Interim Management Statement

RNS Number : 5443W

British Land Co PLC

29 January 2013

 

                        29 January 2013

THE BRITISH LAND COMPANY PLC INTERIM MANAGEMENT STATEMENT

Continued Robust Operational Performance

British Land today publishes its interim management statement for the quarter to 31 December 2012

Chris Grigg, Chief Executive said: "The business continues to perform well in markets which remain tough overall. We've continued to see good demand for our properties, which means our occupancy remains high and our developments are now significantly pre-let well ahead of completion.  While we remain cautious about the near-term environment, we are confident that British Land is not only defensive in today's challenging markets but also well positioned to deliver future growth from existing and new investments."

Operational performance reflecting portfolio strength and quality

·      UK occupancy unchanged at 97.7% (including recently completed developments); rents in administration low at 0.8% of total rent

·      Good demand for retail space: 358,000 sq ft of lettings/lease renewals 13.1% ahead of ERV

·      Continue our track record of attracting and retaining office occupiers: 240,000 sq ft of office lease extensions at terms accretive to value; 14,500 sq ft under offer at 199 Bishopsgate

Committed developments progressing well; further pre-lets and encouraging occupier interest

·      Further pre-letting activity with office developments now 62% pre-let/under offer; 76% in the City

·      Heads of terms agreed for 111,000 sq ft pre-let with Amlin at The Leadenhall Building (now c50% pre-let)

·      Continued strong interest in our West End developments: 57,000 sq ft of lettings completed at 10 Portman Square and NEQ significantly ahead of ERV with further interest at both developments

·      Whiteley Shopping Centre retail scheme now 85% pre-let/under offer ahead of May opening

Investing in future growth and replenishing development pipeline

·      Completed the acquisition of Clarges; on track for revised planning permission application

·      Forward funding agreed for retail and leisure development in Hereford City Centre; over 50% pre-let (by area)

·      Lancaster City Centre site acquired; development agreement signed with Lancaster City Council to enable the delivery of a 10 acre retail led mixed use scheme

·      Regeneration of Broadgate South: planning obtained for Broadgate Circle; working up plans for 100 Liverpool Street

·      JV lock-up terms at Broadgate expire; British Land intends to retain its 50% stake

Strong financial position and access to low cost finance

·      Third quarter dividend confirmed at 6.6 pence, 1.5% ahead of prior year as previously announced

·      Continued access to low cost finance: £95 million of new group facilities arranged in the quarter

·      Proportionally consolidated loan to value (LTV) at 46.1% (September pro-forma); average interest rate marginally lower at 4.3%

For further information on our leasing activity vs ERV for 3 and 12 months to 31 December see the table at the end of this statement.

Overview

The business has continued to perform well in the quarter and make progress against its long-term objectives. In a market which overall remained tough, the strength of our operational results once again underlines the quality and resilience of our business and the actions we have taken to deliver performance.

We saw encouraging levels of demand across the business both from existing and new occupiers. So despite subdued economic growth, weak consumer spending and an increased level of retailer administrations, occupancy across our UK estate remained high (unchanged at 97.7% including 199 Bishopsgate) with administrations low (at 0.8% of total income up 20 bps). Including post period end administrations, this rises to 1.2%. Overall, we agreed over 665,000 sq ft of lettings/pre-lets and lease renewals with lettings and renewals across the portfolio agreed at 13.1% above ERV.

We also made good progress on our committed office development programme with 62% now pre-let/under offer.  All of our West End projects are on track to reach practical completion this calendar year and our remaining two City offices will complete next year. The success of our West End investment programme means that we are close to achieving a balance between our City and West End offices, a key objective in recent years.  

During the period, the lock-up term governing our Broadgate joint venture with Blackstone expired. The estate remains an integral part of our long-term London strategy. We intend to retain our 50% stake and work closely with Blackstone through any sale process. We have a strong vision of how Broadgate will develop as a vibrant mixed use estate in the heart of the City of London and expect it to benefit from its position around one of London's most important transport hubs and from the completion of Crossrail in 2018.

We have highlighted for some time the potential investment opportunities we expected to emerge as the property market restructured in the aftermath of the credit crunch.  We are now seeing a greater flow of attractive investment opportunities where we believe our property and financing skills will enable us to generate superior returns for our shareholders.

Retail

Consumer spending in the UK held up relatively well over the Christmas quarter. However, weaker retailers, particularly those where on-line sales have made the greatest in-roads, continued to struggle and a number of retailers went into administration. The quality and relevance of our properties remains key to our performance: we continue to invest in ensuring our properties meet the evolving needs of our occupiers and their customers.

We saw good demand for space and also successfully re-let 26 of the 58 units which were in administration at the end of September. In total, we agreed 358,000 sq ft of lettings and renewals at 13.1% ahead of ERV.  As a result, our retail occupancy in the UK remained high at 98.1%, (September 2012: 98.3%). While footfall was weaker, in part impacted by the adverse weather, we again outperformed the market.

Successful retailers continue to take more space on our schemes with Next signing an agreement to take over a 43,000 sq ft ex-Homebase unit in Camberley for their third "Home and Garden" concept. We obtained planning permission for the external recladding and refurbishment of Debenhams' 360,000 sq ft flagship building on Oxford Street, which will reinvigorate this key West End landmark. Works have started and are scheduled to complete towards the end of 2013.  We are also attracting new retailers, notably at our major shopping centres Meadowhall and Drake Circus, where we continue to expand the premium retail offer. The most notable deal in the quarter was with Victoria's Secret at Meadowhall for a 13,000 sq ft store which will open in the autumn.

We continue to expand the leisure offer at our existing schemes. We have three cinema and restaurant developments underway, one at Glasgow Fort where we are on-site and progressing well, and a further two, subject to planning, at Chester Broughton Retail Park and Edinburgh Fort Kinnaird which are now both fully pre-let/under offer.

At our Whiteley Shopping Centre development near Southampton, we agreed a further 23,000 sq ft of pre-lets. 85% of the scheme is now pre-let/under offer with store fit-outs underway ahead of the scheduled opening in May. Lettings during the quarter were signed with Topshop, Carphone Warehouse and three restaurant chains, who join a line-up including M&S (anchoring with a 60,000 sq ft store), Next, Boots, H&M and River Island.  

In Europe, which accounts for less than 2.5% of our portfolio, the environment remains difficult with consumer spending down and investor interest subdued. While this has impacted our European retail park portfolio, the Puerto Venecia Shopping Centre at Zaragoza, which opened on time in October, performed well, with strong footfall over the key Christmas period.  

London Offices and Residential

London retains its position as one of the most attractive capital cities in the world both for business and investors. Although the pressures on the financial services sector continue to impact overall occupational activity in offices, there are pockets of occupier demand both in the City and West End which we are successfully tapping into. This is particularly important for our office development programme, with all of the buildings reaching practical completion this year and next. Demand for high end residential properties remained robust despite the tax changes announced in the Budget and we have continued to benefit from this.

In Offices, occupancy in our investment portfolio rose by 20bps to 96.8%. Overall we signed 300,000 sq ft of lettings and lease renewals in the quarter with a further 133,000 sq ft of lettings (including pre-lets) under offer at the period end.  In our investment portfolio, the majority of the activity was focused on lease extensions, underlining the enduring appeal of our properties to our occupiers.  

At Broadgate, we extended a further 240,000 sq ft of leases during the quarter, bringing the total for the year to date to 609,000 sq ft. Terms agreed during the quarter included: 66,000 sq ft of space with Tullett Prebon PLC at 155 Bishopsgate, who extended their lease to 2025 at the same passing rent, but with guaranteed uplifts; and 174,000 sq ft with ICAP, who extended their lease at 1&2 Broadgate by two years to 2019. At the recently refurbished 199 Bishopsgate, we have 14,500 sq ft of space under offer. We secured vacant possession of Broadgate Circle where £20 million is being invested to improve the public space and enhance the food and retail offer. We are also working up plans for the next phase of regeneration at Broadgate South, which includes a major refurbishment of 100 Liverpool Street.

Our committed office developments are progressing well and we remain on track for all of our West End projects to complete this year.  178,000 sq ft of pre-lets were signed or placed under offer, bringing the total rent secured through pre-lets to £42 million. In the City, we agreed heads of terms for a 111,000 sq ft pre-let to Amlin, the second major pre-let at The Leadenhall Building. The deal covers floors 18-24 and floor 45, which includes an option over 16,000 sq ft (floor 18). On completion of the letting, around half of The Leadenhall Building will be pre-let, which leaves mainly the upper, smaller floors to let, for which we expect good demand closer to practical completion. This puts us in a strong position in the City overall, with 76% of our developments pre-let or under offer.

In the West End, the Office space at our development at 10 Portman Square is now 43% pre-let following the completion of 49,000 sq ft of deals with Aspect Capital and Aramco Overseas Company. At rents of over £90psf, both deals are significantly accretive to value with rental values around 9% ahead of the September ERVs. The building, which is due to complete in April of this year, will have a great presence facing onto the square. Encouraging levels of interest continue at our NEQ development in Regent's Place, where 10 Brock Street is already 50% let to Debenhams.  Sainsbury's has relocated their 8,000 sq ft store from the Euston Tower to 30 Brock Street, allowing us to subdivide their Euston Tower space to further enhance the retail offer across the estate.  NEQ and 10 Portman Square along with our other West End developments, Marble Arch House and 39 Victoria Street, reach practical completion over the course of the next year. This will result in the release of significant developer's profit, however in the short term it is also likely to increase our vacancy rate as the completed developments are transferred into our standing investment portfolio.

Residential is a growing part of our London portfolio both as a part of our mixed use developments and our residential led schemes. We continued to see good demand for our residential developments in London pre-selling 5 units in the quarter for £6.5 million and bringing the total for the financial year to date to £24 million.

New Investment Activity

We continue to sell our more mature assets to redeploy capital into new investments as well as into our existing development programme. To date this financial year, we have sold £402 million of assets (BL Share: £278 million) and invested £352 million (BL Share: £310 million) in a range of opportunities. In the quarter, we sold £52 million of investment properties (BL Share £43 million) at 9.8% above March valuation in line with our intention to sell mature, lower returning assets.

In November, we completed the acquisition of Clarges Estate, a major office and residential development site in Mayfair. We have recently secured vacant possession of the site and are progressing discussions to relocate the Kennel Club. We are on track to submit a revised planning application in the next few months.  

Acquisitions during the quarter included a £90 million forward funding agreement to build a 310,000 sq ft retail and leisure development in Hereford City Centre where work has already started on site. We also acquired a development site in Lancaster City Centre and have an agreement with Lancaster City Council to enable the delivery of a mixed use 10 acre scheme with a targeted end value of over £75 million.

Financing

At 31 December 2012, Group cash and committed unutilised bank facilities were £1.6 billion (September 2012: £1.7 billion).  On a proportionally consolidated basis and at 30 September 2012 valuations, our LTV was 46.1% (September 2012: 46.0%) and our weighted average interest rate was marginally lower at 4.3% (September 2012: 4.4%). During the quarter new bi-lateral committed revolving bank loan facilities were agreed totalling £95 million.

Dividend

The third interim dividend payment for the current financial year ending 31 March 2013 will be 6.6 pence per share, a 1.5% increase on the comparable period last year.  The dividend will be paid on 10 May 2013 to shareholders on the register at close of business on 2 April 2013.  An announcement on the availability of the split between PID and non-PID income along with the availability of any scrip dividend alternative will be made no later than 4 business days before the ex-dividend date of 27 March 2013.

Leasing Activity

To 31 December 2012	3 months %	12 months %
UK Lettings & Renewals vs. ERV:
- Retail	+13.1	+8.3
- Offices	+5.81		+7.3
- Total (including Other)	+13.1	+8.1
UK Rent Reviews vs. previous rent:
- Retail	+4.1	+5.1
- Offices	+0.4	+0.7
- Total (including Other)	+2.6	+4.3
UK Retail Footfall (year-on-year growth):
- British Land Retail	(1.9)	(1.3)
- Experian Index	(3.8)	(3.1)

¹ Representing new lettings only, lease extensions are not included in our ERV analysis.

Investor Conference Call

British Land will host a conference call at 9.00am today, 29 January 2013.  The details for the conference call are as follows:

UK Toll Free Number:                 0800 279 4841

UK Number:                              [phone]

Passcode:                                 6664537

A dial in replay will be available later in the day and the details are:

Replay number:                         0800 358 7735

UK Number:                              [phone]

Passcode:                                 6664537#

For Information Contact

Investor Relations

Sally Jones, British Land                                    020 7467 2942

Media 

Pip Wood, British Land                                       020 7467 2838

Gordon Simpson, Finsbury Group/                       020 7251 3801

Guy Lamming, Finsbury Group

Forward-Looking Statements

This document contains certain "forward-looking" statements reflecting, among other things, current views on our markets, activities and prospects.  By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that may or may not occur and which may be beyond British Land's ability to control or predict (such as changing political, economic or market circumstances).  Actual outcomes and results may differ materially from any outcomes or results expressed or implied by such forward-looking statements.  Any forward-looking statements made by or on behalf of British Land speak only as of the date they are made and no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared.  Except to the extent required by law, British Land does not 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.

Notes to Editors:

About British Land

British Land is one of Europe's largest Real Estate Investment Trusts (REITs) with total assets, owned or managed, of £16.3 billion (British Land share £10.4 billion), as valued at 30 September 2012. Through our property and finance expertise we attract experienced partners to create properties and environments which are home to over 1,000 different organisations and receive over 300 million visits each year. Our property portfolio is focused on prime retail locations and Central London offices which attract high quality occupiers committed to long leases. Our UK occupancy rate of 97.7% and average lease length to first break of 11 years are among the highest of the major UK REITs.

Retail assets account for 60% of our portfolio with around 28 million sq ft of retail space across 82 retail parks, 92 superstores, 13 shopping centres and 9 department stores.  The retail portfolio is modern, flexible and adaptable to a wide range of formats and our active asset management delivers space which is attractive and meets the needs of both retailers and consumers.  80% of our retail parks have open A1 consent.

London offices, located in the City and West End, comprise 35% of the portfolio (which will rise to an estimated 40% on completion of current developments).  Our 7 million sq ft of high quality offices includes Broadgate, the premier City office campus (50% share) and Regent's Place in the West End.  Over the last 2 years, we have committed £1.2 billion to create Central London's largest committed office development programme which will deliver 2.3 million sq ft of high quality space by 2014, including a 700,000 sq ft building at 5 Broadgate, the 610,000 sq ft Leadenhall Building in London's insurance district and a 500,000 sq ft mixed office and residential scheme at Regent's Place in the West End.

Managing our environmental, economic and social impacts is central to the way we do business and deliver value for our shareholders.  We assess the issues that matter most to us and our stakeholders on an on-going basis and, where appropriate, adjust our strategic focus to reflect this.  We focus on managing our buildings efficiently, supporting communities, developing sustainable buildings and engaging our staff.  For each of these priorities we are targeting our efforts and resources at initiatives where we can achieve the biggest impacts.

Further details can be found on the British Land website at www.britishland.com.

 

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