INTERIM PRESENTATION - British Land · INTERIM PRESENTATION 1 . JOHN RITBLAT CHAIRMAN 2 . STEPHEN...
Transcript of INTERIM PRESENTATION - British Land · INTERIM PRESENTATION 1 . JOHN RITBLAT CHAIRMAN 2 . STEPHEN...
INTERIM PRESENTATION
1
JOHN RITBLAT CHAIRMAN
2
STEPHEN HESTER CHIEF EXECUTIVE
3
FINANCIAL REVIEW GRAHAM ROBERTS, FINANCE DIRECTOR
4
HIGHLIGHTS NAV per share + 8.6% to 1049p (£5.5bn)
- Total Return 9.1%
Underlying profits before tax + 15.1% to £74.8m - Net rental income + 5.6% to £265.1m
Valuation + 3.8% to £11.1bn - Retail + 4.3% Offices + 3.4%
775,700 sq ft of Central London lettings - Adds £34.8m pa to rent
£122.1m pa additional rental value from reversions & committed developments - 63% already contracted
5
TOTAL RETURN: 9.1% IN 6 MONTHS
£m Pence per Share
NAV1 at March 2004 5,035 966
Valuation uplift (3.8% of portfolio) 400 76 + 7.9%
Retained profits and reserve movements 50 7
NAV1 at Sept 2004 5,485 1,049 + 8.6%
Total Return1 (including 4.8p dividend) 455 88 + 9.1%
1 Adjusted, diluted
6
UNDERLYING PROFIT BEFORE TAX: UP 15.1% TO £74.8M
Net interest payable
Gains on property disposals
Underlying profit before tax
Profit before tax
Net rental income
Sept 2004 £m
(171.7)
5.3
74.8
80.1
265.1
Sept 2003 £m
(163.9)
21.9
65.0
86.9
251.0
+ 15.1%
+ 5.6%
Underlying EPS1
Operating cash flow per share
Effective tax rate
12.1p
13.0p
17.5%
12.0p
13.5p
13.1%
See Appendix pages 68-70 for analysis of net rental income, operating cash flow per share and tax charge 1 Adjusted, diluted
7
LOW COSTS: 0.8% OF PORTFOLIO
% of Portfolio (annualised)
Sept 2004 £m
Sept 2003 £m
Total portfolio 11,066 9,649
Direct property costs1 0.39% 21.3 18.3
Administrative expenses2 0.41% 23.0 22.4
Total costs 0.80% 44.3 40.7
1 Includes letting and rent review fees, non-recoverable landlord costs, legal and professional fees, pre-development expenditure, void rates and advertising and promotional costs
2 Including JV admin expenses net of management and admin fees received from JVs
8
REVERSION: £99.7M, 56% ALREADY CONTRACTED
55.753.852.8
27.526.3
0
10
20
30
40
50
60
70
80
90
100
110
Contracted £54.0m
£85.0m
£102.8m £99.7m2
£m
£42.4m 1
2005 2006 2007 2008 2009
Year ending 30 Sept 1 Contracted rents from expiry of rent free periods and minimum guaranteed uplifts 2 The fall in reversion in 2009 is due to a lease break which is assumed to be exercised and re-let at the market rent See Appendix page 71 for detailed analysis of contracted reversion on a cash flow and p&l basis
9
BALANCE SHEET EFFICIENT
Sept 2004 March 2004
Total Group properties & investments £10,683m £10,063m
Net debt (Group) £4,936m £4,867m
Net assets1 £5,462m £4,877m
Mortgage ratio (Group) 46% 48%
Mortgage ratio (including share of JVs) 48% 51%
Gearing (Group) 90% 100%
Interest cover (Group)2 1.5x 1.5x
1 Adjusted 2 Group net rents / net interest
10
FLEXIBLE FINANCE
£730m of new unsecured bank facilities at an average cost of LIBOR + 65bp
Early conversion of £150m 6% Subordinated Irredeemable Convertible Bonds
Group Sept 2004 March 2004
Weighted average debt maturity 13.8 years1 16.9 years
Weighted average interest rate 6.5% 6.4%
% of net debt at fixed/capped interest rates 84% 84%
Cash and available undrawn committed bank facilities £1,164m £1,139m
1 The reduction in weighted average debt maturity is mainly the result of the conversion of the 6% Subordinated Irredeemable Convertible Bonds See Appendix page 72 for piechart of financing structure
11
INTERNATIONAL ACCOUNTING STANDARDS � Well advanced with preparations for IAS. Full compliance for March 2006 year end
� Workshop on transition to IAS on 25 Jan 2005. IAS restated March 2005 results to be released Summer 2005
� Cash flows will be unaffected
� Areas of particular focus:
IAS 12 Deferred Tax Contingent tax recognised on property valuations IAS 39 Financial Instruments Carried at fair value
All interest rate swaps qualify as effective hedges
IAS 17 Leases Different definitions for finance and operating leases
IAS 40 Investment Property Movements in valuation recognised in income statement
IAS 19 Employee Benefits Pension schemes assets/liabilities recognised at fair value FRS 17 already fully adopted in March 2004 – no change
IFRS 2 Share-based Payment Fair value expensed over the vesting period Already fully adopted in March 2004 – no change
See Appendix pages 73 and 74 for detailed summary of the impact of IAS on net assets and profits
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£m
LONG-TERM INCOME PROFILE
EXCLUDING ANY RENTAL VALUE GROWTH
As at 30 Sept 2004 900
800
700
600
500
400
300
200
100
0 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Development programme (committed and prospective) Current interest cost (annualised) Reversionary income (not contracted) Renewal of leases on expiry or break Annualised net rents plus contracted reversions
This graph provides a snapshot of committed income and estimated income based on ERV at 30 Sept 2004, including our share of joint ventures and is not a forecast
The main assumptions which underlie the graph are outlined in the Appendix on page 75
13
REVENUE AND UNDERLYING PROFIT GROWTH NET RENTAL INCOME UNDERLYING PROFIT1
£m £m 550 160
500
140
450
120 400
350 100
300
80 250
200 60 150 40
100
20 50
0 0 2000/1 2001/2 2002/3 2003/4 2004/5 2000/1 2001/2 2002/3 2003/4 2004/5
H1 H2 1 Underlying profit before tax
14
TOTAL RETURN: 22.4% IN LAST 12 MONTHS
NAV1 GROWTH AND DIVIDENDS
Pence per Share 1,200 Compound average total return % pa
to Sept 2004 over the last: 1,000 195p
2001 2002 2003 2004 Year ended 30 Sept Total Return
1 Adjusted, diluted
4 years
3 years
2 years
1 year
11.5% 800
11.6% 600
14.5% 400
20022.4%
0
15
PROPERTY REVIEW BOB BOWDEN, PROPERTY INVESTMENT DIRECTOR
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AGENDA
� Portfolio Valuation
� Portfolio activity
� Principal assets
� Developments
� Market commentary
17
VALUATION £11,066M: UP 3.8%
All Retail 4.3 %
3.3 %Shopping Centres
0.7 %Superstores
Retail Warehouses 9.0 %
High Street 5.7%
Retail Development 1.1 %
3.4 %All Offices 3.2 %City Offices 3.6%West End Offices
3.0 %Business Parks & Provincial 7.5 %Office Development
2.6 %Other 1 Includes developments, purchases and capital expenditure, and excludes sales % Change by sector since March 20041
See Appendix page 76 for detailed portfolio breakdown
18
WEIGHTED CONTRIBUTION BY SECTOR: UP 3.8% All Retail
Shopping Centres
Superstores
Retail Warehouses
High Street
Retail Development
All Offices
City Offices
West End Offices
Business Parks & Provincial
Office Development
Other 1 Includes developments, purchases and capital expenditure, and excludes sales See Appendix page 76 for detailed portfolio breakdown
2.2 %
0.6 %
0.1 %
1.2 %
0.3 %
0.0 %
1.5 %
1.0 %
0.2 %
0.1 %
0.2 %
0.1 % % Change by sector since March 20041
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THE COMPONENTS OF CAPITAL GROWTH
Shopping Centres
Superstores
Retail Warehouses
High Street Retail
City Offices
West End Offices
Total Portfolio
-4 -2 0 2 4 6 8 10 12 %
ERV Impact Yield Impact Income Residual1
1 Income residual represents the impact on valuation of lease terms such as rent free periods, timing of rent reviews relative to the valuation date and lease lengths Source: IPD (standing investments only)
20
PORTFOLIO SPLIT: £11,066M
43% Offices: 52% Retail:
94% Central London 77% Out of Town
Central London Shopping Centres 41% 19%
Provincial 2%
Broadgate 25% Regent’s Place 5% Plantation 4%
Meadowhall 13%
Superstores 13%
Retail Warehouses Other High Street 14%5% 6%
Developments classified by end use
21
AGENDA
� Portfolio valuation
� Portfolio Activity
� Principal assets
� Developments
� Market commentary
22
SALES: £274M IN H1, YTD £321M
7 properties (residential, industrial)
6 properties (retail, offices and industrial) 26 residential units
17 pubs (PHIC) 6 office properties (BLD) 100 New Bridge Street and Watling House (BLW)
Group
Joint Ventures
Gross Proceeds1
13 245
23 29
6
22 59
151
Gain £m1,2
2 12
3 3
-
1 9 -
Total 274 15
Post Sept 2004: Swiss Centre 47 12
1 Group and 100% of JVs, Including our 50% share of JV sales, £151m completed in the six months 2 Gross gain over latest valuation
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PURCHASES: H1 £153M, YTD £644M Joint Ventures 3 interests at East Kilbride and Aberdeen (SRPLP)
Total
Investment in Canary Wharf 194 residential units 2 – 21 Cornwall Terrace
Group £m1
145
8
153
97 32 16
65 freehold pubs 4 retail parks and 1 industrial estate (BLD)2
Post 30 Sept 2004 includes: Queensmere & Observatory Shopping Centres
1 Group and 100% of JVs. Including our 50% share of JV purchases, £149m completed in the six months 2 See Appendix page 77 for summary of BL Davidson acquisition
174 122
192
24
QUEENSMERE & OBSERVATORY CENTRES: £192M � Two adjoining freehold shopping centres comprising 45% of the entire
retail provision within Slough
� 500,000 sq ft retail space, 65,000 sq ft offices with 1,600 car spaces
� Considerable scope for management initiatives including linking the two centres
– BL already owns the linking 80,000 sq ft Allders store
� Income reversionary
Equivalent yield Reversionary yield
Initial yield
6.3% 6.6%
6.0%
� Prime Zone A rents psf: Queensmere £105, Observatory £50
25
65 SPIRIT PUBS: £174M
� Indexed annual rental uplifts for 20 years
– Initial yield of 6.1%, rising to 9.8%
� High quality freehold pubs with a large average lot size of £2.7m
� Asset management opportunity
� Landlord option to revert to open market value for Year 15 and 20
– Year 25 upwards only to OMV
LOCATION BY NUMBER
North of London and England South East
37% 40%
Midlands and South West East Anglia 6%
17%
26
1.1M SQ FT DEVELOPMENTS COMPLETED: 68% LET
Projects Sq ft Construction Total Of which cost1 Rent2 Let
Plantation Place 540,000 £198.7m £27.0m £26.0m
Plantation Place South 161,000 £60.2m £6.7m £0.1m
10 Exchange Square 163,400 £53.2m £7.0m £2.0m
Thatcham (BLG) 255,800 £4.5m £0.9m -
Total4 1,120,200 £316.6m £41.6m £28.1m3
1 Costs of construction excluding land and interest costs 2 Estimated headline rent pa 3 Further lettings under offer: £0.6m pa of retail space at Plantation Place and £1.2m pa of offices at 10 Exchange Square 4 Based on Group and 50% share of JVs (except areas which are at 100%)
27
28
PLANTATION PLACE, 30 FENCHURCH STREET, EC3
� Total net area 540,000 sq ft
� Offices 100% let to high qualitytenants, £26.0m pa rent
� Completed April 2004 on time, on budget
� Flagship development in the heart of the City
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775,700 SQ FT LET IN CENTRAL LONDON: RENT £34.8M
Building Tenant Min.Term Sq ft Rent Rent yrs £ psf £m
51 Lime Street Willis1 25 465,000 45 – 47.50 21.0
Plantation Place Wachovia1, Aspen Re1 5 - 15 132,000 46 – 48.00 6.2 and Royal & SunAlliance
10 Exchange Square Herbert Smith 16 43,500 45.00 2.0
155 Bishopsgate HBOS 15 38,600 45.00 1.7
Exchange House F&C Management 16 20,500 42.00 0.9
6 Broadgate Ambac 9 12,600 43.00 0.5
350 Euston Road General Medical Council 20 48,000 39.00 1.9 Balfour Beatty 6 15,500 39.50 0.6
Total 775,700 34.8
1 Signed post Sept 2004. Willis is conditional on amendment to existing planning consent
29
30
51 LIME STREET, EC3
� 24 storey development
� 475,000 sq ft net area
� 465,000 sq ft pre-let to Willis Group
� £21.0m pa of rent
30
RENTS £565M: £76.7M OF CONTRACTED GROWTH Sept 2004 Of which
£m contracted £m
Annualised net rents 565.0 565.0
Reversions1 99.7 55.7
Committed developments 22.4 21.0
Increase 122.1 76.7
Total 687.1 641.7
Development prospects 157.0
1 Includes rent reviews, expiry of rent free periods, lease break/expiry and letting of vacant space at ERV over next 5 years (as determined by independent valuers) See Appendix page 78 for breakdown of reversion
31
REVERSIONARY INCOME: £99.7M
Reversionary yield1
1 Includes rent reviews, expiry of rent free periods, lease break/expiry and letting of vacant space at ERV over the next 5 years (as determined by independent valuers) See Appendix page 79 for analysis of annualised net rents and reversion by sector
2 £55.7m of the total reversion of £99.7m is already contracted from expiry of rent free periods and minimum rental uplifts
City Offices 6.6%
West End Offices 6.2% Business Parks & Provincial 7.4% All Offices 6.6% Shopping Centres 5.9% Superstores 5.7% Retail Warehouses 5.7% High Street 6.1% All Retail 5.8% Other 6.1% Total2 6.2%
32
LONG LEASES AND LOW VACANCY
Average lease term, yrs1 Vacancy rate to expiry to first break Proforma %2 Sept 2004 %
Total Portfolio 16.9 15.7 3.9 4.6
City Offices 14.4 12.7 7.7 10.0
West End Offices 13.8 11.5 3.0 3.0
Shopping Centres 15.3 14.8 3.2 3.2
Superstores 22.0 22.0 0.0 0.0
Retail Warehouses 16.8 16.4 1.1 1.1
Shops 26.2 23.5 1.7 1.7
1 Excluding developments and residential (predominately let on short leases) 2 Proforma for properties let since Sept 2004
33
INCOME: STRONG TENANT COVENANTS
Rating of rental income %1
Negligible; low; and low / medium risk 89.0
Medium / high risk 5.7
High risk 3.0
Unmatched 2.3
Total 100.0
1 IPD Tenant Income Credit rating Covenant Strength (TICCS) using Experian Stress Score See Appendix page 80 for list of top 30 tenants
34
AGENDA
� Portfolio valuation
� Portfolio activity
� Principal Assets
� Developments
� Market commentary
35
PRINCIPAL ASSETS: 89% OF THE PORTFOLIO
Broadgate Shopping Centres Superstores Retail Warehouses 25% 19% 13% 14%
Plantation Regent’s Place Developments High Street 4% 5% 3% 6%
36
BROADGATE £2,796M: UP 2.1%
Sept 2004 March 2004
Valuation £2,796m1 £2,665m
Rent pa £150.9m2 £151.7m
Contracted reversionary income pa £175.9m2 £170.7m
Average contracted rent psf3 £46.72 £46.79
Average ERV psf £37.50 £37.50
Vacancy rate 3.4% 1.7%
Net initial yield 6.0%4 6.0%
1 Including 10 Exchange Square completed in April 2004 2 F&C lease renewal in August 2004 has extended lease to Dec 2020 in return for a rent free period 3 Excluding vacant space 4 Excluding Exchange Square which was recently completed and is valued on an equivalent yield basis due to vacant space See Appendix page 81 for details of rent reviews
37
REGENT’S PLACE £543M: UP 0.9%
Sept 2004 March 2004
Valuation £543m £531m
Rent pa £29.0m £28.9m
Contracted reversionary income pa £31.0m £28.5m
Average contracted rent psf £33.57 £31.87
ERV range psf £22.50 - £37.50 £24.00 - £37.50
Vacancy rate 2.2% 10.0%
Net initial yield 5.84% 6.02%
38
MEADOWHALL £1,425M: UP 1.5%
Sept 2004 March 2004
Valuation £1,425m £1,400m
Rent pa £70.7m £70.1m
Estimated rental value pa £75.4m £75.4m
Average rent psf £55.11 £54.83
Vacancy rate 1.2% 1.6%
Net equivalent yield 5.11%1 5.29%
1 True net equivalent yield is 5.28% on actual basis of rent quarterly in advance
39
70 SUPERSTORES £1,445M: UP 0.7%
Sept 20041 March 20041
Valuation £1,445m £1,433m
Rent pa £79.4m £79.1m
Total reversionary income pa £82.6m £82.8m
Average rent psf £19.56 £19.51
ERV range psf £8.85 – £27.50 £8.85 - £27.50
Vacancy rate 0% 0%
Initial yield 5.5% 5.5%
Reversionary yield 5.7% 5.8%
1 Supermarkets > 25,000 sq ft have been reclassified as ‘Superstores’ based on the Institute of Grocery Distribution (IGD) supermarket/superstore definition Supermarkets < 25,000 sq ft are included within High Street Retail
40
81% OF SUPERSTORES > 40,000 SQ FT
Average store size is 70,000 sq ft
Analysis of stores by Gross Internal Area
25,000 - 40,000
Sq ft mNumber
Standalone
0.414
Sq ft mNumber
Included in Shopping Centres/Retail Parks
0.12
Sq ft mNumber
Total
0.516
40,000 – 60,000 13 0.7 3 0.2 16 0.9
60,000 – 80,000 22 1.5 1 0.1 23 1.6
80,000 + 21 2.0 9 1.0 30 3.0
Total 70 4.6 15 1.4 85 6.0
41
64 RETAIL WAREHOUSES £1,521M: UP 9.0%
Sept 2004 March 2004
Valuation £1,521m £1,393m
Rent pa £75.3m £74.1m
Total reversionary income pa £85.9m £84.2m
Average rent psf £16.14 £15.79
Average ERV psf £18.25 £17.71
Vacancy rate 1.1% 1.0%
Initial yield 5.0% 5.3%
Reversionary yield 5.7% 6.0%
42
HIGH STREET RETAIL £625M: UP 5.7%
Sept 20041 March 2004
Valuation £625m £541m -95 Shops £347m £320m -16 Department stores £214m2 £221m -19 Supermarkets £64m N/A
Rent pa £33.6m £29.8m
Total reversionary income pa £37.9m £33.3m
Vacancy rate 1.7% 1.3%
Initial yield 5.4% 5.5%
Reversionary yield 6.1% 6.2%
1 Supermarkets < 25,000 sq ft have been reclassified based on the Institute of Grocery Distribution (IGD) supermarket/superstore definition and are included within High Street Retail at Sept 2004
2 Allders, Slough has been reclassified within Shopping Centres post the purchase of the Queensmere & Observatory Shopping Centres
43
AGENDA
� Portfolio valuation
� Portfolio activity
� Principal assets
� Developments
� Market commentary
44
COMMITTED DEVELOPMENTS: 94% PRE-LET Projects
51 Lime Street
Date1
Dec 2006
Sq ft
475,000
Construction cost2
£166.8m
Total Rent3
£21.4m
Of which pre-let
£21.0m
Blythe Valley Park Plot A1 Oct 2005 53,000 £8.4m £1.0m -
Total 528,000 £175.2m £22.4m £21.0m
1 Anticipated practical completion of construction 2 Costs of construction excluding land and interest costs 3 Estimated headline rent pa See Appendix page 82 for summary of the development programme
45
6.3M SQ FT OF PROSPECTS
York House
Ludgate West
122 Leadenhall Street
201 Bishopsgate
Regent’s Place
West End Office
City Office
City Office
City Office
West End Office/ Residential
Sq ft
138,000
126,000
601,000
747,000
1,154,000
Cost £m1
49
44
255
184
370
Planning
Detailed
Detailed
Resolution to grant
Detailed/ revised appl.
Pending
Redditch (BLG)
Daventry (BLR)
Dumbarton
Blythe Valley Park
Coventry, New Century Park
Total
Theale
Meadowhall Casino Complex
Distribution
Distribution
Retail
Office Park
Office Park
Residential
Leisure
375,500
1,329,700
20,000
747,000
364,500
6,318,300
282,600
433,000
6
20
2
112
53
1,250
47
108
Outline
Outline/ Detailed
Detailed
Outline/ Detailed
Outline
Pending
Pending
1 Costs of construction excluding land and interest costs Based on Group and 50% share of JVs (except areas which are at 100%)
46
47
122 LEADENHALL STREET, EC3
� Resolution to Grant detailed planning � 47 storey towerfrom City Corporation
� Triple floorspace of existing building � Total net area 601,000 sq ft 47
AGENDA
� Portfolio valuation
� Portfolio activity
� Principal assets
� Developments
� Market Commentary
48
INITIAL YIELDS HAVE HARDENED
%
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0 Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct-01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04
Source: IPD All Property Retail Office
49
REAL INCOME RETURNS REMAIN HIGH
% 2003 Real Income Return 4.1%
20
15
10
5
1971 - 2003 Average - 0.4% 1984 - 2003 Average 3.2%
Bank of England Inflation Target 2%
25
0
1971 1976 1981 1986 1991 1996 2001 2006
Property Income Returns Inflation
Source: IPD
50
UK INSTITUTIONAL NET INVESTMENT 2001 - 2004 £m
2,000
1,500
1,000
500
0
-500
-1,000
-1,500
Sep
-01
Dec
-01
Mar
-02
Jun-
02
Sep
-02
Dec
-02
Mar
-03
Jun-
03
Sep
-03
Dec
-03
Mar
-04
Jun-
04
Sep
-04
Source: Gerald Eve (Property Data)
51
DECADE OF ATTRACTIVE PROPERTY RETURNS UK US
1993 – 2003 Property Equities Gilts Corp Bonds Equities
Total Returns pa 10.6% 6.1% 7.4% 9.4% 9.1%
Standard Deviation 3.7 16.9 10.1 10.1 18.7
% Total Returns from 70% 54% 78% 71% 11% Income
Source: Property Market Analysis (PMA), IPD, Barclays Capital
52
CITY MARKET
53
CITY: TAKE UP INCREASING
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Take
up
(rol
ling
annu
al) 0
00s
sq ft
1991 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Source: Property Market Analysis (PMA)
54
CITY: ACTIVE DEMAND INCREASES
0
1
2
3
4
5
6
7
8
9
10 9.2m9.2m9.3m
7.6m 7.3m
5.5m 6.3m
m sq ft
Q1 2003 Q2 2003 Q3 2003 Q4 2003 Q1 2004 Q2 2004 Q3 2004 Active Demand Potential Demand
Source: Jones Lang LaSalle See Appendix page 83 and 84 for detailed list of lettings under offer at Q3 2004 and major named active requirements
55
CITY: CONSTRUCTION STARTS STILL LOW
0
1
2
3
4
5 m sq ft
Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep-01 01 01 02 02 02 03 03 03 04 04 04
Source: Property Market Analysis (PMA)
56
CITY: ONLY 4 SPECULATIVE SCHEMES > 50,000 SQ FT
Source: Drivers Jonas London Crane Survey Q3 2004
Speculative schemes > 50,000 sq ft
Moor House, London Wall (Q4 2004)
310,000 sq ft
Condor House, St Paul’s Churchyard (Q1 2005)
130,000 sq ft
78 Hatton Garden (Q1 2006)
160,000 sq ft
Palestra (Q2 2006) 290,000 sq ft
1 – 6 < 50,000 sq ft
3
4
2
1
57
CITY: FORECAST
Sq ft Total Supply
Sq ft Take Up
Vacancy Rate End of Year Forecast
Year 2004 Start 13.3m 15.7%
Estimated 2nd hand releases New completions
1.4m 1.6m
Total vacancy 2004 Year 2005 Start
16.3m 12.0m
4.3m 13.9%
New completions Estimated 2nd hand releases
0.13m 0.25m
Total vacancy 2005 Year 2006 Start
12.38m 8.38m
4.0m 9.7%
New completions Estimated 2nd hand releases
0.45m 0.25m
Total vacancy 2006 9.08m 4.5m 5.3%
58
CITY: FORECAST RENTS
BL’s average City Office passing rent £46.07 psf
Agents’ Consensus BL City Rent Reviews Range £psf Average Increase % of rent roll
2005 42.50 – 49.20 + 2.3% 16%
2006 45.00 – 52.90 + 7.4% 19%
2007 48.00 – 59.50 + 9.4% 15%
2008 55.00 - 60.60 + 9.0% 22%
2009 61.25 – 64.76 + 8.2% 28%
59
CITY & WEST END: STRONG INVESTMENT MARKET
£6.7bn Q1 – Q3 2004 £bn £1.3bn Under Offer Q4 2004
9
7.9 7.88
6.8 6.97 6.7
6 5.4 5.3
5 Average £4.6bn 4.6
4
3.12.9 2.73 2.4 1.9 2.01.72
1
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Q1 -Q3
2004
Source: Jones Lang LaSalle
See Appendix page 85 for detailed list of completed deals
60
RETAIL
61
RETAIL SALES CONTINUE TO GROW
Comparison Sales (non food)
Aug-01
Nov-01
Feb-02
May-02
Aug-02
Nov-02
Feb-03
Values
May-03
Aug-03
Volumes
Nov-03
Feb-04
May-04
Aug-04
Source: Property Market Analysis
-2%
0%
2%
4%
6%
8%
10%
12%
14%
gro
wth
%pa
62
RETAIL SALES GROWTH FORECAST
Comparison Sales (non food)
grow
th %
pa
14
12
10
8
6
4
2
0
-2
-4 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Values Volumes
Source: Property Market Analysis
63
52% RETAIL: 77% OUT OF TOWN
Total Retail Portfolio £5.8bn
Superstores
25% Retail
Out of Town as
% of Total Retail Spend1
2008E 32.5%
2006E 32.0%
2003 31.1%
2000 29.0%
1997 27.4%
1994 24.8%
Warehouses Meadowhall 25% 27%
In town High Street Shopping 11% Centres
12% Out of Town In Town
1 Verdict Developments classified by end use
64
PORTFOLIO SPLIT: £11,066M
43% Offices: 52% Retail:
94% Central London 77% Out of Town
Central London Shopping Centres 41% 19%
Broadgate 25% Meadowhall 13% Regent’s Place 5% Plantation 4% Superstores
13%
Retail Warehouses 14%
Developments classified by end use
Provincial Other High Street 2% 5% 6%
65
HIGHLIGHTS NAV per share + 8.6% to 1049p (£5.5bn)
- Total Return 9.1%
Underlying profits before tax + 15.1% to £74.8m - Net rental income + 5.6% to £265.1m
Valuation + 3.8% to £11.1bn - Retail + 4.3% Offices + 3.4%
775,700 sq ft of Central London lettings - Adds £34.8m pa to rent
£122.1m pa additional rental value from reversions & committed developments - 63% already contracted
66
APPENDIX
67
ANALYSIS OF NET RENTAL INCOME MOVEMENT
Rent reviews and new lettings 7.2
Purchases 13.1
Sales -2.5
-3.7 Asset management and other
14.1 Total
£m
68
OPERATING CASH FLOW: 13.0P PER SHARE Sept 2004
£m Sept 2003
£m
222.4 206.4
6.8 1.6
(7.0)
(157.0)
(1.0)
(141.1)
65.2 65.9
Operating cash flow per share 13.0p 13.5p
Net cash inflow from operating activities
Dividends received
Net interest
Tax paid
Net cash inflow from operating activities after interest and tax
69
TAX CHARGE RECONCILIATION
Gross Tax £m £m
Tax on profit for the period at 30% 80.1 24.0
Losses (revenue and capital) (5.6)
Capital allowances (4.9)
Other (3.7)
Corporation tax charge 9.8 12.2%
Deferred tax charge 4.2
Tax charge for Sept 2004 14.0 17.5%
70
CONTRACTED REVERSIONS FROM LETTINGS
Year ending 31 March 2005 2006 2007 2008 2009
Contracted Further Gross Rental Income1 £m £m £m £m £m
EBRD Cash flow - - 6.5 19.0 19.0
IAS basis* 14.2 14.2 14.2 14.2 14.2
Other City offices Cash flow 0.7 16.4 22.1 24.6 25.2
IAS basis* 14.4 23.9 23.9 23.8 24.0
West End offices Cash flow 0.3 1.2 1.4 2.6 2.9
IAS basis* 2.6 2.6 2.6 2.6 2.5
Retail Cash flow 1.9 4.1 4.2 4.2 4.1
IAS basis* 3.7 3.9 3.9 3.9 3.8
Total Cash flow 2.9 21.7 34.2 50.4 51.2
IAS basis*2 34.9 44.6 44.6 44.5 44.5
* UITF 28 2005 adjustment: EBRD £11.3m, Other City offices £11.9m, West End offices £1.8m, Retail £3.4m, Total £28.4m
1 Contracted Group cash flows and gross rental income (P&L) for new leases commencing after April 2004 (and signed by Sept 2004) and the major existing lease at EBRD 2 Unaudited based on current interpretation of IAS
71
ACCESSING A FLEXIBLE POOL OF FINANCE
Group Group and JVs Mortgage ratio 46% 48% NAV Gearing 90% 98%
£6.6bn Gross Finance Availability £1.0bn Undrawn
Securitisations (Fixed Rate Bonds) - Group 1Securitisations (Floating Rate Bonds) - Group 1
Debentures - Group
Debentures - JVs
US Private Placements - Group
Drawn Bank Facilities - Group
Undrawn Bank Facilities - Group
Drawn Bank Facilities - JVs
1 Floating rate bonds with related fixed rate swaps
72
IAS: IMPACT ON NET ASSETS
UK GAAP IAS Impact on Net Assets
Deferred tax Not recognised where not obliged to pay more
tax at a future date
Full provision. Recognise contingent tax on property
and other valuations
Reduce
Derivatives Not valued on balance Carried at fair value Reduce or sheet when hedges increase
Leases Different definitions of finance and operating leases Small reduction
Head leases Valuers deduct from On balance sheet as an Net effect small valuation additional asset and liability
Final dividend Accrued Recognise only when One- off approved by shareholders increase
73
IAS: IMPACT ON PROFITS
UK GAAP IAS Impact on Profits
Investment properties
Movements in fair value recognised in revaluation
Recognised in income statement
Increase or reduce Introduces volatility
reserve
Deferred tax Not recognised where not obliged to pay more tax at a
future date
Full provision. Recognise contingent tax on property and
other valuations
Tax recognised on valuation movements
Derivatives Matching basis Matching, if meets IAS effectiveness tests
No change as all hedges effective
JVs Proportion of operating profit, interest, capital profits and
taxation shown separately in P&L
JV profit after tax recognised in
consolidated profit before tax
Profit before tax and tax charge decrease. Profit
after tax unchanged
Lease incentives
Spread to first open market rent review
Spread to earlier of first lease break or expiry
Different phasing
Share-based incentives
Fair value charge already recognised from 2004 No change for British Land
74
LONG-TERM INCOME PROFILE ASSUMPTIONS • Annualised net rents of £565.0 million at 30 Sept 2004 are shown to decrease on the first to
occur of lease expiry or tenant’s break. Annualised net rents are increased for the contracted reversions of £55.7m receivable over the next 5 years
• Renewal of leases on expiry or break. Leases are assumed to renew on the date of expiry/break at the present annualised net rent*
• Reversionary income (5 years) of £99.7 million is based upon estimated rental values (ERV) by our external valuers at 30 Sept 2004. Reversions have been reduced for the contracted reversions of £55.7m as the rent is received over the next five years*
• Development programme committed and prospective when completed and let has an estimated rent at 30 Sept 2004 of £179.4m million*, assumed to be realised evenly over the next 7 years * No rental value growth is assumed
The graph provides a snapshot of committed income and estimated income based on ERV at 30 Sept 2004, including our share of joint ventures. Upward only rent reviews across the portfolio protect rental income from falling below passing rent (prior to expiry/break). In addition, no account is taken of future acquisitions, disposals, expenditures or other events. Rental income will be affected by such transactions and future opportunities; the graph is not a forecast.
Annualised net rents are gross rents plus, where rent reviews are outstanding, any increases to estimated rental value (as determined by the Group’s external valuers), less any ground rents payable under head leases.
75
PORTFOLIO VALUATION
£m % Change %1
Offices: City 3,569 32.3 3.2 West End 722 6.5 3.6 Business Parks & Provincial 249 2.2 3.0 Development 229 2.1 7.5 All Offices 4,769 43.1 3.4
Retail: Shopping Centres 2,145 19.4 3.3 Superstores 1,445 13.1 0.7 Retail Warehouses 1,521 13.7 9.0 High Street 625 5.6 5.7 Development 19 0.2 1.1 All Retail 5,755 52.0 4.3
Other: Residential, Industrial and Distribution2, Leisure 542 4.9 2.6
Total Valuation 11,066 100.0 3.8
1 Includes developments, purchases and capital expenditure, and excludes sales 2 Includes development with a value of £25.8m
76
BL DAVIDSON ACQUISITION � In October 2004, BL Davidson acquired the other 50% interest in The Retail and Warehouse
Company Ltd from Harris Ventures for £61m (total gross assets £122m) comprising:
Kingswood Retail Park, Kingston Upon Hull
Hindpool Retail Park, Barrow in Furness
Charlton Industrial Park and adjoining site, London
Cwmbran Retail Park, Cwmbran
Cornerhouse, Retail Park, Burrow in Furness
129,000
59,000
147,000
111,000
Size sq ft
73,000
£14.12
£9.68
£8.45
£11.54
Average passing rent psf
£9.36
� Income reversionary - equivalent yield 6%
� Weighted average lease term of 13 years
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ANALYSIS OF 5 YEAR REVERSION
Sept 2004 Of which contracted £m £m
Net reversion (rents reviews less lease expires) 13 -
Expiry of rent-free periods 51 51
Guaranteed rental uplifts 5 5
Letting of vacant space 311 -
Total 100 56
1 £4.6m of income has been contracted on lettings since Sept 2004
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REVERSIONARY INCOME: £99.7M
Annualised Reversion Reversionary net rents £m £m1 net yield
177.4 59.2 Offices: City 6.6%
39.4 5.2 West End 6.2% 18.7 (0.3) Business parks & Provincial 7.4%
235.5 64.1 All Offices 6.6% 112.0 15.1 Retail: Shopping Centres 5.9% 79.4 3.2 Superstores 5.7% 75.3 10.6 Retail Warehouses 5.7% 33.6 4.3 High Street 6.1%
300.3 33.2 All Retail 5.8% 29.2 2.4 Other 6.1%
565.0 99.72 Total 6.2%
1 Includes rent reviews, expiry of rent free periods, lease break/expiry and letting of vacant space at ERV over the next 5 years (as determined by independent valuers) 2 £55.7m is already contracted from expiry of rent free periods and minimum rental uplifts
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STRONG TENANT BASE
Top 30 tenants represent c. 61% of total rental income
Top 30 tenants by rental income1
1. J Sainsbury 11. Herbert Smith 21. ABN Amro
2. Tesco 12. Henderson Holding Group 22. Denton Wilde Sapte
3. UBS 13. Bhs/Arcadia Group 23. Allders
4. House of Fraser 14. Somerfield 24. Bank One
5. Lehman Brothers 15. Dixons Group 25. Tokyo Mitsubishi
6. EBRD 16. Deutsche Bank 26. Ashurst Morris Crisp
7. Great Universal Stores 17. Abbey National 27. Legal & General
8. Accenture 18. Calyon 28. Indosuez Holdings
9. Royal Bank of Scotland 19. Next 29. Boots
10. Government 20. ING 30. JJB Sports
1 Group and 100% of JVs (adjusted for rent free periods)
80
BROADGATE: RENT REVIEWS � 8 office rent reviews settled on 157,000 sq ft with a combined rent of £6.8m at no uplift
Principal review settled:
Building Tenant Sq ft New Rent psf Old Rent psf
6 Broadgate Tokyo Mitsubishi 112,000 £42.50 £42.50
� 12 office reviews outstanding on 1,110,000 sq ft: average passing rent of £43.21 psf Principal reviews:
Building Tenant Sq ft Rent Date
100 Liverpool Street UBS 242,000 £44.97 Dec 2003
8 Broadgate UBS 112,500 £44.92 Dec 2003
135 Bishopsgate Natwest/RBS 324,000 £42.50 Feb 2004
Broadwalk House Credit Lyonnais 159,500 £42.62 July 2004
Broadwalk House Ashurst 116,000 £39.55 July/Sept 2004
81
DEVELOPMENT PROGRAMME
Sept 2004 March 2004
Committed Prospects Committed Prospects
Net Area (sq ft) 0.5m 6.3m 1.1m 6.6m
Construction Cost £m1 175 1,250 320 1,361 - Of which costs to complete 166 1,219 64 1,326
Rent £m2 22 157 42 175
Pre-let Rent £m 21 - 21 -
1 Costs of construction excluding land and interest costs 2 Estimated headline rent pa Based on Group and 50% share of JVs (except areas which are at 100%)
82
CITY: LETTINGS UNDER OFFER Q3 2004
Tenant Business Sector Max Sq ft
Willis Insurance 465,000 Norton Rose Legal 343,000 Legal & General UK Financial Services 170,000
Lawrence Graham Legal 125,000 The Economist Printing, Publishing & Recording 66,930 Ince & Co Legal 60,000
Wachovia Bank Foreign Banks & Securities Houses 49,000 Aspen Re Insurance 49,000 Petro-Canada Extraction & Energy 43,960
Collier Bristow Legal 30,000
Natexis Banque Populaires Foreign Banks & Securities Houses 28,385
Bell & Clements Insurance 28,000
Salans Hertzfeld & Heilbronn Legal 25,000
Total Under Offer 1,483,275
Of which signed post Q3 2004 (as highlighted in bold) 1,097,930 Source: Jones Lang LaSalle
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CITY: ACTIVE DEMAND Q3 2004
Tenant Business Sector Max Sq ft
Dresdner Kleinwort Wasserstein (Under Offer)
AON Ltd
Foreign Banks & Securities Houses
Insurance
396,000
300,000
Berwin Leighton Paisner Legal 275,000
Deloitte & Touche (Under Offer) Accountants & Management Consultants 250,000
Standard Chartered Bank
Kennedys
UK Banks & Building Societies
Legal
200,000
150,000
Guardian Newspapers (Under Offer) Printing, Publishing & Recording 150,000
Macfarlanes Legal 120,000
Legal Services Commission
College of Law
Public Administration
Legal
100,000
100,000
Pinsents Legal 80,000
Charles Russell Legal 75,000
Barclays Capital UK Financial Services 75,000
Beazley Furlong Insurance 75,000
Sumitomo Finance Foreign Financial Services 70,000
Kilpatrick Lockhart Nicholson Graham Legal 70,000
Robson Rhodes
GE Insurance Solutions
Accountants & Management Consultants
Insurance
70,000
60,000
Euromoney Institutional Investors Printing, Publishing & Recording 60,000
Ballantyne, McKean & Sullivan Legal 60,000
EMAP
Decherts (Under Offer)
Printing, Publishing & Recording
Legal
50,000
55,000
Source: Jones Lang LaSalle (active requirements > 50,000 sq ft)
84
CITY & WEST END: ACQUISITION YIELDS Q2 2004 TO DATE
Property Purchaser Lease expiry Price Yield 7 Clifford Street Hermes 4 yrs £39m 5.13% 33 Old Broad Street Consortium 35 yrs £140m 5.13% 1 King William Street Chinese Private Investor 13 yrs £60m 5.70% 10/12 Great Marlborough Street Merrill Lynch 4 yrs £36m 5.72% Aviation House, 125 – 129 Kingsway Strategic Real Estate 14 yrs £95m 5.80% 22 Kingsway Private Investor 21 yrs £48m 5.97% Premier Place, Devonshire Square RBS 17 yrs £182m 6.00% CAA House, Kingsway KPMG Corporate Finance 15 yrs £98m 6.00% Becket House, Lambeth Palace Road Pinder Fry Benjamin 22 yrs £76m 6.11% Thames Court, Upper Thames Street Jaguar Securities 13 yrs £133m 6.13% Hill House, 1 Little New Street Land Securities 31 yrs £80m 6.23% 55 Moorgate West Investment 12 yrs £42m 6.30% 3 Minster Court, Mark Lane Rotch 12 yrs £99m 6.38% Corn Exchange, 2 Mark Lane CSAM 3-5 yrs £96m 6.46% Senator House, 85 Queen Victoria Street Challenge International 12 years £100m 6.50% 1 America Square Rotch 2-14 yrs £107m 6.75% 100 New Bridge Street & Watling House DEGI 17 yrs £151m 6.75%
Source: Agents’ Reports (principal transactions with initial yield < 6.75%)
85
The information has been extracted largely from the Preliminary Announcement for the six months ended 30 Sept 2004. General property market data has been extracted from Jones Lang LaSalle and other agents’ reports.
Figures include our share of joint ventures, unless otherwise stated. Adjusted diluted net asset value includes the external valuation surplus on development and trading properties and exclude the capital allowances effects of FRS 19. Adjusted earnings per share similarly excludes the capital allowances effects of FRS 19. Comparatives have been restated following the adoption of FRS 17 ‘Retirement Benefits’ in March 2004.
Certain statements are forward looking which are based on current expectations, forecasts and assumptions that involve risk and uncertainties that could cause actual outcomes and results to differ materially from those projected.
86