at Meadowhall and are examining the potential to extend and enhance 2-3 Finsbury Avenue, with the total development expected to cover nearly 190,000 sq ft. 

The most significant project in the medium-term pipeline is at Canada Water where we are masterplanning a 46 acre site in zone two.  This is one of the largest regeneration projects in London, and benefits from excellent transport infrastructure, with access to the City, West End, and Canary Wharf via the Jubilee line, but also to the emerging areas around Shoreditch via the London Overground.  We are working with the London Borough of Southwark and the local community to develop a masterplan which reflects local needs and matches the lifestyles of the people who live here now and in the future.  So our focus is to deliver a sustainable destination which connects with people and is integrated with the surrounding area; parks and green spaces form the backbone of the scheme, with smartly designed buildings, alongside public walkways and waterways which draw on the heritage of the area.  Benefiting from our placemaking experience across our portfolio, we plan to enhance and enliven the space with a range of leisure and entertainment options, alongside community and cultural facilities.  Our initial plans envisage a true mix of uses with new homes (including private rented homes), as well as office, retail and academic space.  It's a long-term project, but we expect to submit outline planning by the end of next year.  More than 2,000 visitors have attended our Canada Water consultation events since spring 2014, including six update sessions held in summer 2015.  We also send regular newsletters to over 23,000 local homes and businesses. 

Retail & Leisure Asset Management

·      Total property return of 4.4%; ERV growth of 0.9% (1.4% across multi-let assets) and capital return of 1.8%

·      Lettings and renewals 6.6% ahead of ERV

·      Occupancy of 98.6% (FY15: 98.5%); lease length to first break of 10.1 years (FY15:10.4 years)

·      Footfall up 1.9% (Experian benchmark down 1.1 %)

Retailers are operating in stronger markets as the UK economy continues to perform well and with consumer confidence high.  The most successful retailers have a very clear understanding of what customers want and how they shop, and are focusing on assets which provide the best in terms of the offer, environment and services.  This approach is in line with our own strategy, which focuses firmly on the customer.  Our investment in data analytics has brought us closer to the people who visit our assets, and this is generating new insights, helping us to attract the most appropriate occupiers, and guiding our investment and placemaking activities.  We are seeing the success of this approach reflected in our strong operational metrics.  

We signed 365,100 sq ft of lettings and renewals in the half year with investment lettings and renewals on average 6.6% ahead of ERV.  Shopping centres and shopping parks performed well reflecting the very similar characteristics of these assets in our portfolio.  We saw good demand from fashion and health operators and let over 24,000 sq ft to food and beverage operators at attractive rates.  We achieved new rental highs at a number of our assets, including Glasgow Fort, where we have let space at £83 per sq ft, helping to re-set the rental tone on this asset.  Rent reviews were 4.0% above passing rent suggesting a more confident rental review market and only 3% of occupiers left on expiry.  The rental growth we expected six months ago is coming through across the multi-let portfolio, where ERV growth was 1.4% (0.9% overall).  Like-for-like income was up just over 1%.

We provide a flexible and affordable proposition for occupiers, with an average rent to sales ratio of less than 10%.  Our focus on the strongest, best located schemes and our consistent approach to deliver the most appropriate offer and standard of service has driven good demand for our space, so occupancy across the portfolio remained high at 98.6%.  Footfall was up 1.9% outperforming the market by 300 bps and our retailers are performing well with sales 3.3% ahead; regional assets delivered strong results on both measures.  We are continuing to transition the property management of our assets to Broadgate Estates, our wholly owned subsidiary and one of the UK's leading property management companies; nine of our shopping centres, 11 of our shopping parks and five other assets have transferred to date. 

At our multi-let assets, we are increasing the leisure provision to attract shoppers and improve dwell time.  At Chester, where we have added a Cineworld and five new restaurants, footfall is up 22% and catering spend is up 57% (both year-on-year) with mid and high affluent shoppers driving much of the increase.  The leisure extension at Fort Kinnaird, Edinburgh has boosted dwell time and frequency of visit by 31% and 10% respectively; footfall is up 15% and catering spend is up 79% (all year-on-year).  We have also extended trading hours at Edinburgh to 10pm, providing flexibility to those wishing to shop, visit the cinema or restaurants during the evening and increasing retailer turnover. 

Meadowhall had a strong six months.  Sales at the centre were nearly 6% ahead, with retailers on the recently refurbished premium mall significantly outperforming.  We are on site with a £55 million internal refurbishment, ahead of which we have already signed some exceptional new brands including Diesel, Joules, Kiko Milano, Jack Wills and Tapas Revolution.  Overall, long-term deals at Meadowhall were signed at an average of 3.5% ahead of ERV and total rent was up 1.5% in the half.  Looking further ahead, we are drawing up plans for a 330,000 sq ft leisure scheme.  As part of Meadowhall's 25th anniversary celebrations we launched a community art project where local charities and community groups worked with artists to create 12 large heart sculptures which were displayed in the centre before being returned to community partners or auctioned for charity. 

At Drake Circus, Plymouth, where we have permission for a 102,000 sq ft leisure scheme including space for 14 restaurants adjacent to the shopping centre, we expect to take vacant possession of the bus station site next year.  We have already pre-let space to Cineworld for a 12-screen cinema.  At New Mersey Shopping Park in Speke, we received consent in the period for a 66,000 sq ft leisure extension with an 11-screen cinema also pre-let to Cineworld, and six restaurants.  Already we are under offer to five restaurant operators, and in the main part of the scheme, Next has renewed its lease and will extend its trading space to 48,000 sq ft.  In February of this year HUT increased its ownership of this asset to 87.5%.  At Serpentine Green, Peterborough, which we took full ownership of as part of the Tesco swap transaction, we have planning for a small extension to include an upsized anchor and we see potential for additional leisure space in the longer term.

We have continued to host literacy events across our assets through our partnership with the National Literacy Trust.  Over the last four years our support for the Young Readers Programme has provided 13,400 schoolchildren with free books as well as a fun, educational leisure activity at our properties. Initiatives like these help us connect with and support local communities and as well as enlivening our properties.

Offices & Residential Asset Management

·      Total property return of 10.0%; ERV growth of 4.5% and capital return of 8.3%

·      Lettings and renewals 5.0% ahead of ERV

·      Occupancy of 98.1% (FY15: 98.1%); lease length to first break of 8.5 years (FY15: 8.1 years)

In strong markets, we have been able to make good progress on our vision for the Offices and Residential portfolio, which is focused around meeting our customers' changing needs.  Across our London office campuses we are using our placemaking skills to create more vibrant places to work, as well as places to shop and be entertained.  With occupiers increasingly looking for workspace which is more agile and more engaging, demand for our space has been strong.  Development plays a key role in our strategy and is focused on London, and in particular areas which will benefit from infrastructure improvements.  With London office supply muted and against a background of economic and employment growth, the prospects for rental growth are good. 

We have let space on attractive terms, successfully driving ERVs across the portfolio.  We completed 208,200 sq ft of lettings and renewals since the start of the year, with investment lettings and renewals 5.0% ahead of ERV.  A further 41,500 sq ft is currently under offer, 12% ahead of ERV.  ERV growth across the Offices portfolio was 4.5% and like-for-like income growth was strong at 7.4%.  We are virtually full across our campuses; overall occupancy is 98.1%. 

In the City, we let or placed under offer a further 159,700 sq ft at the Leadenhall Building including nearly 25,000 sq ft to our joint venture partners OMERS, who will relocate their European headquarters there.  The building is 91% let or under offer, with just four floors remaining to be let, and it continues to set new highs for rents in the City.  We have been particularly pleased not only by the occupier interest but also the critical acclaim it has received with the Leadenhall Building named "Building of the Year", by the Worshipful Company of Chartered Architects.  We were also delighted that The Duke of Cambridge and Prince Harry formally opened the building in October this year.  

At Broadgate, we are progressing our exciting vision to create a more modern and vibrant destination for London.  This reflects the growth and diversity of its location, not only as an important part of the City, but being adjacent to the regenerating areas of Shoreditch and Spitalfields, which increasingly cater to technology and other creative sectors.  The opening of the Crossrail station at Liverpool Street in 2018 will also be supportive of our overall vision.  We have created opportunities here which significantly increase the scale of the campus and better integrate it with the vibrant areas to the north and east. 

At 100 Liverpool Street, we already have planning permission for a 517,000 sq ft redevelopment, but are looking to enhance the design with additional retail, food and beverage space.  We have received a resolution to grant planning consent on 1 Finsbury Avenue for a 303,000 sq ft redevelopment including 20,000 sq ft of retail at ground level; combined these developments will increase space by over 150,000 sq ft.  We are also looking at the potential to further extend and enhance 2-3 Finsbury Avenue.  The redevelopment of Broadgate Circle has done much to energise the campus and our plans will build on this momentum with a more diverse offer which matches changing working lifestyles.

At Paddington Central, we have submitted planning on the next phase of our public realm improvement programme.  Our plans include an outdoor "games room" providing activities for people to socialise, a "Library" where people can relax, and a "kitchen garden" with communal seating in the summer months.  Our development at 4 Kingdom Street is progressing well; the core is now complete and we are on track for completion in early 2017.  At 5 Kingdom Street, we are working with architects Allies & Morrison to improve the consent, significantly increase the area and bring the design in line with our broader vision for the campus.  

At Regent's Place, the refurbishment of 79,000 sq ft at 338 Euston Road is progressing well and Facebook will occupy 66,000 sq ft of space here early next year.  We expect to be in a position to refurbish or redevelop 1 Triton Square (217,000 sq ft) early in the new year and will look to submit a planning application next year. 

Our campuses are relatively affordable and with 720,000 sq ft of rent reviews in the next 18 months, we are well placed to capture rental growth going forward.  ERVs at Paddington and Regent's Place are £52 psf and £55 psf respectively, low relative to core West End, and are £57 psf at Broadgate.  Overall, our portfolio is now 10% reversionary (11% City, 9% West End). 

In Residential, we have made good progress at Clarges Mayfair, where we have completed the relocation of the Kennel Club and are on track to complete the offices element next summer.  The residential element will complete the following year and we have already profitably pre-sold 22 out of 34 apartments, with marketing on the remainder due to commence nearer to completion.  All apartments at Bedford Street have now sold, and we have made good progress at The Hempel Collection, where we have now pre-sold 12 out of 33 apartments, including three post period end.  We were also pleased that the Mayor of London has approved our residential-led mixed use scheme on Putney High Street where we have plans for 97 units above 38,000 sq ft of retail and leisure at ground and basement levels. 

More details on the portfolio, property performance, individual developments and investment activity during the year can be found in the detailed supplementary tables.

FINANCIAL REVIEW

Highlights

·      Underlying profit before tax up 10.3% to £171 million

·      EPRA Net Asset Value per share at 891 pence, 7.5% ahead of 31 March 2015 (829 pence)

·      Total accounting return of 9.1% for the six months to 30 September 2015

·      IFRS profit before tax of £823 million

·      Loan to Value ('LTV') at 34% on a proportionally consolidated basis, 1% lower than 31 March 2015

·      Weighted average interest rate at 3.6% on a proportionally consolidated basis, 20bps lower than 31 March 2015

Overview

The business performed well in the first half of the year and delivered a Total Accounting Return of 9.1%.

Our actions, combined with the continued strength of the markets we are invested in, have delivered an EPRA valuation surplus of £662 million and a 7.5% increase in NAV per share to 891 pence.

We completed £920 million of investment activity since 31 March 2015, broadly balanced between acquisitions and disposals. We sold assets which we see as non-strategic and reinvested the proceeds in, or close to, our existing assets. We were a net investor in London where population growth, urbanisation and infrastructure are driving regeneration.

We manage our mix of equity and debt financing to achieve the right balance between enhancing returns for shareholders and the risk of higher leverage. Our approach to LTV remains unchanged; we do not gear up on market yield shift.

Financing activity, including the issuance of the zero coupon £350 million convertible bond contributed to a reduction in the Group's weighted average interest rate by 20 bps to 3.6%

Underlying profit was increased to £171 million through our leasing of recently completed developments and the benefit of the financing activities we have completed in the last twelve months.

Earnings per share have increased by less than profits because we are now required to anticipate conversion of the 1.5% convertible bond which we issued in 2012.

Presentation of financial information

The Group financial statements are prepared under IFRS where the Group's interests in joint ventures and funds are shown as a single line item on the income statement and balance sheet and all subsidiaries are consolidated at 100%. Management reviews the performance of the business principally on a proportionally consolidated basis which includes the Group's share of joint ventures and funds on a line-by-line basis and excludes non-controlling interests in the Group's subsidiaries. The Group's financial key performance indicators are also presented on this basis.

A summary income statement and summary balance sheet which show British Land's interests on this basis are included in Table A within the supplementary disclosures.

Income statement

Underlying profit before tax excludes capital and other one-off items and is the measure that is used internally to assess the Group's income performance. This is presented below on a proportionally consolidated basis:

	Six months ended 30 September 2015	Six months ended 30 September 2014
	£m	£m
Gross rental income	326	309
Property outgoings	(17)	(17)
Net rental income	309	292
Fees and other income	5	7
Administrative expenses	(47)	(41)
Net financing costs	(96)	(103)
Underlying profit before tax	171	155
Underlying earnings per share	16.0p	15.3p
Dividends per share	14.18p	13.84p

Net rental income

			£m
Net rental income for the six months ended 30 September 2014			292
Developments			12
Like for like growth			6
Acquisitions			22
Disposals			(23)
Net rental income for the six months ended 30 September 2015			309

The increase in net rental income was driven by the completion of 5 Broadgate and the successful letting of our development programme, notably the Leadenhall Building which is now over 90% let or under offer. Like-for-like growth was 3.3%, reflecting 7.4% growth in the Offices portfolio (including historic developments) and 1.1% growth in the Retail and Leisure Portfolio.

Occupancy levels across the portfolio were broadly unchanged at 98.4% (FY 2015: 98.3%).

Acquisitions and disposals were broadly balanced in the half year. Further disposals of non-core retail assets are expected in the second half of the year.

Net financing costs

			£m
Net financing costs for the six months ended 30 September 2014			(103)
Financing activity			11
Acquisitions			(5)
Disposals			5
Developments completing			(4)
Net financing costs for the six months ended 30 September 2015			(96)

Net financing costs decreased by £7 million over a period when debt levels marginally increased reflecting a decrease in the weighted average interest rate from 4.1% at 30 September 2014 to 3.6%.

Significant financing activity, including nearly £2 billion of debt re-arrangement and the Tesco swap completed in the last financial year and the zero coupon £350 million convertible bond issued in June, reduced net financing costs by £11m.

The financing costs associated with large developments which have now completed, principally 5 Broadgate and Leadenhall, and debt drawn down to fund our ongoing developments, resulted in an additional £4 million of interest in the half year.

Administrative expenses

As we have previously set out, administrative expenses increased in line with our planned investment in people and technology in order to enhance the capability of the business.

Development team costs of £2 million were capitalised in the half year as we progress our substantial development pipeline.

Underlying EPS

Underlying EPS for the period was 16.0p (H1 2014/15: 15.3p) based on underlying profit after tax of £171 million (H1 2014/15: £155 million) and weighted average diluted number of shares of 1,086 million (H1 2014/15: 1,019 million).

The contingent conditions on the Group's 1.5% £400 million convertible bond issued in 2012 expired in September 2015, therefore we are now required to anticipate dilution for this in our reported EPS for the first time. As a result, the increase in EPS of 4.6% is lower than the increase in underlying profit before tax.

IFRS profit before tax

IFRS profit before tax for the year was £823 million (H1 2014/15: £1,043 million). In addition to underlying profit, the most significant item impacting IFRS profit was the net valuation increase of £397 million (H1 2014/15: £512 million) for the Group and £217 million (H1 2014/15: £338 million) for the Group's share of joint ventures and funds.  In the current half year, IFRS profit before tax also includes deferred consideration receivable from one of the Group's joint venture partners

Dividends

At the full year we announced that the quarterly dividend would increase to 7.09 pence per share, bringing the total dividend declared for the half year to 14.18 pence per share. The dividend paid in the half year was 13.84 pence (H1 2014/15: 13.50 pence).

The dividend pay-out ratio was improved over the prior period at 88% (H1 2014/15: 90%) in line with our ambition to continue to improve this further over the medium-term.

Balance sheet

EPRA net assets include a number of adjustments to the IFRS reported net assets and are presented below on a proportionally consolidated basis:

	Six months ended 30 September 2015	Year ended 31 March 2015
	£m	£m
Properties at valuation	14,427	13,677
Other non-current assets	141	256
	14,568	13,933
Other net current liabilities	(216)	(307)
Adjusted net debt	(4,908)	(4,918)
Other non-current liabilities	(89)	(73)
EPRA net assets (undiluted)	9,355	8,635
Dilution impact of the 2012 convertible bond	400	400
EPRA net assets (diluted)	9,755	9,035
EPRA NAV per share	891p	829p
Non-controlling interest	284	333
EPRA adjustments1	(786)	(803)
IFRS net assets	9,253	8,565

¹ EPRA net assets exclude the mark-to-market on effective cash flow hedges and related debt adjustments, as well as deferred taxation on revaluations. It includes trading properties at fair value and is adjusted for the impact of share options and the £400 million convertible bond issued in 2012 which are dilutive. No adjustment is made for the £350 million zero coupon convertible bond because this is not currently dilutive.

Movement in EPRA net asset value per share

			p
EPRA NAV per share at 31 March 2015			829
Offices and Residential valuation uplift			47
Retail and Leisure valuation uplift			13
Underlying profit			16
Dividends			(13)
Other			(1)
EPRA NAV per share at 30 September 2015			891

The 7.5% increase in EPRA NAV reflects a strong valuation performance across the portfolio with a 4.7% uplift in the period. This was the result of yield compression of 13 bps and ERV growth of 2.3%.

Returns were driven by continued performance from our standing investments, up 4.5%, and a 9% increase in developments under construction.

This increase reflects the strength of the markets we are invested in and the actions we have taken to improve and manage the portfolio which contributed around 40% of this increase.

Offices and Residential valuations were up 8.2%; the City performed slightly more strongly than the West End, boosted by leasing activity and 5 Broadgate which completed in the period. Retail and Leisure valuations were up 1.8% driven by strong performance from our multi-let assets, up 2.2%.

IFRS balance sheet

At 30 September 2015, 33% of the property portfolio and 29% of net debt was held within joint ventures and funds. The IFRS balance sheet shows our investment in joint ventures and funds grouped together and shown net. On this basis, our investment at 30 September 2015 was £3,281 million (FY 2015: £2,901 million).

Cash flow, net debt and financing

Adjusted net debt

			£m
Adjusted net debt at 31 March 2015			(4,918)
Acquisitions			(329)
Development and capex			(160)
Disposals			371
Net cash from operations			132
Dividends			(116)
Transactions with joint ventures and funds			121
Other			(9)
Adjusted net debt at 30 September 2015			(4,908)

Significant acquisitions completed in the period included One Sheldon Square and the purchase of an additional 5.6% of the units in the Hercules Unit Trust bringing the Group's ownership to 74.8% at the period end (75.3% including units acquired after the period end).

Development and capital expenditure in the period reflected the spend on the committed development programme, the replenishment of the development pipeline and asset management on the standing portfolio. Forecast development spend of £265 million is anticipated over the next three years on the committed development programme. This compares to £332 million of contracted residential sales along with a further £338 million of residential units yet to be contracted for sale on existing committed projects.

Significant disposals in the half year included 39 Victoria Street at an attractive yield which generated an IRR of over 20% and the shopping parks in Rotherham and Birtstall. In addition, selective disposals of standalone foodstores totalling £74 million were completed including the sale of Tesco Bursledon for £60 million post period end, reducing the Group's total superstore exposure to under 6%. 

Financing

	Group 1		Proportionally consolidated
	30 September 2015	31 March 2015	30 September 2015	31 March 2015
Adjusted net debt	£3,450m	£3,425m	£4,908m	£4,918m
Principal value of gross debt	£3,583m	£3,517m	£5,254m	£5,202m
Loan to value	26%	28%	34%	35%
Weighted average interest rate of drawn debt	3.1%	3.3%	3.6%	3.8%
Interest cover	3.0	3.0	2.8	2.6
Weighted average debt maturity of drawn debt	7.3 years	7.8 years	8.2 years	8.7 years

¹ Group presented after elimination of non-controlling interests

Balance sheet metrics in the current year remained strong. On a proportionally consolidated basis, LTV and the weighted average interest rate on drawn debt were reduced while interest cover was improved. The decrease in LTV to 34% was driven by valuation performance. In line with our strategy, we have not geared up on the market yield shift.

We continue to achieve attractive financings which improve earnings and liquidity. We have raised over £650 million of debt finance since 31 March 2015 including a zero coupon £350 million senior unsecured convertible bond due 2020 which provides further diversification of our sources of finance, and includes flexible settlement options. We have also extended the term and reduced pricing on a joint venture facility and a British Land bi-lateral revolving facility, contributing to reduced financing costs.

Overall, financing activity completed in the period has reduced the proportionally consolidated weighted average interest rate from 3.8% to 3.6%

British Land has £1.8 billion of committed revolving unsecured banking facilities, of which £1.6 billion have maturities of more than two years.

We continue to manage our interest rate exposure and currently, on average, 59% of projected net debt (including our share of joint ventures and funds) over the next five years is fixed.

Further information on our approach to financing is provided in the financial policies and principles section of the audited annual report for the year ended 31 March 2015.

PRINICPAL RISKS AND UNCERTAINTES

Principal Risks and Uncertainties

Assessment of risk is a cornerstone of our strategy and our embedded risk management is fundamental to its delivery. Our approach to risk management remains as set out on pages 56-57 of the Annual Report and Accounts published in May 2015.

The Directors' assessment is that the principal risks and uncertainties that the company is exposed to and which may impact performance in the remaining six months of the financial year, are unchanged from those set out on pages 58-61 of the Annual Report and Accounts published in May 2015.

Our principal risks and uncertainties are summarised below.

External Risks           

Economic outlook - The continuing economic recovery and the prospect of increasing interest rates present risks and opportunities in property and financing markets and the businesses of our occupiers.

Political outlook - Significant political events and policies, including potential referendum on EU membership, bring risks both in terms of uncertainty until the outcome is known and the impact of policies introduced, including on the investment case for the UK, and the UK's relationship with Europe.

Commercial property investor demand - Reduction in investor demand for UK real estate may result in falls in asset valuations and could arise from variations in the health of the UK economy, the attractiveness of investment in the UK, availability of finance and the relative attractiveness of other asset classes.

Development cost inflation - Cost inflation presents a risk to the profitability of our development projects and has the potential to adversely affect our cash position and overall return on investment.

Occupier demand and tenant default - Underlying income, rental growth and capital performance could be adversely affected by weakening occupier demand resulting from variations in the health of the UK economy and corresponding weakening of consumer confidence, business activity and investment. In addition, occupier failures may adversely impact underlying income and capital performance. Changing consumer and business practices (including the growth of internet retailing, flexible working practices and demand for energy efficient buildings), new technologies, new legislation and alternative locations may result in earlier than anticipated obsolescence of our buildings if evolving occupier and regulatory requirements are not met.

Availability and cost of finance - Reduced availability of property financing may adversely impact British Land's ability to refinance facilities and result in weaker investor demand for real estate. Increasing finance costs would reduce British Land's underlying income.

Catastrophic business event - An external event such as a civil emergency, including a large-scale terrorist attack, extreme weather occurrence or environmental disaster could severely disrupt global markets (including property and finance) and cause significant damage and disruption to British Land's portfolio and operations.

Internal Risks

Investment strategy - In order to meet our strategic objectives we must invest in and exit from the right properties at the right time. Significant underperformance could result from inappropriate determination and execution of our property investment strategy, including: sector selection and weighting; timing of investment and divestment decisions; exposure to developments; sector, asset, tenant, region concentration; and co-investment arrangements.

Development - Development provides an opportunity for outperformance but this brings with it elevated risk. The care with which we make our decisions around which schemes to develop when, as well as our execution of these projects, must reflect this. Development risks could adversely impact underlying income and capital performance including: development letting exposure; construction timing; major contractor failure; and adverse planning judgements.

Income sustainability - We must be mindful of maintaining sustainable income streams in order to continue to generate returns for our shareholders and provide the platform from which to grow the business through development and capital appreciation. We consider sustainability of our income streams in: execution of investment strategy and capital recycling, notably timing of reinvestment of sale proceeds; nature and structure of leasing activity; and nature and timing of asset management and development activity.

Capital Structure - leverage - We must maintain a capital structure which recognises the balance between performance, risk and flexibility. Leverage magnifies returns, both positive and negative. An increase in leverage increases the risk of a breach of covenants on borrowing facilities and may increase finance costs.

Finance Strategy Execution - We must be judicious in the management of our financing as our strategy here addresses risks both to our continuing solvency and the stability of our profits. Failure to manage the refinancing requirement may result in a shortage of funds to sustain the operations of the business or repay facilities as they fall due. This and a breach of financing covenant limits are considered to be the most significant risks to the continuing operation of British Land as a going concern.

People - A number of critical business processes and decisions lie in the hands of a few people. Failure to recruit, develop and retain staff and Directors with the right skills and experience may result in significant underperformance.

DIRECTORS' RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

a)   the condensed set of financial statements has been prepared in accordance with IAS 34;

b)   the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

c)   the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

GOING CONCERN

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive's Review and Business Review. The financial position of the Group, its cash flows, liquidity position and borrowing facilities, are described in the tables below.

The Group has considerable undrawn debt facilities and cash deposits in excess of current drawn banking facilities. There is substantial headroom against the covenants for its unsecured banking facilities, details of which are included on in Note 10. It also benefits from a diverse and secure income stream from leases with long average lease terms. As a consequence, the Directors believe that the Group is well placed to manage its business risks satisfactorily despite the current uncertain economic outlook and consider it appropriate to adopt the going concern basis of accounting in preparing the interim financial statements.

Lucinda Bell

Chief Financial Officer

Independent review report to The British Land Company PLC

Report on the condensed set of financial statements

 

Our conclusion

We have reviewed the condensed set of financial statements, defined below, in the half-yearly financial report of The British Land Company PLC for the six months ended 30 September 2015. Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

This conclusion is to be read in the context of what we say in the remainder of this report.

 

What we have reviewed

The condensed set of financial statements, which are prepared by The British Land Company PLC, comprise:

·      the consolidated balance sheet as at 30 September 2015;

·      the consolidated income statement and consolidated statement of comprehensive income for the period then ended;

·      the consolidated statement of cash flows for the period then ended;

·      the consolidated statement of changes in equity for the period then ended; and

·      the explanatory notes to the condensed set of financial statements.

As disclosed in note 1, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The condensed set of financial statements included in the half-yearly financial report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

What a review of condensed set of financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Responsibilities for the condensed set of financial statements and the review

Our responsibilities and those of the directors

The half-yearly financial report, including the condensed set of financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

PricewaterhouseCoopers LLP

Chartered Accountants

16 November 2015

London

The maintenance and integrity of The British Land Company PLC's website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

END

 

 

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