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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| British Land Company Plc | LSE:BLND | London | Ordinary Share | GB0001367019 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 4.40 | 1.13% | 392.80 | 392.20 | 393.00 | 395.80 | 388.80 | 391.00 | 1,952,690 | 16:29:57 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Investment Trust | 418M | -1.04B | -1.1194 | -3.51 | 3.64B |
From Apr 2019 to Apr 2024
TIDMBLND
RNS Number : 0012O
British Land Co PLC
27 May 2020
The British Land Company PLC Full Year Results
27 May 2020
Chris Grigg, Chief Executive said: "Like businesses around the world, in recent months our focus has been on responding to the unprecedented challenges brought about by Covid-19. We have acted quickly and effectively to support our customers, partners and local communities and to protect the long term value of our business. Throughout this time, the safety and wellbeing of our team has been our key priority. Now, more than ever, we are benefitting from their expertise and experience and across our business, they have demonstrated their commitment, resilience and good humour for which I and the Board are extremely grateful.
Over the year we made further good operational and strategic progress and this stands us in good stead today. We have continued to lease well in London and committed developments are close to completion and nearly full, locking in GBP54m future rents. We have a resolution to grant planning at Canada Water and opportunities throughout our pipeline which we can progress when the time is right. This was already a difficult year for retailers, many of whom have been severely impacted by the lockdown and the early effects of the crisis were reflected in the value of our Retail portfolio.
More broadly, we expect the major trends that inform our strategy to accelerate. This includes the shift to online retail, reinforcing our focus on delivering a more focused Retail business and we made progress on this with GBP296m of retail sales. All of our offices are in London, and here we expect demand to further polarise towards safe, modern, sustainable and well located workspace. This is exactly what we deliver at our campuses. Sustainability is a key part of that offer, and today we set out ambitious new targets which include delivering a net zero carbon portfolio by 2030.
Near term, we are expecting the offices market to be more cautious, but we continue to conduct virtual viewings and are encouraged by negotiations we are having. In Retail, given current valuations and the lack of liquidity in the investment market, our focus is on delivering value though asset management, working to keep our places full and exploiting demand for assets which support an online offer. Our financial position is robust with debt low, significant covenant headroom and access to GBP1.3bn of undrawn facilities and cash so we are well placed to weather today's challenges and succeed in the long term ."
Update on financial position & operational impact of Covid-19
-- Financial strength and significant covenant headroom - well positioned for today's challenges
-- GBP1.3bn undrawn facilities and cash with no requirement to refinance until 2024; GBP450m ESG-linked RCF agreed in March 2020; further GBP925m of facilities extended
-- Significant headroom to debt covenants; the Group could withstand a further valuation fall of 45% before any mitigating actions; no income or interest cover covenants on Group unsecured debt
-- Debt remains low, with LTV at 34.0%; weighted average interest rate reduced to 2.5% -- Operational performance - proactively supporting our customers to protect long term value
-- Smaller retail, food & beverage and leisure customers released from rental obligations for three months to June; financial impact in terms of lost rent of GBP2m
-- c.GBP35m of rent deferred to customers experiencing financial challenges as a result of Covid-19
-- 68% of March rent collected; 97% offices and 43 % retail
-- As previously announced, dividends are temporarily suspended. As a result, FY20 dividend down 48%. Dividends will resume at an appropriate level as soon as there is sufficient clarity of outlook
-- Refocusing our existing Community Investment Fund to respond to the crisis, including funding expert, strategic advice for community partners and employment support for staff at our retailers and suppliers
-- Well prepared for the future
-- All but two assets open and operational; 270 retail units trading representing 15% of total
-- Well placed to respond to new ways of shopping; retail parks more conducive to mission-based trips and social distancing more easily managed; benefitting from in-house property management business
-- Progressing 220,000 sq ft office deals under offer; further 160,000 sq ft in negotiation; responded to 375,000 sq ft of RFPs since the crisis began
-- 100 Liverpool Street now expected to PC in Q3 2020 and 1 Triton Square in Q2 2021
FY20 REVIEW
Summary performance
Hot Features
Premium
Year ended 31 March 2019 2020 Change
Income statement
Underlying earnings per share
(2) 34.9p 32.7p (6.3)%
Underlying Profit GBP340m GBP306m (10.0)%
IFRS loss after tax GBP(320)m GBP(1,114)m
IFRS basic earnings per share (30.0)p (110.0)p
Dividend per share 31.00p 15.97p (48.5)%
---------------------------------------- ------------- ------------- -----------
Total accounting return (2) (3.3)% (11.0)%
---------------------------------------- ------------- ------------- -----------
Balance sheet
Portfolio at valuation (proportionally
consolidated) GBP12,316m GBP11,157m (10.1)%(1)
EPRA Net Asset Value per share(2) 905p 774p (14.5)%
IFRS net assets GBP8,689m GBP7,147m
Loan to value ratio (proportionally
consolidated) 28.1% 34.0%
---------------------------------------- ------------- ------------- -----------
Operational Statistics
Lettings and renewals 2.7m sq ft 2.3m sq ft
Gross investment activity GBP1.8bn GBP0.9bn
Committed and recently completed 1.6m sq ft 1.6m sq ft
development
---------------------------------------- ------------- ------------- -----------
Sustainability Performance
MSCI ESG AAA rating AAA rating
GRESB 4* and Green 4* and Green
Star Star
---------------------------------------- ------------- ------------- -----------
Underlying resilience but performance impacted by Covid-19
-- Underlying EPS down 6.3% following GBP900m of net income producing sales over the last two years
-- Valuation decline led to IFRS loss of GBP1,114m -- Portfolio value down 10.1%; Retail down 26.1%, Offices up 2.3% and developments up 6.5% -- EPRA NAV down 14.5% at 774p
Progress on strategy: Becoming the specialist in mixed use
-- Campus-focused London Offices: Continued good progress across the year -- 946,000 sq ft of leasing activity representing GBP40m of headline rents; 97% occupancy -- Lettings and renewals on the investment portfolio 9.1% ahead of ERV -- Completed & committed developments 88% pre-let, adding GBP62m of rent when fully let
-- Significant development optionality within the portfolio. 7.1m sq ft near and medium term pipeline
-- Smaller, more focused Retail: Supporting our customers
-- 1,361,000 sq ft of leasing activity; deals of more than one year 4% below passing rents; 96% occupancy
-- GBP296m retail sales (our share), overall 5% ahead of book value -- CVAs and administrations reducing annualised contracted rent by GBP11.3m -- Secured resolution to grant planning for our Canada Water Masterplan; valuation up 9.8%
5 year 2020 sustainability programme completed; 2030 Sustainability Strategy launched
-- Key achievements from 2020 programme -- 73% reduction in landlord carbon intensity -- 55% reduction in landlord energy intensity over ten years
-- 1,745 people supported into jobs through Bright Lights, our skills and employment programme
-- New strategy launched; ambitious targets including a commitment to be net zero carbon by 2030
-- All future developments to be net zero carbon; 50% less embodied carbon on all major developments by 2030
-- 75% less carbon at our operations by 2030; Transition Fund established to finance retrofitting of standing portfolio, including R&D; funded by an internal price for carbon of GBP60/tonne
-- Rolling out successful place-based approach to community engagement across the portfolio
(1) Valuation movement during the year (after taking account of capex) of properties held at the balance sheet date, including developments (classified by end use), purchases and sales
(2) See Note 2 to the financial statements
Results Presentation Conference Call
A presentation of the results will be broadcast via conference call and slides to accompany the call will be displayed along with a live audio broadcast via the website (Britishland.com) at 8.30am on 27 May 2020. The details for the conference call and weblink are as follows:
UK Toll Free Number: 0800 640 6441 Password: 635830 Click for access: Audio weblink
A dial in replay will be available later in the day for 7 days. The details are as follows:
Replay number: 020 3936 3001 Passcode: 910677
The accompanying slides will be made available at britishland.com just prior to the event starting.
For Information Contact
-- Investors & Analysts -- -- David Walker, British Land -- 07753 928382 -- -- -- Media -- -- Charlotte Whitley, British * 07887 802535 Land -- Guy Lamming/Gordon Simpson, * 020 7251 3801 Finsbury -- * britishland@finsbury.com
CHIEF EXECUTIVE'S REVIEW
Covid-19 has brought about an unprecedented situation for our business and our people, as we have had to adapt quickly to new working conditions. One of our company values is to be smarter together, and never has this been more evident right across British Land. The resilience, humour and efficiency with which our team has responded, many working under very challenging circumstances, at our assets, or at home, has been remarkable - and I thank them all on behalf of the Board and leadership team. Reflecting the Covid-19 situation, my review will start with an update on current conditions before covering the financial year.
Covid-19 impact & response
Our immediate priority has been to work alongside and support the communities in which we operate, our suppliers and those customers most affected to protect the long term value of our business. To help do this, we have released smaller retail, food & beverage and leisure customers from their rental obligations for the three months to June; the financial impact of this in terms of lost rent is GBP2m. Recognising that many other customers, particularly those operating in the retail, food & beverage and leisure sectors are experiencing challenges as a result of Covid-19, we offered to defer their March rents, and will spread repayment over six quarters from September 2020. Around GBP35m of rent deferrals have been agreed.
Overall, we have collected 68% of the rent originally due for the March quarter (97% for Offices and 43% for Retail), which equates to 91% adjusting for rent deferred, forgiven or moved to monthly payments. The balance owing is primarily from strong retailers.
The value of the retail portfolio declined 26.1% as ongoing structural challenges were exacerbated at the year end valuation date by the early effects of Covid-19. Offices saw an uplift of 2.3% so overall the portfolio was down 10.1%.
In Offices, occupiers are working on plans to get back to the workplace and most feel that it is too early to make fundamental long term changes around their requirements. However, we are mindful that the trend towards greater flexibility may accelerate following this prolonged period of working from home. At the same time, there will be a greater focus on high quality, modern and safe environments, which provide more space per person and we expect the trend towards higher density offices and hot desking to reverse. We continue to make progress on leasing discussions, particularly larger space requirements, which are generally on a longer time frame. Supply at this end of the market remains constrained. Where occupiers are looking for smaller spaces, on a shorter timeframe progress has been delayed due to remote working, and uncertainty around fit out and timing of occupation. We are conducting virtual viewings and have now commenced physical viewings and are encouraged by the level of activity we are seeing.
We suspended work on our developments in March for health and safety reasons, although this has now recommenced at all major sites, including our two largest development sites at 100 Liverpool Street and 1 Triton Square. This work has started with a clear focus on social distancing and safety, meaning that the numbers of people on site is reduced and our productivity is lower. 100 Liverpool Street is now expected to complete in calendar Q3 2020 and subject to social distancing requirements, we are targeting calendar Q2 2021 at 1 Triton Square. We completed 135 Bishopsgate in the year, and the space is now being fitted out, albeit progress will inevitably be slower. When appropriate, we are ready to start work on the next phase of our development programme at 1 Broadgate and Norton Folgate.
We benefit from the work we have done over several years to strengthen our balance sheet. Our leverage increased modestly to 34% and we have access to GBP1.3bn of undrawn bank facilities and cash. We successfully completed our first ESG linked RCF of GBP450m and extended GBP925m of facilities, providing additional flexibility and meaning that we have no requirement to refinance until 2024. We have significant headroom to our debt covenants, meaning we could withstand a fall in asset values across the portfolio of 45% prior to taking any mitigating actions. There are no income or interest cover covenants on the Group's unsecured debt.
Longer term, it is our view that many of the macro trends that have informed our strategy will accelerate. This includes the growth of online shopping, reinforcing our focus on delivering a smaller, more focused retail business. We continue to believe there remains a role for the right kind of retail within our portfolio especially assets that can play a key role for retailers in terms of fulfilment of online sales, returns and click and collect. This will particularly be the case for well located, open air retail parks, which lend themselves to more mission-based shopping and people may feel more comfortable visiting, as well as those London assets located conveniently in-and-around key transport hubs. We also expect demand to polarise towards workspace which is high quality, modern and sustainable and supports more flexible working patterns, and this plays well to the space we provide including through Storey. However, it remains early days and we do not yet have clarity around what long term trends will emerge so we will remain alert as things develop and flexible in our approach, including evolving or adapting our strategy as appropriate. Near term, it is clear that the management and maintenance of places and buildings is likely to become more important to businesses, their customers and their people, as they place an even greater focus on the safety and quality of their environments. As a result, our property management expertise is likely to become even more of a positive differentiator for our business.
Review of the year ended March 2020
Occupancy remains high at 97% across our London campuses and 96% in Retail. We signed 946,000 sq ft of lettings and renewals in London and 1,361,000 sq ft in Retail over the year. Our progress on development leasing means that GBP54m of future rental income is secured and speculative exposure is low at just 0.6% of portfolio value.
Reflecting the broader appeal of our campuses, we saw strong demand for repurposed as well as new space with challenger bank Monzo signing at Broadgate and Visa recommitting at Paddington Central. Storey is operational across 297,000 sq ft and occupancy on the stabilised portfolio is 92%. The Offices portfolio saw an uplift in value of 2.3%, led by a strong performance at Broadgate, up 4.7%.
In Retail, we have been pragmatic in our approach to leasing, accepting lower rents and shorter leases where it makes sense to maintain occupancy. Overall, deals of more than one year were 4% below previous passing rent. CVAs and administrations impacted 118 units in the year of which 29% were unaffected; rent reductions resulted in a loss of GBP5.5m in contracted rent, with store closures accounting for a further GBP5.8m, together totalling GBP11.3m on an annualised basis. Several of our customers entered administration post year end, accounting for a further GBP5.1m of lost contracted rent. Overall, reflecting ongoing challenges in the market and with uncertainty heightened as a result of Covid-19, valuations were down 26.1% in Retail.
At Canada Water, our valuation increased 9.8% reflecting progress on planning and we were delighted to receive a resolution to grant planning on our 53 acre scheme with detailed permission on the first three buildings. This is a major milestone for our process and is the culmination of five years masterplanning and engagement with the local community.
Capital Allocation
In November 2018 we announced a plan to reduce retail to 30-35% of our portfolio over the medium term. Because of valuation declines in Retail, we have now reached this level. However, that does not mean we have achieved our aspirations and over time we expect to make further selective retail sales. Our revised plan is for retail to comprise 25-30% of the portfolio. We have made GBP296m of retail disposals (our share) in the year, bringing total retail sales since we set out our plan in November 2018 to GBP610m. Making sales is more challenging in the current market, with a lack of liquidity and depressed values, and so our immediate focus will be on driving value through intensive asset management, keeping our centres as full as possible and exploiting demand for assets which support instore fulfilment and click and collect.
In March, the Board took the difficult decision to temporarily suspend the dividend. This was the appropriate course of action given the circumstances and uncertainty of outlook despite our financial resilience and performance during FY20. Going forward, the Board understands the importance of the dividend to shareholders and is mindful of our obligations as a REIT. We will seek to resume dividends at an appropriate level as soon as there is sufficient clarity of outlook. For this we will need to see a significant improvement in rent collection and have more visibility on the post lockdown productivity of our assets, principally how quickly retail customers and office workers return.
Looking ahead, our business benefits from several key attributes that position us to succeed: we have established a unique network of campuses located in some of the most exciting parts of London; our development pipeline is focused on further enhancing these places, and is unmatched in scale and optionality; we have a robust financial position and a broad range of skills and expertise across our business which has been very much in evidence in recent months.
COVID-19 OPERATIONAL UPDATE
Rent due 2 March to 30 Offices Retail(1) Total
April
Received(3) 97% 43% 68%
------------------ ---------- ------
Rent deferrals 1% 40% 22%
------------------ ---------- ------
Rent forgiven 1% 4% 3%
------------------ ---------- ------
Moved to monthly - 1% -
------------------ ---------- ------
Outstanding 1% 12% 7%
------------------ ---------- ------
Collection of adjusted
billing(2) 99% 78% 91%
------------------ ---------- ------
1 Includes non-office customers located within our London campuses
2 Total billed rents exclusive of rent deferrals, rent forgiven and tenants moved to monthly payments
3 As at 15(th) May
Retail
Following the measures announced by the Government on 23 March, two of our retail centres are temporarily closed. All others remain open to provide important access to essential stores such as supermarkets and pharmacies. Overall, as of 25 May, in line with Government measures, c.270 individual units (c.15% of the total) are open.
On 26 March, we announced that at sites we control, we would be releasing smaller retail, food & beverage and leisure customers from their rental obligations for three months (April to June). The financial impact in terms of lost rent is c.GBP2m.
For other retail, food & beverage and leisure customers experiencing financial challenges because of Covid-19, we agreed to defer c.GBP35m of rents relating to the March quarter.
As a result, we have now collected 43% of rent due between 2 March and 30 April. Of the remainder, 40% is deferred, 4% is forgiven, 12% is outstanding (primarily owed by strong retailers) and 1% has moved to monthly payments.
Several occupiers entered administration in the wake of the Covid-19 crisis, representing GBP5.1m of lost contracted rent.
The value of the retail portfolio declined 26.1% as ongoing structural challenges were exacerbated at the year end valuation date by the early effects of Covid-19. The valuers made several Covid-19 adjustments in arriving at their valuation which are set out in the FY20 Business Review; these adjustments accounted for a c.6% valuation decline.
In the period since the lockdown, from 23 March until 10 May, footfall was down 78%, 700 bps ahead of benchmark and like for like sales were down 82%. Grocery anchored sites performed better, with footfall down 70% and sales down 42%.
London Offices
Our London campuses remain open and all offices are operational, although physical occupancy is significantly reduced with the majority of people now working from home. While the crisis has inevitably created uncertainty for our office occupiers, it has not materially affected our rent collection to date and we benefit from a high quality, diverse customer base.
As a result, we have now collected 97% of rent due between 2 March and 30 April, including Storey. Of the remainder 2% is deferred or forgiven and 1% is outstanding.
At Storey, we identified savings from reduced operations and offered all our customers discounted rent for 3 months. This proactive measure has been well received by our customers, in particular smaller local businesses. Some customers have asked for additional flexibility in meeting their rental obligations, and consistent with our approach across the portfolio, we are supporting those companies who have been adversely impacted, but with otherwise strong business models. In these cases, we are providing up to three-month rent deferrals representing c.20% (by number) of Storey customers and GBP0.4m per month. Occupancy across stabilised buildings was 92% at year end, and remains unchanged with assets in ramp up at 42% occupancy.
Across the Offices portfolio, we have 220,000 sq ft under offer and 160,000 sq ft in negotiations. We are continuing to make progress, particularly on larger deals which are generally on a longer time frame. On smaller deals, where occupiers are looking to take space soon, progress has been delayed due to uncertainty around fit out and timing of occupation. We are conducting virtual viewings and have responded to 375,000 sq ft of RFPs since the crisis began.
Developments
Having initially closed our major sites as a result of Covid-19, whilst we reviewed how Public Health England guidelines could be adhered to, all our major sites are now open, including both 100 Liverpool Street and 1 Triton Square. However, we are currently operating at much lower levels of productivity due to reduced number of operatives on site and amended working practices. At this stage it remains difficult to accurately assess the impact of these delays. We currently expect that the office element of 100 Liverpool Street will be practically completed in early summer, with full practical completion in calendar Q3 2020. At 1 Triton Square, we are targeting calendar Q2 2021 for practical completion.
We have reached practical completion on 135 Bishopsgate and the space is now being fitted out, albeit progress will inevitably be slower with fewer operatives on site.
FINANCIAL RESILIENCE & BALANCE SHEET STRENGTH
Our assessment of Covid-19 on our offices and retail customers
Refer to page 9 for the relevant chart http://www.rns-pdf.londonstockexchange.com/rns/0012O_1-2020-5-26.pdf
We have undertaken a bottom up analysis to understand the potential impact of Covid-19 on our customers and therefore the risk associated with our rental cashflows. Based on this analysis, we estimate that those customers likely to suffer a relatively lower impact account for 49% of our contracted rent; this includes sectors such as international technology businesses, financial institutions, professional services and government. Customers we believe are likely to experience a higher impact account for 51% of contracted rent, including sectors such as F&B, leisure, fashion & beauty retail and other general retail. Of this group, over a third are public companies with market capitalisations of over GBP1bn (as at 18 May 2020).
Furthermore, income from lower impact customers fully covered property, administrative and finance costs in FY20.
Covenant headroom
We continue to have significant headroom to our debt covenants.
There are two financial covenants which apply across all of the Group's unsecured debt:
-- Net Borrowings not to exceed 175% of Adjusted Capital and Reserves (as at March 2020: 40%) -- Net Unsecured Borrowings not to exceed 70% of Unencumbered Assets (as at March 2020: 30%)
There are no income or interest cover covenants on the Group's unsecured debt.
Secured debt with recourse to the Group is provided by debentures with long maturities and limited amortisation. These are secured against a combined pool of assets with common covenants; the value of the assets is required to cover the amount of the debentures by a minimum of 1.5 times and net rental income must cover the interest at least once. We use our rights under the debentures to actively manage the assets in the security pool, in line with these cover ratios.
The secured debt in joint ventures and funds is all non-recourse and the Broadgate and Meadowhall securitisations have no loan to value default covenants.
Given our covenant structure across the Group, we could withstand a further fall in asset values across the portfolio of 45% prior to any mitigating actions.
We have access to GBP1.3bn of undrawn facilities and cash, with no requirement to refinance until 2024.
MARKET BACKDROP FY20
Our operations are entirely located in the UK, so were unaffected by Covid-19 for the first 11 months of the financial year. The below provides context for our performance across the year ended March.
Macro-economic context
The backdrop remained volatile throughout the year, reflecting continued Brexit uncertainty and a fast-changing political environment including December's General Election. The decisive election result and subsequent greater clarity on Brexit improved confidence, but this dropped markedly as the Covid-19 situation developed through February and March. Most shops selling non-essential goods and services, including entertainment, dining and leisure remain closed. The longer term economic impact of these restrictions is expected to be significant, albeit hard to quantify and despite Government support, the Office for Budgetary Responsibility's illustrative projections are for GDP to decline 13% in 2020, with an improvement in 2021 (based on 14 April 2020 report).
London market
The London investment market was subdued in the first half of the year with investors cautious pending greater clarity on Brexit, but there was a notable uptick in activity after the election with GBP4.4bn of Central London deals in the quarter to December 2019, and yields were widely expected to contract. However, in the wake of Covid-19, a number of transactions were cancelled or postponed, leading to a drop in volumes for the quarter to March 2020. While confidence may be impacted in the short term, longer term the market is underpinned by sound fundamentals and in the context of global uncertainty, London real estate is considered a relative safe haven. These factors should support the investment market longer term.
Occupier demand for high quality, well located space remained strong throughout the year. Take up in our markets was up 2% in the year, ahead of the long term average and prime rents increased moderately in both the City and the West End to GBP73 psf and GBP110 psf, respectively. A preference is also emerging for space which is sustainable with the rental premium for buildings which are rated BREEAM Outstanding or Excellent estimated by JLL to be c. 10% in central London. Flexible workspace continues to be important, and accounts for 12% of take up, although certain business models particularly those who do not own their own space, were struggling even prior to Covid-19, and for these operators, the current environment is proving particularly challenging. Activity slowed in March and looking forward, polarisation towards high quality, well located space is likely to accelerate. Supply is relatively constrained in these markets and pre-letting levels have remained healthy, with 61% of development under construction already taken.
Retail market
Retail markets remained challenging. Investment volumes were low with investors very cautious on value given the challenges faced by occupiers while certain sellers are known to be under pressure, driving down pricing. Liquidity slowly returned to the retail park market, with several transactions announced in early 2020, albeit at relatively wide yields. However, a number of these deals have since fallen away and activity was effectively halted as a result of Covid-19 with increased uncertainty around values. Demand for superstores was good throughout the year and there remains investor appetite for assets with alternative use, including standalone assets.
The occupational market remained tough throughout the year and deteriorated with Covid-19. Many of those with good underlying business models have suffered and despite significant support from many landlords and the Government, the outlook is uncertain and several operators have since entered CVA or administration. Retail deemed essential, including supermarkets and pharmacies, have performed better and across the market there is a renewed focus on supply chain and distribution networks.
FY20 BUSINESS REVIEW
Key metrics
Year ended 31 March 2019 2020
------------
Portfolio valuation GBP12,316m GBP11,157m
Occupancy 97.2%(1) 96.6%(1)
Weighted average lease length 6.4 yrs 5.8 yrs
to first break
Total property return (0.9)% (6.4)%
+19 bps +38 bps
* Yield shift
* ERV growth (1.6)% (4.7)%
* Valuation movement (4.8)% (10.1)%
Lettings/renewals (sq ft) 2.7m 2.3m
Lettings/renewals vs ERV +0.4% +2.9%
Gross investment activity GBP1,822m GBP885m
GBP207m GBP118m
* Acquisitions
GBP(1,287)m GBP(382)m
* Disposals
GBP328m GBP385m
* Capital investment
Net investment/(divestment) GBP(752)m GBP121m
------------------------------- ------------ -----------
On a proportionally consolidated basis including the Group's share of joint ventures and funds
(1) Where occupiers have entered CVA or administration but are still liable for rates, these are treated as occupied. If units expected to become vacant are treated as vacant, then the occupancy rate would reduce from 96.6 % to 96.0 %
Portfolio performance
At 31 March Valuation Valuation ERV movement Yield Total property
2020 GBPm movement % shift return
% bps %
---------- ------------- -------
Offices 6,773 2.3 3.2 -4 5.7
Retail 3,873 (26.1) (11.7) +101 (22.6)
Canada Water 364 9.8 na na 14.3
Residential 147 (2.7) na na (0.1)
Total 11,157 (10.1) (4.7) +38 (6.4)
---------- ------------- -------
Overall, the portfolio was down 10.1% in value. All of our valuation reports include a "material valuation uncertainty"' disclosure. This states that valuers can attach less weight to previous market evidence for comparison purposes, and thus less certainty - and a higher degree of caution - should be attached to their valuations than would normally be the case. The Valuers clarify that this does not mean that the valuations cannot be relied upon.
We delivered a value increase of 2.3% in Offices, led by developments (+7.5%), and supported by good ERV growth, which reflected a lack of quality supply in all submarkets, with ERVs in the City up 4.5% and up 2.4% in the West End. While we have seen some variation between the campuses, with the value of Broadgate +4.7% and Paddington Central +1.9%, these were driven by campus-specific lease events.
Retail values declined 26.1% reflecting ongoing structural challenges compounded by the impact of Covid-19. Our third party valuers made Covid-19 adjustments in respect of their FY20 valuations which included the following and together these adjustments accounted for a c.6% valuation decline:
-- deducted three months rent roll on all non-essential retail as a capital sum
-- non-contractual income such as commercialisation deducted as a capital sum for a period of six months
-- increasing yields by between 25-100 bps based on the quality of the scheme and current yield profile
-- increasing void periods to reflect additional leasing time -- increasing structural vacancy
In addition, throughout the year there has been little transactional evidence, particularly for larger lot sizes. As a result, we have seen significant outward yield shift for prime assets. There were signs towards the end of the financial year that limited activity was returning to the retail park market, with a number of transactions announced, but this was superseded by the impact of Covid-19.
Canada Water valuation increased 9.8% reflecting good progress on planning, albeit the value declined slightly in the second half as a result of the impact of Covid-19 on the retail existing use element of the valuation. This effect should unwind on drawdown of the headlease and the adoption of a development valuation for the masterplan.
Offices outperformed the Central London Office benchmark and the All Offices benchmark. However, Retail underperformed the benchmark which saw the strongest performances from superstores and high street shops. As a result and reflecting the continued strength of industrials where we have no exposure, the portfolio underperformed the IPD All Property total return index by 600 bps over the year.
Capital activity
From 1 April Offices Retail Residential Canada Water Total
2019
GBPm GBPm GBPm GBPm GBPm
------------------ -------- ------- ------------ ------------- ------
Purchases 86 13 19 - 118
Sales(1) - (296) (86) - (382)
Development
Spend 243 9 5 25 282
Capital Spend 69 34 - - 103
------------------ -------- ------- ------------ ------------- ------
Net Investment 398 (240) (62) 25 121
------------------ -------- ------- ------------ ------------- ------
Gross Investment 398 352 110 25 885
------------------ -------- ------- ------------ ------------- ------
On a proportionally consolidated basis including the Group's share of joint ventures and funds
(1) Includes Clarges residential sales of GBP86m, of which GBP6m exchanged prior to FY20
The total gross value of our investment activity since 1 April 2019 was GBP885m with retail disposals accounting for GBP296m (our share). Our sale of 12 Sainsbury's superstores to Realty Income Corporation in April 2019 for GBP429m (our share GBP194m) was the largest single component of this and was achieved at a modest premium to book. In line with strategy, we have continued to make sales from our standalone (solus) portfolio, including a leisure asset and a Homebase both of which sold significantly ahead of book but have been more pragmatic on other assets with a standalone Debenhams and a Sainsbury's superstore sold below book. Post year end, we agreed the sale of a standalone Tesco in Brislington on an unconditional basis at book value (GBP42m), with completion expected later this month. We also exchanged and completed on the sale of our share of a portfolio of reversionary interests in Sainsbury's superstores for GBP102m .
The most notable purchase in the year was a 25% interest in West One, a shopping centre and offices building, above Bond Street station. This 92,000 sq ft scheme provides attractive long-term potential and is in line with our plan to become an increasingly mixed use business. Working with Norges who retain ownership of 75% we will assume responsibility for the asset management and any future development, generating a fee income.
At Clarges, we completed on the sale of eight units, bringing total completed units to 33 with receipts totalling GBP446m. This leaves one unit remaining, valued at GBP3m. This has been a highly successful scheme, delivering profits of c.GBP200m to date.
At Aldgate, we have acquired Barratt's 50% share in our Phase 2 build-to-rent residential-led scheme which has now been added to our near term pipeline. We also completed the purchase of 6 Orsman Road, Haggerston for Storey for GBP32m.
Data and insights
The insights we generate from data and research help us to understand the needs of our customers. This information can play a real and fundamental role in decision making around leasing, asset management and capital allocation helping to generate incremental value for shareholders and our customers.
This year, we completed our largest ever B2B customer satisfaction survey, spanning retail, office and Storey customers, including 141 senior decision makers, 65 facilities managers and 737 store managers. The research gauged satisfaction with us as a landlord and collected feedback on how service had changed over time, how we compare to competition and what we could do to better support our customers, and changes were implemented as a result. We completed the roll out of footfall counters to our campuses, enabling us to better understand how many people visit and the flow around the campus, helping us to tailor our offer, and we are trialling machine learning to estimate the performance of our retailers at our campuses.
Smart Places
Our Smart Places team deliver digital placemaking across our London campuses, using technology to enhance the experience and operation of our places. We have a clear vision of the functionality and experience that smart should deliver for our customers. Through the course of this year we have engaged with our supply chain to provide clear guidance on how to design and specify smart technology in line with our expectations during development and fitout. We smart-enabled our head office in York House, bringing building systems and sensors into a single cloud environment, which will enable us to control and manage space remotely, giving us much greater understanding and control over how our building operates, allowing us to find efficiencies with both energy usage and space utilisation. We have selected Equiem as a partner to deliver a campus app, initially at Broadgate, with the aim to roll out across our other London campuses in 2021. This builds on the experience we had during FY20 developing and publishing the StoreyPortal app across Storey and Storey Club which gave users a seamless interface to book meeting rooms, arrange catering, book in guests and access space. Reflecting this good progress, we were thrilled to win "Best Adoption of Tech" at the 2019 UK Proptech awards.
REAL ESTATE PERFORMANCE REVIEW
Campus focused London Offices
Key metrics
As at 31 March 2019 2020
-------------
Portfolio Valuation (BL share) GBP6,308m GBP6,773m
GBP5,047m GBP5,518m
* Of which campuses
Occupancy 97.7% 97.3%
Weighted average lease length 5.7 yrs 5.7 yrs
to first break
Total property return +4.9% +5.7%
+2 bps (4) bps
* Yield shift
* ERV growth +1.4% +3.2%
* Valuation movement +1.1% +2.3%
Lettings/renewals (sq ft) 1,070,000 sq 946,000 sq ft
ft
Lettings/renewals vs ERV +1.2% +9.1%
-------------------------------- ------------- --------------
On a proportionally consolidated basis including the Group's share of joint ventures and funds
Campus operational and financial highlights
-- Portfolio value up 2.3%, with the City up 3.7% and the West End up 1.4% -- ERV growth of 3.2% across the portfolio, with the City strong, +4.5% and the West End +2.4% -- Yields saw 14 bps contraction in the City and no change in the West End -- Activity generating like-for-like income growth of 0.8% -- Leasing activity covering 946,000 sq ft representing GBP40m of rents -- New lettings and renewals on investment portfolio signed 9.1% ahead of ERV -- 360,000 sq ft rent reviews agreed 6.5% ahead of passing rent adding GBP1.1m to rents -- Occupancy of 97.3%
Campus operational review
81% of our Offices are located on our three central London campuses, each benefitting from excellent transport connectivity and vibrant local neighbourhoods which are an important part of their appeal. Building on this, our strategy is focused on expanding the mix of uses, to enhance the retail, dining and entertainment offer, embedding our places more firmly within the local community and appealing to a broader mix of occupier.
We agreed 946,000 sq ft of new lettings and renewals in the period, overall 9.1% ahead of ERV as our high quality, well located space continued to drive a premium. Leasing activity inevitably slowed in the final month of the year, but we are under offer on 220,000 sq ft and in negotiations on another 160,000 sq ft. We are continuing to conduct virtual viewings and have responded to 375,000 sq ft of new RFPs since the crisis began.
Each of our campuses has remained open and fully operational throughout the Covid-19 outbreak although physical occupancy was significantly reduced with the majority of people working from home.
Broadgate: Continued strong leasing
Our 1m sq ft development programme at Broadgate is nearing completion and is now 83% let. We have also let well on our standing portfolio, with 51,000 sq ft of leasing at Broadgate Tower, and challenger bank Monzo taking 124,000 sq ft at Broadwalk House.
At 100 Liverpool Street (524,000 sq ft) Bank of Montreal committed to 60,000 sq ft and Japanese Bank SMBCE increased their commitment by 22,000 sq ft taking their total occupation to 184,000 sq ft. As a result, the office space is now 84% pre-let. In retail, we also made good progress this year, we signed L'Occitane, John Reed Gyms, Tommy Hilfiger, Monica Vinader and Space NK in the second half and are under offer on three restaurants. Sitting at the entrance to Liverpool Street and the new Crossrail Station, these are prime retail locations.
At 1 Finsbury Avenue (287,000 sq ft), which completed at the end of FY19, we are under offer on a third restaurant and a leisure operator, which will join two existing restaurants. Technology firm Workday also signed for 29,000 sq ft in the second half; and 73,000 sq ft is allocated to Storey.
At 135 Bishopsgate, which reached practical completion in the second half, we let 9,700 sq ft to FinTech operator FNZ and are under offer on a further 20,000 sq ft, leaving only 7,000 sq ft (representing 10% of space) available to let. Post completion works are well underway, albeit progressing more slowly due to Covid-19 restrictions.
Rent reviews with existing occupiers were agreed on 57,000 sq ft, 10% ahead of passing rent and the campus is virtually full, with occupancy of 97%. Overall, we delivered a valuation uplift of 4.7% reflecting ERV growth of 5.0% and yield contraction of 14bps.
Paddington Central: Recommitment of largest occupier
At Paddington Central, the key leasing event was Visa's recommitment to 1 Sheldon Square with the term extended by six years, demonstrating that the work we have done here is delivering results. We are improving the variety of our F&B offer. The Grand Duchess floating restaurant and a fifth barge, The Cheese Bar, will launch when conditions allow, further enhancing the waterfront and helping to create a dining destination along the Grand Union Canal.
We delivered a valuation uplift of 1.9%, with yield contraction of 1 bp. ERV growth at 0.9%, was reduced by the valuer's treatment of Visa's lease extension which changed from a headline to a net effective basis, although the Visa rent was increased. Occupancy is 98%.
Regent's Place: Repurposing existing space
Consistent with trends at Broadgate and Paddington Central, existing space is also letting well at Regent's Place with 45,000 sq ft let to Skyscanner at 338 Euston Road and Mind Gym, a learning and development specialist taking space at 350 Euston Road. We have continued to strengthen our retail offer with space let to Acai Berry, the Amazon Boost Superfood Bar and renewed leases to Starbucks and Daisy Green. We opened a new café at 17-19 Triton Square entirely built from recycled materials with a more sustainable approach to food, and we are on site with a programme of public realm improvements, including a new community park.
The value of Regent's Place was up 2.6%, with yield contraction of 1 bp and ERV growth of 3.6%. Occupancy is at 97%.
Storey: our flexible workspace brand
Storey, our flexible workspace solution, launched three new buildings over the year, bringing the total space operated to 297,000 sq ft. It is a deliberately differentiated concept providing high quality private workspaces in great locations across London, which customers can brand and personalise themselves. With nearly 70% of customers being UK/European HQs for scale up or large multinational companies, Storey appeals to businesses with 50+ people on average, who want larger floor plates, lower density and private meeting spaces. Now in its third year, Storey provides an additional level of flexibility and service for British Land customers, becoming an integral part of London campuses, supporting our "core-flex" strategy.
Occupancy across stabilised buildings was 92% at year end and remains unchanged. Progress at new buildings has been encouraging, including 1FA where we have let space to 11:FS, a digital financial services firm for banks. At Wells Street, our first standalone building, we are fully let with a recent letting to data management firm Datastax. Average lease lengths are now 26 months to term certain and retention rate is 68% based on lease events, with a further 19% of customers having expanded within Storey.
Storey Club, which offers ad hoc workspace, meeting and dining rooms launched at Paddington Central in the year. This has proved a popular resource with 80% of Paddington occupiers having made chargeable bookings as well as hosting events and workshops aimed at campus occupiers and the local community.
Looking forward, we are committed to a further 90,000 sq ft across 2 Kingdom Street, 6 Orsman Road and 100 Liverpool Street, which is nearing completion and will include Storey Club space.
Smaller, more focused Retail
Key metrics
As at 31 March 2019 2020
----------
Portfolio valuation (BL share) GBP5,577m GBP3,873m
* Of which multi-let GBP4,737m GBP3,393m
Occupancy(1) 96.7% 95.7%
Weighted average lease length 7.0 yrs 5.9 yrs
to first break
Total property return (6.6)% (22.6)%
+37 bps +101 bps
* Yield shift
* ERV growth (3.8)% (11.7)%
* Multi-let ERV growth (4.0)% (12.0)%
* Valuation movement (11.1)% (26.1)%
Lettings/renewals (sq ft) 1,587,000 1,361,000
Lettings/renewals vs ERV +0.3% (5.9)%
-------------------------------- ---------- ----------
On a proportionally consolidated basis including the Group's share of joint ventures and funds
(1) Where occupiers have entered CVA or administration but are still liable for rates, these are treated as occupied. If units expected to become vacant are treated as vacant, then the occupancy rate for Retail would reduce from 95.7% to 94.7%
Retail operational and financial highlights
-- Total Retail portfolio value down 26.1% reflecting ongoing structural challenges and the early impact of Covid-19
-- Yield expansion of 101 bps; ERVs down 11.7% -- Leasing activity 1,361,000 sq ft. -- Deals of more than one year were 4% below previous passing rent; retention rate of 72%
-- Further 1.2m sq ft of rent reviews agreed with existing occupiers, 3.6% ahead of passing rent
-- High occupancy maintained at 95.7% -- Like for like income down 5.1% primarily due to the impact of CVAs and administrations -- CVAs and administrations reducing annualised contracted rent by GBP11.3m
-- Footfall down 2.3% for the year, 460 bps ahead of benchmark; like for like sales down 2.1%, 390 bps ahead of benchmark
-- GBP296m (British Land share) non-core assets sold since April 2019
Performance review
Operational performance
With markets challenging, even prior to the impact of Covid-19, our focus has been on driving operational performance and keeping centres full. This has required a more pragmatic approach at some locations but we have maintained occupancy at 96%, leasing 1,361,000 sq ft, with leases greater than one year on average 4% below previous passing rent, with an average lease term of 6.7 years and average incentives 10 months.
We have seen an increased proportion of temporary deals (less than one year), particularly where units have become vacant at short notice as a result of CVAs or administrations - these now account for 28% based on headline rents.
At Meadowhall, we signed 15 long term deals, overall 7% below previous passing rent. New additions included Rituals, Frasers, Lovisa and Deichmann. Elsewhere on the portfolio, we agreed four new leases with Wren Kitchens, two with Superdrug as well as new deals with Marks and Spencer at Giltbrook, Nottingham, Lidl at Orbital, Swindon and Boots at Nugent, Orpington.
We have continued to outperform on footfall and like for like sales, which were down 2.3% and 2.1% respectively reflecting the market, but were 460 bps and 390 bps ahead of benchmark. In the period since the lockdown, from 23 March until 10 May, footfall was down 78%, 700 bps ahead of benchmark and like for like sales were down 82%. Grocery anchored sites performed better, with footfall down 70% and sales down 42%.
CVAs and administrations
CVAs and administrations impacted 118 units in the year of which 29% were unaffected; rent reductions resulted in a loss of GBP5.5m in contracted rent, with store closures accounting for a further GBP5.8m, together totalling GBP11.3m on an annualised basis. Several of our customers entered administration post year end, including Debenhams, accounting for a further GBP5.1m of lost contracted rent.
Capital activity
In November 2018 we set out a clear plan to refine our Retail portfolio to deliver a smaller, more focused business representing 30-35% of total assets, we have revised this to 25-30% given the subsequent reduction in values. Since November 2018, we have made GBP610m (our share) of retail sales with GBP296m (our share) achieved this year. The sale of 12 Sainsbury's superstores to Realty Income Corporation accounted for the majority (GBP194m British Land share) but we also sold a leisure asset in the first half and four solus retail assets towards the end of the second half.
DEVELOPMENT
At 31 March 2020 Sq ft Current Cost to ERV ERV
Value complete let
'000 GBPm GBPm GBPm GBPm
-------------------- ------ -------- ---------- ----- ------
Recently completed 730 411 2 20 17
-------------------- ------ -------- ---------- ----- ------
Committed 890 763 76 42 37
-------------------- ------ -------- ---------- ----- ------
Near term 1,007 228 605 49 -
-------------------- ------ -------- ---------- ----- ------
Medium term 6,861
-------------------- ------ -------- ---------- ----- ------
On a proportionally consolidated basis including the Group's share of JVs and funds (except area which is shown at 100%)
Portfolio
Developments are a key element of our investment case as a fundamental driver of sustainable value and growth for the long term. Recently completed and committed developments total 1.6m sq ft and are now 88% let, securing GBP54m of future rent. This means that speculative exposure is low at 0.6% of portfolio value and costs to come on our committed pipeline are GBP76m.
Our approach has been to create opportunities for development across our portfolio and in London, where long term fundamentals are strong and there are limited opportunities to acquire assets with development potential, this is a key competitive advantage. In addition, the majority of space in our development pipeline is either income producing or held at low cost, enhancing our flexibility, so we have attractive options we can progress as and when appropriate. If we were to commit to our near term pipeline, our speculative exposure would increase to 7.7%, below our internal risk threshold for speculative development of 8%. Although we will not make further commitments until we have more clarity on outlook.
Construction cost forecasts pre Covid-19 suggested that the rate of growth was likely to be moderate compared with long term historical trends, owing to the continued market uncertainty surrounding Brexit and weaker global growth. However, since Covid-19, there is increased market uncertainty; raw material costs have decreased, wages are static, low productivity is prevalent and market consolidation is expected. This suggests that short term tender price inflation is likely to be very low. This is still set against the risk that a prolonged delay to Brexit terms being agreed increases material costs and reduces labour supply in 2020/21. Therefore, the anticipated range of cost inflation is expected to be between 2%-4% per annum. To mitigate this risk, 97% of the costs on our major committed development programme have been fixed.
Campus developments
Our long term strategy focuses on our London campuses. Development is an important part of how we will deliver that, enabling us to provide new and refurbished space to meet the future needs of occupiers. This has a positive impact beyond the individual building, which supports our overall offer and is reflected in our leasing performance on existing space as well as developments.
Completed developments
We reached practical completion at 1 Finsbury Avenue (287,000 sq ft) in FY19 and 135 Bishopsgate (335,000 sq ft) this year. At 1 Finsbury Avenue, we are now 85% let by ERV (including let Storey space) rising to 97% including all space allocated to Storey. We have four retail units left to let and all office occupiers have now taken occupation. At 135 Bishopsgate, we are now 90% let by ERV, with just 7,000 sq ft remaining.
Committed developments
Our committed office development pipeline is now focused on two buildings, 100 Liverpool Street at Broadgate and 1 Triton Square at Regent's Place together covering 890,000 sq ft. We initially suspended works at both, as a result of Covid-19 restrictions, which has pushed out completion dates (see Covid-19 Operational Update), but work has now recommenced albeit on a restricted basis.
100 Liverpool Street (524,000 sq ft) is 84% let on the office space and with 45,000 sq ft allocated to Storey, we have only 20,000 sq ft left to let. The building is on track to achieve a BREEAM excellent rating, a Well Gold certification for Wellbeing and a WiredScore platinum rating for internet connectivity. Sustainability has been integral to the design and delivery of this building; by retaining half of the existing structure we have saved 7,200 tonnes of embodied carbon and are on track to save a further 4,100 tonnes through carbon-efficient design and use of low-carbon materials. More than half of the construction spend has been with businesses in the City and neighbouring boroughs, ensuring local people benefit from our development.
At 1 Triton Square, Regent's Place, we are fully pre-let on the office space to Dentsu Aegis Network on a 20-year lease. The building topped out in the year and subject to social distancing requirements, we are now targeting practical completion in calendar Q2 2021.
Near Term pipeline
Our near term pipeline covers more than 1m sq ft. At Norton Folgate we have consent for a 336,000 sq ft scheme comprising 257,000 sq ft of office space alongside retail and residential space, to create a mixed use development which is in keeping with the historic fabric of the area. Our plans envisage a mix of floorplates, to appeal to small and growing businesses as well as more established organisations, particularly in the technology and creative sectors. We have commenced enabling works meaning we are able to begin construction when appropriate.
At 1 Broadgate, we have consent for a 538,000 sq ft office-led scheme, including 137,000 sq ft of retail, leisure and dining space, connecting Finsbury Avenue Square with retail at 100 Liverpool Street and the Broadgate Circle.
At Aldgate Place, Phase 2 is a build-to-rent residential scheme delivering 159 homes with 19,000 sq ft of office space. We have achieved planning consent for our revised building layout and will be submitting a second application on the landscaping in the coming months. We would not expect to start on site until we have greater clarity on the market outlook.
Medium Term Pipeline
We have three campus developments in the medium term pipeline, together covering more than 1m sq ft. These buildings progress our mixed use campus vision and support future income growth.
The most significant scheme is 2-3 Finsbury Avenue at Broadgate where our plans add 313,000 sq ft to the existing space to deliver a 563,000 sq ft office-led scheme. The building is currently generating an income through short term, more flexible lettings, including 51,000 sq ft allocated to Storey.
At 5 Kingdom Street, Paddington Central, our planning application to increase our consented scheme from 240,000 sq ft to 429,000 sq ft was rejected by Westminster City Council but has since been called in by the Mayor and we are awaiting a decision. The scheme includes the opportunity to develop a former Crossrail works site which reverts to British Land on completion of Crossrail, providing 80,000 sq ft of community, retail, leisure and cultural facilities, reflecting feedback from focus groups and residents who we consulted on how this space could best be used. At the Gateway Building, Paddington, we have consent for a 105,000 sq ft premium hotel.
Retail development: enhancing and repositioning our portfolio for the future
In line with our disciplined approach to capital allocation and reflecting our longer term view on the role of retail within our portfolio, we do not expect to undertake significant retail development in the near term. We do however maintain a range of opportunities across our portfolio which preserve our optionality but we would only commit to projects which are aligned with our strategy, most likely comprising a mixed use element, and when market conditions are supportive.
Completed developments
We completed our 108,000 sq ft leisure extension at Drake Circus, Plymouth comprising a 12-screen cinema and 14 restaurants which is 67% let.
We have no committed retail developments.
Medium term pipeline
Our medium term pipeline is focused on mixed use opportunities. At Ealing Broadway, we are working up plans for an exciting new 303,000 sq ft office led mixed use scheme that will sit adjacent to our Ealing Broadway shopping centre, outside the new Crossrail entrance. The first step is a refurbishment of 54 The Broadway where we are on site delivering 20,000 sq ft of offices. At Eden Walk, Kingston (jointly owned with USS) our consented mixed use development plans include 380 new homes, alongside shops, restaurants and 35,000 sq ft of flexible office space. At Meadowhall, we have consent for a 333,000 sq ft leisure extension but are unlikely to progress this in the current environment.
Canada Water: 53 acre masterplan for a new urban centre in Central London
Highlights
-- Secured resolution to grant planning permission for the Canada Water Masterplan, a 5m sq ft mixed use scheme, unanimously supported by Southwark Council
-- Received Stage 2 confirmation from The Mayor of London that he will not be calling in the application for further consideration
-- Drawdown of the headlease may be delayed due to impact of Covid-19 on finalising the S106 Agreement; anticipated earliest Summer 2020
-- Net valuation movement up 9.8% to GBP364m reflecting progress on planning
At Canada Water, we are working with the London Borough of Southwark to deliver a 5m sq ft mixed use scheme, including 3,000 new homes alongside a mix of commercial, retail and community space. The site is located on the Jubilee line and the London Overground, making it easily accessible from London Bridge, the West End, Canary Wharf, Shoreditch and South West London. It will also be an indirect beneficiary of Crossrail, which will reduce pressure on the Jubilee Line between Canary Wharf and Bond Street. It covers 53 acres including the dock area, providing 48 acres of developable land.
In September we received a resolution to grant outline planning on the entire 5m sq ft masterplan from Southwark Council, including detailed consent on the first three buildings, covering 580,000 sq ft. In February 2020, we received confirmation from the Mayor of London that he would not be calling in the scheme for further consideration. Following the completion of the S106 Agreement and issue of planning permission, which may be delayed due to the impact of Covid-19 on finalising the S106 Agreement, we will be in a position to draw down the headlease under the terms of the Master Development Agreement signed with Southwark Council in May 2018, which we anticipate being earliest summer 2020. This will combine the ownership of our assets at Canada Water into a single 500-year headlease, with Southwark Council as the Lessor. At that point, British Land will own 80% of the scheme with Southwark Council owning the remaining 20% and going forward, they will be able to participate in the development, up to a maximum of 20% with returns pro-rated accordingly.
The resolution to grant planning decision, which was unanimously agreed by Southwark Council, is a positive endorsement of our programme of engagement with the local community, which has included over 120 public consultations and local outreach events, attracting over 5,000 individuals. As part of this, we worked with Southwark Council, to develop a Social Regeneration Charter which captures local residents' priorities for the benefits of the development, and proposals for how these will be delivered.
Sustainability has been integral to our approach from the start, and we are committed to a strategy that ensures the masterplan will support low carbon living. In total, a minimum of 35% of the 53 acres will be public open space and we will be planting more than 1,200 additional trees, both on and offsite. Our plans will also benefit the existing and growing local community, with investment into education, health and community facilities in the local area.
The first three buildings will deliver 265 homes, of which 35% will be affordable (split 70:30 between social rent and intermediate housing), as well as a new leisure centre, new public spaces and improved pedestrian connections. Building K1 will be solely residential while building A1 will provide a mix of residential and workspace and building A2 will provide workspace and the new leisure centre. Both A1 and A2 will include retail at ground floor.
Potential funding structures will be explored on formal receipt of planning, ahead of which, we are seeing interest in the space from a range of sectors and discussions are underway on several buildings. This year, we announced our partnership with TEDI-London, a higher education establishment led by Arizona State University, Kings College London and UNSW Sydney to deliver an engineering curriculum at Canada Water.
The net valuation movement for Canada Water over the year showed an uplift of 9.8% reflecting the progress made on planning.
OUR STRATEGY
We expect many of the macro trends we have built our strategy around to accelerate as a result of the current crisis, so our long term strategic focus remains unchanged. However, it remains early days and we do not yet have clarity around what long term trends will emerge so we will remain alert as things develop and flexible in our approach, including evolving or adapting our strategy as appropriate.
A Mixed Use Specialist
We have a clear long term strategy to build an increasingly mixed-use business.
Progress on our strategy
Key focus Indicative Progress
areas business mix
Campus 60-65%
focused Of which Storey * Progressing development on our campuses and
London c.5% de-risking through pre-lets with 88% of our recently
Offices completed and committed developments now let to a
broad range of occupiers
* Creating options with 760,000 sq ft of planning
applications submitted
* Storey operational across 297,000 sq ft on all three
campuses with further 90,000 sq ft identified
* Smart-specific guidance documents produced for
internal teams and supply chain; smart-enabled our
head office bringing building systems and sensors
into a single cloud environment, which will enable us
to control and manage space remotely; selected
partner to deliver our Campus app
----------------- -------------------------------------------------------------
Refocused 25-30%
Retail * GBP296m assets (our share) sold since April 2019, 5%
above book value
* Outperformance on footfall and sales
* Focusing on assets which support instore fulfilment
and click and collect
----------------- -------------------------------------------------------------
Canada c.10%
Water & * Completed on eight units in the period at Clarges
Residential with one unit remaining at a book value of GBP3m
* Achieved resolution to grant planning at Canada Water
and confirmation that the Mayor will not call in the
scheme, positioning us to progress our masterplan
which includes 3,000 new homes
* Aldgate Phase 2, a BTR scheme delivering 159 units
added to our near term pipeline with planning on the
building now agreed
----------------- -------------------------------------------------------------
Business mix percentages have been revised downwards to reflect retail valuation declines.
Why mixed use?
We recognise that the way people use real estate is changing and that the most effective way to drive enduring demand for our space is to evolve our offer in line with those trends. In the wake of Covid-19, there is likely to be an increasing emphasis on workspace which is high quality, modern and supports more flexible working; places which benefit from green and open spaces are also more likely to be preferred. The ability to shop quickly and efficiently near to the place of work is a key advantage in the short term, and long term, people will again want opportunities to socialise or be entertained nearby. There is also a growing expectation that businesses and places of work minimise their impact on the environment and make a positive contribution to local communities. Workspaces which meet these expectations help businesses attract and retain talent and support productivity and effectiveness.
How does it deliver value?
A successful mixed-use strategy, with strong environmental and social credentials is fully aligned to the evolving needs of our customers and how people use our places. By helping drive enduring demand for our space, it supports the delivery of long term sustainable value through rental growth and high occupancy. At our campuses and multi-let spaces we control not just the buildings, but the spaces between them. As such, investment we make into the broader environment has a positive impact on the value of our individual assets. As long term owners and managers of space, we are also fully incentivised to develop buildings which are sustainable and to invest in local areas to support the local communities around which we operate; we believe that by playing a role within a thriving local community, our places are better able to succeed. Our scale and unique network also mean we have the flexibility to re-allocate uses within our places over time to better reflect the needs of our customers as they change and ensure that we always make the best use of our space.
How are we delivering it?
We have a clear and consistent plan to reshape our business to comprise three core, complementary elements as part of an increasingly mixed use business:
-- Campus focused London offices : with a blend of core and flexible space, including the further build out of Storey, integrated alongside a world-class retail and leisure offering
-- A smaller, more focused Retail portfolio : high quality, accessible and well located assets which are affordable to retailers and can play a role facilitating online fulfilment such as click and collect. In London, assets focused on transport hubs, especially assets with mixed use potential
-- Canada Water & Residential : plans for 3,000 homes at Canada Water with further opportunities within our portfolio
Campus-focused London offices
At our London campuses, we create and manage some of the best connected, most accessible space in London. Located in vibrant and exciting neighbourhoods, they provide world-class, modern and sustainable offices alongside public spaces, with a range of places to spend time outside of work. These unique campus benefits are the result of specific investment over many years and represent a clear attraction to businesses seeking to hire and retain the best people.
Increasingly what differentiates our space is the range of product and depth of services we provide. We have evolved our offer to attract a much broader range of industries and occupiers and to cater to their changing needs over time. Our menu of products spans more traditional core space, typically on long term leases, with a range of services priced on a bespoke basis; to fully fitted and furnished, generally on a short to medium term lease, with a basic package of services; to Storey, our fully serviced, flexible workspace offer.
Storey is deliberately differentiated from other flexible offerings in allowing occupiers to personalise their space through their own branding while benefitting from the shared amenities in the building and on our campuses. It has helped attract new types of occupier to our campuses, particularly tech and creative businesses who benefit from being located around some of the world's leading financial, legal and professional companies. Storey has also become a valued service for existing occupiers on our campuses, providing overflow or project space, and through Storey Club at Paddington, we offer ad hoc meeting and events space to all our Paddington occupiers.
A smaller, more focused Retail portfolio
In the context of rapid and fundamental structural change in retail, which could be accelerated as a result of Covid-19, we plan to reduce this part of our business to 25-30% of the total portfolio over the medium term. Retail will remain a significant part of British Land reflecting our longer term view that as part of an increasingly mixed use business, the right assets in the right locations will succeed. These include high quality, accessible and well located assets which are affordable to retailers and can play a role facilitating online fulfilment such as click and collect; in particular, retail parks which are more conducive to mission-based shopping and are open air, so people may feel more comfortable visiting. In London, we will focus on transport hubs, especially those assets with mixed use potential .
We have made GBP296m of retail disposals (our share) in the year, bringing total retail sales since we set out our plan in November 2018 to GBP610m but with more to do. Future sales will be selective and primarily comprise solus assets, with limited asset management potential, and some multi-let centres, particularly those outside London which do not fit our longer term strategy. In the context of today's valuations, our focus is on intensive asset management, keeping our assets full and exploiting demand for assets which support instore fulfilment and click and collect, so we expect progress on sales to be slower near term.
Residential
Residential is complementary to our existing expertise and longer term will be additive to our mixed use strategy. We see most potential to build exposure in this market at Canada Water where we have potential to deliver 3,000 homes; other opportunities in our portfolio, include Aldgate Phase 2, in our near term pipeline. Building this business organically is the most effective way of ensuring that our product is high quality, reflects our strategy, adheres to the highest standards of safety and sustainability but inevitably means that it will be delivered over a longer time frame.
SUSTAINABILITY - LAUNCH OF 2030 STRATEGY
Completion of 2020 Strategy
At the end of FY20, we concluded our five-year sustainability programme, which drove progress across multiple environmental and social factors. We were particularly pleased to achieve a 73% reduction in carbon intensity, exceeding our target of 55% against our 2009 baseline, and a 55% reduction in energy intensity in line with our target of 55%.
The programme helped us make sustainable new buildings our standard, with 100% of British Land's current new developments on-track for BREEAM Excellent or above ratings, and in the last year we achieved a further step change by prioritising retro-fit above demolition. At 1 Triton Square, Regent's Place, we have saved 36,000 tonnes of embodied carbon compared to a typical new build and will achieve a 40% reduction in operational emissions, which we expect to result in an Outstanding BREEAM rating. At Broadgate's 100 Liverpool Street we expect an Excellent BREEAM rating due to the retro-fit, alongside Well Gold certification and a WiredScore platinum rating for internet connectivity.
Our ability to support the communities where we operate has increased through the programme. We have supported 1,745 individuals into employment, exceeding our target of 1,700 and 96% of strategic suppliers have now adopted our Code of Conduct, mandating responsible business practices throughout operations associated with British Land. Our long-standing partnership with the National Literacy Trust has now helped 42,700 children improve their reading ability.
Looking forward
As we conclude our 2020 programme, we are pleased to launch our new targets for 2030. Building on the momentum we have established over the last five years, these targets will be similarly stretching and will focus on two areas where action is most urgent:
1. Creation of a Net Zero Carbon Portfolio by 2030
The main drivers of this will be:
-- All developments delivered after April 2020 to be net zero embodied carbon
-- A 50% reduction in embodied carbon emissions at our developments, to below 500 kg CO2e per m2 by 2030
-- A 75% reduction in operational carbon emissions across our portfolio by 2030
-- Creation of a Transition Fund, resourced by an internal carbon fee at GBP60/tonne levied on new developments, to finance retrofitting of our standing portfolio, including research and development.
To bring focus to operational performance, we undertook a pilot certification of seven assets under BREEAM In Use. We will certify a further 30 assets over the next 24 months and have underpinned this goal with the announcement in March of a GBP450m ESG-linked Revolving Credit Facility that requires a continual increase in green building certifications.
With a growing number of London businesses making firm commitments to reduce their carbon footprint, strong sustainability credentials are an increasingly relevant and important part of our overall leasing offer. Research from JLL demonstrates that buildings rated BREEAM Outstanding or Excellent generally achieve a premium of c. 10% compared to prime rents, and 24 months post completion achieve a lower vacancy rate of c.7% compared to c.20% for a building rated Very Good.
2. A place-based approach to social contribution
As a long-term investor in places, we help build relationships with local people and organisations that generate mutual benefit. Examples include our Recruitment & Skills centre at Fort Kinnaird and our Community Fund at Regent's Place. We will now adopt this place-based approach across our entire managed portfolio, deepening connections between stakeholders - ourselves, our communities, customers and supply chain partners - in pursuit of a shared local goal. Using the framework of our Local Charter, our ambition is to increase the resilience and community experienced by everyone in and around our places, so the benefit is shared widely. Our reporting will also shift over time from focusing on British Land's input to the social outcomes that result from our approach.
We will run three pilots building on our work at Regent's Place and Fort Kinnaird. Through these we will define common parameters and support for our place teams, enabling decisions to be devolved to a local level.
Supporting communities through Covid-19
Supporting local communities has been at the heart of our response to Covid-19. In 2008 we established a community investment fund, which now commits over GBP1.3m of funding annually through which we have provided support to those most in need. We were able to swiftly deploy part of the fund to support our communities through the crisis. We funded expert strategic advice for the leadership teams of our partners from the CASS Centre for Charity Effectiveness to help them deal with the crisis, as well as funding bespoke employment support programmes through organisations such as the East London Business Alliance for those whose livelihoods were affected. Elsewhere we helped individuals to develop new skills and donated equipment to support non-profit organisations to work effectively from home. In 20 of our places, we also worked with the National Literacy Trust to support vulnerable families with home schooling to maintain their children's progress.
Commitment to leadership
Our continued strong sustainability performance is reflected in our rankings in ESG indices, including a green star rating for the tenth consecutive year in the Global Real Estate Sustainability Benchmark (GRESB), AAA rating in MSCI, 96th percentile in Sustainalytics for our sector, and inclusion in FTSE4Good and Dow Jones Sustainability Indices (DJSI) 2019. We have been a signatory to the UN Global Compact since 2009 and will continue to support human rights, fair labour practices, good environmental performance and oppose corruption through our strategy, governance and business operations.
FINANCE REVIEW
Year end 31 March 2019 2020
----------
Underlying earnings per
share(1,2) 34.9p 32.7p
Underlying Profit(1,2) GBP340m GBP306m
IFRS (loss) after tax GBP(320)m GBP(1,114)m
Dividend per share 31.00p 15.97p
Total accounting return(1,3) (3.3%) (11.0%)
------------------------------ ---------- ------------
EPRA net asset value
per share(1,2) 905p 774p
IFRS net assets GBP8,689m GBP7,147m
------------------------------ ---------- ------------
LTV (1,4,5) 28.1% 34.0%
Weighted average interest
rate (5) 2.9% 2.5%
------------------------------ ---------- ------------
(1) See Glossary on website for definitions. (2) See Table B within supplementary disclosure for reconciliations to IFRS metrics. (3) See Note 2 within condensed financial statements for calculation. (4) See Note 14 within condensed financial statements for calculation and reconciliation to IFRS metrics. (5) On a proportionally consolidated basis including the Group's share of joint ventures and funds.
Overview
Financial performance for the year was resilient in the context of significant sales over the last two years, an especially challenging retail environment and the impact of the Covid-19 which arose in the fourth quarter and so primarily impacted the balance sheet valuations. Underlying earnings per share (EPS) were down 6.3% at 32.7p, while Underlying Profit was down 10.0% at GBP306m. The impact of lower profits on EPS has been partially mitigated by the effect of share buybacks which added 1.1p in the year.
Capital activity (sales net of acquisitions and share buybacks) decreased EPS by 1.4p in the year. Proceeds from sales have been deployed into our value accretive development programme. The recently completed and committed schemes are expected to generate EPS accretion of 4.2p once fully let based on expected rental income of GBP62m, of which 88% is pre-let. Setting aside capital activity, earnings decreased by 0.8p, primarily due to increased provisioning for tenant incentives in light of Covid-19. Cost savings through administrative and financing activities offset the impact of retailer CVAs and administrations throughout the year.
Since April 2019, we have completed GBP0.9bn of gross capital activity. This includes GBP296m sales (our share) of income producing assets, primarily the sale of 12 Sainsbury's superstores to Realty Income Corporation in April 2019 for GBP429m (our share GBP194m). In addition, we completed on GBP86m of residential sales at Clarges, Mayfair, GBP6m of which exchanged prior to this financial year. We also acquired a 25% interest (GBP54m) in West One, a shopping centre and offices building, above Bond Street station.
Valuations reduced by 10.1% on a proportionally consolidated basis resulting in an overall EPRA net asset value (NAV) per share decline of 14.5%.
Reflecting the strength of our balance sheet coming into this period our financial position remains resilient. LTV has increased by 590bps during the year to 34.0% with the key drivers being valuation declines contributing 340bps and capital spend contributing 210bps. We had GBP1.3bn of undrawn facilities and cash at year end and our weighted average interest rate reduced to a new low of 2.5%.
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 considers the business principally on a proportionally consolidated basis when setting the strategy, determining annual priorities, making investment and financing decisions and reviewing performance. This 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 financial key performance indicators are also presented on this basis.
A summary income statement and summary balance sheet which reconcile the Group income statement and balance sheet to British Land's interests on a proportionally consolidated basis are included in Table A within the supplementary disclosures.
Management monitors Underlying Profit as this more accurately reflects the underlying recurring performance of our core property rental activity, as opposed to IFRS metrics which include the non-cash valuation movement on the property portfolio. It is based on the Best Practices Recommendations of the European Public Real Estate Association (EPRA) which are widely used alternate metrics to their IFRS equivalents.
Management also monitors EPRA NAV as this provides a transparent and consistent basis to enable comparison between European property companies. Linked to this, the use of Total Accounting Return allows management to monitor return to shareholders based on movements in a consistently applied metric, being EPRA NAV, and dividends paid.
Loan to value (proportionally consolidated) is also monitored by management as a key measure of the level of debt employed by the Group to meet its strategic objectives, along with a measurement of risk. It also allows comparison to other property companies who similarly monitor and report this measure.
Income statement
1. Underlying Profit
Underlying Profit is the measure that is used internally to assess income performance. This is presented below on a proportionally consolidated basis. No company adjustments have been made in the current or prior year and therefore this is the same as the pre-tax EPRA earnings measure which includes a number of adjustments to the IFRS reported profit before tax.
Section 2019 2020
GBPm GBPm
----------------------------------------- -------- -------- ---------
Gross rental income 576 560
Property operating expenses (44) (82)
----------------------------------------- -------- -------- ---------
Net rental income 1.2 532 478
Net fees and other income 10 13
Administrative expenses 1.3 (81) (74)
Net financing costs 1.4 (121) (111)
----------------------------------------- -------- -------- ---------
Underlying Profit 340 306
----------------------------------------- -------- -------- ---------
Non-controlling interests in Underlying
Profit 12 12
EPRA adjustments(1) (672) (1,432)
----------------------------------------- -------- -------- ---------
IFRS profit/(loss) after tax 2 (320) (1,114)
----------------------------------------- -------- -------- ---------
Underlying EPS 1.1 34.9p 32.7p
IFRS basic EPS 2 (30.0)p (110.0)p
Dividend per share 3 31.00p 15.97p
----------------------------------------- -------- -------- ---------
(1) EPRA adjustments consist of investment and development property revaluations, gains/losses on investment and trading property disposals, changes in the fair value of financial instruments and associated close out costs. These items are presented in the 'capital and other' column of the consolidated income statement.
1.1 Underlying EPS
Underlying EPS is 32.7p, a decline of 6.3% on the prior year. This reflects Underlying Profit decline of 10.0%, partially offset by the impact of share buybacks which added 1.1p in the year.
1.2 Net rental income
GBPm
Net rental income for the year ended 31 March 2019 532
Sales (36)
Acquisitions 3
Like-for-like rent (incl. CVA and administrations) (14)
Tenant incentive provisions (7)
Rental debtor provisions (6)
IFRS 16 adoption 3
Development and other 3
Net rental income for the year ended 31 March 2020 478
Net sales of income producing assets over the last 2 years was GBP0.9bn. This reduced rents by GBP33m in the year, including GBP12m from superstore sales, GBP4m from the sale of 5 Broadgate in June 2018 and GBP11m from the sale of the Spirit Pubs portfolio in March 2019. Proceeds from these sales are being reinvested in the development pipeline which is expected to deliver GBP62m in rents in future years and is already 88% pre-let (GBP54m).
Retail like-for-like net rental decline is 5.1% in the year, primarily reflecting the impact of CVAs and administrations. The offices portfolio saw like-for-like growth of 0.8% which is lower than the historic run-rate due to lease expiries. Office expiries contributed a 3.0% decrease to net rents, however the space has either been re-let or is to be refurbished. Expiries have been more than offset by the impact of leasing activity in the year.
In light of Covid-19, an impairment of GBP7m was made against tenant incentive balances primarily within the retail portfolio. These non-cash provisions primarily relate to the spreading of historic rent frees and fixed uplifts. A further GBP6m was provided against tenant debtors that were deemed high risk. The March quarter rent we offered to defer for our retail and leisure customers facing challenges due to Covid-19 were not receivable at year end and therefore not a trade debtor.
Accounting changes upon adoption of IFRS 16 results in a GBP3m increase to net rents, due to recognising head lease assets under the fair value model.
1.3 Administrative expenses
Administrative expenses decreased by 8.6% in the year. The Group's operating cost ratio increased by 480 bps to 23.5% (2018/19: 18.7%) as a result of lower rental income following sales activity and an increase in property outgoing expenses due to write-offs and provisions made in respect of tenant incentive. Excluding write-offs and provisions made in respect of tenant incentives and guaranteed rent increases, the Group's cost ratio is 19.8%.
1.4 Net financing costs
GBPm
Net financing costs for the year ended 31
March 2019 (121)
Financing activity 6
Net divestment 6
Developments 1
Share buybacks (3)
Net financing costs for the year ended 31
March 2020 (111)
Lower interest rates and our financing activity undertaken over the last 24 months reduced costs by GBP6m. Financing during the year included the issuance of a new GBP100m 2034 USPP note following prepayment of a GBP98m 2027 note, and repayment of GBP30m of secured Broadgate bonds (BL share, in addition to the GBP111m repaid in October 2018).
The reduction in finance costs as a result of proceeds from net divestment includes the repayment of GBP86m (BL share) of secured Sainsbury's JV bonds on the sale of a portfolio of superstores, partially offset by share buybacks.
We have a risk managed approach to interest rates on debt. At 31 March 2020, on average over the next 5 years the interest rate on 75% of our debt is hedged, based on current commitments. On a spot basis we are 81% hedged. Our use of interest rate caps as part of our hedging (alongside swaps) means that around half of our debt benefits if market rates remain low.
2. IFRS profit before tax
The main difference between IFRS profit before tax and Underlying Profit is that IFRS includes the valuation movement on investment and trading properties, fair value movements on financial instruments and capital financing costs. In addition, the Group's investments in joint ventures and funds are equity accounted in the IFRS income statement but are included on a proportionally consolidated basis within Underlying Profit.
The IFRS loss after tax for the year was GBP1,114m, compared with a loss after tax for the prior year of GBP320m. As a result, IFRS basic EPS was (110.0)p per share, compared to (30.0)p per share in the prior year. This primarily reflects the downward valuation movement on the Group's properties of GBP1,105m, and an increase in the capital and other income loss from joint ventures and funds of GBP306m, both driven principally by outward yield shift of 101 bps and ERV decline of 11.7% in the Retail portfolio.
The basic weighted average number of shares in issue during the year was 934m (2018/19: 971m).
3. Dividends
In March, the Company announced the Board's decision to temporarily suspend future dividend payments. This was considered prudent to best ensure we can effectively support our retail and leisure customers who are hardest hit, protect the long-term value of the business, and further strengthen our financial position. Accordingly, the third interim dividend due for payment in May was suspended. We will seek to resume dividends at an appropriate level as soon as there is sufficient clarity of outlook. For this we will need to see a significant improvement in rent collection and have more visibility on the post lockdown productivity of our assets, principally how quickly retail customers and office workers return . The dividend for the year ended 31 March 2020 was 15.97p.
Balance sheet
As at Section 2019 2020
GBPm GBPm
------------------------------- -------- -------- --------
Properties assets 12,316 11,177
Other non-current assets 151 131
------------------------------- -------- -------- --------
12,467 11,308
Other net current liabilities (297) (241)
Adjusted net debt 6 (3,521) (3,854)
Other non-current liabilities - -
------------------------------- -------- -------- --------
EPRA net assets 8,649 7,213
------------------------------- -------- -------- --------
EPRA NAV per share 4 905p 774p
------------------------------- -------- -------- --------
Non-controlling interests 211 112
Other EPRA adjustments(1) (171) (178)
------------------------------- -------- -------- --------
IFRS net assets 5 8,689 7,147
------------------------------- -------- -------- --------
Proportionally consolidated basis
(1) EPRA net assets exclude the mark-to-market on derivatives and related debt adjustments, the mark-to-market on the convertible bond as well as deferred taxation on property and derivative revaluations. They include the trading properties at valuation (rather than lower of cost and net realisable value) and are adjusted for the dilutive impact of share options. No dilution adjustment is made for the GBP350m zero coupon convertible bond maturing in 2020. Details of the EPRA adjustments are included in Table B within the supplementary disclosures.
4. EPRA net asset value per share
pence
EPRA NAV per share at 31 March 2019 905
Valuation performance (137)
Underlying Profit 33
Dividends (31)
Financing activity (2)
Share buyback 6
EPRA NAV per share at 31 March 2020 774
The 14.5% decrease in EPRA NAV per share primarily reflects a valuation decrease of 10.1% across the portfolio. Valuation gains in the Office portfolio and Canada Water were more than offset by a fall in Retail values.
Office valuations were up 2.3% driven by strong leasing at our developments which were up 7.5%, including 100 Liverpool Street where values were up 19%. ERV growth was 3.2% across the standing investments and yields moved in 4bps.
Valuations in Retail were down 26.1%, with outward yield shift of 101 bps and ERV decline of 11.7%. These values reflect ongoing structural challenges faced by occupiers, the lack of transactional evidence and the initial impact of Covid-19. Across our largest assets, yields have moved between 100-160bps. For smaller retail parks, a number of assets were transacted earlier in the year which have provided some valuation evidence.
While financing activity initially decreased NAV by 2p, it delivers future interest cost savings. Completion of the GBP125m share buyback programme during the year has contributed 6p to EPRA NAV.
EPRA published its latest Best Practices Recommendations in October 2019 which included three replacement Net Asset Valuation metrics, namely EPRA Net Reinstatement Value (NRV), EPRA Net Tangible Assets (NTA) and EPRA Net Disposal Value (NDV). We will report all three metrics going forwards, adopting EPRA NTA as our primary metric as it is the closest to our current primary metric, EPRA NAV. The three metrics have been presented below as at 31 March 2020 to provide a comparison to the current measures, EPRA NAV and EPRA NNNAV.
GBPm pence
------
EPRA Net Reinstatement Value (NRV) 7,872 845
EPRA Net Tangible Assets (NTA) 7,202 773
EPRA Net Disposal Value (NDV) 6,762 726
------------------------------------ ------ ------
5. IFRS net assets
IFRS net assets at 31 March 2020 were GBP7,147m, a decrease of GBP1,542m from 31 March 2019. This was primarily due to the IFRS loss after tax of GBP1,114m, along with GBP295m of dividends paid and GBP125m of share purchases under the share buyback programme.
Cash flow, net debt and financing
6. Adjusted net debt(1)
GBPm
Adjusted net debt at 31 March 2019 (3,521)
Disposals 382
Acquisitions (118)
Development and capex (388)
Net cash from operations 375
Dividends (295)
Share buyback (125)
Other (164)
-------------------------------------- --------
Adjusted net debt at 31 March 2020 (3,854)
-------------------------------------- --------
(1) Adjusted net debt is a proportionally consolidated measure. It represents the Group net debt as disclosed in Note 14 to the condensed financial statements and the Group's share of joint venture and funds' net debt excluding the mark-to-market on derivatives, related debt adjustments and non-controlling interests. A reconciliation between the Group net debt and adjusted net debt is included in Table A within the supplementary disclosures.
Net sales reduced debt by GBP264m whilst development spend totalled GBP291m with a further GBP97m on capital expenditure related to Storey fitout and asset management on the standing portfolio. The value of recently completed and committed developments is GBP1,174m, with GBP78m costs to come. Speculative development exposure is 0.6% of the portfolio. There are 1m sq ft of developments in our near term pipeline with anticipated cost of GBP605m.
7. Financing
Group Proportionally consolidated
2019 2020 2019 2020
Net debt / adjusted net debt GBP2,765m GBP3,247m GBP3,521m GBP3,854m
(1)
Principal amount of gross GBP2,881m GBP3,294m GBP3,895m GBP4,158m
debt
Loan to value 22.2% 28.9% 28.1% 34.0%
Weighted average interest
rate 2.2% 1.9% 2.9% 2.5%
Interest cover 6.3 5.8 3.8 3.8
Weighted average maturity 7.3 years 6.8 years 8.1 years 7.5 years
of drawn debt
---------- ---------- -------------- --------------
(1) Group data as presented in note 14 of the condensed financial statements. The proportionally consolidated figures include the Group's share of joint venture and funds' net debt and exclude the mark-to-market on derivatives and related debt adjustments and non-controlling interests.
At 31 March 2020, our proportionally consolidated LTV was 34.0%, up 590 bps from 28.1% at 31 March 2019. Valuation declines contributed 340 bps of this increase, and capital spend contributed 210bps. Note 14 of the condensed financial statements sets out the calculation of the Group and proportionally consolidated LTV.
During the year, we issued a new GBP100m 2034 USPP note following prepayment of a GBP98m 2027 note, extending debt maturity and delivering future interest cost savings.
In March, we completed our first ESG linked Revolving Credit Facility at GBP450m with a group of eight banks, by extending and amending one of our existing unsecured RCFs. The extended RCF has a headline margin of 90 basis points over LIBOR (unchanged) and an initial five-year term which may be extended to a maximum of seven years at British Land's request, subject to banks' consent. The facility may continue to be used for our general corporate purposes. Aligning with our sustainability strategy, the facility includes two ESG-related KPIs focused on the BREEAM ratings of our developments and assets under management.
We also extended a total of GBP925m under other committed bank facilities by a further 1 year.
After the year end, one of the bank facilities in HUT which was due to mature in September 2020 was refinanced with an extended facility to December 2023.
Our liability and debt management activity has enabled us to reduce our weighted average interest rate to a new low of 2.5%. Our weighted average debt maturity is 7.5 years.
At 31 March 2020, British Land had GBP1.8bn of committed unsecured revolving bank facilities; undrawn facilities and cash amounted to GBP1.3bn. Based on our current commitments, these facilities and debt maturities, we have no requirement to refinance until 2024.
The current uncertain environment reinforces the importance of a strong balance sheet.
Simon Carter
Chief Financial Officer
Notes to Editors
About British Land
Our portfolio of high quality UK commercial property is focused on London Offices and Retail around the UK . We own or manage a portfolio valued at GBP14.8bn (British Land share : GBP11.2bn) as at 31 March 2020 making us one of Europe's largest listed real estate investment companies .
Our strategy is to provide places which meet the needs of our customers and respond to changing lifestyles - Places People Prefer. We do this by creating great environments both inside and outside our buildings and use our scale and placemaking skills to enhance and enliven them. This expands their appeal to a broader range of occupiers , creating enduring demand and driving sustainable, long term performance.
Our Offices portfolio comprises three office-led campuses in central London as well as high quality standalone buildings and accounts for 60% of our portfolio . Our Retail portfolio is focused on retail parks and shopping centres, and accounts for 35% of our portfolio. Increasingly our focus is on providing a mix of uses and this is most evident at Canada Water , our 53 acre redevelopment opportunity where we have plans to create a new neighbourhood for London.
Sustainability is embedded throughout our business. Our places , which are designed to meet high sustainability standards, become part of local communities , provide opportunities for skills development and employment and promote wellbeing. In April 2016 British Land received the Queen's Award for Enterprise: Sustainable Development, the UK's highest accolade for business success for economic, social and environmental achievements over a period of five years.
Further details can be found on the British Land website at www.britishland.com
Risk Management and Principal Risks
We maintain a comprehensive risk management process which serves to identify, assess and respond to the range of financial and non-financial risks facing our business, including those risks that could threaten solvency and liquidity, as well as identifying emerging risks. Our approach is not intended to eliminate risk entirely, but instead to manage our risk exposures across the business, whilst at the same time making the most of our opportunities.
The general risk environment in which the Group operates has increased over the course of the year, which is largely due to the continued level of uncertainty associated with the Brexit process, the challenging UK retail market and weaker investment markets. This has been compounded more recently by the Covid-19 outbreak.
Covid-19 presents a new and major risk to the business. As yet, it is impossible to fully predict the impact on the global and UK economy and thus the consequential impact on our business and our key markets. The Board will continue to closely monitor and adapt to the developing situation and its effect on the Company, although the Board is reassured by the strength of our balance sheet, our high quality diverse portfolio of assets and operational expertise; which means we are positioned to protect our business through the near term period of uncertainty. We have robust crisis management and business continuity plans in place and have acted swiftly in dealing with the exceptional challenges posed by Covid-19; our focus is to ensure the safety of our people, our assets are securely maintained and to support our customers and suppliers.
The Board confirms that a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity, was carried out during the year and more recently taking into account the current Covid-19 risk to our business. Whilst we consider there has been no material change to the nature of the Group's principal risks, not surprisingly, a number of risks have increased as a result of the challenging external environment and significant ongoing uncertainty. The emerging threat from Covid-19 is incorporated within our catastrophic business event principal risk (but will clearly also impact other principal risks).
Our current assessment is that the principal risks we flagged as elevated at last year end remain heightened and we expect Covid-19 to adversely impact the economic outlook and present an increased risk to the investment and occupier markets as well as to our people, our investment strategy and income sustainability principal risks. Also, the dynamics in the retail and office markets are very different and thus we now assess the risks of occupier and investment demand separately; with retail already showing a much-increased risk profile. The risk outlook for office is also elevated but to a lesser extent than retail.
The principal risks are summarised below, including an assessment of how the risks have changed in the year and the potential impact of Covid-19. A more comprehensive explanation of the Group's approach to risk management will be included in the 2020 Annual Report.
External risks
Risks and impacts How we monitor and Change in risk assessment
manage the risks in year
Economic outlook
----------------------------------------------------------------------- ----- -----------------------------------------------------------------
The UK economic
climate and future * The Risk Committee reviews the economic environment * Economic growth remained volatile throughout the
movements in interest in which we operate quarterly to assess whether any year. The outcome of the General Election and Brexit
rates present risks changes to the economic outlook justify a withdrawal deal had initially been positive for the
and opportunities reassessment of the risk appetite of the business. UK economy; however, the recent Covid-19 outbreak has
in property and derailed any revival in the UK economic outlook.
financing markets
and the businesses * Key indicators including forecast GDP growth,
of our customers employment rates, business and consumer confidence, * GDP forecasts for 2020 have continued to reduce with
which can impact interest rates and inflation/deflation are considered, many commentators predicting the impact on the
both the delivery as well as central bank guidance and government economy will be deeper than the post Global Financial
of our strategy policy updates. Crisis downturn, with the trajectory of recovery
and our financial difficult to forecast.
performance.
* We stress test our business plan against a downturn
in economic outlook to ensure our financial position * Also, failure to achieve a UK-EU arrangement
is sufficiently flexible and resilient. conducive to trade is also a key risk to the outlook
for the UK economy.
* Our resilient business model focuses on a high
quality portfolio underpinned by our balance sheet * Strong levels of government spending and measures
and financial strength. announced by the Bank of England to lower interest
rates will initially help mitigate some of the impact
of Covid-19.
* Covid-19: Looking ahead, whilst the long term
economic impact of Covid-19 is hard to predict, the
economy faces a challenging short term outlook, with
an increased risk posed by a global recession. Whilst
it is inevitable that our business, like many others,
will be negatively impacted; our business has a
strong balance sheet and clear long term strategy.
----------------------------------------------------------------------- ----- -----------------------------------------------------------------
Political and regulatory outlook
Significant political <-->
events and regulatory * Whilst we are not able to influence the outcome of * The political risk outlook remains high dictated by
changes, including significant political events, we do take the the national and global response to Covid-19 and
the decision to uncertainty related to such events and the range of there remains significant uncertainty until our
leave the EU, bring possible outcomes into account when making strategic future relationship with the EU has been determined.
risks principally investment and financing decisions.
in three areas:
* reluctance of investors and businesses to make * Furthermore, the global geopolitical and trade
investment and occupational decisions whilst the * Internally we review and monitor proposals and environments remain uncertain.
outcome remains uncertain emerging policy and legislation to ensure that we
take the necessary steps to ensure compliance if
applicable. Additionally, we engage public affairs * Covid-19: It is not possible to predict fully the
* on determination of the outcome, the impact on the consultants to ensure that we are properly briefed on impact Covid-19 and Brexit will have on our business
case for investment in the UK, and on specific the potential policy and regulatory implications of and our markets, but we are well placed to respond
policies and regulation introduced, particularly political events. We also monitor public trust in proactively to the key risks and have modelled
those which directly impact real estate or our business. various scenarios as part of our five-year forecasts.
customers
* Where appropriate, we act with other industry
* the potential for a change of leadership or political participants and representative bodies to contribute
direction to policy and regulatory debate. We monitor and
respond to social and political reputational
challenges relevant to the industry and apply our own
evidence-based research to engage in thought
leadership discussions, such as with Design for Life.
----------------------------------------------------------------------- ----- -----------------------------------------------------------------
Commercial property investor demand
Reduction in investor London Offices
demand for UK real * The Risk Committee reviews the property market * Investment volumes were low but picked up in the
estate may result quarterly to assess whether any changes to the market final quarter of 2019 following the UK election and
in falls in asset outlook present risks and opportunities which should Brexit outcome. However, in the wake of Covid-19, a
valuations and be reflected in the execution of our strategy and our number of transactions have been cancelled or
could arise from capital allocation plan. The Committee considers postponed.
variations in: indicators such as margin between property yields and
* the health of the UK economy borrowing costs and property capital growth forecasts
, * Covid-19: We expect investor confidence and volumes
which are considered alongside the Committee members' will be impacted in the short term. However, in the
* the attractiveness of investment in the UK knowledge and experience of market activity and longer term we expect market fundamentals to continue
trends. to favour London Offices as yields remain attractive
compared to many other European markets, and London
* availability of finance is considered a relatively safe haven.
* We focus on prime assets and sectors which we believe
will be less susceptible over the medium term to a
* relative attractiveness of other asset classes reduction in occupier and investor demand. Retail
* Investment markets were significantly weaker,
reflecting challenges in the occupational market.
* We maintain strong relationships with agents and Liquidity did return to certain parts of the market,
direct investors active in the market. with a pick-up in transactional activity,
particularly in retail parks, but this has not
continued as a result of Covid-19.
* We stress test our business plan for the effect of a
change in property yields.
* There has been limited liquidity and a lack of
transactional evidence, particularly for larger lot
sizes, and as a result we have seen significant
outward yield shift for prime assets.
* Covid-19: We expect the retail investment market will
remain challenging and materially weaker as a result
of Covid-19. We remain committed to our plan to
refine our Retail portfolio; however, we recognise
that making progress with sales in the coming period
will be more difficult.
----------------------------------------------------------------- ----- -----------------------------------------------------------------------
Occupier demand and tenant default
Underlying income, London Offices
rental growth and * The Risk Committee reviews indicators of occupier * Over the year, occupier demand for high quality, well
capital performance demand quarterly including consumer confidence located London offices has remained strong with
could be adversely surveys and employment and ERV growth forecasts, take-up in our markets, ahead of the long term
affected by weakening alongside the Committee members' knowledge and average. However, activity has slowed since March
occupier demand experience of occupier plans, trading performance and 2020 and Covid-19 is likely to impact some office
and occupier failures leasing activity in guiding execution of our occupiers.
resulting from strategy.
variations in the
health of the UK * Covid-19: Whilst it is too early to predict the full
economy and corresponding * We have a high quality, diversified occupier base and impact of Covid-19 and its effect on how office
weakening of consumer monitor concentration of exposure to individual occupiers will want to utilise their space, it is
confidence, business occupiers or sectors. We perform rigorous occupier likely to accelerate the ongoing trend for flexible
activity and investment. covenant checks ahead of approving deals and on an working, and trends for hot desking and increased
Changing consumer ongoing basis so that we can be proactive in managing densification may slow. Also a reduction in rental
and business practices exposure to weaker occupiers growth is possible as decision making goes on hold.
including the growth However, office supply for large occupiers remains
of internet retailing, limited and interest levels remain robust for the
flexible working * Through our Key Occupier Account programme, we work best quality space. Our London campuses continue to
practices and demand together with our customers to find ways to best meet appeal to a broader range of businesses and are
for energy efficient their evolving requirements. effectively full.
buildings, new
technologies, new
legislation and * Our sustainability strategy links action on customer Retail
alternative locations health and wellbeing, energy efficiency, community * The retail occupational market has remained tough and
may result in earlier and sustainable design to our business strategy. Our the challenges facing UK retail have been compounded
than anticipated social and environmental targets help us comply with by the Covid-19 lockdown. In the short term, this is
obsolescence of new legislation and respond to customer demands; for playing out in several ways, including rent
our buildings if example, we expect all our current new developments reductions, rent deferments and non-payment, but also
evolving occupier to achieve a BREEAM Excellent or above rating. an increase in retailers entering CVAs or
and regulatory administrations.
requirements are
not met.
* Covid-19: The outlook will remain challenging as the
structural changes facing retail accelerate and we
expect further retailers will fail. Our focus is on
helping the customers who are hardest hit but with
otherwise sound business models. We have a pragmatic
approach to leasing to maintain occupancy.
----------------------------------------------------------------- ----- -----------------------------------------------------------------------
Availability and cost of finance
Reduced availability <-->
of finance may * Market borrowing rates and real estate debt * Markets have been adversely affected globally by
adversely impact availability are monitored by the Risk Committee Covid-19. Governments and central banks have cut
ability to refinance quarterly and reviewed regularly in order to guide interest rates and increased economic stimulus in
debt and/or drive our financing actions in executing our strategy. response.
up cost.
Regulation and * We monitor our projected LTV and our debt * In the UK, lenders' appetite and support varies in
capital costs of requirements using several internally generated different debt markets. For real estate, strength of
lenders may increase reports focused on borrowing levels, debt maturity, sponsor and quality of property remain key.
cost of finance. available facilities and interest rate exposure. Availability of finance for retail assets has
significantly reduced.
* We maintain good long term relationships with our key
financing partners. * Covid-19: British Land has maintained good access to
sources of funds in the unsecured markets. We
achieved good support from our banking group with our
* The scale and quality of our business enables us to new ESG linked RCF of GBP450m and the extension of
access a diverse range of sources of finance with a GBP925m of other committed bank facilities for a
spread of repayment dates. We aim always to have a further year.
good level of undrawn, committed, unsecured revolving
facilities to ensure we have adequate financing
availability to support business requirements and
opportunities.
* We work with industry bodies and other relevant
organisations to participate in debate on emerging
finance regulations where our interests and those of
our industry are affected.
----------------------------------------------------------------- ----- -----------------------------------------------------------------------
Catastrophic business event
An external event
such as a civil * We maintain a comprehensive crisis response plan * While the Home Office threat level from international
emergency, including across all business units as well as a head office terrorism has been reduced to 'Substantial', the
a large-scale terrorist business continuity plan. emerging threat from Covid-19 is incorporated within
attack, cybercrime, our catastrophic business event principal risk and
pandemic disease, means our residual risk assessment has increased
extreme weather * The Risk Committee monitors the Home Office terrorism since the prior year. Under the new Covid Alert
occurrence, environmental threat level and we have access to security threat System, the threat level of Covid-19 on a scale of
disaster or power information services. one to five is currently rated four ('Severe'), but
shortage could moving towards level three ('Substantial) meaning
severely disrupt some lockdown and social distancing measures need to
global markets * Asset emergency procedures are regularly reviewed, remain in place.
(including property and scenario tested. Physical security measures are
and finance) and in place at properties and development sites.
cause significant * The wider use and enhancement of digital technology
damage and disruption across the Group increases the risks associated with
to British Land's * Our Sustainability Committee continues to monitor information and cyber security.
portfolio, operations environmental risks and we have established a TCFD
and people. Steering Committee to review our management processes
for climate-related risks and opportunities. Asset * The awareness of climate-related risks has been
risk assessments are carried out to assess a range of elevated in the year, although we have already been
risks including security, flood, environmental and focused on this for some time. We have a long track
health and safety. record of focusing on sustainability matters and have
a comprehensive strategy to address climate change
risks.
* We have implemented corporate cyber security systems
which are supplemented by incident management,
disaster recovery and business continuity plans, all * Covid-19: We have robust crisis management and
of which are regularly reviewed to be able to respond business continuity plans in place and have acted
to changes in the threat landscape and organisational swiftly in responding to the exceptional challenges
requirements. posed by Covid-19; our focus is to ensure the safety
of our people, our assets are securely maintained and
to support our customers and suppliers. We protected
* We also have appropriate insurance in place across the interests of our employees by moving to working
the portfolio for physical damage. from home even before the lockdown.
----------------------------------------------------------------- ----- -----------------------------------------------------------------------
Key
Change in risk assessment from last year
Increase
<--> No change
Decrease
Internal risks
Risks and impacts How we monitor and Change in risk assessment
manage the risks in year
Investment strategy
In order to meet
our strategic objectives, * Our investment strategy is determined to be * We have a clear and consistent strategy to build an
we aim to invest consistent with our target risk appetite and is based increasingly mixed use business, focused on three
in and exit from on the evaluation of the external environment. core areas; campus focused London Offices; refocused
the right Retail and residential.
properties at the
right time. * Progress against the strategy and continuing
Underperformance alignment with our risk appetite is discussed at each * We have a plan to reduce Retail to 25-30% of our
could result from Risk Committee with reference to the property markets portfolio over the medium term; based on today's
changes in market and the external economic environment. values. We have made progress on this with GBP296m of
sentiment as well retail sales, bringing the total since we set out our
as inappropriate plan in November 2018 to c.GBP610m.
determination and * The Board carries out an annual review of the overall
execution of our corporate strategy including the current and
property investment prospective asset portfolio allocation. * Covid-19: Making value-accretive sales will be more
strategy, challenging in the current market so we will only
including: progress on an opportunistic basis and will continue
* sector selection and weighting * Individual investment decisions are subject to robust to allocate capital thoughtfully in light of the
risk evaluation overseen by our Investment Committee current market conditions.
including consideration of returns relative to risk
* timing of investment and divestment decisions adjusted hurdle rates.
* exposure to developments * Review of prospective performance of individual
assets and their business plans.
* asset, occupier, region concentration
* We foster collaborative relationships with our
co-investors and enter into ownership agreements
* co-investment arrangements which balance the interests of the parties.
----------------------------------------------------------------- ----- -----------------------------------------------------------------
Development strategy
Development provides <-->
an opportunity for * We manage our levels of total and speculative * Development is a key element of our investment case
outperformance but development exposure as a proportion of the as a fundamental driver of value, but is inherently
usually brings with investment portfolio value within a target range higher risk, particularly when pursued on a
it elevated risk. considering associated risks and the impact on key speculative basis. We limit our development exposure
This is reflected financial metrics. This is monitored quarterly by the to 15% of the total investment portfolio by value,
in our decision-making Risk Committee along with progress of developments with a maximum of 8% to be developed speculatively.
process around which against plan.
schemes to develop,
the timing of the * We actively manage our development risk and
development, as * Prior to committing to a development, a detailed pre-letting our space is an important part of that
well as the execution appraisal is undertaken. This includes consideration approach. Reflecting our continued successful leasing
of these projects. of returns relative to risk adjusted hurdle rates and activity, 88% of our recently completed and committed
Development strategy is overseen by our Investment Committee. developments are pre-let.
addresses several
development risks
that could adversely * Pre-lets are used to reduce development letting risk * Covid-19: We chose to halt construction on our
impact underlying where considered appropriate. committed pipeline; however, work has safely
income and capital recommenced at all our major developments, albeit
performance including: currently operating at much lower levels of
* development letting exposure * Competitive tendering of construction contracts and, productivity due to reduced numbers of people on site
where appropriate, fixed price contracts entered and amended working practices. Delays in construction
into. may lead to increased cost and there is a risk of
* construction timing and costs (including construction disputes with development partners as to who bears
cost inflation) the cost of delays. However, our committed
* Detailed selection and close monitoring of developments are close to completion and 88% pre-let.
contractors including covenant reviews. Our speculative exposure is low at 0.6% of the total
* major contractor failure investment portfolio, and we are unlikely to make
further commitments until we have further clarity on
* Experienced development management team closely the macro outlook.
* adverse planning judgements monitors design, construction and overall delivery
process.
* Early engagement and strong relationships with
planning authorities.
* We actively engage with the communities in which we
operate, as detailed in our Local Charter, to ensure
that our development activities consider the
interests of all stakeholders.
* We manage environmental and social risks across our
development supply chain by engaging with our
suppliers, including through our Supplier Code of
Conduct, Sustainability Brief for Developments and
Health and Safety Policy.
----------------------------------------------------------------- ----- -----------------------------------------------------------------
Capital structure - leverage
Our capital structure <-->
recognises the need * We manage our use of debt and equity finance to * Over the last few years we have lowered our leverage
for balance between balance the benefits of leverage against the risks, and benefit from a sound financial position, with a
performance, risk including magnification of property valuation proportionally consolidated LTV of 34%. This
and flexibility: movements. financial strength provides us with the capacity to
* leverage magnifies property returns, both positive progress opportunities.
and negative
* We aim to manage our loan to value (LTV) through the
property cycle such that our financial position would * Covid-19: Given our debt covenant structure across
* an increase in leverage increases the risk of a remain robust in the event of a significant fall in the Group, we could withstand a further fall in asset
breach of covenants on borrowing facilities and may property values. This means we do not adjust our values of c.45% before any mitigating actions.
increase finance costs approach to leverage based on changes in property
market yields.
* We manage our investment activity, the size and
timing of which can be uneven, as well as our
development commitments to ensure that our LTV level
remains appropriate.
* We leverage our equity and achieve benefits of scale
while spreading risk through joint ventures and funds
which are typically partly financed by debt without
recourse to British Land.
----------------------------------------------------------------- ----- -----------------------------------------------------------------
Finance strategy
Finance strategy <-->
addresses risks * Five key principles guide our financing, employed * The scale of our business and quality of our assets
both to continuing together to manage the risks in this area: diversify have enabled us to access a broad range of debt
solvency and profits our sources of finance, phase maturity of debt finance on attractive terms. During the year, we have
generated. portfolio, maintain liquidity, maintain flexibility, completed GBP550m of refinancing and extended GBP925m
and maintain strong metrics. of facilities.
Failure to manage
refinancing requirements
may result in a * We monitor the period until financing is required, * Our senior unsecured rating was affirmed at 'A' and
shortage of funds which is a key determinant of financing activity. our short term IDR was upgraded to 'F1' during the
to sustain the operations Debt and capital market conditions are reviewed year.
of the business regularly to identify financing opportunities that
or repay facilities meet our business requirements.
as they fall due. * Covid-19: We have GBP1.3bn of undrawn facilities and
cash and no requirement to refinance until 2024.
* Financial covenant headroom is evaluated regularly
and in conjunction with transactions.
* We are committed to maintaining and enhancing
relationships with our key financing partners.
* We are mindful of relevant emerging regulation which
has the potential to impact the way that we finance
the business.
----------------------------------------------------------------- ----- -----------------------------------------------------------------
People
A number of critical Our HR strategy is
business processes designed to minimise * Our people strategy is focused on creating a diverse
and decisions lie risk through: team with a range of skills and experiences who can
in the hands of * informed and skilled recruitment processes deliver Places People Prefer.
a few people.
Failure to recruit,
develop and retain * talent performance management and succession planning * Over the year, we have continued to make significant
staff and Directors for key roles advances in ensuring that British Land remains a
with the right skills great place to work, so that our employees remain
and experience may motivated and engaged to deliver our strategy.
result in significant * highly competitive compensation and benefits
underperformance
or impact the effectiveness * Covid-19: The Covid-19 crisis presents a health &
of operations and * people development and training safety risk to our people and has made day-to-day
decision making, operations more difficult and complex; and in the
in turn impacting medium term our operating model may need to change.
business performance. The risk is measured The health and wellbeing of our people has always
through employee engagement been our priority and we were quick to encourage all
surveys, employee our office-based staff to work from home. We are
turnover and retention providing the resources our people need to work
metrics. We monitor effectively from home, as well as actively monitoring
this through voluntary our staff wellbeing during this prolonged period of
staff turnover in lockdown.
addition to conducting
exit interviews.
We engage with our
employees and suppliers
to make clear our
requirements in managing
key risks including
health and safety,
fraud and bribery
and other social and
environmental risks,
as detailed in our
policies and codes
of conduct.
----------------------------------------------------------------- ----- -----------------------------------------------------------------
Income sustainability
We are mindful of
maintaining sustainable * We undertake comprehensive profit and cash flow * Our income streams are underpinned by high quality
income streams which forecasting incorporating scenario analysis to model assets and a diverse occupier base with high
underpin a stable the impact of proposed transactions. occupancy. However, our income will be negatively
and growing dividend impacted by the challenges facing the retail market
and provide the compounded by Covid-19.
platform from which * We take a proactive asset management approach to
to grow the business. maintain a strong occupier line-up. We monitor our
market letting exposure including vacancies, upcoming * We continue to actively monitor our exposure to
We consider sustainability expiries and breaks and speculative development as occupiers at risk of default and administration and
of our income streams well as our weighted average unexpired lease term. are selective about the sectors and occupiers we
in: target.
* execution of investment strategy and capital
recycling, notably timing of reinvestment of sale * We have a high quality and diversified occupier base
proceeds and monitor concentration of exposure to individual * Covid-19: We are mindful of the challenges facing the
occupiers or sectors. retail market which has seen more retailers fail. To
support our smaller retail, food & beverage and
* nature and structure of leasing activity leisure customers facing financial challenges we have
* We are proactive in addressing key lease breaks and been offering rental reductions and for larger
expiries to minimise periods of vacancy. occupiers rent deferrals. Given the likely impact of
* nature and timing of asset management and development the current crisis on occupiers, there is a risk of
activity higher levels of non-payment of rent. There is also a
* We actively engage with the communities in which we risk that UK government initiatives temporarily
operate, as detailed in our Local Charter, to ensure structurally alter the ongoing legal obligations of
we provide places that meet the needs of all relevant occupiers to meet their contractual commitments to
stakeholders. landlords. To preserve flexibility the Board has
temporarily suspended dividends until there is
sufficient clarity of outlook.
----------------------------------------------------------------- ----- -----------------------------------------------------------------
Key
Change in risk assessment from last year
Increase
<--> No change
Decrease
Consolidated income statement
For the year ended 31 March 2020
2020 2019
===================================== ==== ================================ ===============================
Capital Capital
and and
Underlying(1) other Total Underlying(1) other Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
===================================== ==== ============= ======= ======== ============= ======= =======
Revenue 3 526 87 613 554 350 904
Costs 3 (148) (70) (218) (141) (258) (399)
------------------------------------- ---- ------------- ------- -------- ------------- ------- -------
3 378 17 395 413 92 505
Joint ventures and funds (see
also below) 8 79 (306) (227) 86 (79) 7
Administrative expenses (73) - (73) (80) - (80)
Valuation movement 4 - (1,105) (1,105) - (620) (620)
Profit (loss) on disposal of
investment properties
and investments - 1 1 - (18) (18)
Net financing costs
financing income 5 1 - 1 - - -
financing charges 5 (67) (41) (108) (67) (46) (113)
------------- ------- -------- ------------- ------- -------
(66) (41) (107) (67) (46) (113)
------------------------------------- ---- ------------- ------- -------- ------------- ------- -------
Profit (loss) on ordinary activities
before taxation 318 (1,434) (1,116) 352 (671) (319)
Taxation 6 - 2 2 - (1) (1)
------------------------------------- ---- ------------- ------- -------- ------------- ------- -------
Loss for the year after taxation (1,114) (320)
------------------------------------- ---- ------------- ------- -------- ------------- ------- -------
Attributable to non-controlling
interests 12 (99) (87) 12 (41) (29)
Attributable to shareholders
of the Company 306 (1,333) (1,027) 340 (631) (291)
------------------------------------- ---- ------------- ------- -------- ------------- ------- -------
Earnings per share:
basic 2 (110.0)p (30.0)p
diluted 2 (110.0)p (30.0)p
-------- -------
All results derive from continuing operations.
2020 2019
==================================== ==== ============================= =============================
Capital Capital
and and
Underlying(1) other Total Underlying(1) other Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
==================================== ==== ============= ======= ===== ============= ======= =====
Results of joint ventures and
funds accounted
for using the equity method
Underlying Profit 79 - 79 86 - 86
Valuation movement 4 - (284) (284) - (63) (63)
Capital financing costs - (22) (22) - (21) (21)
Profit on disposal of investment
properties,
trading properties and investments - - - - 3 3
Taxation - - - - 2 2
------------------------------------ ---- ------------- ------- ----- ------------- ------- -----
8 79 (306) (227) 86 (79) 7
------------------------------------ ---- ------------- ------- ----- ------------- ------- -----
1. See definition in note 2
Consolidated statement of comprehensive income
For the year ended 31 March 2020
2020 2019
GBPm GBPm
=========================================================== ======= =====
Loss for the year after taxation (1,114) (320)
Other comprehensive income:
Items that will not be reclassified subsequently to profit
or loss:
Valuation movements on owner-occupied properties 1 3
------- -----
1 3
------- -----
Items that may be reclassified subsequently to profit or
loss:
Gains (losses) on cash flow hedges
- Group 2 1
- Joint ventures and funds (1) -
------- -----
1 1
------- -----
Transferred to the income statement (cash flow hedges)
- Interest rate derivatives - Group - -
- Interest rate derivatives - joint ventures(1) - 18
Deferred tax on items of other comprehensive income - (1)
Other comprehensive income for the year 2 21
----------------------------------------------------------- ------- -----
Total comprehensive loss for the year (1,112) (299)
----------------------------------------------------------- ------- -----
Attributable to non-controlling interests (86) (29)
Attributable to shareholders of the Company (1,026) (270)
----------------------------------------------------------- ------- -----
1. Represents a reclassification of cumulative losses within the Group revaluation reserve to capital profit and loss, because the hedged item has affected profit or loss
Consolidated balance sheet
As at 31 March 2020
2020 2019
Note GBPm GBPm
=================================================== ==== ======= =======
ASSETS
Non-current assets
Investment and development properties 7 8,188 8,931
Owner-occupied properties 7 68 73
------- -------
8,256 9,004
------- -------
Other non-current assets
Investments in joint ventures and funds 8 2,358 2,560
Other investments 9 125 129
Property, plant and equipment 6 22
Deferred tax assets 13 - 1
Interest rate and currency derivative assets 14 231 154
------- -------
10,976 11,870
------- -------
Current assets
Trading properties 7 20 87
Debtors 10 56 57
Cash and short term deposits 14 193 242
------- -------
269 386
--------------------------------------------------- ---- ------- -------
Total assets 11,245 12,256
--------------------------------------------------- ---- ------- -------
LIABILITIES
Current liabilities
Short term borrowings and overdrafts 14 (637) (99)
Creditors 11 (253) (289)
Corporation tax (17) (25)
------- -------
(907) (413)
------- -------
Non-current liabilities
Debentures and loans 14 (2,865) (2,932)
Other non-current liabilities 12 (156) (92)
Deferred tax liabilities 13 (1) -
Interest rate and currency derivative liabilities 14 (169) (130)
------- -------
(3,191) (3,154)
--------------------------------------------------- ---- ------- -------
Total liabilities (4,098) (3,567)
--------------------------------------------------- ---- ------- -------
Net assets 7,147 8,689
--------------------------------------------------- ---- ------- -------
EQUITY
Share capital 234 240
Share premium 1,307 1,302
Merger reserve 213 213
Other reserves 38 37
Retained earnings 5,243 6,686
--------------------------------------------------- ---- ------- -------
Equity attributable to shareholders of the Company 7,035 8,478
Non-controlling interests 112 211
--------------------------------------------------- ---- ------- -------
Total equity 7,147 8,689
--------------------------------------------------- ---- ------- -------
EPRA NAV per share(1) 2 774p 905p
--------------------------------------------------- ---- ------- -------
1. As defined in note 2
Consolidated statement of cash flows
For the year ended 31 March 2020
2020 2019
Note GBPm GBPm
=========================================================== ==== ===== =====
Rental income received from tenants 415 449
Fees and other income received 42 62
Operating expenses paid to suppliers and employees (146) (162)
Indirect taxes received in respect of operating activities 11 -
Sale of trading properties 82 268
Cash generated from operations 404 617
----- -----
Interest paid (79) (75)
Interest received 5 7
Corporation taxation (payments) repayments (4) 5
Distributions and other receivables from joint ventures
and funds 8 49 59
----- -----
Net cash inflow from operating activities 375 613
----- -----
Cash flows from investing activities
Development and other capital expenditure (259) (218)
Purchase of investment properties (52) (185)
Sale of investment properties 77 380
Acquisition of remaining share of Aldgate JV (21) -
Acquisition of investment in WOSC joint venture (57) -
Purchase of investments (9) (9)
Sale of investments 19 13
Indirect taxes received (paid) in respect of investing
activities 1 (3)
Investment in and loans to joint ventures and funds (191) (298)
Loan repayments from joint ventures and funds - 247
Capital distributions from joint ventures and funds 131 260
----- -----
Net cash (outflow) inflow from investing activities (361) 187
----- -----
Cash flows from financing activities
Issue of ordinary shares 5 2
Purchase of own shares (125) (204)
Dividends paid 15 (295) (298)
Dividends paid to non-controlling interests (13) (14)
Capital payments in respect of interest rate derivatives (14) (19)
Decrease in lease liabilities (8) -
Decrease in bank and other borrowings (189) (576)
Drawdowns on bank and other borrowings 576 446
----- -----
Net cash outflow from financing activities (63) (663)
----- -----
Net (decrease) increase in cash and cash equivalents (49) 137
Cash and cash equivalents at 1 April 242 105
----------------------------------------------------------- ---- ----- -----
Cash and cash equivalents at 31 March 193 242
----------------------------------------------------------- ---- ----- -----
Cash and cash equivalents consists of:
Cash and short term deposits 14 193 242
----------------------------------------------------------- ---- ----- -----
Consolidated statement of changes in equity
For the year ended 31 March 2020
Hedging
and Re- Non-
Share Share translation valuation Merger Retained controlling Total
capital premium reserve(1) reserve reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================== ======== ======== ============ ========== ======== ========= ======= ============ =======
Balance at 1 April
2019 240 1,302 11 26 213 6,686 8,478 211 8,689
------------------- -------- -------- ------------ ---------- -------- --------- ------- ------------ -------
Loss for the year
after taxation - - - - - (1,027) (1,027) (87) (1,114)
Revaluation of
owner-occupied
property - - - 1 - - 1 - 1
Gains on cash flow
hedges -
Group - - 1 - - - 1 1 2
Losses on cash flow
hedges
- joint ventures - - - (1) - - (1) - (1)
Deferred tax on
items of other
comprehensive
income - - - - - - - - -
-------- -------- ------------ ---------- -------- --------- ------- ------------ -------
Other comprehensive
income - - 1 - - - 1 1 2
------------------- -------- -------- ------------ ---------- -------- --------- ------- ------------ -------
Total comprehensive
income
for the year - - 1 - - (1,027) (1,026) (86) (1,112)
------------------- -------- -------- ------------ ---------- -------- --------- ------- ------------ -------
Share issues - 5 - - - - 5 - 5
Fair value of share
and share
option awards - - - - - (2) (2) - (2)
Purchase of own
shares (6) - - - - (119) (125) - (125)
Dividends payable
in year (31.47p
per share) - - - - - (295) (295) - (295)
Dividends payable
by subsidiaries - - - - - - - (13) (13)
------------------- -------- -------- ------------ ---------- -------- --------- ------- ------------ -------
Balance at 31 March
2020 234 1,307 12 26 213 5,243 7,035 112 7,147
------------------- -------- -------- ------------ ---------- -------- --------- ------- ------------ -------
Balance at 1 April
2018 248 1,300 11 22 213 7,458 9,252 254 9,506
------------------- -------- -------- ------------ ---------- -------- --------- ------- ------------ -------
Loss for the year
after taxation - - - - - (291) (291) (29) (320)
Revaluation of
owner-occupied
property - - - 3 - - 3 - 3
Gains on cash flow
hedges -
Group - - 1 - - - 1 - 1
Closeout of cash
flow hedges
- joint ventures
and funds - - - 18 - - 18 - 18
Reserves transfer -
joint venture
cash flow hedges - - - (17) - 17 - - -
Deferred tax on
items of other
comprehensive
income - - (1) - - - (1) - (1)
-------- -------- ------------ ---------- -------- --------- ------- ------------ -------
Other comprehensive
income - - - 4 - 17 21 - 21
------------------- -------- -------- ------------ ---------- -------- --------- ------- ------------ -------
Total comprehensive
income
for the year - - - 4 - (274) (270) (29) (299)
------------------- -------- -------- ------------ ---------- -------- --------- ------- ------------ -------
Share issues - 2 - - - - 2 - 2
Fair value of share
and share
option awards - - - - - (4) (4) - (4)
Purchase of own
shares (8) - - - - (196) (204) - (204)
Dividends payable
in year (30.54p
per share) - - - - - (298) (298) - (298)
Dividends payable
by subsidiaries - - - - - - - (14) (14)
------------------- -------- -------- ------------ ---------- -------- --------- ------- ------------ -------
Balance at 31 March
2019 240 1,302 11 26 213 6,686 8,478 211 8,689
------------------- -------- -------- ------------ ---------- -------- --------- ------- ------------ -------
1. The balance at the beginning of the current year includes GBP15m in relation to translation and (GBP4m) in relation to hedging (2018/19: GBP15m and (GBP4m)). Opening and closing balances in relation to hedging relate to continuing hedges only
Notes to the accounts
1 Basis of preparation, significant accounting policies and accounting judgements
The financial statements for the year ended 31 March 2020 have been prepared on the historical cost basis, except for the revaluation of properties, investments held for trading and derivatives. The financial statements have also been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and interpretations issued by the IFRS Interpretations Committee (IFRS IC), and therefore comply with article 4 of the EU IAS regulation, and in accordance with the Companies Act 2006. In the current financial year the Group has adopted a number of minor amendments to standards effective in the year issued by the IASB and endorsed by the EU, none of which have had a material impact on the Group. The accounting policies used are otherwise consistent with those contained in the Group's previous Annual Report and Accounts for the year ended 31 March 2019.
New standards effective for the current accounting period do not have a material impact on the consolidated financial statements of the Group. These are discussed in further detail below.
IFRS 16 - Leases
The new standard was adopted by the Group on 1 April 2019. The Group adopted IFRS 16 in accordance with IFRS 16 C8. This approach allows the recognition of the lease liability and asset as at 1 April 2019 with no restatement of prior period financial statements. The Group has applied the practical expedient on transition to apply a single discount rate to a portfolio of leases with reasonably similar characteristics. The Group has also adopted the practical expedients relating to short term and low value assets which allow these to be expensed through the income statement.
The leases which have been brought onto the balance sheet include management agreements between the Group and its Broadgate JV partner, which are in substance lease agreements, as well as a small number of leases the Group holds as lessee. These leases were previously classified as operating leases under IAS 17. IFRS 16 has not impacted the accounting treatment of leases the Group holds as lessor, therefore the adoption of the accounting standard has not had a material impact on the Group.
The impact on the balance sheet at 1 April 2019, on adoption of IFRS 16, is a GBP56m increase in investment property, a GBP1m reduction in current assets and a corresponding GBP55m increase in liabilities. The impact relating to new leases which commenced during the year is a GBP40m increase in investment property and a GBP40m increase in liabilities. New leases which commenced in the year relate to the management agreements described above.
On transition the lease liability was calculated as the present value of the outstanding rental payments, discounted using the Group's incremental borrowing rate at the date of initial application. The right of use asset was then set as being equal to the liability, adjusted by a GBP1m increase in relation to prepaid rent which is added to the right-of-use asset on adoption. Therefore the impact on net assets on adoption is nil. The weighted average incremental borrowing rate applied to the lease liabilities recognised at the date of initial application was 1.5%.
The right-of-use assets meet the definition of investment property and are subsequently measured under the fair value model. The adoption of IFRS 16 has increased profit/(loss) before tax by GBP19m, GBP20m of which results from the revaluation gain recognised on the right-of-use assets and (GBP1m) of which results from interest on lease liabilities.
The Group has considered amendments to standards endorsed by the European Union effective for the current accounting period and determined that these do not have a material impact on the consolidated financial statements of the Group. These amendments include, amendments to IFRS 9 (prepayments features), IAS 28 (long term interests), IAS 19 (plan amendments) and IFRIC 23.
A number of new standards and amendments to standards and interpretations have been issued but are not yet effective for the current accounting period.
Amendments to IFRS 3 (Business Combinations) is effective for financial years commencing on or after 1 January 2020. The amendments relate to changes in the criteria for determining whether an acquisition is a business combination or an asset acquisition. These amendments will be applied to any future business combinations.
Amendments to IFRS 9 (Financial Instruments) is effective for financial years commencing on or after 1 January 2020. The amendments offer relief in meeting the criteria for hedge accounting on the transition from LIBOR to IBOR. The adoption of these amendments is not considered to have a material impact on the financial statements of the Group.
Amendments to References to the Conceptual Framework are effective for financial years commencing on or after 1 January 2020. The adoption of these amendments is not considered to have a material impact on the consolidated financial statements of the Group.
Amendments to IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors) are also effective for financial years commencing on or after 1 January 2020. The amendments will be applied to any future changes in Accounting Policy, Accounting Estimates or Errors.
Notes to the accounts continued
1 Basis of preparation, significant accounting policies and accounting judgements continued
Going concern
The financial statements are prepared on a going concern basis. The Balance Sheet shows that the company has net current liabilities, mainly as a result of the convertible bond and a credit facility within the HUT fund reaching maturity within the next twelve months. As the Group has access to GBP1.1bn of undrawn facilities and the HUT facility was refinanced post period end, the Directors believe the Group will be able to meet these current liabilities as they fall due. In making this assessment the Directors took into account the covenant headroom on the Group's unsecured facilities, equivalent to a 45% fall in property values, the absence of interest cover covenants on these facilities and the limited capital expenditure remaining on the Group's committed development programme. Before factoring in any income receivable, the facilities should also be sufficient to cover forecast property operating costs, administrative expenses and interest over the next 12 months. As a consequence of this, the Directors feel that the Group is well placed to manage its business risks successfully despite the current economic climate. Accordingly, they believe the going concern basis is an appropriate one.
Accounting judgements and estimates
In applying the Group's accounting policies, the Directors are required to make judgements and estimates that affect the financial statements.
Significant areas of estimation are:
Valuation of investment, trading and owner-occupied properties and investments classified as fair value through profit or loss. The Group uses external professional valuers to determine the relevant amounts. The primary source of evidence for property valuations should be recent, comparable market transactions on an arms-length basis. However, the valuation of the Group's property portfolio and investments classified as fair value through profit or loss are inherently subjective, as they are based upon valuer assumptions which may prove to be inaccurate.
The third party valuers for properties recognised at 31 March 2020 include a material valuation uncertainty clause in their reports. The clause highlights significant estimation uncertainty regarding the valuation of investment property due to the Covid-19 pandemic. The valuations as at the current balance sheet date should therefore be treated with additional caution.
Other less significant areas of estimation include the valuation of fixed rate debt and interest rate derivatives, the determination of share-based payment expense, the actuarial assumptions used in calculating the Group's retirement benefit obligations, provisions for trade debtors and lease incentive receivables and taxation provisions.
The following items are ongoing areas of accounting judgement, however, significant judgment has not been required for any of these items in the current financial year.
REIT status: British Land is a Real Estate Investment Trust (REIT) and does not pay tax on its property income or gains on property sales, provided that at least 90% of the Group's property income is distributed as a dividend to shareholders, which becomes taxable in their hands. In addition, the Group has to meet certain conditions such as ensuring the property rental business represents more than 75% of total profits and assets. Any potential or proposed changes to the REIT legislation are monitored and discussed with HMRC. It is management's intention that the Group will continue as a REIT for the foreseeable future.
Accounting for joint ventures and funds: In accordance with IFRS 10 'Consolidated financial statements', IFRS 11 'Joint arrangements', and IFRS 12 'Disclosures of interests in other entities' an assessment is required to determine the degree of control or influence the Group exercises and the form of any control to ensure that the financial statement treatment is appropriate. The assessment undertaken by management includes consideration of the structure, legal form, contractual terms and other facts and circumstances relating to the relevant entity. This assessment is updated annually and there have been no changes in the judgement reached in relation to the degree of control the Group exercises within the current or prior year. Group shares in joint ventures and funds resulting from this process are disclosed in note 8 to the financial statements.
Joint ventures are accounted for under the equity method, whereby the consolidated balance sheet incorporates the Group's share of the net assets of its joint ventures and associates. The consolidated income statement incorporates the Group's share of joint venture and associate profits after tax.
Accounting for transactions: Property transactions are complex in nature and can be material to the financial statements. Judgements made in relation to transactions include whether an acquisition is a business combination or an asset; whether held for sale criteria have been met for transactions not yet completed; accounting for transaction costs and contingent consideration; and application of the concept of linked accounting. Management consider each transaction separately in order to determine the most appropriate accounting treatment, and, when considered necessary, seek independent advice.
Notes to the accounts continued
2 Performance measures
Earnings per share
The Group measures financial performance with reference to underlying earnings per share, the European Public Real Estate Association (EPRA) earnings per share and IFRS earnings per share. The relevant earnings and weighted average number of shares (including dilution adjustments) for each performance measure are shown below, and a reconciliation between these is shown within the supplementary disclosures (Table B).
EPRA earnings per share is calculated using EPRA earnings, which is the IFRS loss after taxation attributable to shareholders of the Company excluding investment and development property revaluations, gains/losses on investing and trading property disposals, changes in the fair value of financial instruments and associated close-out costs and their related taxation. In the current year, diluted EPRA earnings per share did not include the dilutive impact of the 2015 convertible bond, as the Group's share price was below the current exchange price of 975.09 pence. IFRS diluted earnings per share would include the dilutive impact as IAS 33 ignores this hurdle to conversion, however due to the current year loss, this would be anti-dilutive and therefore no adjustment is made. In the prior year, both EPRA and IFRS measures exclude the dilutive impact of the 2015 convertible bond as the Company's share price had not exceeded the level required for the convertible conditions attached to the bond to trigger conversion into shares.
Underlying earnings per share is calculated using Underlying Profit adjusted for underlying taxation (see note 6). Underlying Profit is the pre-tax EPRA earnings measure, with additional Company adjustments. No Company adjustments were made in either the current or prior year.
2020 2019
=================== =============================== ===============================
Relevant Earnings Relevant Earnings
Relevant number per Relevant number per
earnings of shares share earnings of shares share
Earnings per share GBPm million pence GBPm million pence
=================== ========= ========== ======== ========= ========== ========
Underlying
Underlying basic 306 934 32.8 340 971 35.0
Underlying diluted 306 937 32.7 340 974 34.9
------------------- --------- ---------- -------- --------- ---------- --------
EPRA
EPRA basic 306 934 32.8 340 971 35.0
EPRA diluted 306 937 32.7 340 974 34.9
------------------- --------- ---------- -------- --------- ---------- --------
IFRS
Basic (1,027) 934 (110.0) (291) 971 (30.0)
Diluted (1,027) 934 (110.0) (291) 971 (30.0)
------------------- --------- ---------- -------- --------- ---------- --------
Net asset value
The Group measures financial position with reference to EPRA net asset value (NAV) per share and EPRA triple net asset value (NNNAV) per share. The net asset value and number of shares for each performance measure are shown below. A reconciliation between IFRS net assets and EPRA net assets, and the relevant number of shares for each performance measure, is shown within the supplementary disclosures (Table B). EPRA net assets is a proportionally consolidated measure that is based on IFRS net assets excluding the mark-to-market on derivatives and related debt adjustments, the mark-to-market on the convertible bonds and deferred taxation on property and derivative valuations. They include the valuation surplus on trading properties and are adjusted for the dilutive impact of share options.
As at 31 March 2020, EPRA NAV and EPRA NNNAV did not include the dilutive impact of the 2015 convertible bond, as the Group's share price was below the exchange price of 975.09 pence. IFRS net assets also does not include the convertible impact following the treatment of IFRS earnings per share. In the prior year, both EPRA and IFRS measures exclude the dilutive impact of the 2015 convertible bond as the Company's share price had not exceeded the level required for the convertible conditions attached to the bond to trigger conversion into shares.
2020 2019
========================== =============================== =============================
Net asset Relevant Net asset
Relevant Relevant value Relevant number value
net number per net of per
assets of shares share assets shares share
Net asset value per share GBPm million pence GBPm million pence
========================== ======== ========== ========= ======== ======== =========
EPRA
EPRA NAV 7,213 932 774 8,649 956 905
EPRA NNNAV 6,762 932 726 8,161 956 854
-------------------------- -------- ---------- --------- -------- -------- ---------
IFRS
Basic 7,147 927 771 8,689 949 916
Diluted 7,147 932 767 8,689 956 909
-------------------------- -------- ---------- --------- -------- -------- ---------
Notes to the accounts continued
2 Performance measures continued
Total accounting return
The Group also measures financial performance with reference to total accounting return. This is calculated as the movement in EPRA net asset value per share and dividend paid in the year as a percentage of the EPRA net asset value per share at the start of the year.
2020 2019
======================== =============================== =================================
Decrease
in Dividend Decrease Dividend
NAV per in per
per share Total NAV share Total
share paid accounting per share paid accounting
pence pence return pence pence return
======================== ======== ======== =========== ========== ======== ===========
Total accounting return (131) 31.47 (11.0%) (62) 30.54 (3.3%)
------------------------ -------- -------- ----------- ---------- -------- -----------
EPRA published updated Best Practice Recommendations in October 2019 which introduced three new Net Asset valuations. These are applicable for accounting periods starting on or after 1 January 2020 and the Group will adopt these Recommendations for the year ended 31 March 2021. Total accounting return will be based upon one of these new asset valuations, EPRA Net Tangible Assets, which the Board judges to be closely aligned with EPRA Net Asset Value. See Supplementary Disclosures, Table B for further details.
3 Revenue and costs
2020 2019
========================== ==========================
Capital Capital
and and
Underlying other Total Underlying other Total
GBPm GBPm GBPm GBPm GBPm GBPm
====================================== ========== ======= ===== ========== ======= =====
Rent receivable 431 - 431 444 - 444
Spreading of tenant incentives and
guaranteed rent increases (3) - (3) (6) - (6)
Surrender premia 5 - 5 1 - 1
-------------------------------------- ---------- ------- ----- ---------- ------- -----
Gross rental income 433 - 433 439 - 439
-------------------------------------- ---------- ------- ----- ---------- ------- -----
Trading property sales proceeds - 87 87 - 350 350
Service charge income 64 - 64 76 - 76
Management and performance fees (from
joint ventures and funds) 8 - 8 7 - 7
Other fees and commissions 21 - 21 32 - 32
-------------------------------------- ---------- ------- ----- ---------- ------- -----
Revenue 526 87 613 554 350 904
-------------------------------------- ---------- ------- ----- ---------- ------- -----
Trading property cost of sales - (70) (70) - (258) (258)
Service charge expenses (61) - (61) (76) - (76)
Property operating expenses (50) - (50) (35) - (35)
Impairment of tenant incentives and
guaranteed rent increases(1) (20) - (20) - - -
Other fees and commissions expenses (17) - (17) (30) - (30)
-------------------------------------- ---------- ------- ----- ---------- ------- -----
Costs (148) (70) (218) (141) (258) (399)
-------------------------------------- ---------- ------- ----- ---------- ------- -----
378 17 395 413 92 505
-------------------------------------- ---------- ------- ----- ---------- ------- -----
1. In the current year this balance includes GBP15m (2018/19: GBPnil) in relation to write-offs and provision against tenant incentive balances held by the Group and GBP5m (2018/19: GBPnil) in relation to write-offs of guaranteed rent increases.
The cash element of net rental income (gross rental income less property operating expenses) recognised during the year ended 31 March 2020 from properties which were not subject to a security interest was GBP316m (2018/19: GBP356m). Property operating expenses relating to investment properties that did not generate any rental income were GBPnil (2018/19: GBP1m). Contingent rents of GBP3m (2018/19: GBP3m) were recognised in the year.
As a result of adopting IFRS 16, the Group now reports separately service charge income for leases where a single payment is received to cover both rent and service charge. The total payment is included within rental income in the prior year. In the current year, the service charge component has now been separated and reported as service charge income in the notes to the financial statements.
4 Valuation movements on property
2020 2019
GBPm GBPm
=========================================================== ======= =====
Consolidated income statement
Revaluation of properties (1,105) (620)
Revaluation of properties held by joint ventures and funds
accounted for using the equity method (284) (63)
----------------------------------------------------------- ------- -----
(1,389) (683)
----------------------------------------------------------- ------- -----
Consolidated statement of comprehensive income
Revaluation of owner-occupied properties 1 3
----------------------------------------------------------- ------- -----
(1,388) (680)
----------------------------------------------------------- ------- -----
Notes to the accounts continued
5 Net financing costs
2020 2019
GBPm GBPm
================================================================= ===== =====
Underlying
Financing charges
Bank loans and overdrafts (25) (21)
Derivatives 30 29
Other loans (76) (75)
Obligations under head leases (4) (3)
----- -----
(75) (70)
Development interest capitalised 8 3
----- -----
(67) (67)
Financing income
Deposits, securities and liquid investments 1 -
----- -----
1 -
----------------------------------------------------------------- ----- -----
Net financing charges - underlying (66) (67)
----------------------------------------------------------------- ----- -----
Capital and other
Financing charges
Valuation movements on fair value hedge accounted derivatives(2) 62 41
Valuation movements on fair value hedge accounted debt(2) (62) (38)
Capital financing costs(1) 3 (32)
Fair value movement on convertible bonds (4) (6)
Valuation movement on non-hedge accounted derivatives (40) (11)
----- -----
(41) (46)
----- -----
Net financing charges - capital (41) (46)
----------------------------------------------------------------- ----- -----
Net financing costs
Total financing income 1 -
Total financing charges (108) (113)
----------------------------------------------------------------- ----- -----
Net financing costs (107) (113)
----------------------------------------------------------------- ----- -----
Interest payable on unsecured bank loans and related interest rate derivatives was GBP9m (2018/19: GBP8m). Interest on development expenditure is capitalised at the Group's weighted average interest rate of 1.9% (2018/19: 2.2%). The weighted average interest rate on a proportionately consolidated basis at 31 March 2020 was 2.5% (2018/19: 2.9%).
1. Primarily bond redemption costs.
2. The difference between valuation movements on designated fair value hedge accounted derivatives (hedging instruments) and the valuation movements on fair value hedge accounted debt (hedged item) represents hedge ineffectiveness for the period of GBPnil (2018/19: GBP3m)
Notes to the accounts continued
6 Taxation
2020 2019
GBPm GBPm
================================================================ ======= =====
Taxation (expense) income
Current taxation:
UK corporation taxation: 19% (2018/19: 19%) (1) (10)
Adjustments in respect of prior years 5 13
------- -----
Total current taxation income 4 3
Deferred taxation on revaluations and derivatives (2) (4)
---------------------------------------------------------------- ------- -----
Group total taxation 2 (1)
Attributable to joint ventures and funds - 2
---------------------------------------------------------------- ------- -----
Total taxation income 2 1
---------------------------------------------------------------- ------- -----
Taxation reconciliation
Loss on ordinary activities before taxation (1,116) (319)
Less: loss (profit) attributable to joint ventures and funds(1) 227 (5)
------- -----
Group loss on ordinary activities before taxation (889) (324)
------- -----
Taxation on loss on ordinary activities at UK corporation
taxation rate of 19% (2018/19: 19%) 169 62
Effects of:
* REIT exempt income and gains (165) (73)
* Taxation losses (5) 1
* Deferred taxation on revaluations and derivatives (2) (4)
* Adjustments in respect of prior years 5 13
---------------------------------------------------------------- ------- -----
Group total taxation income (expense) 2 (1)
---------------------------------------------------------------- ------- -----
1. A current taxation income of GBPnil (2018/19: GBP2m) and a deferred taxation credit of GBPnil (2018/19: GBPnil) arose on profits attributable to joint ventures and funds. The low tax charge reflects the Group's REIT status
Taxation expense attributable to Underlying Profit for the year ended 31 March 2020 was GBPnil (2018/19: GBPnil). Corporation taxation payable at 31 March 2020 was GBP17m (2018/19: GBP25m) as shown on the balance sheet. During the year to 31 March 2020 tax provisions in respect of historic taxation matters and current points of uncertainty in the UK have been released and provisions made.
A REIT is required to pay Property Income Distributions (PIDs) of at least 90% of the taxable profits from its UK property rental business within twelve months of the end of each accounting period. Following the temporary suspension of future dividends to best ensure we can effectively support our customers who are hardest hit and protect the long term value of the business as a result of Covid-19, we are discussing an extension to this deadline with HMRC. To date GBP29m of the PID required in respect of the year to 31 March 2020 has been paid. Whilst we intend pay the required PID amount within the agreed deadline, the balance of the required PID not paid by the extended due date would instead be subject to corporation tax and a charge of up to GBP37m would become due. The Group is currently in discussions with HMRC over the timing of payments of Property Income Distributions required by the REIT regime.
Notes to the accounts continued
7 Property
Property reconciliation for the year ended 31 March 2020
Investment
Offices and
and Canada development Owner-
Retail Residential Water Developments properties Occupied
Level Level Level Level Level Trading Level
3 3 3 3 3 Properties 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========================== ======= ============ ====== ============ ============ =========== ========= =======
Carrying value at 1 April
2019 4,317 3,776 318 520 8,931 87 73 9,091
Additions
- property purchases 19 34 - 41 94 - - 94
- development
expenditure 1 2 24 129 156 - - 156
- capitalised interest
and staff costs - - 4 5 9 - - 9
- capital expenditure
on asset management
initiatives1 36 54 - 2 92 - - 92
- right-of-use assets 5 48 21 - 74 - - 74
------- ------------ ------ ------------ ------------ ----------- --------- -------
61 138 49 177 425 - - 425
------- ------------ ------ ------------ ------------ ----------- --------- -------
Depreciation - - - - - - (1) (1)
Disposals (58) - - - (58) (67) - (125)
Reclassifications 45 (14) - (26) 5 - (5) -
Revaluations included
in income statement (1,158) 35 33 (15) (1,105) - - (1,105)
Revaluations included
in OCI - - - - - - 1 1
Movement in tenant
incentives
and contracted rent
uplift
balances (19) 6 - 3 (10) - - (10)
------- ------------ ------ ------------ ------------ ----------- --------- -------
Carrying value at 31 March
2020 3,188 3,941 400 659 8,188 20 68 8,276
------- ------------ ------ ------------ ------------ ----------- --------- -------
Lease liabilities (note
11 and 12) (163)
Less valuation surplus
on right-of-use assets2 (20)
Valuation surplus on trading
properties 13
----------------------------------- ------------ ------ ------------ ------------ ----------- --------- -------
Group property portfolio valuation
at 31 March 2020 8,106
Non-controlling interests (185)
-------------------------- ------- ------------ ------ ------------ ------------ ----------- --------- -------
Group property portfolio valuation at 31 March 2020
attributable to shareholders 7,921
------------------------------------------------------------------------------------- ----------- --------- -------
1. Offices capital expenditure includes GBP36m of flexible workspace fitout in the current year which has been reclassified from property, plant and equipment to property additions.
2. Relates to properties held under leasing agreements. The fair value of right-of-use assets is determined by calculating the present value of net rental cashflows over the term of the lease agreements. IFRS 16 right-of-use assets are not externally valued, their fair value is determined by management, and are therefore not included in the Group property portfolio valuation of GBP8,106m above.
Property valuation
The different valuation method levels are defined below:
Level Quoted prices (unadjusted) in active markets for identical assets
1: or liabilities.
Level Inputs other than quoted prices included within Level 1 that are
2: observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
Level Inputs for the asset or liability that are not based on observable
3: market data (unobservable inputs).
These levels are specified in accordance with IFRS 13 'Fair Value Measurement'. Property valuations are inherently subjective as they are made on the basis of assumptions made by the valuer which may not prove to be accurate. For these reasons, and consistent with EPRA's guidance, we have classified the valuations of our property portfolio as Level 3 as defined by IFRS 13. The inputs to the valuations are defined as 'unobservable' by IFRS 13 and these are analysed in a table on the following page. There were no transfers between levels in the year.
During the current financial period, the Group adopted the new accounting standard IFRS 16, Leases. The right-of-use asset recognised on adoption is included within the investment and development property line. The carrying amount of right-of-use assets included within the line is GBP67m. An adjustment is made to reflect the fact that separate lease liabilities are recognised on balance sheet in relation to right-of-use assets.
The general risk environment in which the Group operates has heightened during the period, which is largely due to the continued level of uncertainty of the future impact of the UK's exit from the EU, the outbreak of the Novel Coronavirus (Covid-19) and the significant deterioration in the UK retail market and weaker investment markets. This environment could have a significant impact upon property valuations.
The Group's total property portfolio was valued by external valuers on the basis of fair value, in accordance with the RICS Valuation - Professional Standards 2014, ninth edition, published by The Royal Institution of Chartered Surveyors.
Notes to the accounts continued
7 Property continued
The outbreak of Covid-19, declared by the World Health Organisation as a "Global Pandemic" on 11 March 2020, has impacted global financial markets. Travel restrictions have been implemented by many countries. Market activity is being impacted in many sectors. As at the valuation date, the external valuers consider that they can attach less weight to previous market evidence for comparison purposes, to inform opinions of value. The current response to Covid-19 means that external valuers are faced with an unprecedented set of circumstances on which to base a judgment. The valuations across all asset classes are therefore reported on the basis of "material valuation uncertainty" as per VPS 3 and VPGA 10 of the RICS Red Book Global. Consequently, less certainty - and a higher degree of caution - should be attached to the valuations provided than would normally be the case. The external valuers have confirmed, the inclusion of the "material valuation uncertainty" declaration does not mean that valuations cannot be relied upon. Rather, the phrase is used in order to be clear and transparent with all parties, in a professional manner that - in the current extraordinary circumstances - less certainty can be attached to valuations than would otherwise be the case. In light of this material valuation uncertainty we have reviewed the ranges used in assessing the impact of changes in unobservable inputs on the fair value of the Group's property portfolio. Whilst the property valuations reflect the external valuers' assessment of the impact of Covid-19 at the valuation date, we consider +/-10% for ERV, +/-50bps for NEY and +/-10% for development costs to capture the increased uncertainty in these key valuation assumptions.
There has been no change in the valuation methodology used for investment property as a result of Covid-19.
A provision of GBP17m (2018/19: GBP14m) has been made against tenant incentives and contracted rent uplift balances. The charge to the income statement in relation to write-offs and provisions made against tenant lease incentives and guaranteed rents was GBP20m (see note 3).
The information provided to the valuers, and the assumptions and valuation models used by the valuers, are reviewed by the property portfolio team, the Head of Real Estate and the Chief Financial Officer. The valuers meet with the external auditors and also present directly to the Audit Committee at the interim and year end review of results.
Investment properties, excluding properties held for development, are valued by adopting the 'investment method' of valuation.
This approach involves applying capitalisation yields to current and future rental streams net of income voids arising from vacancies or rent-free periods and associated running costs. These capitalisation yields and future rental values are based on comparable property and leasing transactions in the market using the valuers' professional judgement and market observation. Other factors taken into account in the valuations include the tenure of the property, tenancy details and ground and structural conditions.
In the case of ongoing developments, the approach applied is the 'residual method' of valuation, which is the investment method of valuation as described above, with a deduction for all costs necessary to complete the development, including a notional finance cost, together with a further allowance for remaining risk. Properties held for development are generally valued by adopting the higher of the residual method of valuation, allowing for all associated risks, or the investment method of valuation for the existing asset.
Copies of the valuation certificates of Knight Frank LLP, CBRE, Jones Lang LaSalle and Cushman & Wakefield can be found at
britishland.com/reports.
A breakdown of valuations split between the Group and its share of joint ventures and funds is shown below:
2020 2019
=================================== ======================== ========================
Joint Joint
ventures ventures
and and
Group funds Total Group funds Total
GBPm GBPm GBPm GBPm GBPm GBPm
=================================== ===== ========= ====== ===== ========= ======
Knight Frank LLP 1,420 54 1,474 1,434 2,256 3,690
CBRE 2,097 183 2,280 2,675 231 2,906
Jones Lang LaSalle 1,348 765 2,113 1,889 1,099 2,988
Cushman & Wakefield 3,241 2,270 5,511 3,030 19 3,049
----------------------------------- ----- --------- ------ ----- --------- ------
Total property portfolio valuation 8,106 3,272 11,378 9,028 3,605 12,633
Non-controlling interests (185) (36) (221) (267) (50) (317)
----------------------------------- ----- --------- ------ ----- --------- ------
Total property portfolio valuation
attributable to shareholders 7,921 3,236 11,157 8,761 3,555 12,316
----------------------------------- ----- --------- ------ ----- --------- ------
Notes to the accounts continued
7 Property continued
Information about fair value measurements using unobservable inputs (Level 3) for the year ended 31 March 2020
Costs to complete
ERV per sq ft Equivalent yield per sq ft
===================== ========== ============ =================== ==================== =====================
Fair value
at
31 March
2020 Valuation Min Max Average Min Max Average Min Max Average
Investment GBPm technique GBP GBP GBP % % % GBP GBP GBP
===================== ========== ============ ==== ==== ======= ==== ==== ======== ===== ===== =======
Investment
Retail 3,128 methodology 2 87 21 4 11 7 - 85 15
Investment
Offices(1) 3,851 methodology 9 177 60 4 5 4 - 421 62
Investment
Canada Water 364 methodology 15 31 20 2 6 4 - - -
Investment
Residential 70 methodology 38 38 38 4 4 4 - - -
Residual
Developments 660 methodology 48 62 55 4 5 4 - 367 220
--------------------- ---------- ------------ ---- ---- ------- ---- ---- -------- ----- ----- -------
Total 8,073
Trading properties
at fair value 33
--------------------- ---------- ------------ ---- ---- ------- ---- ---- -------- ----- ----- -------
Group property
portfolio valuation 8,106
--------------------- ---------- ------------ ---- ---- ------- ---- ---- -------- ----- ----- -------
1. Includes owner-occupied
8 Joint ventures and funds
Summary movement for the year of the investments in joint ventures and funds
Joint
ventures Funds Total Equity Loans Total
GBPm GBPm GBPm GBPm GBPm GBPm
======================================= ========= ===== ===== ====== ===== =====
At 1 April 2019 2,330 230 2,560 2,112 448 2,560
Additions 256 3 259 7 252 259
Disposals (23) - (23) (22) (1) (23)
Share of profit on ordinary activities
after taxation (179) (48) (227) (227) - (227)
Distributions and dividends:
* Capital (131) (2) (133) (133) - (133)
* Revenue (64) (13) (77) (77) - (77)
Hedging and exchange movements (1) - (1) (1) - (1)
--------------------------------------- --------- ----- ----- ------ ----- -----
At 31 March 2020 2,188 170 2,358 1,659 699 2,358
--------------------------------------- --------- ----- ----- ------ ----- -----
Notes to the accounts continued
8 Joint ventures and funds continued
The summarised income statements and balance sheets below and on the following page show 100% of the results, assets and liabilities of joint ventures and funds. Where necessary, these have been restated to the Group's accounting policies.
Joint ventures' and funds' summary financial statements for the year ended 31 March 2020
MSC Property
Broadgate Intermediate
REIT Holdings WOSC Partners
Ltd Ltd Limited Partnership
============================================ ============= ============= ====================
Partners Euro Bluebell Norges Bank Norges Bank
LLP Investment Investment
(GIC) Management Management
-------------------------------------------- ------------- ------------- --------------------
Property sector City Offices Shopping Offices
Broadgate Centres
Meadowhall
-------------------------------------------- ------------- ------------- --------------------
Group share 50% 50% 25%
-------------------------------------------- ------------- ------------- --------------------
Summarised income statements GBPm GBPm GBPm
============================================ ============= ============= ====================
Revenue(4) 203 103 4
Costs (78) (27) (1)
------------- ------------- --------------------
125 76 3
Administrative expenses (1) - -
Net interest payable (63) (30) -
------------- ------------- --------------------
Underlying Profit 61 46 3
Net valuation movement 204 (542) (3)
Capital financing costs(5) (12) - -
(Loss) profit on disposal of investment
properties and investments - - -
------------- ------------- --------------------
Profit (loss) on ordinary activities before
taxation 253 (496) -
Taxation - - -
-------------------------------------------- ------------- ------------- --------------------
Profit (loss) on ordinary activities after
taxation 253 (496) -
-------------------------------------------- ------------- ------------- --------------------
Other comprehensive income - (2) -
-------------------------------------------- ------------- ------------- --------------------
Total comprehensive income (expense) 253 (498) -
-------------------------------------------- ------------- ------------- --------------------
British Land share of total comprehensive
income (expense) 127 (249) -
-------------------------------------------- ------------- ------------- --------------------
British Land share of distributions payable 17 4 -
-------------------------------------------- ------------- ------------- --------------------
Summarised balance sheets
============================================ ============= ============= ====================
Investment and trading properties 4,539 1,202 218
Current assets 28 8 3
Cash and deposits 209 20 4
------------- ------------- --------------------
Gross assets 4,776 1,230 225
------------- ------------- --------------------
Current liabilities (118) (30) (4)
Bank and securitised debt (1,368) (583) -
Loans from joint venture partners (850) (409) (217)
Other non-current liabilities - (21) (4)
------------- ------------- --------------------
Gross liabilities (2,336) (1,043) (225)
-------------------------------------------- ------------- ------------- --------------------
Net assets 2,440 187 -
-------------------------------------------- ------------- ------------- --------------------
British Land share of net assets less
shareholder loans 1,220 93 -
-------------------------------------------- ------------- ------------- --------------------
1. USS joint ventures include the Eden Walk Shopping Centre Unit Trust and the Fareham Property Partnership
2. Hercules Unit Trust joint ventures and sub-funds includes 50% of the results of Deepdale Co-Ownership Trust, Fort Kinnaird Limited Partnership and Valentine
Co-Ownership Trust and 41.25% of Birstall Co-Ownership Trust. The balance sheet shows 50% of the assets of these joint ventures and sub-funds
3. Included in the column headed 'Other joint ventures and funds' are contributions from the following: BL Goodman Limited Partnership, Bluebutton Property Management UK Limited, City of London Office Unit Trust and BL Sainsbury's Superstores Limited and Pillar Retail Europark Fund (PREF). The Group's ownership share of PREF is 65%, however as the Group is not able to exercise control over significant decisions of the fund, the Group equity accounts for its interest in PREF.
4. Revenue includes gross rental income at 100% share of GBP284m (2018/19: GBP310m)
5. Capital financing costs of GBP32m in other joint ventures and funds relates to bond redemption costs in a joint venture with Sainsbury's
Notes to the accounts continued
Hercules Unit
The SouthGate USS Trust Other Total
Limited joint joint ventures joint ventures Total Group share
Partnership ventures(1) and sub-funds(2) and funds(3) 2020 2020
============= =============== ================= =============== ======= ============
Aviva Universities
Investors Superannuation
Scheme Group
PLC
------------- --------------- ----------------- --------------- ------- ------------
Shopping Shopping Retail
Centres Centres Parks
------------- --------------- ----------------- --------------- ------- ------------
50% 50% Various
------------- --------------- ----------------- --------------- ------- ------------
GBPm GBPm GBPm GBPm GBPm GBPm
============= =============== ================= =============== ======= ============
18 14 32 9 383 191
(5) (5) (8) - (124) (62)
------------- --------------- ----------------- --------------- ------- ------------
13 9 24 9 259 129
(1) - - (1) (3) (1)
(1) - - (2) (96) (49)
------------- --------------- ----------------- --------------- ------- ------------
11 9 24 6 160 79
(45) (49) (129) (5) (569) (284)
- - - (32) (44) (22)
- - 1 (2) (1) -
------------- --------------- ----------------- --------------- ------- ------------
(34) (40) (104) (33) (454) (227)
- - - - - -
------------- --------------- ----------------- --------------- ------- ------------
(34) (40) (104) (33) (454) (227)
------------- --------------- ----------------- --------------- ------- ------------
- - - - (2) (1)
------------- --------------- ----------------- --------------- ------- ------------
(34) (40) (104) (33) (456) (228)
------------- --------------- ----------------- --------------- ------- ------------
(17) (20) (52) (17) (228)
------------- --------------- ----------------- --------------- ------- ------------
6 4 13 136 180
------------- --------------- ----------------- --------------- ------- ------------
208 188 332 - 6,687 3,288
2 1 2 - 44 24
5 6 11 10 265 131
------------- --------------- ----------------- --------------- ------- ------------
215 195 345 10 6,996 3,443
------------- --------------- ----------------- --------------- ------- ------------
(4) (3) (9) (3) (171) (85)
- - - - (1,951) (975)
- (31) - (3) (1,510) (701)
(28) - - - (53) (25)
------------- --------------- ----------------- --------------- ------- ------------
(32) (34) (9) (6) (3,685) (1,786)
------------- --------------- ----------------- --------------- ------- ------------
183 161 336 4 3,311 1,657
------------- --------------- ----------------- --------------- ------- ------------
91 80 171 2 1,657
------------- --------------- ----------------- --------------- ------- ------------
The borrowings of joint ventures and funds and their subsidiaries are non-recourse to the Group. All joint ventures are incorporated in the United Kingdom, with the exception of Broadgate REIT Limited and the Eden Walk Shopping Centre Unit Trust which are incorporated in Jersey. Of the funds, the Hercules Unit Trust (HUT) joint ventures and sub-funds are incorporated in Jersey.
These financial statements include the results and financial position of the Group's interest in the Fareham Property Partnership, the BL Goodman Limited Partnership and the Gibraltar Limited Partnership. Accordingly, advantage has been taken of the exemptions provided by Regulation 7 of the Partnership (Accounts) Regulations 2008 not to attach the partnership accounts to these financial statements.
Notes to the accounts continued
8 Joint ventures and funds continued
Operating cash flows of joint ventures and funds (Group share)
2020 2019
GBPm GBPm
==================================================================== ===== =====
Rental income received from tenants 131 160
Operating expenses paid to suppliers and employees (27) (23)
----- -----
Cash generated from operations 104 137
----- -----
Interest paid (56) (70)
Interest received 1 1
UK corporation tax paid (2) (2)
-------------------------------------------------------------------- ----- -----
Cash inflow from operating activities 47 66
-------------------------------------------------------------------- ----- -----
Cash inflow from operating activities deployed as:
(Deficit) surplus cash retained within joint ventures and
funds (2) 7
Revenue distributions per consolidated statement of cash
flows 49 59
Revenue distributions split between controlling and non-controlling
interests
-------------------------------------------------------------------- ----- -----
Attributable to non-controlling interests 2 3
Attributable to shareholders of the Company 47 56
-------------------------------------------------------------------- ----- -----
9 Other investments
2020 2019
====================================== ======================================
Fair Fair
value value
through through
profit Amortised Intangible profit Amortised Intangible
or loss cost assets Total or loss cost assets Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ======== ========= ========== ===== ======== ========= ========== =====
At 1 April 114 5 10 129 112 28 10 150
Additions 4 2 4 10 - 8 4 12
Transfers / disposals - (4) - (4) - (27) - (27)
Revaluation (7) - - (7) 2 (4) - (2)
Depreciation / amortisation - - (3) (3) - - (4) (4)
---------------------------- -------- --------- ---------- ----- -------- --------- ---------- -----
At 31 March 111 3 11 125 114 5 10 129
---------------------------- -------- --------- ---------- ----- -------- --------- ---------- -----
Included within fair value through profit or loss is GBP93m (2018/19: GBP100m) comprising interests as a trust beneficiary. The trust's assets comprise freehold reversions in a pool of commercial properties, comprising Sainsbury's superstores. The interest, categorised as Level 3 in the fair value hierarchy, is subject to the same inputs as those disclosed in note 7, and its fair value was determined by the Directors, supported by an external valuation. The remaining amounts included in the fair value through profit or loss relate to private equity/venture capital investments of GBP2m (2019/18: GBPnil) which are categorised as Level 3 in the fair value hierarchy and government bonds of GBP16m (2018/19: GBP14m) which are classified as Level 1. The fair value of private equity/venture capital investments is determined by the Directors.
10 Debtors
2020 2019
GBPm GBPm
=============================== ===== =====
Trade and other debtors 29 34
Prepayments and accrued income 10 9
Rental deposits 17 14
------------------------------- ----- -----
56 57
------------------------------- ----- -----
Trade and other debtors are shown after deducting a provision for bad and doubtful debts of GBP14m (2018/19: GBP6m). The provision for doubtful debts is calculated as an expected credit loss on trade and other debtors in accordance with IFRS 9. The charge to the income statement in relation to write-offs and provisions made against doubtful debts was GBP8m (2018/19: GBP1m).
The expected credit loss is recognised on initial recognition of a debtor and is reassessed at each reporting period. In order to calculate the expected credit loss, the Group applies a forward-looking outlook to historic default rates. In the current reporting period, the forward-looking outlook has considered the impacts of Covid-19. The historic default rates used are specific to how many days past due a receivable is. Specific provisions are also made in excess of the expected credit loss where information is available to suggest that a higher provision than the expected credit loss is required. In the current reporting period, an additional review of tenant debtors was undertaken to assess recoverability in light of the Covid-19 pandemic.
The Directors consider that the carrying amount of trade and other debtors is approximate to their fair value. There is no concentration of credit risk with respect to trade debtors as the Group has a large number of customers who are paying their rent in advance.
Notes to the accounts continued
11 Creditors
2020 2019
GBPm GBPm
=================================== ===== =====
Trade creditors 55 94
Other taxation and social security 27 28
Accruals 89 82
Deferred income 58 71
Lease liabilities 7 -
Rental deposits due to tenants 17 14
----------------------------------- ----- -----
253 289
----------------------------------- ----- -----
Trade creditors are interest-free and have settlement dates within one year. The Directors consider that the carrying amount of trade and other creditors is approximate to their fair value.
12 Other non-current liabilities
2020 2019
GBPm GBPm
================== ===== =====
Lease liabilities 156 92
------------------ ----- -----
156 92
------------------ ----- -----
During the current financial period, the Group adopted the new accounting standard IFRS 16, Leases. The lease liabilities recognised as a result of IFRS 16 represent GBP40m of the total in the table above and GBP7m of lease liabilities disclosed in note 11.
13 Deferred tax
The movement on deferred tax is as shown below:
Deferred tax assets year ended 31 March 2020
Debited
1 April to Credited 31 March
2019 income(1) to equity(2) 2020
GBPm GBPm GBPm GBPm
=================================================== ======= ========== ============= ========
Interest rate and currency derivative revaluations 1 (1) - -
Other timing differences 6 (1) - 5
--------------------------------------------------- ------- ---------- ------------- --------
7 (2) - 5
--------------------------------------------------- ------- ---------- ------------- --------
Deferred tax liabilities year ended 31 March 2020
GBPm GBPm GBPm GBPm
===================================== ==== ==== ==== ====
Property and investment revaluations (6) - - (6)
------------------------------------- ---- ---- ---- ----
(6) - - (6)
------------------------------------- ---- ---- ---- ----
Net deferred tax liabilities 1 (2) - (1)
------------------------------------- ---- ---- ---- ----
1. A GBP1m credit in respect of the deferred tax asset, credited to income, results from the change in the tax rate used to calculate the deferred tax to 19% (2018/19: 17%)
2. A GBP1m debit in respect of the deferred tax liability, debited to equity, results from the change in the tax rate used to calculate deferred tax to 19% (2018/19: 17%)
Deferred tax assets year ended 31 March 2019
Debited
1 April to Credited 31 March
2018 income to equity 2019
GBPm GBPm GBPm GBPm
=================================================== ======= ======= ========== ========
Interest rate and currency derivative revaluations 4 (3) - 1
Other timing differences 7 (1) - 6
--------------------------------------------------- ------- ------- ---------- --------
11 (4) - 7
--------------------------------------------------- ------- ------- ---------- --------
Deferred tax liabilities year ended 31 March 2019
GBPm GBPm GBPm GBPm
===================================== ==== ==== ==== ====
Property and investment revaluations (7) - 1 (6)
------------------------------------- ---- ---- ---- ----
(7) - 1 (6)
------------------------------------- ---- ---- ---- ----
Net deferred tax assets 4 (4) 1 1
------------------------------------- ---- ---- ---- ----
The following corporation tax rates have been substantively enacted: 19% effective from 1 April 2017. The deferred tax assets and liabilities have been calculated at the tax rate effective in the period that the tax is expected to crystallise.
The Group has recognised a deferred tax asset calculated at 19% (2018/19: 17%) of GBP4m (2018/19: GBP6m) in respect of capital losses from previous years available for offset against future capital profit. Further unrecognised deferred tax assets in respect of capital losses of GBP135m (2018/19: GBP123m) exist at 31 March 2020.
Notes to the accounts continued
13 Deferred tax continued
The Group has recognised deferred tax assets on derivative revaluations to the extent that future matching taxable profits are expected to arise. At 31 March 2020, the Group had an unrecognised deferred tax asset calculated at 19% (2018/19: 17%) of GBP52m (2018/19: GBP49m) in respect of UK revenue tax losses from previous years.
Under the REIT regime, development properties which are sold within three years of completion do not benefit from tax exemption. At 31 March 2020, the value of such properties is GBP254m (2018/19: GBP148m) and if these properties were to be sold and no tax exemption was available, the tax arising would be GBP21m (2018/19: GBP11m).
14 Net debt
2020 2019
GBPm GBPm
Footnote
----------------------------------------- -------- ----- -----
Secured on the assets of the
Group
5.264% First Mortgage Debenture
Bonds 2035 375 368
5.0055% First Mortgage Amortising
Debentures 2035 91 94
5.357% First Mortgage Debenture
Bonds 2028 249 252
Bank loans 1 515 512
Loan notes - 2
----- -----
1,230 1,228
Unsecured
5.50% Senior Notes 2027 - 99
4.635% Senior US Dollar Notes
2021 2 180 168
4.766% Senior US Dollar Notes
2023 2 117 106
5.003% Senior US Dollar Notes
2026 2 80 69
3.81% Senior Notes 2026 113 111
3.97% Senior Notes 2026 115 113
0% Convertible Bond 2020 347 343
2.375% Sterling Unsecured Bond
2029 298 298
4.16% Senior US Dollar Notes
2025 2 89 78
2.67% Senior Notes 2025 37 37
2.75% Senior Notes 2026 37 37
Floating Rate Senior Notes 2028 80 80
Floating Rate Senior Notes 2034 102 -
Bank loans and overdrafts 677 264
----- -----
2,272 1,803
----------------------------------------- -------- ----- -----
Gross debt 3 3,502 3,031
----------------------------------------- -------- ----- -----
Interest rate and currency derivative
liabilities 169 130
Interest rate and currency derivative
assets (231) (154)
Cash and short term deposits 4,5 (193) (242)
----------------------------------------- -------- ----- -----
Total net debt 3,247 2,765
----------------------------------------- -------- ----- -----
Net debt attributable to non-controlling
interests (107) (104)
----------------------------------------- -------- ----- ----- Net debt attributable to shareholders of the Company 3,140 2,661 ----------------------------------------- -------- ----- ----- Amounts payable under leases (note 11 and 12) 163 92 ----------------------------------------- -------- ----- ----- Total net debt (including lease liabilities) 3,410 2,857 ----------------------------------------- -------- ----- ----- Net debt attributable to non-controlling interests (including lease liabilities) (112) (109) ----------------------------------------- -------- ----- ----- Net debt attributable to shareholders of the Company (including lease liabilities) 3,298 2,748 ----------------------------------------- -------- ----- -----
1. These are non-recourse borrowings with no recourse for repayment to other companies or assets in the Group
2020 2019
GBPm GBPm
==================== ===== =====
Hercules Unit Trust 515 512
-------------------- ----- -----
515 512
-------------------- ----- -----
2. Principal and interest on these borrowings were fully hedged into Sterling at a floating rate at the time of issue
3. The principal amount of gross debt at 31 March 2020 was GBP3,294m (2018/19: GBP2,881m). Included in this is the principal amount of secured borrowings and other borrowings of non-recourse companies of GBP1,156m of which the borrowings of the partly-owned subsidiary, Hercules Unit Trust, not beneficially owned by the Group are GBP113m
4. Included within cash and short term deposits is the cash and short term deposits of Hercules Unit Trust, of which GBP6m is the proportion not beneficially owned by the Group
5. Cash and deposits not subject to a security interest amount to GBP173m (2018/19: GBP228m)
Notes to the accounts continued
14 Net debt continued
Maturity analysis of net debt
2020 2019
GBPm GBPm
============================================ ===== =====
Repayable: within one year and on demand 637 99
----- -----
Between: one and two years 188 710
two and five years 829 644
five and ten years 1,141 808
ten and fifteen years 107 305
fifteen and twenty years 600 465
----- -----
2,865 2,932
----- -----
Gross debt 3,502 3,031
----- -----
Interest rate and currency derivatives (62) (24)
Cash and short term deposits (193) (242)
-------------------------------------------- ----- -----
Net debt 3,247 2,765
-------------------------------------------- ----- -----
0% Convertible bond 2015 (maturity 2020)
On 9 June 2015, British Land (White) 2015 Limited (the 2015 Issuer), a wholly-owned subsidiary of the Group, issued GBP350 million zero coupon guaranteed convertible bonds due 2020 (the 2015 bonds) at par. The 2015 Issuer is fully guaranteed by the Company in respect of the 2015 bonds.
Subject to their terms, the 2015 bonds are convertible into preference shares of the 2015 Issuer which are automatically transferred to the Company in exchange for ordinary shares in the Company or, at the Company's election, any combination of ordinary shares and cash. Bondholders may exercise their conversion right at any time up to but excluding the seventh dealing day before 9 June 2020 (the maturity date), a bondholder may convert at any time.
The initial exchange price was 1103.32 pence per ordinary share. The exchange price is adjusted based on certain events (such as the Company paying dividends in any quarter above 3.418 pence per ordinary share). As at 31 March 2020 the exchange price was 975.09 pence per ordinary share.
From 30 June 2018, the Company has the option to redeem the 2015 bonds at par if the Company's share price has traded above 130% of the exchange price for a specified period, or at any time once 85% by nominal value of the 2015 bonds have been converted, redeemed, or purchased and cancelled. The 2015 bonds will be redeemed at par on 9 June 2020 (the maturity date) if they have not already been converted, redeemed or purchased and cancelled.
The Group has the ability to repay these bonds via existing committed undrawn credit facilities.
Fair value and book value of net debt
2020 2019
========================================= ========================== ==========================
Fair Book Fair Book
value value Difference value value Difference
GBPm GBPm GBPm GBPm GBPm GBPm
========================================= ====== ====== ========== ====== ====== ==========
Debentures and unsecured bonds 2,022 1,964 58 2,036 1,910 126
Convertible bonds 347 347 - 343 343 -
Bank debt and other floating rate
debt 1,197 1,191 6 784 778 6
----------------------------------------- ------ ------ ---------- ------ ------ ----------
Gross debt 3,566 3,502 64 3,163 3,031 132
----------------------------------------- ------ ------ ---------- ------ ------ ----------
Interest rate and currency derivative
liabilities 169 169 - 130 130 -
Interest rate and currency derivative
assets (231) (231) - (154) (154) -
Cash and short term deposits (193) (193) - (242) (242) -
----------------------------------------- ------ ------ ---------- ------ ------ ----------
Net debt 3,311 3,247 64 2,897 2,765 132
----------------------------------------- ------ ------ ---------- ------ ------ ----------
Net debt attributable to non-controlling
interests (107) (107) - (105) (104) (1)
----------------------------------------- ------ ------ ---------- ------ ------ ----------
Net debt attributable to shareholders
of the Company 3,204 3,140 64 2,792 2,661 131
----------------------------------------- ------ ------ ---------- ------ ------ ----------
The fair values of debentures, unsecured bonds and the convertible bond have been established by obtaining quoted market prices from brokers. The bank debt and other floating rate debt has been valued assuming it could be renegotiated at contracted margins. The derivatives have been valued by calculating the present value of expected future cash flows, using appropriate market discount rates, by an independent treasury adviser.
Short term debtors and creditors and other investments have been excluded from the disclosures on the basis that the fair value is equivalent to the book value. The fair value hierarchy level of debt held at amortised cost is level 2 (as defined in note 7).
Notes to the accounts continued
14 Net debt continued
Group loan to value (LTV)
2020 2019
GBPm GBPm
============================================================== ====== ======
Group loan to value (LTV) 28.9% 22.2%
-------------------------------------------------------------- ------ ------
Principal amount of gross debt 3,294 2,881
Less debt attributable to non-controlling interests (113) (112)
Less cash and short term deposits (balance sheet) (193) (242)
Plus cash attributable to non-controlling interests 6 9
-------------------------------------------------------------- ------ ------
Total net debt for LTV calculation 2,994 2,536
-------------------------------------------------------------- ------ ------
Group property portfolio valuation (note 7) 8,106 9,028
Investments in joint ventures and funds (note 8) 2,358 2,560
Other investments and property, plant and equipment (balance
sheet) 131 151
Less property and investments attributable to non-controlling
interests (221) (317)
-------------------------------------------------------------- ------ ------
Total assets for LTV calculation 10,374 11,422
-------------------------------------------------------------- ------ ------
Proportionally consolidated loan to value (LTV)
2020 2019
GBPm GBPm
============================================================= ====== ======
Proportionally consolidated loan to value (LTV) 34.0% 28.1%
------------------------------------------------------------- ------ ------
Principal amount of gross debt 4,271 4,007
Less debt attributable to non-controlling interests (113) (112)
Less cash and short term deposits (322) (402)
Plus cash attributable to non-controlling interests 6 9
------------------------------------------------------------- ------ ------
Total net debt for proportional LTV calculation 3,842 3,502
------------------------------------------------------------- ------ ------
Group property portfolio valuation (note 7) 8,106 9,028
Share of property of joint ventures and funds (note 8) 3,272 3,605
Other investments and property, plant and equipment (balance
sheet) 131 151
Less property attributable to non-controlling interests (221) (317)
------------------------------------------------------------- ------ ------
Total assets for proportional LTV calculation 11,288 12,467
------------------------------------------------------------- ------ ------
British Land Unsecured Financial Covenants
The two financial covenants applicable to the Group unsecured debt including convertible bonds are shown below:
2020 2019
GBPm GBPm
=============================================================== ===== =====
Net Borrowings not to exceed 175% of Adjusted Capital and
Reserves 40% 29%
--------------------------------------------------------------- ----- -----
Principal amount of gross debt 3,294 2,881
Less the relevant proportion of borrowings of the partly-owned
subsidiary/non-controlling interests (113) (112)
Less cash and deposits (balance sheet) (193) (242)
Plus the relevant proportion of cash and deposits of the
partly-owned subsidiary/non-controlling interests 6 9
--------------------------------------------------------------- ----- -----
Net Borrowings 2,994 2,536
--------------------------------------------------------------- ----- -----
Share capital and reserves (balance sheet) 7,147 8,689
EPRA deferred tax adjustment (EPRA Table A) 6 5
Trading property surpluses (EPRA Table A) 13 29
Exceptional refinancing charges (see below) 199 216
Fair value adjustments of financial instruments (EPRA Table
A) 141 113
Less reserves attributable to non-controlling interests
(balance sheet) (112) (211)
--------------------------------------------------------------- ----- -----
Adjusted Capital and Reserves 7,394 8,841
--------------------------------------------------------------- ----- -----
In calculating Adjusted Capital and Reserves for the purpose of the unsecured debt financial covenants, there is an adjustment of GBP199m (2018/19: GBP216m) to reflect the cumulative net amortised exceptional items relating to the refinancings in the years ended 31 March 2005, 2006 and 2007.
Notes to the accounts continued
14 Net debt continued
2020 2019
GBPm GBPm
============================================================= ======= =======
Net Unsecured Borrowings not to exceed 70% of Unencumbered
Assets 30% 21%
------------------------------------------------------------- ------- -------
Principal amount of gross debt 3,294 2,881
Less cash and deposits not subject to a security interest
(being GBP173m less the relevant proportion of cash and
deposits of the partly-owned subsidiary/non-controlling
interests of GBP4m) (169) (221)
Less principal amount of secured and non-recourse borrowings (1,156) (1,158)
------------------------------------------------------------- ------- -------
Net Unsecured Borrowings 1,969 1,502
------------------------------------------------------------- ------- -------
Group property portfolio valuation (note 7) 8,106 9,028
Investments in joint ventures and funds (note 8) 2,358 2,560
Other investments and property, plant and equipment (balance
sheet) 131 151
Less investments in joint ventures (2,358) (2,560)
Less encumbered assets (1,733) (2,134)
------------------------------------------------------------- ------- -------
Unencumbered Assets 6,504 7,045
------------------------------------------------------------- ------- -------
Reconciliation of movement in Group net debt for the year ended 31 March 2020
Arrangement
Foreign costs
2019 Cash flows Transfers(3) exchange Fair value amortisation 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================= ===== ========== ============ ========= ========== ============= =====
Short term borrowings 99 (121) 637 - 22 - 637
Long term borrowings 2,932 507 (637) 21 37 5 2,865
Derivatives(1) (24) 4 - (21) (21) - (62)
--------------------------------- ----- ---------- ------------ --------- ---------- ------------- -----
Total liabilities from financing
activities(4) 3,007 390 - - 38 5 3,440
Cash and cash equivalents (242) 49 - - - - (193)
--------------------------------- ----- ---------- ------------ --------- ---------- ------------- -----
Net debt 2,765 439 - - 38 5 3,247
--------------------------------- ----- ---------- ------------ --------- ---------- ------------- -----
Reconciliation of movement in Group net debt for the year ended 31 March 2019
Arrangement
Foreign costs
2018 Cash flows Transfers(3) exchange Fair value amortisation 2019
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================= ===== ========== ============ ========= ========== ============= =====
Short term borrowings 27 (25) 99 (2) - - 99
Long term borrowings 3,101 (105) (99) (22) 53 4 2,932
Derivatives(2) 23 (2) - 24 (69) - (24)
--------------------------------- ----- ---------- ------------ --------- ---------- ------------- -----
Total liabilities from financing
activities(5) 3,151 (132) - - (16) 4 3,007
Cash and cash equivalents (105) (137) - - - - (242)
--------------------------------- ----- ---------- ------------ --------- ---------- ------------- -----
Net debt 3,046 (269) - - (16) 4 2,765
--------------------------------- ----- ---------- ------------ --------- ---------- ------------- -----
1. Cash flows on derivatives include GBP17m of net receipts on derivative interest
2. Cash flows on derivatives include GBP17m of net receipts on derivative interest
3. Transfers comprises debt maturing from long term to short term borrowings
4. Cash flows of GBP390m shown above represents net cash flows on capital payments in respect of interest rate derivative of GBP14m, decrease in bank and other borrowings of GBP189m and drawdowns on bank and other borrowings of GBP576m shown in the consolidated statement of cash flows, along with GBP17m of net receipts on derivative interest
5. Cash flows of GBP132m shown above represents net cash flows on interest rate derivative closeouts of GBP19m, decrease in bank and other borrowings of GBP576m and
drawdowns on bank and other borrowings of GBP446m shown in the consolidated statement of cash flows, along with GBP17m of net receipts on derivative interest
Fair value hierarchy
The table below provides an analysis of financial instruments carried at fair value, by the valuation method. The fair value hierarchy levels are defined in note 7.
2020 2019
=========================== ========================== ==========================
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=========================== ===== ===== ===== ===== ===== ===== ===== =====
Interest rate and currency
derivative assets - (231) - (231) - (154) - (154)
Other investments - fair
value through profit
or loss (note 9) (16) - (95) (111) (14) - (100) (114)
--------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Assets (16) (231) (95) (342) (14) (154) (100) (268)
--------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Interest rate and currency
derivative liabilities - 169 - 169 - 130 - 130
Convertible bonds 347 - - 347 343 - - 343
--------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Liabilities 347 169 - 516 343 130 - 473
--------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Total 331 (62) (95) 174 329 (24) (100) 205
--------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Notes to the accounts continued
14 Net debt continued
Categories of financial instruments
2020 2019
GBPm GBPm
========================================================================= ======= =======
Financial assets
Amortised cost
Cash and short term deposits 193 242
Trade and other debtors (note 10) 46 48
Other investments (note 9) 3 5
Fair value through profit or loss
Derivatives in designated fair value hedge accounting relationships(1,2) 209 148
Derivatives not in designated hedge accounting relationships 22 6
Other investments (note 9) 111 114
------------------------------------------------------------------------- ------- -------
584 563
------------------------------------------------------------------------- ------- -------
Financial liabilities
Amortised cost
Creditors (180) (208)
Gross debt (3,155) (2,688)
Lease liabilities (notes 11 and 12) (163) (92)
Fair value through profit or loss
Derivatives not in designated accounting relationships (167) (126)
Convertible bond (347) (343)
Fair value through other comprehensive income
Derivatives in designated cash flow hedge accounting relationships(1,2) (2) (4)
(4,014) (3,461)
------------------------------------------------------------------------- ------- -------
Total (3,430) (2,898)
------------------------------------------------------------------------- ------- -------
1. Derivative assets and liabilities in designated hedge accounting relationships sit within the derivative assets and derivative liabilities balances of the consolidated balance sheet
2. The fair value of derivative assets in designated hedge accounting relationships represents the accumulated amount of fair value hedge adjustments on hedged items
Gains and losses on financial instruments, as classed above, are disclosed in note 5 (net financing costs), note 10 (debtors), the consolidated income statement and the consolidated statement of comprehensive income. The Directors consider that the carrying amounts of other investments and head leases payable are approximate to their fair value, and that the carrying amounts are recoverable.
Maturity of committed undrawn borrowing facilities
2020 2019
GBPm GBPm
======================================================== ===== =====
Maturity
date: over five years 50 275
between four and five years 1,046 832
between three and four years - 86
------------------------------------------------------- ----- -----
Total facilities available for more than three years 1,096 1,193
-------------------------------------------------------- ----- -----
Between two and three years 20 435
Between one and two years - -
Within one year - -
-------------------------------------------------------- ----- -----
Total 1,116 1,628
-------------------------------------------------------- ----- -----
The above facilities are comprised of British Land undrawn facilities of GBP1,096m plus undrawn facilities of Hercules Unit Trust totalling GBP20m.
Notes to the accounts continued
15 Dividends
As announced on 26 March 2020, the Board deems it prudent to temporarily suspend future dividend payments, including the third interim and final dividend that were due for payment in May and August respectively.
A REIT is required to pay Property Income Distributions (PIDs) of at least 90% of the taxable profits from its UK property rental business within twelve months of the end of each accounting period and we are discussing an extension to this deadline with HMRC. While we intend to pay the required PID amount within the agreed extended deadline, we have agreed with HMRC that any underpayment of the PID required would instead be subject to corporation tax at 19% provided that it arises as a consequence of Covid-19. The Group comfortably passes all other REIT tests and intends to remain a REIT for the foreseeable future.
PID dividends are paid, as required by REIT legislation, after deduction of withholding tax at the basic rate (currently 20%), where appropriate. Certain classes of shareholders may be able to elect to receive dividends gross. Please refer to our website britishland.com/dividends for details.
Pence
per 2020 2019
Payment date Dividend share GBPm GBPm
====================== ================= ====== ===== =====
Current year dividends
07.02.2020 2020 2nd interim 7.9825 74
08.11.2019 2020 1st interim 7.9825 74
------
15.97
------
Prior year dividends
7.75
02.08.2019 2019 4th interim (1) 73
03.05.2019 2019 3rd interim 7.75 74
08.02.2019 2019 2nd interim 7.75 74
09.11.2018 2019 1st interim 7.75 76
------
31.00
------
03.08.2018 2018 4th interim 7.52 74
04.05.2018 2018 3rd interim 7.52 74
---------------------- ----------------- ------ ----- -----
Dividends in consolidated statement
of changes in equity 295 298
Dividends settled in shares - -
----------------------------------------- ------ ----- -----
Dividends settled in cash 295 298
Timing difference relating to payment
of withholding tax - -
----------------------------------------- ------ ----- -----
Dividends in cash flow statement 295 298
----------------------------------------- ------ ----- -----
1. Dividend split half PID, half non-PID
16 Share capital and reserves
2020 2019
============================================== ============ ============
Number of ordinary shares in issue at 1 April 960,589,072 993,857,125
Share issues 1,144,135 404,377
Repurchased and cancelled (23,795,110) (33,672,430)
---------------------------------------------- ------------ ------------
At 31 March 937,938,097 960,589,072
---------------------------------------------- ------------ ------------
Of the issued 25p ordinary shares, 7,376 shares were held in the ESOP trust (2018/19: 7,376), 11,266,245 shares were held as treasury shares (2018/19: 11,266,245) and 926,664,476 shares were in free issue (2018/19: 949,315,451). No treasury shares were acquired by the ESOP trust during the year. All issued shares are fully paid. In the year ended 31 March 2020 the Company repurchased and cancelled 23,795,110 ordinary shares at a weighted average price of 525 pence.
17 Segment information
The Group allocates resources to investment and asset management according to the sectors it expects to perform over the medium term. Its three principal sectors are Offices, Retail and Canada Water. The Retail sector includes leisure, as this is often incorporated into Retail schemes. The Other/unallocated sector includes residential properties.
The relevant gross rental income, net rental income, operating result and property assets, being the measures of segment revenue, segment result and segment assets used by the management of the business, are set out below. 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 chief operating decision maker for the purpose of segment information is the Executive Committee.
Gross rental income is derived from the rental of buildings. Operating result is the net of net rental income, fee income and administrative expenses. No customer exceeded 10% of the Group's revenues in either year.
Notes to the accounts continued
17 Segment information continued
Segment result
Offices Retail Canada Water Other/unallocated Total
==================== ============ ============ ============== =================== ============
2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================== ===== ===== ===== ===== ====== ====== ========= ======== ===== =====
Gross rental income
British Land Group 166 150 236 260 9 9 4 4 415 423
Share of joint
ventures and funds 71 70 71 83 - - - - 142 153
-------------------- ----- ----- ----- ----- ------ ------ --------- -------- ----- -----
Total 237 220 307 343 9 9 4 4 557 576
-------------------- ----- ----- ----- ----- ------ ------ --------- -------- ----- -----
Net rental income
British Land Group 145 139 189 238 8 9 4 4 346 390
Share of joint
ventures and funds 63 66 66 76 - - - - 129 142
-------------------- ----- ----- ----- ----- ------ ------ --------- -------- ----- -----
Total 208 205 255 314 8 9 4 4 475 532
-------------------- ----- ----- ----- ----- ------ ------ --------- -------- ----- -----
Operating result
British Land Group 146 132 193 235 3 4 (42) (42) 300 329
Share of joint
ventures and funds 57 61 60 71 - - - - 117 132
-------------------- ----- ----- ----- ----- ------ ------ --------- -------- ----- -----
Total 203 193 253 306 3 4 (42) (42) 417 461
-------------------- ----- ----- ----- ----- ------ ------ --------- -------- ----- -----
2020 2019
Reconciliation to Underlying Profit GBPm GBPm
================================================================== ======= =====
Operating result 417 461
Net financing costs (111) (121)
------------------------------------------------------------------ ------- -----
Underlying Profit 306 340
------------------------------------------------------------------ ------- -----
Reconciliation to loss on ordinary activities before taxation
------------------------------------------------------------------ ------- -----
Underlying Profit 306 340
Capital and other (1,434) (671)
Underlying Profit attributable to non-controlling interests 12 12
------------------------------------------------------------------ ------- -----
Loss on ordinary activities before taxation (1,116) (319)
------------------------------------------------------------------ ------- -----
Reconciliation to Group revenue
------------------------------------------------------------------ ------- -----
Gross rental income per operating segment result 557 576
Less share of gross rental income of joint ventures and funds (142) (153)
Plus share of gross rental income attributable to non-controlling
interests 18 16
------------------------------------------------------------------ ------- -----
Gross rental income (note 3) 433 439
------------------------------------------------------------------ ------- -----
Trading property sales proceeds 87 350
Service charge income 64 76
Management and performance fees (from joint ventures and funds) 8 7
Other fees and commissions 21 32
------------------------------------------------------------------ ------- -----
Revenue (consolidated income statement) 613 904
------------------------------------------------------------------ ------- -----
A reconciliation between net financing costs in the consolidated income statement and net financing costs of GBP111m (2018/19: GBP121m) in the segmental disclosures above can be found within Table A in the supplementary disclosures. Of the total revenues above, GBPnil (2018/19: GBPnil) was derived from outside the UK.
Notes to the accounts continued
17 Segment information continued
Segment assets
Offices Retail Canada Water Other/unallocated Total
==================== ============ ============ ============== =================== ==============
2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================== ===== ===== ===== ===== ====== ====== ========= ======== ====== ======
Property assets
British Land Group 4,470 4,296 2,960 4,053 364 303 147 109 7,941 8,761
Share of joint
ventures and funds 2,323 2,012 913 1,524 - - - 19 3,236 3,555
-------------------- ----- ----- ----- ----- ------ ------ --------- -------- ------ ------
Total 6,793 6,308 3,873 5,577 364 303 147 128 11,177 12,316
-------------------- ----- ----- ----- ----- ------ ------ --------- -------- ------ ------
Reconciliation to net assets
2020 2019
British Land Group GBPm GBPm
============================== ======= =======
Property assets 11,177 12,316
Other non-current assets 131 151
------------------------------ ------- -------
Non-current assets 11,308 12,467
------------------------------ ------- -------
Other net current liabilities (241) (297)
Adjusted net debt (3,854) (3,521)
Other non-current liabilities - -
------------------------------ ------- -------
EPRA net assets (diluted) 7,213 8,649
Non-controlling interests 112 211
EPRA adjustments (178) (171)
Net assets 7,147 8,689
------------------------------ ------- -------
Supplementary disclosures
Unaudited unless otherwise stated
Table A: Summary income statement and balance sheet (Unaudited)
Summary income statement based on proportional consolidation for the year ended 31 March 2020
The following pro forma information is unaudited and does not form part of the consolidated primary statements or the notes thereto. It presents the results of the Group, with its share of the results of joint ventures and funds included on a line-by-line basis and excluding non-controlling interests.
Year ended 31 March 2020 Year ended 31 March 2019
=============================================== ===============================================
Joint Less non- Joint Less non-
ventures controlling Proportionally ventures controlling Proportionally
Group and funds interests consolidated Group and funds interests consolidated
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================== ===== ========== ============ ============== ===== ========== ============ ==============
Gross rental
income(2) 436 142 (18) 560 439 155 (18) 576
Property operating
expenses (70) (13) 1 (82) (35) (10) 1 (44)
----- ---------- ------------ -------------- ----- ---------- ------------ --------------
Net rental income 366 129 (17) 478 404 145 (17) 532
Administrative
expenses (73) (1) - (74) (80) (1) - (81)
Net fees and other
income 12 - 1 13 9 - 1 10
----- ---------- ------------ -------------- ----- ---------- ------------ --------------
Ungeared income
return 305 128 (16) 417 333 144 (16) 461
Net financing
costs (66) (49) 4 (111) (67) (58) 4 (121)
------------------ ----- ---------- ------------ -------------- ----- ---------- ------------ --------------
Underlying Profit 239 79 (12) 306 266 86 (12) 340
------------------ ----- ---------- ------------ -------------- ----- ---------- ------------ --------------
Underlying
taxation - - - - - - - -
------------------ ----- ---------- ------------ -------------- ----- ---------- ------------ --------------
Underlying Profit
after taxation 239 79 (12) 306 266 86 (12) 340
------------------ ----- ---------- ------------ -------------- ----- ---------- ------------ --------------
Valuation movement (1,389) (683)
Other capital and
taxation (net)(1) 56 52
------------------ ----- ---------- ------------ -------------- ----- ---------- ------------ --------------
Result
attributable
to shareholders
of
the Company (1,027) (291)
------------------ ----- ---------- ------------ -------------- ----- ---------- ------------ --------------
1. Includes other comprehensive income, movement in dilution of share options and the movement in items excluded for EPRA NAV
2. Group gross rental income includes GBP3m of all inclusive rents relating to service charge income
Summary balance sheet based on proportional consolidation as at 31 March 2020
The following pro forma information is unaudited and does not form part of the consolidated primary statements or the notes thereto. It presents the composition of the EPRA net assets of the Group, with its share of the net assets of the joint venture and fund assets and liabilities included on a line-by-line basis, and excluding non-controlling interests, and assuming full dilution.
Mark-to-
market
Share on EPRA EPRA
of derivatives Valuation Net Net
joint Less and surplus assets assets
ventures non- related on 31 31
and controlling Share Deferred debt Lease trading March March
Group funds interests options tax adjustments Liabilities properties 2020 2019
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============== ======= ======== =========== ======= ======== =========== =========== ========== ======= =======
Retail
properties 3,204 964 (221) - - - (74) - 3,873 5,577
Office
properties 4,525 2,324 - - - - (69) 13 6,793 6,308
Canada Water
properties 400 - - - - - (36) - 364 303
Other
properties 147 - - - - - - - 147 128
-------------- ------- -------- ----------- ------- -------- ----------- ----------- ---------- ------- -------
Total
properties(1) 8,276 3,288 (221) - - - (179) 13 11,177 12,316
Investments in
joint
ventures and
funds 2,358 (2,358) - - - - - - - -
Other
investments 125 - - - - - - - 125 129
Other net
(liabilities)
assets (365) (77) 4 18 6 - 179 - (235) (275)
Net debt (3,247) (853) 105 - - 141 - - (3,854) (3,521)
-------------- ------- -------- ----------- ------- -------- ----------- ----------- ---------- ------- -------
Net assets 7,147 - (112) 18 6 141 - 13 7,213 8,649
-------------- ------- -------- ----------- ------- -------- ----------- ----------- ---------- ------- -------
EPRA NAV per
share
(note 2) 774p 905p
-------------- ------- -------- ----------- ------- -------- ----------- ----------- ---------- ------- -------
1. Included within the total property value of GBP11,177m is a right-of-use assets net of lease liabilities of GBP20m, which in substance, relates to properties held under leasing agreements. The fair value of the right-of-use asset is determined by calculating the present value of net rental cashflows over the term of the lease agreements.
Supplementary disclosures continued
Table A continued
EPRA Net assets movement
Year ended Year ended
31 March 2020 31 March 2019
======================= ================ ================
Pence Pence
per per
GBPm share GBPm share
======================= ======== ====== ======= =======
Opening EPRA NAV 8,649 905 9,560 967
Income return 306 33 340 35
Capital return (1,322) (139) (749) (77)
Dividend paid (295) (31) (298) (30)
Purchase of own shares (125) 6 (204) 10
----------------------- -------- ------ ------- -------
Closing EPRA NAV 7,213 774 8,649 905
----------------------- -------- ------ ------- -------
Table B: EPRA Performance measures
EPRA Performance measures summary table
2020 2019
====================== ============ ============
Pence Pence
per per
GBPm share GBPm share
====================================== ==== ====== ==== ======
EPRA Earnings - basic 306 32.8 340 35.0
- diluted 306 32.7 340 34.9
------------------------------------- ---- ------ ---- ------
EPRA Net Initial Yield 4.6% 4.5%
EPRA 'topped-up' Net Initial Yield 5.1% 4.7%
EPRA Vacancy Rate 6.3% 4.1%
-------------------------------------- ---- ------ ---- ------
2020 2019
=========== ===================== =====================
Net asset Net asset
value value
per per
Net assets share Net assets share
GBPm (pence) GBPm (pence)
=========== ========== ========= ========== =========
EPRA NAV 7,213 774 8,649 905
EPRA NNNAV 6,762 726 8,161 854
----------- ---------- --------- ---------- ---------
Calculation and reconciliation of EPRA/IFRS earnings and EPRA/IFRS earnings per share
2020 2019
(Audited) GBPm GBPm
============================================================== ======= =====
Loss attributable to the shareholders of the Company (1,027) (291)
Exclude:
Group - current taxation (4) (3)
Group - deferred taxation 2 4
Joint ventures and funds - taxation - (2)
Group - valuation movement 1,105 620
Group - (profit) loss on disposal of investment properties
and investments (1) 18
Group - profit on disposal of trading properties (17) (92)
Joint ventures and funds - net valuation movement (including
result on disposals) 284 60
Joint ventures and funds - capital financing costs 22 21
Changes in fair value of financial instruments and associated
close-out costs 41 46
Non-controlling interests in respect of the above (99) (41)
-------------------------------------------------------------- ------- -----
Underlying Profit 306 340
-------------------------------------------------------------- ------- -----
Group - underlying current taxation - -
-------------------------------------------------------------- ------- -----
EPRA earnings - basic and diluted 306 340
-------------------------------------------------------------- ------- -----
Loss attributable to the shareholders of the Company (1,027) (291)
Dilutive effect of 2015 convertible bond - -
-------------------------------------------------------------- ------- -----
IFRS earnings - diluted (1,027) (291)
-------------------------------------------------------------- ------- -----
Supplementary disclosures continued
Table B continued
2020 2019
Number Number
million million
==================================================== ======== ========
Weighted average number of shares 945 982
Adjustment for treasury shares (11) (11)
---------------------------------------------------- -------- --------
IFRS/EPRA Weighted average number of shares (basic) 934 971
---------------------------------------------------- -------- --------
Dilutive effect of share options - 1
Dilutive effect of ESOP shares 3 2
EPRA Weighted average number of shares (diluted) 937 974
---------------------------------------------------- -------- --------
Strip out anti-dilutive (3) (3)
---------------------------------------------------- -------- --------
IFRS Weighted average number of shares (diluted) 934 971
---------------------------------------------------- -------- --------
Net assets per share (Audited)
2020 2019
=============================================== ============= =============
Pence Pence
per per
GBPm share GBPm share
=============================================== ===== ====== ===== ======
Balance sheet net assets 7,147 8,689
----------------------------------------------- ----- ------ ----- ------
Deferred tax arising on revaluation movements 6 5
Mark-to-market on derivatives and related debt
adjustments 141 113
Dilution effect of share options 18 24
Surplus on trading properties 13 29
Less non-controlling interests (112) (211)
----------------------------------------------- ----- ------ ----- ------
EPRA NAV 7,213 774 8,649 905
----------------------------------------------- ----- ------ ----- ------
Deferred tax arising on revaluation movements (9) (11)
Mark-to-market on derivatives and related debt
adjustments (141) (113)
Mark-to-market on debt (301) (364)
----------------------------------------------- ----- ------ ----- ------
EPRA NNNAV 6,762 726 8,161 854
----------------------------------------------- ----- ------ ----- ------
EPRA NNNAV is the EPRA NAV adjusted to reflect the fair value of the debt and derivatives and to include the deferred taxation on revaluations and derivatives.
2020 2019
Number Number
million million
======================================= ======== ========
Number of shares at year end 938 960
Adjustment for treasury shares (11) (11)
--------------------------------------- -------- --------
IFRS/EPRA number of shares (basic) 927 949
--------------------------------------- -------- --------
Dilutive effect of share options 3 2
Dilutive effect of ESOP shares 2 5
IFRS / EPRA number of shares (diluted) 932 956
--------------------------------------- -------- --------
New EPRA Best Practice Recommendations
EPRA published its latest Best Practices Recommendations in October 2019 which included three new Net Asset Valuation metrics, namely EPRA Net Reinstatement Value (NRV), EPRA Net Tangible Assets (NTA) and EPRA Net Disposal Value (NDV). These metrics are effective from 1 January 2020 but have been presented below as at 31 March 2020 to provide a comparison to the current measures, EPRA NAV and EPRA NNNAV.
EPRA EPRA
NRV NTA
GBPm GBPm
========================= ===== =====
At 31 March 2020
EPRA net asset value 7,213 7,213
Adjustment for:
Purchasers' costs 659 -
Intangibles - (11)
Deferred tax adjustment1 - -
------------------------- ----- -----
7,872 7,202
------------------------- ----- -----
Per share measure 845p 773p
------------------------- ----- -----
1. The new EPRA guidance states that deferred taxes expected to crystallize should no longer be excluded. The group will conduct a review of such items upon adoption of the guidance but does not expect any resulting EPRA adjustment to be material.
Supplementary disclosures continued
Table B continued
As the Group's EPRA NDV is the same as the EPRA NNNAV, there are no reconciling items.
EPRA
NDV
GBPm
======================== =====
At 31 March 2020
EPRA net disposal value 6,762
------------------------- -----
Per share measure 726p
------------------------- -----
EPRA Net Initial Yield and 'topped-up' Net Initial Yield (Unaudited)
2020 2019
GBPm GBPm
=========================================================== ======= =======
Investment property - wholly-owned 7,941 8,761
Investment property - share of joint ventures and funds 3,236 3,555
Less developments, residential and land (1,140) (1,098)
------- -------
Completed property portfolio 10,037 11,218
Allowance for estimated purchasers' costs 724 751
----------------------------------------------------------- ------- -------
Gross up completed property portfolio valuation (A) 10,761 11,969
----------------------------------------------------------- ------- -------
Annualised cash passing rental income 517 548
Property outgoings (21) (14)
----------------------------------------------------------- ------- -------
Annualised net rents (B) 496 534
----------------------------------------------------------- ------- -------
Rent expiration of rent-free periods and fixed uplifts1 49 32
----------------------------------------------------------- ------- -------
'Topped-up' net annualised rent (C) 545 566
EPRA Net Initial Yield (B/A) 4.6% 4.5%
EPRA 'topped-up' Net Initial Yield (C/A) 5.1% 4.7%
----------------------------------------------------------- ------- -------
Including fixed/minimum uplifts received in lieu of rental
growth 10 8
----------------------------------------------------------- ------- ------- Total 'topped-up' net rents (D) 555 574 Overall 'topped-up' Net Initial Yield (D/A) 5.2% 4.8% ----------------------------------------------------------- ------- ------- 'Topped-up' net annualised rent 545 566 ERV vacant space 38 22 Reversions 13 30 ----------------------------------------------------------- ------- ------- Total ERV (E) 596 618 Net Reversionary Yield (E/A) 5.5% 5.2% ----------------------------------------------------------- ------- -------
1. The weighted average period over which rent-free periods expire is one year (2018/19: one year)
EPRA Net Initial Yield (NIY) basis of calculation
EPRA NIY is calculated as the annualised net rent (on a cash flow basis), divided by the gross value of the completed property portfolio. The valuation of our completed property portfolio is determined by our external valuers as at 31 March 2020, plus an allowance for estimated purchaser's costs. Estimated purchaser's costs are determined by the relevant stamp duty liability, plus an estimate by our valuers of agent and legal fees on notional acquisition. The net rent deduction allowed for property outgoings is based on our valuers' assumptions on future recurring non-recoverable revenue expenditure.
In calculating the EPRA 'topped-up' NIY, the annualised net rent is increased by the total contracted rent from expiry of rent-free periods and future contracted rental uplifts where defined as not in lieu of growth. Overall 'topped-up' NIY is calculated by adding any other contracted future uplift to the 'topped-up' net annualised rent.
The net reversionary yield is calculated by dividing the total estimated rental value (ERV) for the completed property portfolio, as determined by our external valuers, by the gross completed property portfolio valuation.
The EPRA vacancy rate is calculated as the ERV of the unrented, lettable space as a proportion of the total rental value of the completed property portfolio.
EPRA Vacancy Rate
2020 2019
GBPm GBPm
============================================================= ===== =====
Annualised potential rental value of vacant premises 38 26
Annualised potential rental value for the completed property
portfolio 603 629
EPRA Vacancy Rate 6.3% 4.1%
------------------------------------------------------------- ----- -----
Supplementary disclosures continued
Table B continued
EPRA Cost Ratios (Unaudited)
2020 2019
GBPm GBPm
==================================================================== ===== =====
Property operating expenses(1) 69 34
Administrative expenses 73 80
Share of joint ventures and funds expenses 14 11
Performance and management fees (from joint ventures
Less: and funds) (8) (8)
Net other fees and commissions (5) (2)
Ground rent costs and operating expenses de facto included
in rents (16) (9)
------------------------------------------------------------------- ----- -----
EPRA Costs (including direct vacancy costs) (A) 127 106
Direct vacancy costs (30) (13)
-------------------------------------------------------------------- ----- -----
EPRA Costs (excluding direct vacancy costs) (B) 97 93
Gross Rental Income less ground rent costs and operating
expenses de facto included in rents 398 414
Share of joint ventures and funds (GRI less ground rent
costs) 142 153
-------------------------------------------------------------------- ----- -----
Total Gross Rental Income less ground rent costs (C) 540 567
EPRA Cost Ratio (including direct vacancy costs) (A/C) 23.5% 18.7%
EPRA Cost Ratio (excluding direct vacancy costs) (B/C) 18.0% 16.4%
-------------------------------------------------------------------- ----- -----
Impairment of tenant incentives and guaranteed rent increases(1)
(D) 20 -
Adjusted EPRA Cost ratio (including direct vacancy costs
and excluding impairment of tenant incentives and guaranteed
rent increases) (A-D)/C 19.8% 18.7%
Adjusted EPRA Cost ratio (excluding direct vacancy costs
and excluding impairment of tenant incentives and guaranteed
rent increases) (B-D)/C 14.3% 16.4%
-------------------------------------------------------------------- ----- -----
Overhead and operating expenses capitalised (including share
of joint ventures and funds) 6 6
-------------------------------------------------------------------- ----- -----
1. Included within property operating expenses in the current year is GBP15m (2018/19: GBPnil) in relation to write-offs and provision against tenant incentive balances held by the group and GBP5m (2018/19: GBPnil) in relation to write-offs of guaranteed rent increases.
In the current year, employee costs in relation to staff time on development projects have been capitalised into the base cost of relevant development assets. In addition to the standard EPRA Cost ratios (both including and excluding direct vacancy costs), adjusted versions of these ratios have also been presented which remove the impact of the impairment of tenant incentives and guaranteed rent increases which are exceptional items in the current year, to show the impact of these items on the ratios.
Table C: Gross rental income
2020 2019
GBPm GBPm
============================================================= ===== =====
Rent receivable(1) 558 587
Spreading of tenant incentives and guaranteed rent increases (3) (13)
Surrender premia 5 2
------------------------------------------------------------- ----- -----
Gross rental income 560 576
------------------------------------------------------------- ----- -----
1. Group gross rental income includes GBP3m of all inclusive rents relating to service charge income
The current and prior year information is presented on a proportionally consolidated basis, excluding non-controlling interests.
Table D: Property related capital expenditure
2020 2019
======================= =======================
Joint Joint
ventures ventures
and and
Group funds Total Group funds Total
GBPm GBPm GBPm GBPm GBPm GBPm
============================= ===== ========= ===== ===== ========= =====
Acquisitions 94 54 148 221 15 236
Development 156 126 282 183 91 274
Like-for-like portfolio(1) 83 20 103 35 19 54
Other 18 11 29 12 8 20
----------------------------- ----- --------- ----- ----- --------- -----
Total property related capex 351 211 562 451 133 584
----------------------------- ----- --------- ----- ----- --------- -----
1. Includes GBP36m of flexible workspace fitout in the current year which has been reclassified from property, plant and equipment to property additions.
The above is presented on a proportionally consolidated basis, excluding non-controlling interests and business combinations. The 'Other' category contains amounts owing to tenant incentives of GBP12m (2018/19: GBP7m), letting fees of GBP3m (2018/19: GBP5m), capitalised staff costs of GBP6m (2018/19: GBP6m) and capitalised interest of GBP8m (2018/19: GBP3m).
- DIRECTORS ' RESPONSIBILITY STATEMENT
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 " Reduced Disclosure Framework " , and applicable law).
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period. In preparing the financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently
- state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the parent Company financial statements, subject to any material departures disclosed and explained in the financial statements
- make judgements and accounting estimates that are reasonable and prudent
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company ' s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors ' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company ' s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and the Company ' s position and performance, business model and strategy.
Each of the Directors, whose names and functions are set out on the British Land website confirm that, to the best of their knowledge:
- the Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 " Reduced Disclosure Framework " , and applicable law), give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company
- the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group
- the Strategic Report and the Directors ' Report include a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties they face.
By order of the Board.
Simon Carter
Chief Financial Officer
26 May 2020
SUPPLEMENTARY TABLES
Data includes Group's share of Joint Ventures and Funds (includes Hercules Unit Trust)
Since 1 April 2019 Price Price Annual Passing
(100%) (BL Share) Rent
Sales Sector GBPm GBPm GBPm (1)
-------------------------------- ------------ ------- ----------- --------------
Completed
Portfolio of Sainsbury's stores Retail 522 246 15
David Lloyd, Croydon Retail 22 22 1
Homebase, Walton on Thames Retail 20 20 1
Debenhams, Bournemouth Retail 8 8 1
Clarges(2) Residential 86 86 -
Total 658 382 18
------- -----------
(1) BL share of annualised rent topped up for rent frees
(2) GBP6m of which exchanged prior to FY20
Since 1 April 2019 Price Price Annual Passing
(100%) (BL Share) Rent
Purchases Sector GBPm GBPm GBPm(1)
-------------------------------------- ------------ ------- ----------- --------------
Completed
West One Offices 217 54 2
6 Orsman Road, Haggerston Offices 32 32 2
Aldgate Place, Phase 2 Residential 19 19 -
Former ToysRus unit, Stockton-on-Tees Retail 8 8 -
Sainsbury's, Burton upon Trent Retail 5 5 1
Total 281 118 5
------- -----------
(1) BL share of annualised rent topped up for rent frees
Portfolio Valuation by Sector
---------------------------------------------------------------------------------
At 31 March 2020 Group JVs & Total Change%(1)
Funds
GBPm GBPm GBPm H1 H2 FY
West End 4,151 53 4,204 (0.1) 1.5 1.4
City 300 2,269 2,569 1.3 2.5 3.7
Offices 4,451 2,322 6,773 0.4 1.9 2.3
Retail Parks 1,115 724 1,839 (12.4) (18.8) (28.7)
Shopping Centre 753 757 1,510 (11.8) (19.8) (29.2)
Superstores 89 - 89 (1.5) (7.7) (4.7)
Department Stores 33 - 33 (10.5) (33.3) (40.3)
High Street 133 1 134 (9.7) (11.0) (19.8)
Leisure 249 19 268 0.8 (8.4) (7.1)
Retail 2,372 1,501 3,873 (10.7) (18.2) (26.1)
--------------------------- ------- -------- ------- ------- ------- -------
Residential(2) 147 - 147 (2.1) (0.6) (2.7)
--------------------------- ------- -------- ------- ------- ------- -------
Canada Water 364 - 364 12.4 (1.6) 9.8
--------------------------- ------- -------- ------- ------- ------- -------
Total 7,334 3,823 11,157 (4.3) (6.3) (10.1)
Standing Investments 6,593 3,432 10,025 (5.2) (7.4) (12.0)
Developments 741 391 1,132 4.6 2.3 6.5
--------------------------- ------- -------- ------- ------- ------- -------
(1) Valuation movement during the year (after taking account of
capital expenditure) of properties held at the balance sheet date,
including developments (classified by end use), purchases and sales
(2) Stand-alone
residential
Gross Rental Income(1)
----------------------------------------------------------------------------------------------------------------
Accounting Basis GBPm 12 months to 31 March 2020 Annualised as at 31 March 2020
Group JVs & Total Group JVs & Total
Funds Funds
---------------------------------------- ---------- ----------- --------- ---------- ----------- ---------
West End 155 1 156 144 2 146
City 15 69 84 7 63 70
Offices 170 70 240 151 65 216
---------------------------------------- ---------- ----------- --------- ---------- ----------- ---------
Retail Parks 94 58 152 90 55 145
Shopping Centre 64 52 116 61 49 110
Superstores 5 5 10 5 2 7
Department Stores 7 - 7 5 - 5
High Street 6 - 6 6 - 6
Leisure 15 1 16 14 1 15
Retail 191 116 307 181 107 288
---------------------------------------- ---------- ----------- --------- ---------- ----------- ---------
Residential(2) 4 - 4 4 - 4
---------------------------------------- ---------- ----------- --------- ---------- ----------- ---------
Canada Water 9 - 9 8 - 8
---------------------------------------- ---------- ----------- --------- ---------- ----------- ---------
Total 374 186 560 344 172 516
---------------------------------------- ---------- ----------- --------- ---------- ----------- ---------
(1) Gross rental income will differ from annualised valuation rents due to accounting adjustments
for fixed & minimum contracted rental uplifts and lease incentives
(2) Stand-alone residential
Portfolio Net
Yields(1,2)
--------------------------------------------------------------------------------
As at 31 March EPRA net EPRA topped Overall Net Net Net ERV
2020 initial yield up net topped up equivalent equivalent reversionary Growth
% initial yield net initial yield yield yield %(5)
%(3) yield % movement bps %
%(4)
-------------- ------------- ------------ ------------- ------------ ------------- -------
West End 3.5 4.1 4.1 4.3 - 4.8 2.4
City 3.2 4.0 4.0 4.5 (14) 5.3 4.5
Offices 3.4 4.1 4.1 4.4 (4) 5.0 3.2
--------------- -------------- ------------- ------------ ------------- ------------ ------------- -------
Retail Parks 7.0 7.2 7.3 7.0 117 6.8 (13.6)
Shopping Centre 6.1 6.2 6.3 6.4 99 6.4 (10.2)
Superstore 6.9 6.9 6.9 5.7 38 5.6 (9.8)
Department
Store 15.6 15.6 22.9 9.2 185 10.4 (19.8)
High Street 3.8 4.0 4.0 5.5 57 5.9 (9.8)
Leisure 5.3 5.4 6.0 5.8 22 5.1 (1.2)
Retail 6.5 6.6 6.9 6.6 101 6.5 (11.7)
--------------- -------------- ------------- ------------ ------------- ------------ ------------- -------
Canada Water 3.4 3.4 3.4 4.0 25 4.0 (5.8)
--------------- -------------- ------------- ------------ ------------- ------------ ------------- -------
Total 4.6 5.1 5.2 5.2 38 5.5 (4.7)
--------------- -------------- ------------- ------------ ------------- ------------ ------------- -------
On a proportionally consolidated basis including the Group's share of joint ventures and funds
(1) Including notional purchaser's costs
(2) Excluding committed developments, assets held for development and residential assets
(3) Including rent contracted from expiry of rent-free periods and fixed uplifts not in lieu
of rental growth
(4) Including fixed/minimum uplifts (excluded from EPRA definition)
(5) As calculated by IPD
Total Property Return (as calculated by IPD)
-------------------------------------------------------------------------------
12 months to 31 March Offices Retail Total
2020
% British IPD British IPD British IPD
Land Land Land
-------------------------- -------- ------- ------- ------ ------- ------
Capital Return 2.5 (0.5) (27.3) (14.5) (10.3) (4.8)
- ERV Growth 3.2 1.3 (11.7) (5.8) (4.7) (1.0)
- Yield Movement(1) (4 bps) (2 bps) 101 bps 59 bps 38 bps 18 bps
Income Return 3.1 3.8 6.2 5.4 4.3 4.5
Total Property Return 5.7 3.3 (22.6) (9.8) (6.4) (0.4)
-------- ------- ------- ------ -------
On a proportionally consolidated basis including the Group's share
of joint ventures and funds
(1) Net equivalent yield movement
Top 20 Tenants by Sector
-----------------------------------------------------------------------------
As at 31 March 2020 % of retail % of office
rent rent
----------------------- ------------ ------------------------ ------------
Retail Offices
----------------------- ------------ ------------------------ ------------
Tesco plc(1) 7.8 Facebook 7.8
Next plc 4.9 Government 6.4
Kingfisher 3.6 Dentsu Aegis(2) 4.4
Walgreens (Boots) 3.5 Visa 4.0
M&S Plc 2.8 Herbert Smith Freehills 3.2
J Sainsbury 2.6 Gazprom 2.5
Dixons Carphone 2.5 Microsoft Corp 2.4
Debenhams 2.5 Vodafone 2.0
Frasers 2.4 Tullett Prebon 2.0
JD Sports 2.2 Deutsche Bank 1.9
TJX (TK Maxx) 2.1 Henderson 1.7
Arcadia Group 2.0 Reed Smith 1.7
The Interpublic Group
New Look 1.9 (McCann) 1.6
Asda Group 1.7 Mayer Brown 1.4
Virgin 1.6 Skyscanner 1.3
TGI Fridays 1.5 Mimecast Ltd 1.3
Steinhoff 1.5 Credit Agricole 1.2
H&M 1.4 Aramco 1.2
Hutchison Whampoa Ltd 1.4 Kingfisher 1.2
DFS Furniture 1.3 Monzo Bank 1.1
----------------------- ------------ ------------------------ ------------
(1) Includes GBP3.4m at Surrey Quays Shopping Centre
(2) Taking into account their pre-let of 310,000 sq ft at 1 Triton Square, % of contracted rent would rise to 13.0%. As part of this new letting, Dentsu Aegis have an option to return their existing space at 10 Triton Street in 2021. If this option is exercised, there is an adjustment to the rent free period in respect of the letting at 1 Triton Square to compensate British Land.
Major Holdings
----------------------------------------------------------------------------------------------------------------------
As at 31 March 2020 BL Share Sq ft Rent (100%) Occupancy Lease
% '000 GBPm pa(1,4) rate %(2,4) length yrs(3,4)
----------------------------------------------------- ----------- ------ ------------ ----------- ---------------
Broadgate 50 4,468 162 96.9 6.3
Regent's Place 100 1,740 80 97.1 5.3
Paddington Central 100 958 46 97.6 5.8
Portman Square 100 134 10 100.0 5.4
Meadowhall, Sheffield 50 1,500 82 96.1 4.9
Drake's Circus, Plymouth 100 1,190 20 90.1 6.3
Teesside, Stockton 100 569 16 96.5 3.8
Ealing Broadway 100 540 15 92.1 3.8
Glasgow Fort 78 510 20 96.1 5.7
New Mersey, Speke 68 502 14 94.4 5.7
----------------------------------------------------- ----------- ------ ------------ ----------- ---------------
(1) Annualised EPRA contracted rent including 100% of Joint Ventures & Funds
(2) Includes accommodation under offer or subject to asset management
(3) Weighted average to first break
(4) Excludes committed and near term developments
Lease Length & Occupancy
----------------------------------------------------------------------------------------------------------
As at 31 March 2020 Average lease length yrs Occupancy rate %
To expiry To break EPRA Occupancy Occupancy(1,2,3)
----------------------------- -------------- ------------ -------------------- -----------------------
West End 6.4 5.4 97.6 97.7
City 7.5 6.3 85.4 96.6
Offices 6.8 5.7 92.9 97.3
----------------------------- -------------- ------------ -------------------- -----------------------
Retail Parks 6.8 5.5 94.1 96.1
Shopping Centre 6.6 5.2 94.2 95.6
Superstores 6.9 6.8 100.0 100.0
Department Stores 18.1 9.1 97.9 97.9
High Street 4.7 4.0 91.7 92.1
Leisure 14.6 14.3 93.1 93.1
Retail 7.3 5.9 94.2 95.7
----------------------------- -------------- ------------ -------------------- -----------------------
Canada Water 4.9 4.7 97.7 97.9
----------------------------- -------------- ------------ -------------------- -----------------------
Total 7.0 5.8 93.6 96.6
----------------------------- -------------- ------------ -------------------- -----------------------
-- (1) Space allocated to Storey is shown as occupied where there is a Storey tenant in place
otherwise it is shown as vacant. Total occupancy would rise from 96.6% to 97.1% if Storey
space were assumed to be fully let.
-- (2) Includes accommodation under offer or subject to asset management
-- (3) Where occupiers have entered administration or CVA but are still liable for rates,
these are treated as occupied. Reflecting units currently occupied but expected to become
vacant, then the occupancy rate for Retail would reduce from 95.7% to 94.7%, and total occupancy
would reduce from 96.6% to 96.0%
Portfolio Weighting
As at 31 March 2019 2020 2020
% % GBPm
---------------------- ----- ----- ------
West End 33.0 37.7 4,204
City 18.2 23.0 2,569
Offices 51.2 60.7 6,773
---------------------- ----- ----- ------
Retail Parks 21.0 16.5 1,839
Shopping Centre 17.2 13.5 1,510
Superstores 2.7 0.8 89
Department Stores 0.6 0.3 33
High Street 1.4 1.2 134
Leisure 2.4 2.4 268
Retail 45.3 34.7 3,873
---------------------- ----- ----- ------
Residential(1) 1.0 1.3 147
---------------------- ----- ----- ------
Canada Water 2.5 3.3 364
---------------------- ----- ----- ------
Total 100.0 100.0 11,157
---------------------- ----- ----- ------
London Weighting 61% 71% 7,878
---------------------- ----- ----- ------
(1) Stand-alone residential
Annualised Rent & Estimated Rental Value (ERV)
--------------------------------------------------------------------------------------------------------------
As at 31 March 2020 Annualised rent ERV GBPm Average rent GBPpsf
(valuation basis) GBPm(1)
-------------------
Group JVs & Funds Total Total Contracted(2) ERV
------------------- -------------- ----------- ------------------ -------- ------------------- ---------
West End (3) 136 2 138 191 62.8 69.4
City (3) 6 64 70 118 50.3 63.1
Offices (3) 142 66 208 309 58.0 66.9
------------------- -------------- ----------- ------------------ -------- ------------------- ---------
Retail Parks 91 58 149 140 25.0 22.9
Shopping Centre 62 51 113 116 29.7 29.9
Superstores 7 - 7 5 21.0 17.1
Department Stores 6 - 6 4 6.6 4.6
High Street 6 - 6 9 13.1 18.6
Leisure 14 1 15 15 17.1 16.3
Retail 186 110 296 289 24.1 23.0
------------------- -------------- ----------- ------------------ -------- ------------------- ---------
Residential(4) 4 - 4 4 44.7 37.4
------------------- -------------- ----------- ------------------ -------- ------------------- ---------
Canada Water(5) 8 - 8 9 17.7 20.5
Total 340 176 516 611 30.9 33.4
-------------- ----------- ------------------ -------- -------------------
(1) Gross rents plus, where rent reviews are outstanding, any increases to ERV (as determined
by the Group's external valuers), less any ground rents payable under head leases, excludes
contracted rent subject to rent free and future uplift
(2) Annualised rent, plus rent subject to rent free
(3) GBPpsf metrics
shown for office
space only
(4) Standalone
residential
(5) Reflects
standing investment
only
Rent Subject to Open Market Rent Review
------------------------------------------------------------------------------------------------------------
For period to 31 2021 2022 2023 2024 2025 2021-23 2021-25
March
As at 31 March 2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- -------------- ----------- ---- ------------ -------- ------------------- -------
West End 17 9 23 7 16 49 72
City 11 - - 15 11 11 37
Offices 28 9 23 22 27 60 109
------------------- -------------- ----------- ---- ------------ -------- ------------------- -------
Retail Parks 17 11 14 6 6 42 54
Shopping Centre 12 7 12 7 4 31 42
Superstores - - - 1 3 - 4
Department Stores - - 1 2 - 1 3
High Street - - 1 - - 1 1
Leisure - - - - 1 - 1
Retail 29 18 28 16 14 75 105
------------------- -------------- ----------- ---- ------------ -------- ------------------- -------
Residential - 1 - - - 1 1
------------------- -------------- ----------- ---- ------------ -------- ------------------- -------
Canada Water(1) - - - - - - -
------------------- -------------- ----------- ---- ------------ -------- ------------------- -------
Total 57 28 51 38 41 136 215
------------------- -------------- ----------- ---- ------------ -------- ------------------- -------
On a proportionally consolidated basis including the Group's share of joint ventures and funds
(1) Reflects standing investment only
Rent Subject to Lease Break or Expiry ------------------------------------------------------------------------------------------------------------- For year to 31 March 2021 2022 2023 2024 2025 2021-23 2020-25 As at 31 March 2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm ------------------------------------ ------- ------- ------- ------- ------- ------------ ------------ West End 13 29 17 14 16 59 89 City 12 3 4 12 6 19 37 Offices 25 32 21 26 22 78 126 ------------------------------------ ------- ------- ------- ------- ------- ------------ ------------ Retail Parks 17 11 16 25 12 44 81 Shopping Centre 14 14 14 14 7 42 63 Superstores - - 2 - - 2 2 Department Stores - 3 - - - 3 3 High Street 2 1 1 1 1 4 6 Leisure - - - - - - - Retail 33 29 33 40 20 95 155
------------------------------------ ------- ------- ------- ------- ------- ------------ ------------
Residential 3 - - - - 3 3
------------------------------------ ------- ------- ------- ------- ------- ------------ ------------
Canada Water(1) 1 1 1 2 - 3 5
------------ ------------
Total 62 62 55 68 42 179 289
% of contracted rent 10.9 10.8 9.6 11.8 7.4 31.3 50.5
------------------------------------ ------- ------- ------- ------- ------- ------------
On a proportionally consolidated basis including the Group's share of joint ventures and funds
(1) Reflects standing investment only
Recently Completed and Committed Developments
--------------------------------------------------------------------------------------------------------------------
As at Sector BL Share 100% PC Calendar Year Current Value Cost to come ERV Let
31 March 2020 sq ft
---------------------- ----------------
% '000 GBPm GBPm(1) GBPm(2) GBPm
---------------------- ------- --------- ------ ---------------- -------------- ------------- -------- -----
1 Finsbury Avenue Office 50 287 Q1 2019 171 - 8.3 7.0
135 Bishopsgate Office 50 335 Q1 2020 214 - 9.7 8.7
Plymouth (Leisure) Retail 100 108 Q4 2019 26 2 1.8 1.2
------- --------- ------ -------------- ------------- --------
Total Recently Completed 730 411 2 19.8 16.9
------ -------------- ------------- --------
100 Liverpool Street Office 50 524 Q3 2020 378 27 19.3 15.4
1 Triton Square(3) Office 100 366 Q2 2021 385 49 22.6 21.8
Total Committed 890 763 76 41.9 37.2
Other Capital Expenditure(4) 57
--------- ------ -------------- ------------- --------
1 From 1 April 2020. Cost to come excludes notional interest as interest is capitalised individually
on each development at our capitalisation rate
2 Estimated headline rental value net of rent payable under head leases (excluding tenant
incentives)
3 ERV let & under offer of GBP21.8m represents space taken by Dentsu Aegis. As part of this
letting, Dentsu Aegis have an option to return their existing space at 10 Triton Street in
2021. If this option is exercised, there is an adjustment to the rent free period in respect
of the letting at 1 Triton Square to compensate British Land
4 Capex committed and underway within our investment portfolio relating to leasing and asset
management
Near Term Development Pipeline
As at Sector BL Share 100% Earliest Current Cost to ERV Let & Planning
31 March sq ft Start On Value Come Under Status
2020 Site Offer
% '000 GBPm GBPm(1) GBPm(2) GBPm
Norton
Folgate Office 100 336 Q3 2020 95 280 22.0 - Consented
1 Broadgate Office 50 538 Q2 2021 96 230 20.0 - Consented
Aldgate
Place,
Phase 2 Residential 100 133 Q4 2020 37 95 7.0 Consented
Total Near Term 1,007 228 605 49.0 -
Other Capital Expenditure
(3) 22
(1) From 1 April 2020. Cost to come excludes notional interest as interest is capitalised
individually on each development at our capitalisation rate
(2) Estimated headline rental value net of rent payable under head leases (excluding tenant
incentives)
(3) Forecast capital commitments within our investment portfolio over the next 12 months
relating to leasing and asset enhancement
Medium Term Development Pipeline
As at Sector BL Share 100% Planning Status
31 March 2020 % Sq ft
'000
5 Kingdom Street(1) Office 100 438 Submitted
2-3 Finsbury Avenue Office 50 563 Consented
Eden Walk Retail & Residential Mixed Use 50 452 Consented
Ealing - 10-40 The Broadway Retail 100 303 Pre-submission
Gateway Building Leisure 100 105 Consented
Canada Water(2) Mixed Use 100 5,000 Resolution to grant planning
Total Medium Term 6,861
(1) Planning consent for previous 240,000 sq ft scheme
(2) On drawdown of the Master Development Agreement, ownership reduces to 80% with
LBS owning
20%. LBS ownership will adjust over time depending on level of investment by
Southwark
Forward-looking statements
This Press Release contains certain (and we may make other verbal or written) 'forward-looking' statements. These forward-looking statements include all matters that are not historical fact. Such statements reflect current views, intentions, expectations, forecasts and beliefs of British Land concerning, among other things, our markets, activities, projections, strategy, plans, initiatives, objectives, performance, financial condition, liquidity, growth and prospects, as well as assumptions about future events. Such 'forward-looking' statements can sometimes, but not always, be identified by their reference to a date or point in the future, the future tense, or the use of 'forward-looking' terminology, including terms such as 'believes', 'considers', 'estimates', 'anticipates', 'expects', 'forecasts', 'intends', 'continues', 'due', 'potential', 'possible', 'plans', 'seeks', 'projects', 'budget', 'goal', 'guidance', 'trends', 'future', '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 known and unknown risks, assumptions and uncertainties because they relate to future events and circumstances and depend on circumstances which may or may not occur and may be beyond our ability to control, predict or estimate. Forward-looking statements should be regarded with caution as actual outcomes or results, or plans or objectives, may differ materially from those expressed in or implied by such statements. Recipients should not place reliance on, and are cautioned about relying on, any forward-looking statements.
Important factors that could cause actual results (including the payment of dividends), 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) the consequences of the referendum on Britain leaving the EU, (c) industry and market trends (including demand in the property investment market and property price volatility), (d) competition, (e) the behaviour of other market participants, (f) 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), (g) inflation and consumer confidence, (h) labour relations and work stoppages, (i) natural disasters and adverse weather conditions, (j) terrorism and acts of war, (k) British Land's overall business strategy, risk appetite and investment choices in its portfolio management, (l) legal or other proceedings against or affecting British Land, (m) reliable and secure IT infrastructure, (n) changes in occupier demand and tenant default, (o) changes in financial and equity markets including interest and exchange rate fluctuations, (p) changes in accounting practices and the interpretation of accounting standards (q) the availability and cost of finance and (r) the consequences of the covid-19 pandemic . The Company's principal risks are described in greater detail in the section of this Press Releases headed "Risk Management and Principal Risks". Forward-looking statements in this Press Release, 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 Press Release 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, and nothing in this Press Release should be construed as a profit forecast or profit estimate, or be taken as implying that the earnings of British Land for the current year or future years will necessarily match or exceed the historical or published earnings of British Land. 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, fairness, reliability, the basis on which they were prepared, or their achievement or reasonableness.
Other than in accordance with our legal and regulatory obligations (including under the UK Financial Conduct Authority's Listing Rules, Disclosure Guidance and Transparency Rules, the EU Market Abuse Regulation, and the requirements of the Financial Conduct Authority and the London Stock Exchange), British Land does not intend or undertake any obligation to update or revise publicly forward-looking statements to reflect any changes in British Land's expectations with regard thereto or any changes in information, events, conditions, circumstances or other information on which any such statement is based (regardless of whether those forward-looking statements are affected as a result). 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.
Nothing in this document shall constitute, in any jurisdiction, an offer or solicitation to sell or purchase any securities or other financial instruments, nor shall it constitute a recommendation, invitation or inducement, or advice, in respect of any securities or other financial instruments or any other matter.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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