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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 | |
---|---|---|---|---|---|---|---|---|---|---|
-1.00 | -0.25% | 404.00 | 403.60 | 405.80 | 404.00 | 404.00 | 404.00 | 2,121 | 08:01:21 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Real Estate Investment Trust | 418M | -1.04B | -1.1194 | -3.62 | 3.76B |
TIDMBLND
RNS Number : 1621T
British Land Co PLC
13 November 2023
13 November 2023
Continued operational momentum & strong rental growth
Simon Carter, CEO said:
"We are pleased with the performance in the first half with underlying profits increasing 3% on the back of another strong period of leasing and good cost control. We have seen yields continue to move out, but as we predicted in May, at a slower pace. Rental growth has accelerated, with lettings 12% ahead of ERV, and occupancy remains strong at 96% well above levels in the wider market.
We are benefitting from our decision to pursue a value-add strategy across campuses, retail parks and London urban logistics. These submarkets have the strongest occupational fundamentals and highest rental growth within the office, retail and logistics sectors. We now expect ERV growth at the top end of our previous guidance for FY24.
Whilst in the past 18 months we have delivered good earnings growth, asset values have been impacted by the increase in interest rates. The geopolitical and economic landscape remains uncertain; however, with our portfolio yield now over 6% and an increased likelihood we are approaching the peak in UK base rates we expect the strong occupational fundamentals of our submarkets, together with the differentiated quality of our assets, to reassert themselves as the primary drivers of performance."
Financial
-- Underlying Profit growth of 3.4% -- EPRA cost ratio 14.8% vs 19.5% at FY23 -- Underlying earnings per share of 15.2p up 3.4% -- Dividend per share of 12.16p up 4.8%
Balance sheet
-- EPRA Net Tangible Assets per share of 565p down 3.9% -- Loan To Value at 36.9% (FY23 36.0%), Group Net Debt to EBITDA 6.0x (FY23 6.4x) -- Fitch affirmed our Senior Unsecured credit rating at 'A' with stable outlook -- GBP1.7bn undrawn facilities and cash
-- GBP600m of financing activity, including GBP350m new loans post period end which further increase our capacity
-- Debt 99% hedged for the six months to March 2024 and 84% hedged on average over the next five years
CAPITAL ACTIVITY
-- Sale of office and data centre portfolio for GBP125m(1) , 13% above book value at a NIY of 4.6%
-- Surrender of 1 Triton Square lease on 25 September 2023 for GBP149m -- Acquisition of Thanet Retail Park in April 2023 for GBP55m at a NIY of 8.1%
operational metrics
-- Portfolio occupancy 96%: Campuses 94%, Retail Parks 99% and London Urban Logistics 100% -- Leased 1.6m sq ft, 12.2% ahead of ERV and a further 1.1m sq ft under offer, 16.6% above ERV
-- Campus leasing 368,000 sq ft, 7.5% ahead of ERV, 281,000 sq ft under offer, 9.7% above ERV and 1.8m sq ft in negotiations on 1.0m sq ft of space (including near term pipeline)
-- Retail & London Urban Logistics leasing 1.2m sq ft, 14.2% ahead of ERV, and 844,000 sq ft under offer, 20.5% ahead of ERV
Portfolio VALUATION
-- ERV growth of +3.2%: Campuses +3.2%, Retail Parks +4.0%, London Urban Logistics +3.1%
-- Yields +23bps to 6.1% NEY: Campuses +32bps to 5.3%, Retail Parks +13bps to 6.7%, London Urban Logistics +9bps to 4.7%
-- Values down 2.5%: Campuses -4.0%, Retail Parks up +0.2% and London Urban Logistics up +0.6%
Sustainability
-- GRESB rating of 5* for both standing investments and developments -- 50% of portfolio rated EPC A or B (up from 45% at FY23)
Outlook
-- Expecting ERV growth at the top end of our previously guided ranges for FY24: Campuses 2-4%, Retail Parks 3-5%, London Urban Logistics 4-5%
-- Comfortable with current market expectations for FY24 earnings
Summary performance
30 September 30 September Period ended 2023 2022(2) % Change -------------------------------------------------------- ------------ ------------ -------- INCOME STATEMENT Underlying Profit(3) GBP142m GBP138m 3.4% Underlying earnings per share(3) 15.2p 14.7p 3.4% IFRS loss after tax GBP(61)m GBP(32)m IFRS basic earnings per share (6.6)p (3.5)p Dividend per share(4) 12.16p 11.60p 4.8% Total accounting return(3) (2.0)% (2.8)% -------------------------------------------------------- ------------ ------------ -------- 30 September 31 March As at 2023 2023 -------------------------------------------------------- ------------ ------------ -------- BALANCE SHEET Portfolio at valuation (proportionally consolidated)(5) GBP8,704m GBP8,898m (2.5)% EPRA Net Tangible Assets per share(3) 565p 588p (3.9)% IFRS net assets GBP5,367m GBP5,525m Net Debt to EBITDA (Group)(6, 7) 6.0x 6.4x Loan to value (proportionally consolidated)(7, 8) 36.9% 36.0% Senior Unsecured credit rating A A -------------------------------------------------------- ------------ ------------ -------- 30 September 30 September Period ended 2023 2022 -------------------------------------------------------- ------------ ------------ -------- OPERATIONAL STATISTICS 1.3m sq 1.1m sq Lettings and renewals over 1 year ft ft 1.6m sq 1.5m sq Total lettings and renewals ft ft 1.9m sq 1.7m sq Committed and recently completed development ft ft -------------------------------------------------------- ------------ ------------ -------- SUSTAINABILITY PERFORMANCE MSCI ESG AAA rating AAA rating GRESB (Standing Investments / Developments) 5* / 5* 4* / 5* -------------------------------------------------------- ------------ ------------ --------
1. Of which GBP29m completed post period end.
2. Prior period comparatives have been restated for a change in accounting policies in respect of rental concessions (as disclosed in Note 1 of the condensed interim financial statements).
3. See Note 2 to the condensed interim financial statements for definition and calculation.
4. The growth in the dividend is higher than the Underlying EPS growth due to the impact of the rental concession restatement in the prior period.
5. Valuation movement during the period (after taking account of capex) of properties held at the balance sheet date, including developments (classified by end use), purchases, sales and surrender premium received at 1 Triton Square.
6. Net Debt to EBITDA on a Group basis excludes non-recourse and joint venture borrowings and includes distributions from non-recourse companies and joint ventures.
7. See Note 9 to the condensed interim financial statements for definition, calculation and reference to IFRS metrics.
8. EPRA Loan to value is disclosed in Table E of the condensed interim financial statements.
Results Presentation and Investor Conference Call
A presentation of the results will take place at 9.00am on Monday 13 November 2023 at Peel Hunt, 100 Liverpool Street, Broadgate and will be broadcast live via webcast (www.britishland.com) and conference call. The details for the conference call and weblink are as follows:
UK Toll Free Number: 0800 260 6466 International: +44 20 3481 4247 Access code: 9857826 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 3433 3849 Passcode: 9857826
Accompanying slides will be made available at Britishland.com just prior to the event starting.
For Information Contact
Investors
Sandra Moura, British Land 07989 755535
Media
Charlotte Whitley, British Land 07887 802535 Guy Lamming/Gordon Simpson, FGS Global 020 7251 3801
britishland@finsbury.com
CHIEF EXECUTIVE'S REVIEW
Overview
Since we reported our FY23 results in May, market interest rates have risen further and are expected to stay higher for longer, but the economy has been more resilient than expected. We have seen yields continue to move out but, as we predicted, at a slower pace, and our portfolio Net Equivalent Yield (NEY) of 6.1% is now 180 bps above the 5 year swap rate. Resilience in the UK economy combined with our low vacancy and improving fundamentals in our markets meant rental growth accelerated in the first half. Our portfolio valuation was down 2.5% with yields 23 bps wider, offset by rental growth of 3.2%.
Strong leasing and tight control of costs meant that underlying earnings per share has grown by 3.4% and the interim dividend is 4.8% higher. Capital recycling and smart asset management offset the impact of development spend and a 2.5% decline in values. As a result, our LTV was largely unchanged at 36.9% (FY23: 36.0%) and Group Net Debt to EBITDA improved from 6.4x at FY23 to 6.0x.
Operational update
We delivered a strong operational performance this half, with 1.6m sq ft of leasing, 12.2% ahead of ERV, and occupancy remained high at 96.2%. Key deals in the period included LGC - one of the largest life sciences lettings in the UK this year - Steamship Mutual, Skidmore Owings & Merrill and a regear with The Bank of Nova Scotia at Broadgate and regears with H&M, Asda and Marks & Spencer on our retail parks.
We are benefitting from our value-add strategy in campuses, retail parks and London urban logistics. These segments have the strongest fundamentals within the London office, retail and logistics sectors, which is reflected in our 370 bps [1] total return outperformance vs the market in the period.
Vacancy across our campuses was 4.2% adjusting for the impact of recently completed asset management initiatives as we take back space to refurbish it into lab and innovation space at Regent's Place. This compares to 8.0% [2] in the wider London office market and reflects the location of our campuses which are close to major transport nodes, the quality and sustainability of our buildings, the provision of great amenities and public realm as well as the ability of our occupiers to cluster close to other businesses. As a result, ERV growth for our campuses was 3.2% compared to 2.2% [3] in the wider market. Recently, we've seen a noticeable increase in demand, with 1.8m sq ft of deals in negotiations on 1m sq ft of space (including near term pipeline), reflecting the quality of our portfolio and growing customer requirements for best in class workspace.
Our retail parks have an underlying vacancy of 0.8% compared to UK retail market vacancy of 13.9% [4] . Retail parks are retailers' preferred format due to their affordability, adaptability and accessibility. As a result, we are seeing ERV growth of 4.0% compared to an ERV decline in the wider market of 1.0%3 for shopping centres and an increase of 0.7%(3) on the high street.
Our urban logistics portfolio is focused exclusively on densification and repurposing opportunities in Central London. Demand is driven by the continued rise of e-commerce, as well as demand for priority delivery services and growing carbon concerns. Supply is constrained which has resulted in an underlying vacancy of 0.2% in our assets compared to 6.7% [5] for the UK big box market.
Strategy
Campuses
Many column inches have been written on the future of the office in a hybrid world. Early in the pandemic, we formed the view that hybrid working was here to stay and that London would need less office space, but we did not believe that the office was dead, rather that the type of workspace businesses would require would change. We could see that Covid had been a catalyst for most companies to reevaluate what they wanted from their workspace - their conclusion: higher quality space to attract and retain talent. We captured this in a simple mantra that London would need "less, but better space". Alongside this, we identified that science and technology or 'Innovation and Life Sciences' as we call it, would be a key growth driver of the UK economy over the next decade, particularly in the Golden Triangle of Oxford, Cambridge and London. In 2021, we set about reshaping our office business around these expectations.
At the heart of this was our successful campus model. Our campuses provide the great amenity, transport connectivity, public realm and high quality sustainable buildings that businesses are seeking post pandemic and are also ideal for the clustering and collaboration which is key to science and technology businesses. We disposed of the majority of our standalone office assets, upgraded the quality of our campuses via new developments and committed to a fourth mixed use campus at Canada Water with our JV partner, AustralianSuper. Two and half years on, campuses now represent 91% of our office portfolio and we have an innovation and life sciences pipeline of over 2m sq ft (representing 34% of the current campus portfolio) across the Golden Triangle.
How will hybrid working impact rental growth?
It is sensible to consider whether a reduction in overall demand from hybrid working will be a barrier to rental growth in London. This is almost certainly the case for secondary or even average quality offices, particularly those in inferior locations where rents are probably falling today. However, across our portfolio we have seen the opposite, with ERV growing 3.2% over the last 6 months. Why is this? We believe it is due to demand polarising to the best space as businesses upgrade their workspace to reflect the changing way in which people work in a hybrid world and increasingly see the workplace as a key tool for attracting and retaining talent. For example, occupiers want better end of trip facilities to cater for growing numbers of cyclists, more breakout space for collaboration and better areas for entertaining staff and customers, with outside terraces particularly in demand. The elevated cost of housing in London is causing average commute times to increase, so businesses have a strong preference for central locations in close proximity to key transport hubs. The flight to quality is amplified by the need to attract and retain talent, and that talent not only wants a great place to work, but also to be in an interesting part of town with great restaurants, bars, coffee shops and retail and they care about the sustainability credentials of the building in which they work.
UK headquarters represent around 80% of the space occupied at our campuses. For obvious reasons, headquarter space is where the demand for best in class is strongest, but the supply of buildings that meet these requirements is very constrained. For example, only 0.5% [6] of the London office stock is BREEAM Outstanding (our target for all our developments). Our campuses are benefiting from this imbalance between demand and supply for best in class space. This is probably most striking at Broadgate, which is located in the City. Overall City vacancy is 11.5% [7] , however at Broadgate, vacancy has reduced to just 3.0% and ERV has increased 3.7% in the last 6 months. This reflects the high quality of the space, amenities and public realm as well as Broadgate's location above Liverpool Street station, a key transport hub at the intersection of London's traditional financial district, the artisan quarter of Spitalfields, the creative district of Shoreditch and the Old Street tech belt.
occupational risks
We regularly ask ourselves the question, what might disrupt the favourable occupational fundamentals for best in class workspace. Here, we think there are two key risks. Firstly, the risk of a significant increase in London unemployment, which might reduce our customers' willingness to invest in the best space as they would no longer face the same challenges in attracting and retaining talent. In relation to this risk, we share the view of the majority of forecasters, that London unemployment should remain low. The second risk we monitor closely is the potential for an increase in new development or refurbishments in the core markets we operate in. Here we have good visibility on the development pipeline, which shows that the supply of best in class space, to be delivered in 2025 and 2026, that is not already let or under offer, will be around 2.5m sq ft and 1.4m sq ft respectively. [8] This is significantly below the 4.5m sq ft per annum medium term average take up of new or refurbished space in core central London.
INNOVATION AND LIFE SCIENCES
On our campuses we are also growing our exposure to innovation and life sciences occupiers. The life sciences subsector has strong occupational fundamentals. There is 3.5x [9] less space per capita in the UK than the US and the UK has a deep and affordable talent pool. The UK is already a world leader in life sciences research concentrated primarily in the Golden Triangle. The government is keen to support this sector further to make the UK the global hub for life sciences with an unrivalled ecosystem that brings together business, researchers, clinicians and patients.
An ecosystem with proximity to leading teaching hospitals, universities and research institutions is incredibly important to occupiers in this sector. Our campus at Regent's Place in London's Knowledge Quarter is uniquely located in this regard. In September, we negotiated with Meta a surrender of its lease of 1 Triton Square - one of the two buildings it has leased at Regent's Place - for a receipt of GBP149m. Although they had secured an occupier to take over their lease, we believe there is more value to be created by taking back the building given that market rents are now significantly higher than the rent they were paying. We have a flexible plan to add lab space on the bottom floors whilst retaining best in class office space on upper floors, which will accelerate our plans to reposition Regent's Place as London's premier innovation and life sciences campus.
In Cambridge, given the acute shortage of lab and innovation space we were pleased to have acquired the Peterhouse Technology Park two years ago, and in this half we committed to the Peterhouse Extension, a 96,000 sq ft lab enabled and lab fitted building. We also secured one of the largest life sciences lettings in the UK with a 48,000 sq ft pre-let to LGC, a leading global life sciences company, at The Priestley Centre in Guildford.
Retail Parks
The second limb of the strategy we set in 2021, was to grow our exposure to retail parks. We could see from our leasing activity that retail parks had become the preferred physical retail format for an increasing number of retailers due to the three "A's" - affordability, adaptability and accessibility. The affordability of retail property is generally assessed by reference to the occupancy cost ratio - rent, rates and service charge as a percentage of total sales. A combination of reduced rents, lower business rates, already low service charges and robust sales reduced this ratio from 17.7% in 2016 to 9.1% now - at this level a very broad range of retailers can trade profitably. Retail parks are highly accessible for consumers as they are typically located on major arterial roads on the outskirts of towns and cities with ample free carparking. This makes them ideal not only for shopping, but for click and collect, returning goods to store and increasingly shipping from store. The adaptability of a retail park unit, which is essentially a basic steel box, is an important feature for retailers who face significant challenges in remodeling stores on the high street and in shopping centres.
The occupational fundamentals combined with low capital expenditure requirements (half that of shopping centres) and pricing below replacement cost make retail parks an attractive investment. Consequently, we are increasing our exposure to parks and have invested GBP410m since 2021 at an attractive blended yield of 7.8%. Occupancy of our portfolio has increased to 99%, and over the last 2.5 years retail parks have been the best performing subsector in UK real estate, and we delivered a total property return of 11.3% per annum outperforming the wider retail park sector by 270bps.
We are sometimes asked whether the footfall and sales outperformance of retail parks is just a Covid bounce because they are open air and were perceived to be safer to visit. We believe it is instead a permanent structural shift driven by the three "A's" above. Affordability is driving incremental demand from discounters and essential retailers and accessibility and adaptability are key for the multichannel retailers. This is borne out by statistics on store closings and openings - since 2016 there have been net closures [10] of -3,749 and -1,272 on the high street and within shopping centres respectively, but +572 net store openings at retail parks reflecting this incremental demand.
LONDON Urban Logistics
Our urban logistics strategy is to deliver new space in London by repurposing assets, like the Finsbury Square carpark, or densifying existing industrial land with multistorey schemes like our scheme in Enfield. Strong demand is underpinned by the growth of e-commerce and rising customer expectations on the speed and convenience of deliveries. Occupiers want to optimize their distribution operations and lower costs, while at the same time reducing their carbon footprint and pollution by using e-bikes and e-vehicles for the last mile logistics. Over the last two decades, significant amounts of industrial space in London has been converted to other uses, which combined with strong demand has led to very low vacancy of 0.4% [11] in inner London. This backdrop plays well to our planning expertise and track record of delivering complex developments in London. Our urban logistics development pipeline has a gross development value of GBP1.3bn.
Since our full year results in May we have been busy. We have received planning consents for our schemes at The Box in Paddington, Mandela Way in Southwark, and Heritage House in Enfield. In the half we also submitted plans for approval of our schemes in Verney Road in Southwark, and in Thurrock. Unsurprisingly, the financials of these projects have changed in the last 18 months. Exit yields and construction costs are higher, however, returns still look good as we have been able to mitigate these headwinds by increasing the massing of schemes and rents have grown faster than expected. We are pleased that returns are also attractive when we use the original purchase price / land value.
CAPITAL ALLOCATIOn
We actively recycle our capital to create value. Since we launched our new strategy in 2021, we have disposed of GBP2.6bn of dry office and non core retail assets at attractive prices, reinvesting in developments, retail parks and our London urban logistics pipeline. As a result of this capital recycling, 89% of the portfolio is now in our chosen segments of campuses, retail parks and London urban logistics.
Since March 2023 we have disposed of GBP170m [12] of non core assets including an office and data centre portfolio. We expect to continue to recycle capital and our priorities for capital allocation remain unchanged.
The resilience of our balance sheet is of utmost importance as it gives the ability to navigate macroeconomic uncertainties and the flexibility to invest in opportunities as they arise. In August, Fitch affirmed our Senior Unsecured credit rating at 'A' with stable outlook. Our LTV is 36.9% (FY23 36.0%), Group Net Debt to EBITDA is 6.0x (FY23 6.4x) and we have GBP1.7bn of undrawn facilities and cash at September.
We will continue to buy retail parks opportunistically. They have strong occupational fundamentals, values below replacement costs, attractive yields and are earnings accretive upon acquisition. Developments have created significant value for us over the years. However, the "higher for longer" interest rate environment has increased exit yields and finance costs. We have a disciplined approach to developments and have adjusted our return and yield on cost requirements to reflect this. Our pipeline is focused on campuses and London urban logistics, both subsectors where supply of new schemes is constrained. As a result, we are securing higher than expected rents, which combined with levelling off construction costs, is resulting in returns above our investment hurdles. In this half, we committed to one new scheme, the Peterhouse Expansion, a lab enabled building in Cambridge with a forecast IRR of 12%. The next projects on our radar are 2 Finsbury Avenue, a scheme at Broadgate where we are having very constructive pre-letting conversations, The Box, an urban logistics scheme on our Paddington Central campus and Mandela Way, a multistorey urban logistics scheme in Southwark.
We remain committed to shareholder distributions. Our dividend policy is to pay 80% of underlying EPS and we consider other shareholder distributions as and when appropriate.
SUSTAINABILITY
Our sustainability strategy has three pillars and we have delivered further good progress against each in the half. Our Greener Spaces pillar is centered around our commitment to achieving a net zero carbon portfolio by 2030. We have a pathway and set of targets to reduce both the embodied carbon in our developments and the operational carbon across our portfolio. In addition, we have a plan in place to improve the EPC ratings of the portfolio to A or B to be fully MEES [13] compliant by 2030. In the first half of FY24 we continued to make good progress. We increased the percentage of the portfolio which is rated EPC A or B to 50%, up from 45% at FY23, and we expect to be around 60% at FY24. We estimate the total cost to improve the standing portfolio to EPC A or B to be around GBP100m, of which two thirds will be recovered through the service charge. By the end of FY24, we will have spent a total of GBP20m on these initiatives, 70% of which will be recovered via the service charge. We have continued to make good progress reducing the operational energy and carbon intensity of our portfolio, often in collaboration with our customers.
Our Thriving Places pillar focuses on our Social Impact strategy. Highlights in the half included achieving Living Wage accreditation. We recognize that people are key to the success of our business and have always paid at least the real Living Wage to our direct employees and across our developments. The accreditation reflects the work we have done in recent years to encourage our supply chain to do the same. We also celebrated 10 years of Broadgate connect, our employment and training scheme that, in partnership with the East London Business Alliance, connects Broadgate businesses with local talent. Over the last ten years, GBP8.9m of social value has been added by the program.
Against our Responsible Choices pillar, we achieved a GRESB rating of 5*, up from 4* in FY23, for our standing investments and for developments we are a global leader, retaining our 5* rating and achieving a score of 99/100 [14] .
Outlook
Macroeconomic and geopolitical uncertainty remains elevated given persistently high inflation and the wars in the Ukraine and the Middle East. In the near term, property performance is likely to continue to be dominated by movements in market interest rates. However, with the portfolio NEY now at 6.1%, 180 bps higher than the 5 year swap, and an increased likelihood we are approaching the peak in base rates, we expect the strong occupational fundamentals of our submarkets to reassert themselves as the primary driver of medium term performance.
In May, we guided to rental growth in FY24 of 2-4% for campuses and retail parks and 4-5% in London urban logistics. In September, we upgraded our retail park rental growth guidance to 3-5%. Taking account of the performance in the first half and the strong occupational fundamentals, we expect full year performance to be at the top end of the guidance ranges. In terms of earnings, we remain comfortable with current market expectations for FY24.
Whilst the economic and geopolitical environment remains uncertain, we expect to deliver 8-10% total accounting return per annum over the medium term given our value-add approach and the attractive fundamentals of campuses, retail parks and London urban logistics.
MARKET
Macro-economic backdrop
Despite the uncertain UK macroeconomic outlook, we are seeing an improvement in some leading indicators. While GDP forecasts continue to adjust from quarter to quarter, the UK has thus far avoided a recession, consumer confidence has been resilient and labour markets have remained robust with unemployment at 4%.
London office market
In the wake of the mini budget, searches for London office space paused, impacting take up in the first three quarters of 2023 (calendar year), which was 25% below the ten year average [15] . However, the forward looking indicators in Q3 are very encouraging with the volume of space under offer 8% above the 10 year average and active demand 27% higher(15) . Demand remains focused on core markets, with location a critical criteria for occupiers. The City is performing particularly well with take up in Q3 exceeding the long term average by 5%. The banking and financial sectors continue to drive activity in both the City and West End, with most larger deals and under offers, originating from these sectors. We are also seeing increased demand for larger requirements. There are now 24 active requirements over 100,000 sq ft, compared with 11 at the start of the year. [16] Furthermore, most of this demand is for best in class space, which is shown in the high proportion of take up for new buildings, reaching 71% in September [17] . Supply is also constrained, with very low levels of best in class space being delivered beyond 2025. The result is that we are seeing strong rental growth for best in class space, particularly new space in the development pipeline.
Investment markets were subdued in the first half of the year with investors continuing to exercise caution in a high interest rate environment with ongoing macroeconomic and geopolitical uncertainty. Total volumes were GBP2.9bn across the City and West End compared to GBP6.6bn in the same period last year.
Life sciences market
The Golden Triangle remains the focus for innovation and life sciences occupiers and the current demand supply imbalance for lab space continues to drive rents in these locations. Take up volumes of life sciences space across the Golden Triangle remains subdued due to limited supply, with availability in Cambridge and Oxford being particularly acute. Volumes in the third quarter of 2023 are 38% below the five year average. [18] Demand for space in the sector is very strong. Active requirements for science and innovation space in the Golden Triangle totals 2.7m sq ft, far outweighing the existing supply and space under construction.
Investment volumes in the first half of the year were quiet with debt pricing impacting transaction volumes across all sectors, including life sciences. Volumes in the half were GBP153m across the Golden Triangle compared to GBP1.9bn in the same period last year.
Retail market
Occupational markets have been strong in the half as the consumer remained resilient. Retail parks continue to perform very well with 510 new unit openings recorded in the first half of 2023 (calendar year), meaning the market is poised to exceed the long term full year average total of 843 new openings. [19] Retail park vacancy rates remain very low due to increased demand from retailers who prefer the format and limited supply coming through.
Investment volumes in the first half were GBP1.1bn down from GBP2.3bn in the same period last year. However, investment volumes are increasing quarter on quarter, due to the strong occupational fundamentals combined with low capital expenditure requirements and pricing below replacement cost making them an attractive investment. Shopping centre volumes in the half were GBP297m, down from GBP661m in the same period last year.
Logistics market
In London, take up in the first half of 2023 (calendar year) was 0.5m sq ft, tracking slightly below 2022, as businesses have taken more time to consider larger capital investment in new properties. However, agents report that there is now significant pent up demand, as excess capacity acquired during 2021 and 2022 is now full. Rents continue to grow, reflecting the strength of demand for very centrally located space driven by the growth of e-commerce and increased expectations for priority delivery and lack of available stock, particularly in London. As a result, inner London vacancy is 0.4%. [20]
Investment volumes in the first half were GBP2.9bn, down from GBP5.5bn in the same period last year.
BUSINESS REVIEW
Key metrics
30 September 31 March Period ended 2023 2023 --------------------------------------------- ------------ ------------ Portfolio valuation GBP8,704m GBP8,898m Occupancy(1) 96.2% 96.7% Weighted average lease length to first break 5.0 yrs 5.7 yrs 30 September 30 September Six months to: 2023 2022 --------------------------------------------- ------------ ------------ Total property return (0.2)% (1.0%) - Yield shift +23 bps +17 bps - ERV movement 3.2% 1.2% - Valuation movement (2.5)% (3.0%) Lettings/renewals (sq ft) over 1 year 1.3m 1.1m Lettings/renewals over 1 year vs ERV +12.2% +14.7% Gross capital activity GBP457m GBP894m - Acquisitions GBP55m GBP47m - Disposals(2) GBP(170)m GBP(694)m - Capital investment GBP232m GBP153m Net investment/(divestment) GBP117m GBP(494)m --------------------------------------------- ------------ ------------
On a proportionally consolidated basis including the Group's share of joint ventures and excluding non-controlling interests
1. Where occupiers have entered CVA or administration but are still liable for rates, these are treated as occupied. If units in administration are treated as vacant, then the occupancy rate would reduce from 96.2% to 95.7%.
2. Of which GBP37m completed post period end.
Portfolio performance
Total Valuation Yield property Net equivalent Valuation movement ERV movement shift return yield At 30 September 2023 GBPm % % bps % % ---------------------------------- --------- --------- ------------ ------ --------- -------------- Campuses 5,382 (4.0) 3.2 +32 (2.5) 5.3 Central London 4,790 (3.6) 3.3 +32 (2.1) 5.3 Canada Water & other Campuses 474 (9.2) 0.0 +21 (8.4) 5.7 Retail & London Urban Logistics 3,322 0.1 3.3 +12 3.7 6.9 Retail Parks 2,060 0.2 4.0 +13 3.5 6.7 Shopping Centres 751 0.0 2.6 +10 5.1 8.0 London Urban Logistics 270 0.6 3.1 +9 2.0 4.7 ---------------------------------- --------- --------- ------------ ------ --------- -------------- Total 8,704 (2.5) 3.2 +23 (0.2) 6.1 ---------------------------------- --------- --------- ------------ ------ --------- --------------
See supplementary tables for detailed breakdown
The value of the portfolio was down 2.5% driven by further yield expansion of 23 bps across the portfolio. This was partly offset by positive ERV growth of 3.2%.
Campus valuations were down 4.0%, with our West End portfolio down 2.5% and City portfolio down 4.6%, reflecting yield expansion of 27 bps and 38 bps respectively. While investment markets continue to be impacted by macroeconomic and geopolitical uncertainty, occupational demand has remained robust, particularly for new, best in class buildings, located next to transport hubs with strong sustainability credentials. We saw ERV growth of 3.2% across campuses, with 3.5% and 3.2% ERV growth in our City and West End office portfolio respectively, reflecting leasing activity and limited supply.
The value of our retail park portfolio is marginally up 0.2% in the period, with strong ERV growth of 4.0%, driven by occupier demand and high occupancy on our parks, offsetting marginal outward yield shift of 13 bps. The value of our shopping centres was flat, with a 2.6% increase in ERV offsetting a 10 bps yield expansion. Transaction volumes remained low, albeit with investor interest continuing for best in class assets. In London urban logistics, values increased marginally by 0.6%, with an increase in ERV of 3.1% offsetting an outward yield shift of 9 bps.
Campus offices outperformed the MSCI benchmark for All Offices and Central London Offices by 380 bps and 340 bps respectively on a total return basis for the six months to 30 September 2023. Retail outperformed the MSCI All Retail benchmark on a total return basis by 330 bps due to our outperformance across the subsectors, as well as our weighting towards retail parks, which was the strongest performing retail subsector. Despite the continued strength of Industrials, our portfolio overall outperformed the MSCI All Property total return index by 30 bps over the period and by 370 bps on a reweighted basis.
Capital activity
Retail & London Urban Campuses Logistics Total From 1 April 2023 GBPm GBPm GBPm ----------------------- -------- ---------- ----- Purchases - 55 55 Sales(1) (144) (26) (170) Development Spend 188 3 191 Capital Spend 16 25 41 ----------------------- -------- ---------- ----- Net Investment 60 57 117 ----------------------- -------- ---------- ----- Gross Capital Activity 348 109 457 ----------------------- -------- ---------- -----
On a proportionally consolidated basis including the Group's share of joint ventures and excluding non-controlling interests
1. Of which GBP37m completed post period end
The total gross value of our capital activity since 1 April 2023 was GBP457m. The most significant transaction was the sale of six office and data centres from the Cable and Wireless portfolio for GBP125m [21] , reflecting a net initial yield (NIY) of 4.6%, 13% ahead of book value.
We continue to be disciplined in our approach to capital recycling within the retail portfolio. Since April 2023, we've disposed of non core assets including superstores in Burton on Trent and Coleraine for GBP8m and GBP10m. We also completed the purchase of Westwood Retail Park in Thanet for GBP55m (NIY 8.1%). This is a dominant retail park within the catchment area, which benefits from excellent accessibility and is let to a strong mix of retailers.
At Peterhouse in Cambridge, we've committed to a 96,000 sq ft office and lab building, on the land adjacent to the Peterhouse Arm Headquarters. Start on site commenced in July 2023 with PC targeted for January 2025 and we are having encouraging discussions with potential occupiers to pre-let this space.
Campuses
Key metrics
Period ended 30 September 31 March 2023 2023 --------------------------------------------- ------------ ------------ Portfolio valuation GBP5,382m GBP5,650m Occupancy 93.8% 96.2% Weighted average lease length to first break 5.8 yrs 7.2 yrs --------------------------------------------- ------------ ------------ Six months to 30 September 30 September 2023 2022 --------------------------------------------- ------------ ------------ Total property return (2.5)% (1.3)% - Yield shift +32 bps +18 bps - ERV growth 3.2% 1.6% - Valuation movement (4.0)% (2.7)% Total lettings/renewals (sq ft) 368,000 494,000 Lettings/renewals (sq ft) over 1 year 265,000 433,000 Lettings/renewals over 1 year vs ERV +7.5% +18.4% Like-for-like income(1) +0.6% +4.0% --------------------------------------------- ------------ ------------
On a proportionally consolidated basis including the Group's share of joint ventures and excluding non-controlling interests
1. Like-for-like excludes the impact of surrender premia, CVAs & admins, provisions for debtors and tenant incentives, and Storey. Including Storey like-for-like income would be -2.1% in H1 FY24 and +9.2% for H1 FY23
Campus operational review
Campuses were valued at GBP5.4bn, down 4.0%. This was driven by yield expansion of 32 bps, which was partly offset by ERV growth of 3.2%. Lettings and renewals totalled 368,000 sq ft, 7.5% ahead of ERV and 19.4% above previous passing rent. Weighted average lease length is 5.8 years. Across our campuses, we are under offer on a further 281,000 sq ft, 9.7% ahead of ERV.
Campus like-for-like income growth was +0.6% in the period driven by strong leasing and asset management activity, particularly at Broadgate and Paddington, which added GBP5m. The timing of lease events can create fluctuations to our income and we saw GBP4m of like-for-like campus expiries in the period. This was the case at Storey and even more evident at Regent's Place, where, as leases have expired, we have taken the opportunity to convert space for innovation and life sciences. As a result, occupancy was 93.8%, slightly down compared to March 2023. If we adjust for the recently completed asset management initiatives at Regent's Place, occupancy across the portfolio was 95.8%.
Our campuses provide the great amenity, transport connectivity, public realm and high quality sustainable buildings that businesses are seeking post pandemic. Across our standing portfolio, we benefit from a diverse group of high quality customers across financial, corporate, science, health, technology and media sectors.
Broadgate
Broadgate saw a valuation decline of 4.9% predominantly driven by outward yield shift of 35 bps, partially offset by ERV growth of 3.7%. Occupancy has increased to 97.0% from 94.9% six months ago, reflecting the high quality of the space, amenities and public realm as well as its location next to Liverpool Street station, a key transport hub at the intersection of London's financial district, the artisan quarter of Spitalfields, the creative district of Shoreditch and the Old Street tech belt. Leasing activity at Broadgate (excluding Storey) covered 135,000 sq ft, of which 124,000 sq ft were long term deals, 1.8% ahead of ERV. The most significant deal was a regear to the Bank of Nova Scotia at Broadgate Tower, covering 39,000 sq ft, extending their lease to 2035. There is a further 155,000 sq ft under offer, 8.3% ahead of ERV. We are seeing strong demand for developments at Broadgate and are in discussions on a potential pre-let at 2 Finsbury Avenue.
We are making good progress on asset management initiatives to improve the sustainability credentials of several buildings on the campus. At 10 Exchange Square, LED lighting has been installed bringing the building's EPC rating to B and at 201 Bishopsgate, the installation of all electric heating has improved the building's EPC rating to B. Looking ahead to the next six months, we are targeting an EPC B rating at 199 Bishopsgate, where we have taken the opportunity to incorporate energy efficient interventions at little incremental cost since they are part of the wider refurbishment.
Our social impact initiatives continue to focus on forging connections between our occupiers and local communities and we were pleased to have run a successful pilot of the Social Mobility Business Partnership's Insights and Skills Programme alongside one of our occupiers. Through the Young Readers Programme, in partnership with the National Literacy Trust, 190 school children participated in activities across the campus.
Regent's Place
Regent's Place saw valuation declines of 1.6%, driven by outward yield shift of 28 bps, which has been offset by ERV growth of 2.0%. Occupancy at the campus is 87.6% due to the timing of recently completed asset management initiatives, as we take back space on the campus to refurbish it into lab and innovation space. If we adjust for this, occupancy is 93.9%. We currently have 122,000 sq ft of space under offer and in negotiations at Regent's Place across 20 Triton Street and 350 Euston Road.
In September, we negotiated with Meta a surrender of its lease of 1 Triton Square - one of the two buildings it has leased at Regent's Place - for a receipt of GBP149m. Although Meta had secured an occupier to take over their lease, we believed there was more value to be created by taking back the building given that market rents are now significantly higher than the rent they were paying. We have a flexible plan to add a mix of fitted and lab enabled space and Storey, our flexible office product, on the bottom floors whilst retaining best in class office space on upper floors. Our Innovation Advisory Council, established in May, which is formed of five leading research scientists and executives, is working with us on this initiative.
Regent's Place continues to gain momentum as a life sciences and innovation hub. In the half, we have signed an Agreement for Lease with Impact Hub London, the incubator behind innovation and life science organisations in the Knowledge Quarter, to take the affordable workspace at 1 Triton Square. As part of this agreement, the Knowledge Quarter HQ will be located there. This builds on the Memorandum of Understanding we signed with UCL in May, which will give our occupiers access to their technical services and facilities. It will also mean we are in partnership with an organisation that is a very effective incubator for spin out businesses and the next generation of occupiers.
Our social programmes at Regent's Place include partnering with Hypha Studios, a charity matching creatives with empty spaces across London. The organisation has opened at a vacant retail unit in Euston Tower, which will feature exhibitions from local artists. In addition, Little Village, a baby bank, will open on the campus. Through the Young Readers Programme, in partnership with the National Literacy Trust, 150 school children participated in activities across the campus.
Paddington Central
Paddington Central saw valuation declines of 8.9% driven by outward yield shift of 50 bps. This has been partially offset by ERV growth of 9.3%. With occupancy at the campus very high at 99.7%, leasing activity (excluding Storey) covered 95,000 sq ft, 6.9% ahead of ERV. We are under offer on a further 27,000 sq ft to a life sciences occupier at 3 Sheldon Square, which is currently under refurbishment. The building is already 65% pre-let to Virgin Media O2 and this deal would take it to 86% pre-let four months ahead of completion.
As part of our social impact initiatives, we continue to provide affordable space to the Ukrainian Institute to run their English language courses. To date, the classes have benefitted 1,020 displaced Ukrainians, with 760 individuals gaining English qualifications. In partnership with occupiers on the campus, we hosted Mastering My Future insight days for 26 young people to experience different careers at Paddington Central. Through the Young Readers Programme, in partnership with the National Literacy Trust, 196 school children participated in activities across the campus.
Storey: our flexible workspace offer
Storey is part of our campus proposition and provides occupiers with the flexibility to expand and contract depending on their requirements. The quality of the space, central location and access to campus amenities make the space appealing to scale up businesses for their HQ's. Customers on our campuses also benefit from access to ad hoc meeting and events space at Storey Club and this service is an increasingly important factor when making workspace decisions.
Storey is currently operational across 300,000 sq ft, with a further 44,000 sq ft in the pipeline, including 35,500 sq ft at 201 Bishopsgate on our Broadgate campus, which is due to complete in Q2 2024 and 7,500 sq ft at 2 Kingdom Street on our Paddington campus completing in May 2024.
Leasing activity covered 71,000 sq ft in the half. Storey rents (after property operating expenses) command an average premium over traditional net effective rents of 18% across the stabilised portfolio. Storey occupancy is at 87% due to timings of expiries.
Canada Water
The valuation of Canada Water declined 10.1%, driven by a 35 bps outward yield shift on the offices. The first phase of the Canada Water development, which comprises a mix of workspace, retail, leisure and residential is progressing well and is on programme. Roberts Close (K1), which consists of 79 affordable homes is on track to complete at the end of the calendar year. 1-3 Deal Porters Way (A1), which is a mix of 186 residential units (The Founding) and workspace and The Dock Shed (A2), workspace with a leisure centre on the ground floors is due to complete in Q4 2024.
We are targeting rents on the workspace from GBP50 psf. Residential sales for The Founding launched in February and current sales are above targeted pricing levels, achieving in excess of GBP1,250 psf, which is attractive relative to competing schemes.
The London Borough of Southwark held an initial 20% interest in the scheme and has the ability to participate in the development up to a maximum of 20% with returns pro-rated accordingly. Although it has elected not to fully participate in Phase 1, Southwark has pre-purchased the 79 affordable homes at Roberts Close and have part funded the 55,000 sq ft leisure centre in The Dock Shed.
In the period, we achieved planning consent for Zone G of the Masterplan, which includes a replacement Tesco store, 384 homes of which 42% are affordable housing, some smaller flexible retail space and a new 3.5 acre public park. We are intending to submit our revised plans for a cultural and office scheme at the Printworks, in Zone H of the Masterplan shortly which together with the planning permissions received in July 2022 for Zones L and F, represent the next phases of the Canada Water Masterplan.
Building on the success of the TEDI modular campus we recently completed the build of a 33,000 sq ft modular innovation campus on the site. We have completed our first letting to CheMastery, a startup aiming to increase the efficiency of chemical research and manufacturing. We are under offer on additional space to a clean energy tech business with good interest from other life science and innovation businesses for the remainder. Canada Water is well located to cater to innovation and life sciences businesses, due to its proximity to three leading teaching and research hospitals including Guy's Hospital in London Bridge, St Thomas' Hospital in Waterloo and King's College Hospital in Denmark Hill.
Retail & London Urban Logistics
Key metrics
30 September 31 March Period ended 2023 2023 --------------------------------------------- ------------ ------------ Portfolio valuation GBP3,322m GBP3,248m - Of which Retail Parks GBP2,060m GBP1,976m - Of which Shopping Centres GBP751m GBP746m - Of which London Urban Logistics GBP270m GBP263m Occupancy(1) 98.4% 97.3% Weighted average lease length to first break 4.5 yrs 4.6 yrs --------------------------------------------- ------------ ------------ Six months to 30 September 30 September 2023 2022 --------------------------------------------- ------------ ------------ Total property return 3.7% (0.3)% - Yield shift +12 bps +17 bps - ERV growth 3.3% 0.6% - Valuation movement 0.1% (3.6)% Total lettings/renewals (sq ft) 1,225,000 1,017,000 Lettings/renewals (sq ft) over 1 year 1,049,000 698,000 Lettings/renewals over 1 year vs ERV +14.2% +10.3% Like-for-like income(2) +5.2% +0.8% --------------------------------------------- ------------ ------------
On a proportionally consolidated basis including the Group's share of joint ventures and excluding non-controlling interests
1. Where occupiers have entered CVA or administration but are still liable for rates, these are treated as occupied. If units in administration are treated as vacant, then the occupancy rate for Retail would reduce from 98.4% to 97.5%.
2. Like-for-like excludes the impact of surrender premia, CVAs & admins and provisions for debtors and tenant incentives.
Retail & London Urban Logistics operational review
Valuations in these subsectors have stabilised in the half. Retail park and London urban logistics values were up 0.2% and 0.6% respectively, slightly outperforming shopping centres, which were flat. Average rental growth across the three subsectors was 3.3% in the half, exceeding the 3% growth delivered in 12 months to March 2023, and offsetting marginal yield increase of 12 bps, as the impact of rising interest rates have largely now fed through. Occupationally, retail ERVs continue to grow with retail parks performing strongly in the half. ERVs were up 4.0% and 2.6% for retail parks and shopping centres respectively.
We continue to lease well, with 1.2m sq ft of deals signed in the period, of which half were at our retail parks. Deals completed over the period were 14.2% ahead of ERV and 9.5% below previous passing rent. Occupancy across the three subsectors remains high at 98.4%. Like-for-like income was up GBP6m (5.2%) as we kept our retail parks full and filled vacant space in our shopping centres.
Weighted average lease length is 4.5 years. We had 344,000 sq ft of rent reviews that were agreed 0.2% above previous passing rent. In total, we have 844,000 sq ft of deals under offer, 20.5% above March 2023 ERV.
Retail Parks
We continue to see significant leasing momentum across our retail parks with 629,000 sq ft of deals signed in the half, 14.9% above ERV and 8.3% below previous passing rent. We have a further 697,000 sq ft under offer, 19.3% above ERV and 8.9% below previous passing rent. Occupancy remains high at 99%, reflecting strong demand and limited supply. Retail parks are the preferred format for a wide range of customers due to the format's affordability, adaptability and accessibility, which in September, led us to upgrade ERV growth guidance from 2-4% to 3-5%.
Key deals in the half include five deals with Frasers Group totaling 72,000 sq ft, including Sports Direct doubling in size at Teesside Park and Wheatley Retail Park and a new letting to FLANNELS at Teesside Park. At Glasgow Fort, fashion retailer Primark took 23,000 sq ft of new space and ZARA opened their 37,000 sq ft flagship store. At Teesside Park, we've exchanged on 165,000 sq ft of leasing in the half, including 43,000 sq ft to value retailer B&M, with a further 55,000 sq ft under offer. We have also agreed four lease renewals with Asda totaling 88,000 sq ft and 3 deals with Hotel Chocolat covering 11,000 sq ft.
Shopping Centres
We continue to actively manage our shopping centres improving occupancy and driving rents forward. We have completed 500,000 sq ft of deals, on average 13.1% ahead of ERV and 12.7% below previous passing rent. This activity improved occupancy which is now at 96.8%. Notable recent deals include 124,000 sq ft to Frasers Group in the former Debenhams at Meadowhall and 43,000 sq ft to Inditex (Zara) also at Meadowhall.
LONDON URBAN LOGISTICS
In London urban logistics we've assembled a 2.9m sq ft pipeline with a GDV of GBP1.3bn. We continue to make good progress, with planning consent achieved at The Box in Paddington, Mandela Way in Southwark and Heritage House in Enfield, in the half. We have also submitted planning for a second multi-storey scheme at Verney Road in Southwark and we expect to commit to The Box and Mandela Way shortly.
Retail Footfall and Sales
02 April 2023 - 30 September 2023 -------------- ---------------------------------- Benchmark % of 2022(1) outperformance(2,3) -------------- ------------ -------------------- Footfall - Portfolio 101.0% n/a - Retail Parks 99.6% n/a Sales - Portfolio 106.3% 270 bps - Retail Parks 107.6% 395 bps -------------- ------------ --------------------
1. Compared to the equivalent weeks in 2022
2. Footfall benchmark: Springboard Overall & Springboard Retail Parks only
3. Sales benchmark: BRC UK Total Instore retail sales
Developments
ERV Current Cost to Let & under Sq ft Value complete ERV offer At 30 September 2023 '000 GBPm GBPm GBPm GBPm --------------------- ------ ------- --------- ----- ------------- Committed 1,916 783 417 70.8 27.2 Near term 1,872 528 742 96.9 - Medium term 8,235 - - - - --------------------- ------ ------- --------- ----- ------------- Total pipeline 12,023 1,311 1,159 167.7 27.2 --------------------- ------ ------- --------- ----- -------------
On a proportionally consolidated basis including the Group's share of joint ventures (except area which is shown at 100%)
Development Pipeline
Developments are a key driver of long term value creation for British Land. Altogether, we expect our development pipeline to deliver profits of around GBP1.4bn. Against a backdrop of higher interest rates, which have pushed yields out and impacted funding costs, we have increased the return hurdles for our new developments. We now target IRRs of 12-14% on our campuses and mid teens on our London urban logistics developments. Because we are in the right parts of our markets with good supply demand tension, we are securing higher rents. Higher funding costs have resulted in limited new supply coming on stream and construction cost inflation appears to be levelling off.
We are currently on site with 1.9m sq ft of space, which will target BREEAM Outstanding (for offices) and Excellent (for retail), delivering GBP70.8m of ERV, with 38% already pre-let or under offer. Excluding build to sell residential and retail space, which we will let closer to completion, we are 43% pre-let or under offer by ERV. Total development exposure is now 4.9% of portfolio gross asset value. Speculative exposure, which is based on ERV and includes space under offer, is 7.7% and within our internal risk parameter of 12.5%.
Against a backdrop of rising inflation and given broader market uncertainty, development valuations were down 2.6% driven primarily by outward yield shift.
Committed Developments
Our committed pipeline stands at 1.9m sq ft and in the period we have committed to the Peterhouse Expansion in Cambridge, delivering a 96,000 sq ft office and lab building, into a highly constrained market.
The development of 1 Broadgate is progressing on programme and the office space is fully pre-let or under option to JLL and Allen & Overy, demonstrating the strong demand for best in class, sustainable buildings. Norton Folgate is on track to complete later this year. We have let over a third of the office space to Reed Smith, and are having good discussions with a range of occupiers on the rest of the space.
3 Sheldon Square is currently undergoing a full refurbishment, significantly minimising the embodied carbon of the development by retaining and reusing the existing structure and materials. The building is already 65% let to Virgin Media O2, which signed 83,000 sq ft for their UK Headquarters in February 2023 and we are in negotiations on a further 27,000 sq ft of space, which will take the building to 86% let ahead of completion in Q1 2024.
We are making good progress on the development of the first phase of Canada Water, which comprises of three buildings covering 578,000 sq ft. We are targeting BREEAM Outstanding on all the commercial space, BREEAM Excellent on retail and a minimum of HQM One 4(* [22]) for private residential.
The development of phase 2 at Aldgate Place is progressing to plan. The scheme comprises 159 premium rental apartments with 19,000 sq ft of office space and 8,000 sq ft of retail and leisure space. It is well located, adjacent to Aldgate East and between Liverpool Street and Whitechapel stations. Completion is expected in Q2 2024.
We are also on site with an 84,000 sq ft development at The Priestley Centre in Guildford, which will be a mix of innovation and lab enabled space. The building is already 62% pre-let to LGC, a leading global life sciences company, ahead of completion in Q1 2024.
Committed Developments
100% sq Gross Yield BL Share ft PC Calendar ERV on Cost(2) As at 30 September 2023 Sector % '000 Year GBPm(1) % ------------------------------- -------------- -------- ------- ----------- -------- ----------- The Priestley Centre Life Sciences 100 84 Q1 2024 3.3 8.1 Norton Folgate Office 100 335 Q4 2023 24.4 5.4 3 Sheldon Square Office 25 140 Q1 2024 2.6 6.4 Aldgate Place, Phase 2 Residential 100 138 Q2 2024 6.7 5.0 Peterhouse Western Expansion Life Sciences 100 96 Q1 2025 4.7 6.4 1 Broadgate Office 50 545 Q2 2025 20.0 6.0 Canada Water(3) blended Roberts Close (Plot K1) Residential 50 62 Q4 2023 - 7.0 ----------- 1-3 Deal Porters Way (Plot A1) Mixed use 50 270 Q4 2024 3.6 ----------- The Dock Shed (Plot A2) Mixed use 50 246 Q4 2024 5.5 ------------------------------- -------------- -------- ------- ----------- -------- ----------- Total Committed 1,916 70.8 ----------------------------------------------- -------- ------- ----------- -------- -----------
1. Estimated headline rental value net of rent payable under head leases (excluding tenant incentives).
2. Gross yield on cost is calculated by dividing the ERV of the project by the total development costs, including the land value at the point of commitment, and any actual / estimated capitalisation of interest.
3. The London Borough of Southwark has confirmed they will not be investing in Phase 1, but retain the right to participate in the development of subsequent plots up to a maximum of 20% with their returns pro-rated accordingly.
Reflecting the higher interest rate environment exit yields are c.100 bps higher than when we committed to Norton Folgate, 1 Broadgate, Aldgate and Canada Water Phase 1, which has reduced their IRRs to c.3% (compared to a negative total return for MSCI over this period [23] ). There is c.GBP70m of profit to come on these schemes. We expect the IRRs and profit to come to improve given the strong rental growth we are seeing in our markets. On the remaining projects we committed to after summer 2022, the outward shift in yields has been less (c.50 bps) and they are forecast to make c.12% IRRs off the original land values.
Near Term Pipeline
Our near term pipeline covers 1.9m sq ft. The largest scheme is 2 Finsbury Avenue, where we have planning consent for a 747,000 sq ft best in class, sustainable office building at Broadgate. We are already having very positive pre-let discussions on the building and although the development is not committed, we have commenced demolition and basement works to improve optionality. 1 Triton Square is now part of our near term pipeline, where we have the opportunity to repurpose the building for innovation and life sciences occupiers. We have a flexible plan to add lab space and Storey on the bottom floors whilst retaining best in class office space on upper floors.
Our near term pipeline also includes our first three London urban logistics developments, The Box at Paddington, Mandela Way in Southwark and Verney Road also in Southwark. In the half, we achieved planning consent for Mandela Way and The Box, and we have submitted planning for a multi-storey scheme at Verney Road in Southwark. We expect to commit to The Box and Mandela Way shortly. These schemes have IRRs of around 20% and will provide flexible space for a range of customers.
Medium Term Pipeline
Our medium term pipeline covers 8.2m sq ft, the largest of which are the future phases of the Canada Water Masterplan, which accounts for 4.2m sq ft and Euston Tower, where we have an exciting opportunity to deliver a highly sustainable innovation and lab enabled building in London's Knowledge Quarter.
London urban logistics opportunities account for 2.4m sq ft of medium term opportunities. This includes Thurrock, where we have submitted plans for a 644,000 sq ft two-storey logistics scheme east of London; Heritage House, Enfield where we have achieved planning for a two-storey logistics scheme totalling 437,000 sq ft and Hannah Close in Wembley, where there is potential to deliver 668,000 sq ft of well located, multi-storey urban logistics space, within the M25.
FINANCE REVIEW
Six months to 30 September 30 September 2023 2022(1) ------------------------------------------------------ ------------ ------------ Underlying Profit(2,3) GBP142m GBP138m Underlying earning per share(2,3) 15.2p 14.7p IFRS (loss) after tax GBP(61)m GBP(32)m Dividend per share 12.16p 11.60p Total accounting return(2) (2.0)% (2.8)% ------------------------------------------------------ ------------ ------------ As at 30 September 31 March 2023 2023 EPRA Net Tangible Assets per share(2,3) 565p 588p EPRA Net Disposal Value per share(2,3) 594p 606p IFRS net assets GBP5,367m GBP5,525m ------------------------------------------------------ ------------ ------------ LTV(4,5,6) 36.9% 36.0% Net Debt to EBITDA (Group)(4,7) 6.0x 6.4x Net Debt to EBITDA (proportionally consolidated)(4,5) 8.0x 8.4x Weighted average interest rate(5) 3.4% 3.5% Senior Unsecured credit rating A A ------------------------------------------------------ ------------ ------------
1. Prior period comparatives have been restated for a change in accounting policies in respect of rental concessions and tenant deposits (as disclosed in Note 1 of the condensed interim financial statements).
2. See Note 2 to condensed interim financial statements for definition and calculation.
3. See Table B within supplementary disclosures for reconciliations to IFRS metrics.
4. See Note 9 to condensed interim financial statements for definition, calculation and reference to IFRS metrics.
5. On a proportionally consolidated basis including the Group's share of joint ventures and excluding non-controlling interests.
6. EPRA Loan to value is disclosed in Table E of the condensed interim financial statements.
7. Net Debt to EBITDA on a Group basis excludes non-recourse and joint venture borrowings, and includes distributions from non-recourse companies and joint ventures.
Overview
Operational momentum continued in the period driven by like-for-like rental growth, a tight grip on costs and collection of historic Covid arrears. Underlying Profit and Underlying earnings per share (EPS) were up 3.4% at GBP142m and 15.2p respectively. Based on our policy of setting the dividend at 80% of Underlying EPS, the Board has proposed an interim dividend of 12.16p per share, up 4.8%. The growth in the dividend is higher than Underlying EPS growth due to the impact of the rental concession restatement in the prior period.
IFRS loss after tax for the period to 30 September 2023 was GBP61m, compared with a loss after tax for the prior period to 30 September 2022 of GBP32m. The movement period on period primarily reflects a larger downward valuation movement on the Group's properties and those of its joint ventures, lower net capital finance income from mark-to-market gains on the derivatives hedging the interest rate on our debt, which is offset by the capital uplift from the surrender premium received at 1 Triton Square.
Overall valuations have fallen by 2.5% on a proportionally consolidated basis resulting in a decrease in EPRA NTA per share of 3.9%. Including dividends of 11.04p per share paid during the period, total accounting return was -2.0%.
Group Net Debt to EBITDA improved by 0.4x to 6.0x, and Net Debt to EBITDA on a proportionally consolidated basis also improved by 0.4x to 8.0x, driven by the growth in Underlying earnings and capital activity in the period.
Loan to value (LTV) on a proportionally consolidated basis has increased marginally by 90 bps from 36.0% at 31 March 2023 to 36.9% at 30 September 2023. This reflects the valuation declines noted above and capital expenditure on our committed development pipeline, largely offset by the sale of an office and data centre portfolio and the 1 Triton Square surrender receipt, both of which completed in September 2023.
Our financial position remains strong with GBP1.7bn of undrawn facilities and cash as at 30 September 2023. Based on our current commitments and facilities, we have no requirement to refinance until mid-2026.
We continue to have good access to finance markets. Since March we completed GBP600m of financing activity for the Group. This included the extension of GBP250m in two existing RCFs by an additional year to 2028, and post period end we completed four new 5 year term loans totalling GBP350m, also maturing 2028, on favourable terms.
Our weighted average interest rate at 30 September 2023 was 3.4%, a 10 bps decrease from 31 March 2023. The impact of increased rates on our interest costs is limited by our hedging which includes fixed rate debt, interest rate swaps to fixed rate and caps where the strike rates are below current SONIA. The interest rate on our debt is 99% hedged for the six months to March 2024 and, 84% hedged on average over the next five years.
We have an advantageous debt structure with access to diverse sources of finance through debt raised by British Land for the Group and in our joint ventures. Debt in British Land (except for the legacy debentures) is unsecured with no interest cover covenants. We retain significant headroom to our unsecured debt covenants; at September 2023 the Group could withstand a fall in asset values across the portfolio of 45% before reaching the covenant limits, prior to taking any mitigating actions. Joint venture debt is secured on the assets of the relevant entity, non-recourse to the Group, and the majority is "covenant light" with no LTV default covenants.
Fitch Ratings, as part of their annual review in August 2023, affirmed all our credit ratings with a stable outlook, including the Senior Unsecured rating at 'A'.
Underlying Profit
GBPm ----------------------------------------------------------------------- ---- Underlying Profit for the six months ended 30 September 2022 138 ----------------------------------------------------------------------- ---- Disposals (7) Acquisitions 3 Developments (7) Like-for-like net rent 4 CVAs, administrations and provisions for debtors and tenant incentives 9 Net finance costs, administrative costs & fee income 2 ----------------------------------------------------------------------- ---- Underlying Profit for the six months ended 30 September 2023 142 ----------------------------------------------------------------------- ----
1. Prior year comparatives have been restated for a change in accounting policy in respect of rental concessions (as disclosed in Note 1 of the condensed interim financial statements).
Underlying Profit increased by GBP4m, with like-for-like net rental growth, strong cost control, improved fee income, and the collection of historic Covid arrears offsetting the impacts of net divestment and properties going into development and the incremental finance costs associated with our development pipeline.
Underlying Profit for the period reduced by GBP7m as a result of the GBP0.9bn disposal of mature assets (primarily the sale of a 75% interest in the majority of our assets in Paddington Central) over the last 18 months. This was offset by the GBP0.2bn of acquisitions in Retail Parks, London Urban Logistics and innovation opportunities which resulted in a GBP3m increase to Underlying Profit.
Proceeds from sales have been deployed into our development pipeline and value accretive acquisitions. Our committed schemes are expected to generate an ERV of GBP70.8m, of which 38% is already pre-let or under offer. In the period developments reduced Underlying Profit by GBP7m as properties have moved into development and finance costs increased due to incremental spend. Interest on development expenditure is capitalised at the Group's weighted average interest rate at 30 September 2023 of 2.6% (30 September 2022: 3.0%) which is currently below the Group's marginal cost of borrowing.
Like-for-like net rental growth across the portfolio was 2.1% in the period, adding GBP4m to net rents.
CVAs, administrations and provisions made against debtors and tenant incentives improved by GBP9m compared to the prior period. This improvement is primarily due to the one-off collection of Covid arrears relating to Arcadia in the period of GBP12m.
Administrative costs were GBP1m lower period on period as we continue to focus on cost control, whilst fee income from our joint ventures increased GBP2m. Finance costs were GBP1m higher.
Presentation of financial information and alternative performance measures
The Group financial statements are prepared under IFRS (UK-adopted International Accounting Standards) where the Group's interests in joint ventures 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 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 uses a number of performance metrics in order to assess the performance of the Group and allow for greater comparability between periods, however, does not consider these performance measures to be a substitute for IFRS measures.
Management monitors Underlying Profit as it is an additional informative measure of the underlying recurring performance of our core property rental activity and excludes the non-cash valuation movement on the property portfolio when compared to IFRS metrics. 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, with additional Company adjustments when relevant (see Note 2 in the condensed interim financial statements for further detail).
Management monitors EPRA NTA 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 NTA, and dividends paid.
Loan to value (proportionally consolidated) and Net Debt to EBITDA (Group and proportionally consolidated) are monitored by management as key measures of the level of debt employed by the business to meet its strategic objectives, along with a measurement of risk. It also allows comparison to other property companies who similarly monitor and report these measures. The definitions and calculations of Loan to value and Net Debt to EBITDA are shown in Note 9 of the condensed interim financial statements.
Income statement
1.1 Underlying Profit
Underlying Profit is the measure that we use to assess income performance. This is presented below on a proportionally consolidated basis. In the period to 30 September 2023, GBP25m of rent receivable, GBP149m of surrender premia receivable, and GBP54m of tenant incentive impairment were excluded from the calculation of Underlying Profit(1) (see Note 2 of the condensed interim financial statements for further details). No company adjustments were made in the period to 30 September 2022.
Six months to Section 30 September 30 September 2023 2022(2) GBPm GBPm ----------------------------------------------- ------- ------------ ------------ Gross rental income 246 253 Property operating expenses (15) (24) ----------------------------------------------- ------- ------------ ------------ Net rental income 1.3 231 229 ----------------------------------------------- ------- ------------ ------------ Net fees and other income 11 9 Administrative expenses 1.4 (43) (44) Net financing costs 1.5 (57) (56) ----------------------------------------------- ------- ------------ ------------ Underlying Profit 142 138 ----------------------------------------------- ------- ------------ ------------ Underlying tax (1) (1) Non-controlling interests in Underlying Profit 1 1 EPRA and Company adjustments(3) (203) (170) ----------------------------------------------- ------- ------------ ------------ IFRS (loss)/profit after tax 2 (61) (32) ----------------------------------------------- ------- ------------ ------------ Underlying EPS 1.2 15.2p 14.7p IFRS basic EPS 2 (6.6)p (3.5)p Dividend per share 3 12.16p 11.60p ----------------------------------------------- ------- ------------ ------------
1. On 25 September 2023, the Group completed a deed of surrender in relation to an in-force lease of one of its investment properties. The consideration for the surrender was a GBP149m premium paid by the tenant on the completion date. In line with the requirements of IFRS 16, the surrender transaction was treated as a modification to the lease, with the surrender premium received recognised in full through the income statement at the point of completion, which represented the modified termination date of the lease. At the point of modification, the lease had associated tenant incentive balances of GBP54m, and as the right to receive these amounts was extinguished through the lease modification, with an impairment recognised in full through the income statement at the point of completion. Also at the point of modification, the lease had an associated deferred lease premium balance of GBP25m, which in line with the surrender premium received, was recognised in full through the income statement at the point of completion. Owing to the unusual and significant size and nature of this transaction, and in line with the Group's accounting policies, all elements of the transaction have been included within the Capital and other column of the income statement.
2. Prior period comparatives have been restated for a change in accounting policy in respect of rental concessions (as disclosed in Note 1 of the condensed interim financial statements).
3. 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, associated close out costs and related deferred tax. Company adjustments consist of items which are considered to be unusual and/or significant by virtue of their size or nature. These items are presented in the 'capital and other' column of the consolidated income statement.
1.2 Underlying EPS
Underlying EPS was 15.2p, up 3.4%. This reflects the Underlying Profit increase of 3.4%, and the GBP1m tax charge in the period.
1.3 Net rental income
GBPm ----------------------------------------------------------------------- ---- Net rental income for the six months ended 30 September 2022 229 ----------------------------------------------------------------------- ---- Disposals (12) Acquisitions 6 Developments (5) Like-for-like net rent 4 CVAs, administrations and provisions for debtors and tenant incentives 9 ----------------------------------------------------------------------- ---- Net rental income for the six months ended 30 September 2023 231 ----------------------------------------------------------------------- ----
1. Prior period comparatives have been restated for a change in accounting policy in respect of rental concessions (as disclosed in Note 1 of the condensed interim financial statements).
Disposals of income producing assets over the last 18 months reduced net rents by GBP12m in the period, primarily relating to the sale of a 75% interest in the majority of our assets in Paddington Central. The proceeds from sales are being reinvested into value accretive acquisitions and developments. Acquisitions have increased net rents by GBP6m, primarily as a result of the purchase of nearly GBP0.2bn retail parks in Farnborough, Preston, and Thanet. Developments have decreased net rents by GBP5m, driven by 3 Sheldon Square going into development and a one-off rate rebate received on Euston Tower in the prior period, where we de-rated it for development. The committed development pipeline is expected to deliver GBP70.8m of ERV in future years.
Like-for-like net rental growth across the portfolio was 2.1% in the period, adding GBP4m to net rents.
Campus like-for-like net rental growth was driven by strong leasing and asset management activity, adding GBP5m to net rents in the period, offset by expiries which reduced net rent by GBP4m. Storey like-for-like rent declined by GBP2m, impacted by the timing of expiries. Like-for-like net rental growth for Retail & London Urban Logistics was GBP6m, reflecting good leasing in Shopping Centres and continued high occupancy on our Retail Parks.
CVAs, administrations and provisions made against debtors and tenant incentives improved by GBP9m compared to the prior period. This improvement is primarily due to the collection of Covid arrears relating to Arcadia in the period of GBP12m. We also continue make good progress on prior year debtors with cash collection now in line with pre-pandemic levels.
1.4 Administrative expenses
Administrative expenses of GBP43m in the period are marginally lower period on period, despite the inflationary environment, at GBP43m as a result of our continued focus on cost control. The Group's EPRA operating cost ratio decreased to 14.8% (September 2022: 19.5%) through our cost control, higher fee income from our joint ventures and by the one-off collection of historic Covid arrears.
1.5 Net financing costs
GBPm --------------------------------------------------------------- ---- Net financing costs for the six months ended 30 September 2022 (56) --------------------------------------------------------------- ---- Net divestment 2 Developments (2) Market rates (1) Net financing costs for the six months ended 30 September 2023 (57) --------------------------------------------------------------- ----
Net financing costs increased by GBP1m period on period. Net divestment reduced financing costs by GBP2m; disposals of GBP0.9bn over the last 18 months reduced costs by GBP5m, partially offset by acquisitions made over the same period. A further GBP2m increase in financing costs was from spend on our committed development pipeline and other maintenance capex.
Despite the significant increase in market rates over the last 18 months (rates at March 2022 were 0.75%), our hedging has limited the impact on our financing costs, to the GBP1m increase.
The interest rate on our debt is 99% hedged for the six months to 31 March 2024 and 84% hedged on average over the next five years, with a gradually declining profile.
2. IFRS loss after tax
The main differences between IFRS loss after tax and Underlying Profit are that IFRS includes the valuation movements on investment properties, fair value movements on financial instruments and associated deferred tax, capital financing costs and any Company adjustments. In addition, the Group's investments in joint ventures 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 six months to 30 September 2023 was GBP(61)m, compared with a loss after tax for the prior period of GBP(32)m. IFRS basic EPS was (6.6)p, compared to (3.5)p in the prior period. The IFRS loss after tax for the period primarily reflects the downward valuation movement on the Group's properties of GBP(201)m, the capital and other loss from joint ventures of GBP(123)m, the capital and other gain from surrender of 1 Triton Square of GBP120m (as disclosed in Note 3 of the condensed interim financial statements), and the Underlying Profit of GBP142m. The Group valuation movement and capital and other income profit from joint ventures was driven principally by outward yield shift of 23 bps offset by ERV growth of 3.2% in the portfolio resulting in a valuation loss of 2.5%.
The basic weighted average number of shares in issue during the year was 927m (H1 2022/23: 927m).
3. Dividends
Our dividend is semi-annual and calculated at 80% of Underlying EPS based on the most recently completed six-month period. Applying this policy, the Board has announced an interim dividend for the six months ended 30 September 2023 of 12.16p per share. Payment will be made on Friday 5 January 2024 to shareholders on the register at close of business on Friday 24 November 2024. The dividend will be a Property Income Distribution and no SCRIP alternative will be offered.
Balance sheet
As at Section 30 September 31 March 2023 2023 GBPm GBPm ------------------------------ ------- ------------- -------- Property assets 8,713 8,907 Other non-current assets 78 141 ------------------------------ ------- ------------- -------- 8,791 9,048 Other net current liabilities (282) (348) Adjusted net debt 6 (3,231) (3,221) Other non-current liabilities - (50) ------------------------------ ------- ------------- -------- EPRA Net Tangible Assets 5,278 5,487 ------------------------------ ------- ------------- -------- EPRA NTA per share 4 565p 588p ------------------------------ ------- ------------- -------- Non-controlling interests 13 13 Other EPRA adjustments(1) 76 25 ------------------------------ ------- ------------- -------- IFRS net assets 5 5,367 5,525 ------------------------------ ------- ------------- --------
Proportionally consolidated basis
1. EPRA Net Tangible Assets NTA is a proportionally consolidated measure that is based on IFRS net assets excluding the mark-to-market on derivatives and related debt adjustments, the carrying value of intangibles as well as deferred taxation on property and derivative valuations. The metric includes the valuation surplus on trading properties and is adjusted for the dilutive impact of share options. Details of the EPRA adjustments are included in Table A within the supplementary disclosures.
4. EPRA Net Tangible Assets per share pence ---------------------------------------- ----- EPRA NTA per share at 31 March 2023 588 ---------------------------------------- ----- Valuation performance (36) Surrender at 1 Triton Square 13 Underlying Profit 15 Dividend (11) Other (4) ---------------------------------------- ----- EPRA NTA per share at 30 September 2023 565 ---------------------------------------- -----
The 3.9% decrease in EPRA NTA per share reflects a valuation decrease of 2.5%, including the uplift from the surrender of 1 Triton Square, compounded by the Group's gearing. The decrease in valuations was as a result of further yield expansion as interest rates continued to rise in the period.
Campus valuations were down 4.0%, driven by yields moving out 32 bps, but offset by ERV growth of 3.2% reflecting our successful leasing activity and the premium customers are placing on the amenity, transport connections, sustainability and location.
Valuations in Retail & London Urban Logistics were up 0.1% overall, with outward yield shift of 12 bps and ERV growth of 3.3%. Retail Parks increased by 0.2% in the period, driven by strong ERV growth of 4.0% offsetting yield expansion of 13 bps. Shopping Centres yields expanded by 10 bps whilst ERVs growth was 2.6%. London Urban Logistics saw yield expansion of 9 bps but the continued strong occupational demand and acute undersupply of space has driven ERV growth of 3.1%.
On 19 October 2023 the RICS published guidelines on a new time-limited, mandatory rotation cycle for regulated purpose valuations. Rules are effective from 1 May 2024 and require, after a 2 year transition period, a valuation firm to be rotated after 10 consecutive years of valuing a given asset. This matches our existing voluntary policy of 10 yearly valuer rotation, therefore our planned valuer rotation cycle remains unchanged.
5. IFRS net assets
IFRS net assets at 30 September 2023 were GBP5,367m, a decrease of GBP158m from 31 March 2023. This was primarily due to the IFRS loss after tax of GBP61m and dividends paid in the period of GBP102m.
Cash flow, net debt and financing
6. Adjusted net debt(1) GBPm ------------------------------------------ ------- Adjusted net debt at 31 March 2023 (3,221) ------------------------------------------ ------- Disposals 131 1 Triton Square surrender premium receipt 149 Acquisitions (58) Developments (191) Capex (asset management initiatives) (41) Net cash from operations 104 Dividend (102) Other (2) ------------------------------------------ ------- Adjusted net debt at 30 September 2023 (3,231) ------------------------------------------ -------
1. Adjusted net debt is a proportionally consolidated measure. It represents the principal amount of gross debt, less cash, short term deposits and liquid investments and is used in the calculation of proportionally consolidated LTV and Net Debt to EBITDA. A reconciliation between the Group net debt as disclosed in Note 9 to the condensed interim financial statements and adjusted net debt is included in Table A within the supplementary disclosures.
Disposals and the 1 Triton Square surrender premium receipt decreased net debt by GBP280m whilst retail park acquisitions increased net debt by GBP58m and development spend totalled GBP191m with a further GBP41m on capital expenditure related to asset management on the standing portfolio. Net cash from operations offset by the dividend payment reduced net debt by GBP2m.
7. Financing Group Proportionally consolidated ---------------------------------------- ----------------------- ----------------------------- 30 September 31 March 30 September 31 March 2023 2023 2023 2023 ---------------------------------------- ------------ --------- ---------------- ----------- Net debt / adjusted net debt(1,2) GBP2,019m GBP2,065m GBP3,231m GBP3,221m Principal amount of gross debt GBP2,255m GBP2,250m GBP3,462m GBP3,448m Loan to value(2) 28.0% 27.4% 36.9% 36.0% Net Debt to EBITDA(2,3) 6.0x 6.4x 8.0x 8.4x Weighted average interest rate 2.6% 2.9% 3.4% 3.5% Interest cover 5.8x 5.4x 3.5x 3.4x Weighted average maturity of drawn debt 5.6 years 5.6 years 5.7 years 5.9 years ---------------------------------------- ------------ --------- ---------------- -----------
1. Group data as presented in Note 9 of the condensed interim financial statements. The proportionally consolidated figures include the Group's share of joint ventures' net debt and represents the principal amount of gross debt, less cash, short term deposits and liquid investments.
2. Note 9 of the condensed interim financial statements sets out the calculation of the Group and proportionally consolidated LTV and Net Debt to EBITDA.
3. Net Debt to EBITDA on a Group basis excludes non-recourse and joint venture borrowings, and includes distributions from non-recourse companies and joint ventures.
At 30 September 2023, our proportionally consolidated LTV was 36.9%, marginally up from 36.0% at 31 March 2023. Disposals in the period, primarily the office and data centre portfolio and 1 Triton Square surrender premium receipt decreased LTV by 270 bps. This was offset by the impact of valuation movements which added 140 bps, development spend which added 170 bps and acquisitions in the period which added 40 bps.
Since March 2023, driven by growth in Underlying earnings and capital activity in the period, Net Debt to EBITDA for the Group improved from 6.4x to 6.0x; on a proportionally consolidated basis the ratio improved to 8.0x.
Our weighted average interest rate at 30 September 2023 was 3.4%, down 10 bps from 3.5% at March 2023, primarily due to changes in our mix of hedging, with net divestment and development spend overall offsetting.
We maintain good long term relationships, and seek to develop new relationships, with debt providers across the markets. The strength of these enabled us to continue to raise funds on good terms, despite volatile market conditions. During the year to date our total financing activity was GBP600m. For British Land, during the half year, we extended two bilateral unsecured revolving bank credit facilities (RCF) totalling GBP250m by a further year to mature in 2028. Since 30 September 2023, we have agreed four new bilateral 5 year term loans totalling GBP350m with existing relationship banks on favourable terms in line with other facilities and including our unsecured financial covenants.
Sustainability targets apply to the majority of these new loans and extended RCFs, aligned with our other ESG linked RCFs and to our sustainability strategy. In British Land and our joint ventures we have a total GBP1.7bn (GBP1.5bn BL Share) of 'Green' and sustainability/ESG linked loans and facilities.
At 30 September 2023, we had GBP1.7bn of undrawn facilities and cash from a total of GBP2.1bn of facilities. The term loans agreed since September add further capacity. Based on our current commitments and facilities, the Group has no requirement to refinance until mid-2026.
We have an advantageous debt structure with access to diverse sources of finance through debt raised by British Land and in our joint ventures. Our debt in British Land (except for the legacy debentures) is unsecured with no interest cover covenants. At 30 September 2023 we retain significant headroom to our debt covenants, meaning the Group could withstand a fall in asset values across the portfolio of 45%, prior to taking any mitigating actions. Joint venture debt is secured on the assets of the relevant entity, non-recourse to the Group, and the majority is "covenant light" with no LTV default covenants.
Fitch Ratings, as part of their annual review in August 2023 affirmed all our credit ratings, with a stable outlook; Senior Unsecured 'A', long term IDR 'A-' and short term IDR 'F1'.
Our strong balance sheet, established lender relationships, access to different sources of finance and liquidity enable us to deliver on our strategy.
Bhavesh Mistry
Chief Financial Officer
About British Land
Our portfolio of high quality UK commercial property is focused on London Campuses and Retail & London Urban Logistics assets throughout the UK. We own or manage a portfolio valued at GBP12.7bn (British Land share: GBP8.7bn) as at 30 September 2023 making us one of Europe's largest listed real estate investment companies.
We create Places People Prefer, delivering the best, most sustainable places for our customers and communities. Our strategy is to leverage our best in class platform and proven expertise in development, repositioning and active management, investing behind two key themes: Campuses and Retail & London Urban Logistics.
Our three campuses at Broadgate, Paddington Central and Regent's Place are dynamic neighbourhoods, attracting growth customers and sectors, and offering some of the best connected, highest quality and most sustainable space in London. We are delivering our fourth Campus at Canada Water, where we have planning consent to deliver 5m sq ft of residential, commercial, retail and community space over 53 acres. Our Campuses account for 62% of our portfolio.
Retail & London Urban Logistics accounts for 38% of the portfolio and is focused on retail parks which are aligned to the growth of convenience, online and last mile fulfilment. We are complementing this with urban logistics primarily in London, focused on development-led opportunities.
Sustainability is embedded throughout our business. Our approach is focused on three key pillars where British Land can create the most benefit: Greener Spaces, making our whole portfolio net zero carbon by 2030, Thriving Places, partnering to grow social value and wellbeing in the communities where we operate and Responsible Choices, advocating responsible business practices across British Land and throughout our supply chain, and maintaining robust governance structures. Further details can be found on the British Land website at www.britishland.com
Risk management and principal risks
At British Land, effective risk management is fundamental to how we do business. We have an established risk management and control framework that enables us to effectively identify, assess and manage the range of financial and non-financial risks facing our business, including those principal 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 within our appetite for each risk, whilst at the same time making the most of our opportunities.
Our integrated risk management approach combines a top-down strategic view with a complementary bottom-up operational process. Whilst ultimate responsibility for risk rests with the Board, the effective day to day management of risk is integral to the way the Group conducts business. In summary, our approach to risk management is centred on being risk-aware, clearly defining our risk appetite, responding quickly to changes in our risk profile and having a strong risk management culture amongst all employees with clearly defined roles and accountability. The Group's risk appetite, our integrated approach to managing risk, and our governance framework are unchanged from that set out in the Managing Risk section of the 2023 Annual Report on pages 46 - 50.
We remain focused on the risk of continued challenges to the UK economy, including the prevailing higher interest rate and inflation levels along with the geopolitical uncertainty stemming from the wars in the Ukraine and the Middle East. Encouragingly, the economy has been more resilient than expected and recent data indicates a decline in the inflation rate, albeit the macroeconomic outlook remains uncertain. The Board and key committees have been overseeing the Group's response to the impact of these challenges on our business, as well as their wider impacts on our markets, portfolio strategy, development programme and our customers, with business resilience and risk management at the core of our approach. We are proactively employing a risk-focused approach in managing our business, especially with regards to capital allocation decisions and focussing on maintaining a strong financial position.
The Board has performed a robust assessment of the principal and emerging risks facing the Group and considers that whilst some risks have reduced or are showing initial signs of improving in the period (as set out in the table over the page), all principal risks and uncertainties presented on pages 51 to 60 of our 2023 Annual Report, remained valid during the period and we believe will continue to be relevant for the remainder of the year. Our comprehensive risk management process, coupled with the Group's continued ability to be flexible to adjust and respond to our principal risks and emerging risks as they evolve, will be pivotal to the future performance of our business.
External Principal Risks
Status at Principal year Change since Risk end year end Commentary ------------- -------- ------------ ------------------------------------------------------- Macroeconomic High Stable The UK's macroeconomic outlook remains uncertain, and inflation and interest rate risks persist, which could potentially impact our portfolio strategy, our markets and our customers. We're proactively managing our business by strategically allocating capital, maintaining financial strength, and effectively mitigating development and financing risks. With a strong balance sheet and experienced leadership, we're well-prepared to tackle challenges and capitalise on opportunities, including potential strategic investments. ------------- -------- ------------ ------------------------------------------------------- Political, Medium Stable The political, legal, and regulatory risks Legal and to High remain uncertain and elevated, primarily due Regulatory to macroeconomic conditions, ongoing geopolitical tensions arising from the wars in Ukraine and the Middle East, and increased government regulations. This uncertainty has the potential to impact various aspects, including interest rates, supply chains, security, cyber threats, compliance, and reputation. The Board and key committees are closely monitoring these external risks and their potential impact on both the UK economy and our operations to ensure we are taking appropriate mitigating actions. ------------- -------- ------------ ------------------------------------------------------- Property Markets (a) Campuses Medium Stable The prime London office occupier market remains robust supported by a limited new development pipeline and good rental growth. However, rising interest rates have affected investor sentiment and structural challenges remain from increased remote working practices. That said, our Campus model offers well-connected, sustainable buildings with amenities, attracting occupiers as they focus on the best-in-class space for their business. ------------------------------------------------------- (b) Retail Medium Reducing Despite the challenges facing the retail market to High from both increased costs and reduced consumer disposable income, the occupational market has shown improvement, with a growing number of retailers reporting positive footfall and sales levels. The retail park investment market remains in line with historical norms, while shopping centres continues to lag behind long term averages. Our Retail portfolio focuses on retail parks, aligning with convenience trends and omni-channel strategies. As a result, our leasing remains strong. We continue to seek acquisition opportunities in retail parks to leverage our scale and asset expertise for value creation. ------------------------------------------------------- (c) London Low Stable London's urban logistics occupational fundamentals Urban are strong due to e-commerce shifts and limited Logistics space supply. However, rising interest rates have softened investment pricing. Our Urban Logistics portfolio, driven by development and repurposing, capitalises on high demand and scarce supply. ------------- -------- ------------ ------------------------------------------------------- Major Events/ Medium Stable The heightened global and political uncertainties, Business further intensified by the wars in the Ukraine Disruption and the Middle East, still have the potential to affect the Group's operations and stakeholders. The challenges faced in recent years due to the Covid pandemic have highlighted the strength of our business model and robust crisis management plans. We remain vigilant regarding continued risks posed by external threats. ------------- -------- ------------ -------------------------------------------------------
Internal Principal Risks
Status at Principal year Change since Risk end year end Commentary --------------- -------- ------------ ------------------------------------------------------- Portfolio Medium Stable Our portfolio strategy has faced ongoing challenges Strategy due to macroeconomic conditions and more difficult investment markets. The impact of rising interest rates has been felt on our strategy and portfolio valuations, however, there are signs that upward yield pressure is diminishing, particularly for retail parks and London urban logistics. Our operational performance remains strong, reinforcing our confidence in our core markets: campuses, retail parks, and London urban logistics. Additionally, we foresee more favourable rental growth prospects across our portfolio. We will maintain a disciplined approach to capital allocation and remain flexible in looking to take advantage of opportunities. --------------- -------- ------------ ------------------------------------------------------- Development Medium Stable Despite ongoing inflationary pressures in construction supply chains, amplified by the Ukraine conflict, we are observing more encouraging trends. Construction cost inflation is easing, aligning with our projections of 3-4% this year and marking a significant decrease from the 10% peak in 2022. Our committed pipeline is progressing well, and our development exposure at 4.9% of our portfolio's gross asset value, is well within our risk tolerance. Progressing value accretive development is a key priority to driving the performance of our business and our strong balance sheet, contractor relationships, and management experience position us well to move forward with our pipeline while mitigating
the associated risks. Prior to committing to future developments, we will continue to evaluate their impact against specific criteria, subject to approval from the Investment Committee. This assessment will consider returns, prevailing interest rates and our balance sheet capacity. --------------- -------- ------------ ------------------------------------------------------- Financing Low to Stable Despite the sharp rise in market interest rates Medium over the past 18 months, current forecasts suggest an increased likelihood that interest rates are approaching their peak, albeit they may remain elevated for an extended period of time. We have continued to actively manage our financing risk and maintain access to a diverse range of sources of finance with a spread of repayment dates, along with the use of hedging to mitigate interest rate risk. Our strong balance sheet, coupled with continued capital recycling, provides us with the liquidity to effectively support our business needs and respond to opportunities. We have no requirement to refinance until mid-2026. --------------- -------- ------------ ------------------------------------------------------- Environmental Medium Stable The importance of environmental sustainability Sustainability risks and their connection to our business, customers and other stakeholders is increasing. Concurrently, regulatory requirements and expectations are on the rise. Our targets for 2030 are centred on attaining a carbon net-zero portfolio and demonstrating environmental leadership, and we have already made significant strides in this direction. Our achievements have been recognised in various international benchmarks including GRESB, where we were delighted to achieve a GRESB 5* rating in the period. --------------- -------- ------------ ------------------------------------------------------- People Medium Stable The competition for talent, which was until and Culture recently very intense, has eased off in light of recent economic uncertainties. Our focus will continue to ensure we have the right resources and skills in place to support our strategic priorities. Our goal remains to foster a diverse, inclusive and ambitious culture so we can develop, attract and inspire the best people to deliver our strategy. Additionally, we will take a proactive approach to oversee and enhance the wellbeing of our staff. --------------- -------- ------------ ------------------------------------------------------- Customer Medium Stable Our overall customer risk is showing signs to High of decreasing, yet it remains elevated with an uncertain outlook and mixed indicators with a number of retailer CVAs and administrations in the period. We are fully aware of the challenges posed by higher input prices, particularly within the retail sector, and the potential implications for customer profitability and associated risks. To address these challenges, we take a proactive approach to maintaining a robust and resilient customer base and focus on providing affordable space with lower overall occupancy costs. It is pivotal that our strategic positioning across our Campuses, Retail Parks and London Urban Logistics portfolios, coupled with our strong focus on collaborative relationships with our customers, enables us to provide high quality spaces at sustainable occupancy costs, which in turn attracts high quality occupiers. This is demonstrated by our 96% occupancy rate and 99% rent collection rate. --------------- -------- ------------ ------------------------------------------------------- Operational Medium Stable Key areas of risk encompass Technology and and Compliance Cyber Security, Health & Safety, Third Party Relationships and Internal Controls and Compliance. We maintain a vigilant stance regarding these key operational risks within our business, and we are pleased to report no significant issues have arisen during the first half of the year. We remain committed to ongoing monitoring and are actively implementing strategies to fortify our cyber security, IT infrastructure and related key controls, as well as enhancing our overall internal control framework. --------------- -------- ------------ -------------------------------------------------------
DIRECTORS' RESPONSIBILITIES STATEMENT
The Directors confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the United Kingdom and that the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:
-- An indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
-- Material related party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
The Directors of British Land plc are listed on the company website www.britishland.com
By order of the Board.
Bhavesh Mistry
Chief Financial Officer
12 November 2023
Independent review report to The
British Land Company PLC
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed The British Land Company PLC's condensed consolidated interim financial statements (the "interim financial statements") in the Half-Year Results of The British Land Company PLC for the 6 month period ended 30 September 2023 (the "period").
Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
-- the Consolidated Balance Sheet as at 30 September 2023;
-- the Consolidated Income Statement and the Consolidated Statement of Comprehensive Income for the period then ended;
-- the Consolidated Statement of Cash Flows for the period then ended; -- the Consolidated Statement of Changes in Equity for the period then ended; and -- the explanatory notes to the interim financial statements.
The interim financial statements included in the Half-Year Results of The British Land Company PLC have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Half-Year Results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed. This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410. However, future events or conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Half-Year Results, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Half-Year Results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. In preparing the Half-Year Results, including the interim financial statements, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial statements in the Half-Year Results based on our review. Our conclusion, including our Conclusions relating to going concern, is based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion paragraph of this report. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
12 November 2023
CONSOLIDATED INCOME STATEMENT
For the six months ended 30 September 2023
Restated(1) Six months ended 30 Six months ended 30 September 2023 September 2022 Unaudited Unaudited -------------------------------------- ---- --------------------------------- --------------------------------- Capital Capital Underlying(2) and other Total Underlying(2) and other Total Note GBPm GBPm GBPm GBPm GBPm GBPm -------------------------------------- ---- ------------- ---------- ------ ------------- ---------- ------ Revenue 3 212 174 386 216 - 216 Costs(3) 3 (46) (54) (100) (51) - (51) -------------------------------------- ---- ------------- ---------- ------ ------------- ---------- ------ 3 166 120 286 165 - 165 Joint ventures (see also below) 7 49 (123) (74) 48 (97) (49) Administrative expenses (42) - (42) (43) - (43) Valuation movement 4 - (201) (201) - (189) (189) Profit (loss) on disposal of investment properties and revaluation of investments - 2 2 - (20) (20) Net financing (charges) income financing income 5 - 10 10 4 147 151 financing charges 5 (30) - (30) (35) - (35) ------------- ---------- ------ ------------- ---------- ------ (30) 10 (20) (31) 147 116 -------------------------------------- ---- ------------- ---------- ------ ------------- ---------- ------ (Loss) profit before taxation 143 (192) (49) 139 (159) (20) Taxation (1) (11) (12) (1) (11) (12) -------------------------------------- ---- ------------- ---------- ------ ------------- ---------- ------ (Loss) profit for the period after taxation 142 (203) (61) 138 (170) (32) -------------------------------------- ---- ------------- ---------- ------ ------------- ---------- ------ Attributable to non-controlling interests 1 (1) - 1 (1) - Attributable to shareholders of the Company 141 (202) (61) 137 (169) (32) -------------------------------------- ---- ------------- ---------- ------ ------------- ---------- ------ Earnings per share: basic 2 (6.6)p (3.5)p diluted 2 (6.6)p (3.5)p ------ ------
All results derive from continuing operations.
Restated(1) Six months ended 30 Six months ended 30 September 2023 September 2022 Unaudited Unaudited ------------------------------------ ---- -------------------------------- -------------------------------- Capital Capital Underlying(2) and other Total Underlying(2) and other Total Note GBPm GBPm GBPm GBPm GBPm GBPm ------------------------------------ ---- ------------- ---------- ----- ------------- ---------- ----- Results of joint ventures accounted for using the equity method Underlying Profit 49 - 49 48 - 48 Valuation movement 4 - (126) (126) - (126) (126) Capital financing income - 3 3 - 30 30 Taxation - - - - (1) (1) ------------------------------------ ---- ------------- ---------- ----- ------------- ---------- ----- 7 49 (123) (74) 48 (97) (49) ------------------------------------ ---- ------------- ---------- ----- ------------- ---------- -----
1. Prior period comparatives have been restated for a change in accounting policy in respect of rental concessions. Refer to Note 1 for further information.
2. See definition in Note 2 and a reconciliation between Underlying Profit and IFRS profit in Note 11.
3. Included within 'Costs' is a credit relating to provisions for impairment of tenant debtors, accrued income, tenant incentives and contracted rent increases of GBP11m (six months ended 30 September 2022: credit of GBP2m).
Consolidated Statement of Comprehensive Income
For the six months ended 30 September 2023
Restated(1) Six months Six months ended ended 30 September 30 September 2023 2022 Unaudited Unaudited GBPm GBPm ------------------------------------------------------------------------- ------------- ------------- Loss for the period after taxation (61) (32) Other comprehensive income: Items that may be reclassified subsequently to profit or loss: Gains on cash flow hedges * Joint ventures 6 4 ------------- ------------- 6 4 Reclassification of foreign exchange differences to the income statement (2) - ------------------------------------------------------------------------- ------------- ------------- Other comprehensive income for the period 4 4 ------------------------------------------------------------------------- ------------- ------------- Total comprehensive loss for the period (57) (28) ------------------------------------------------------------------------- ------------- ------------- Attributable to non-controlling interests - - Attributable to shareholders of the Company (57) (28) ------------------------------------------------------------------------- ------------- -------------
1. Prior period comparatives have been restated for a change in accounting policy in respect of rental concessions. Refer to Note 1 for further information.
Consolidated Balance Sheet
As at 30 September 2023
30 September 31 March 2023 2023 Unaudited Audited Note GBPm GBPm --------------------------------------------------- ---- ------------ -------- ASSETS Non-current assets Investment and development properties 6 5,495 5,677 ------------ -------- 5,495 5,677 ------------ -------- Other non-current assets Investments in joint ventures 7 2,157 2,206 Other investments 56 58 Property, plant and equipment 22 22 Interest rate and currency derivative assets 9 144 144 ------------ -------- 7,874 8,107 ------------ -------- Current assets Trading properties 6 22 22 Debtors 8 47 34 Corporation tax - 2 Cash and cash equivalents 9 152 125 ------------ -------- 221 183 --------------------------------------------------- ---- ------------ -------- Total assets 8,095 8,290 --------------------------------------------------- ---- ------------ -------- LIABILITIES Current liabilities Short term borrowings and overdrafts 9 (297) (402) Creditors (290) (282) ------------ -------- (587) (684) ------------ -------- Non-current liabilities Debentures and loans 9 (1,940) (1,865) Other non-current liabilities (117) (145) Deferred tax liabilities (6) (4) Interest rate and currency derivative liabilities 9 (78) (67) ------------ -------- (2,141) (2,081) --------------------------------------------------- ---- ------------ -------- Total liabilities (2,728) (2,765) --------------------------------------------------- ---- ------------ -------- Net assets 5,367 5,525 --------------------------------------------------- ---- ------------ -------- EQUITY Share capital 234 234 Share premium 1,309 1,308 Merger reserve 213 213 Other reserves 19 15 Retained earnings 3,579 3,742 --------------------------------------------------- ---- ------------ -------- Equity attributable to shareholders of the Company 5,354 5,512 --------------------------------------------------- ---- ------------ -------- Non-controlling interests 13 13 --------------------------------------------------- ---- ------------ -------- Total equity 5,367 5,525 --------------------------------------------------- ---- ------------ -------- EPRA Net Tangible Assets per share(1) 2 565p 588p --------------------------------------------------- ---- ------------ --------
1. See definition in Note 2.
Consolidated Statement of Cash Flows
For the six months ended 30 September 2023
Restated(1) Six months Six months ended ended 30 September 30 September 2023 2022 Unaudited Unaudited Note GBPm GBPm ------------------------------------------------------------------ ---- ------------- ------------- Income received from tenants 183 190 Surrender premia received(2) 3 178 - Fees and other income received 24 26 Operating expenses paid to suppliers and employees (106) (101) Cash generated from operations 279 115 ------------- ------------- Interest paid (31) (37) Corporation tax payments (3) - Distributions and other receivables from joint ventures 7 37 34 ------------- ------------- Net cash inflow from operating activities 282 112 ------------- ------------- Cash flows from investing activities Development and other capital expenditure (141) (128) Sale of investment properties 131 4 Purchase of investment properties (58) (24) Sale of investment properties to Paddington Central Joint Venture - 685 Purchase of investments (2) (14) Investment in and loans to joint ventures (65) (59)
Loan repayments from joint ventures - 125 Indirect taxes (paid) received in respect of investing activities (8) 3 ------------- ------------- Net cash (outflow) inflow from investing activities (143) 592 ------------- ------------- Cash flows from financing activities Dividends paid (102) (106) Dividends paid to non-controlling interests - (1) Capital payments in respect of interest rate derivatives (12) - Decrease in lease liabilities (3) (3) Decrease in bank and other borrowings (166) (584) Drawdown on bank and other borrowings 171 34 ------------- ------------- Net cash outflow from financing activities (112) (660) ------------- ------------- Net increase in cash and cash equivalents 27 44 Cash and cash equivalents at 1 April 125 105 ------------------------------------------------------------------ ---- ------------- ------------- Cash and cash equivalents at 30 September 152 149 ------------------------------------------------------------------ ---- ------------- ------------- Cash and cash equivalents consists of: Cash and short-term deposits 124 118 Tenant deposits 28 31 ------------------------------------------------------------------ ---- ------------- -------------
1. Prior period comparatives have been restated for a change in accounting policy in respect of tenant deposits. Refer to Note 1 for further information.
2. Surrender premia received includes GBP149m (six months ended 30 September 2022: GBPnil) of the consideration for the surrender of 1 Triton Square and GBP29m (six months ended 30 September 2022: GBPnil) of related VAT. Refer to Note 3 for further information.
Consolidated Statement of Changes in Equity
For the six months ended 30 September 2023
Six month movements in equity (unaudited)
Hedging and Share Share translation Revaluation Merger Retained Non-controlling Total capital premium reserve reserve reserve earnings Total interests equity GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm ------------------- -------- -------- ----------- ----------- -------- -------- ----- --------------- ------- Balance at 1 April 2023 234 1,308 2 13 213 3,742 5,512 13 5,525 ------------------- -------- -------- ----------- ----------- -------- -------- ----- --------------- ------- Total comprehensive (expense) income for the period - - (2) 6 - (61) (57) - (57) -------- -------- ----------- ----------- -------- -------- ----- --------------- ------- Share issues - 1 - - - - 1 - 1 Dividends paid in period (11.04p per share) - - - - - (102) (102) - (102) Balance at 30 September 2023 234 1,309 - 19 213 3,579 5,354 13 5,367 ------------------- -------- -------- ----------- ----------- -------- -------- ----- --------------- ------- Balance at 1 April 2022 as published 234 1,307 2 3 213 4,994 6,753 15 6,768 ------------------- -------- -------- ----------- ----------- -------- -------- ----- --------------- ------- Total comprehensive (expense) income for the period (restated(1) ) - - - 4 - (32) (28) - (28) -------- -------- ----------- ----------- -------- -------- ----- --------------- ------- Share issues - 1 - - - - 1 - 1 Fair value of share and share option awards - - - - - 3 3 - 3 Dividends paid in period (11.60p per share) - - - - - (108) (108) - (108) Dividends paid to non-controlling interests - - - - - - - (1) (1) ------------------- -------- -------- ----------- ----------- -------- -------- ----- --------------- ------- Balance at 30 September 2022 (restated(1) ) 234 1,308 2 7 213 4,857 6,621 14 6,635 ------------------- -------- -------- ----------- ----------- -------- -------- ----- --------------- -------
1. Prior period comparatives have been restated for a change in accounting policy in respect of rental concessions. Refer to Note 1 for further information.
Prior year movements in equity (audited)
Hedging and Share Share translation Revaluation Merger Retained Non-controlling Total capital premium reserve reserve reserve earnings Total interests equity GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm ------------------- ------- ------- ----------- ----------- -------- -------- ------- --------------- ------- Balance at 1 April 2022 234 1,307 2 3 213 4,994 6,753 15 6,768 ------------------- ------- ------- ----------- ----------- -------- -------- ------- --------------- ------- Total comprehensive (expense) income for the year - - - 10 - (1,038) (1,028) (1) (1,029) ------- ------- ----------- ----------- -------- -------- ------- --------------- ------- Shares issued in the year - 1 - - - - 1 - 1 Fair value of share and share option awards - - - - - 1 1 - 1 Dividends payable in year (23.20p per share) - - - - - (215) (215) - (215) Dividends payable by subsidiaries - - - - - - - (1) (1) ------------------- ------- ------- ----------- ----------- -------- -------- ------- --------------- ------- Balance at 31 March 2023 234 1,308 2 13 213 3,742 5,512 13 5,525 ------------------- ------- ------- ----------- ----------- -------- -------- ------- --------------- -------
Notes to the Accounts
For the six months ended 30 September 2023
1 Basis of preparation
The financial information for the period ended 30 September 2023 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for the year ended 31 March 2023 has been delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified, did not include a reference to matters to which the auditor drew attention by way of emphasis without qualifying the report, and did not contain statements under section 498(2) or (3) of the Companies Act 2006.
The condensed consolidated interim financial statements for the half-year reporting period ended 30 September 2023 included in this announcement has been prepared on a Going Concern basis using accounting policies consistent with UK-adopted international accounting standards, in accordance with UK-adopted IAS 34 'Interim Financial Reporting', and in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
The condensed consolidated interim financial statements do not include all the notes of the type normally included in the annual report and accounts. Accordingly, this report is to be read in conjunction with the annual report and accounts for the year ended 31 March 2023, which has been prepared in accordance with both UK-adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006, and any public announcements made by the Group during the interim reporting period. The same accounting policies are followed in the condensed consolidated interim financial statements as applied in the Group's audited financial statements for the year ended 31 March 2023.
A number of new standards and amendments to standards and interpretations have been issued for the current accounting period. The IASB issued narrow-scope amendments to IAS 12 that are yet to be adopted by the UK endorsement board, as part of the Pillar Two model implementation. The Group is currently assessing the impact of Pillar Two and the associated IAS 12 amendments. The following standards and interpretations which have been issued but are not yet effective include IAS 1 'Presentation of Financial Statements' on the classification of liabilities and non-current liabilities with covenants, IFRS 16 'Leases' on sale and leaseback arrangements, and limited scope amendments to both IFRS 10 'Consolidated Financial Statements' and IAS 28 'Investments in Associates and Joint Ventures' in respect of sale or contribution of assets between an investor and its associates or joint ventures. These amendments to standards that are not yet effective are not expected to have a material impact on the Group's results.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of these interim financial statements requires management to make critical accounting judgements and assess key sources of estimation uncertainty, that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results might differ from these estimates.
Critical accounting judgements
The Group's critical accounting judgements are consistent with those disclosed in the Group's audited financial statements for the year ended 31 March 2023.
Key sources of estimation uncertainty
As outlined in the Group's audited financial statements for the year ended 31 March 2023, the valuation of investment, development and trading properties, and impairment provisioning of tenant debtors (including accrued income) and tenant incentives were identified as key sources of estimation uncertainty.
As at 30 September 2023, the Group no longer identifies the impairment provisioning of tenant debtors and tenant incentives as a key source of estimation uncertainty as, in the Group's view, the inherent uncertainty related to these balances, which was driven by the Covid-19 pandemic, no longer has the potential to materially impact the carrying amount of these assets within the next financial year.
Going concern
The interim financial statements are prepared on a Going Concern basis. The balance sheet shows the Group is in a net current liability position of GBP366m, predominantly due to short term borrowings and overdrafts of GBP297m and deferred income of GBP50m (related to quarterly rents paid in advance which will not result in cash outflows) and other current creditors which will result in cash outflows over the next 12 months in the ordinary course of business. Set against this, the Group has access to GBP1.7bn of undrawn facilities and cash, which provides the Directors with a reasonable expectation that the Group will be able to meet these current liabilities as they fall due. In making this assessment the Directors also took into account the headroom on Group debt covenants, equivalent to a 45% fall in property values as at 30 September 2023 (and a 33% fall in property values on a committed look forward basis), and the absence of interest cover covenants on the unsecured facilities. Before factoring in any income receivable, the facilities and cash would be sufficient to cover forecast capital expenditure, property operating costs, administrative expenses, maturing debt and interest over the next 12 months from the approval date of these interim financial statements.
Having assessed the Principal Risks, the Directors believe that the Group is well placed to manage its financing and other business risks satisfactorily despite the current economic climate, and have a reasonable expectation that the Company and the Group have adequate resources to continue in operation for at least 12 months from the signing date of these interim financial statements. They therefore consider it appropriate to adopt the Going Concern basis of accounting in preparing the interim financial statements. The interim financial statements were approved by the Board on 12 November 2023.
Change in accounting policies
Rental concessions
The Group changed its accounting policy in respect of concessions (or rental forgiveness) granted to tenants as outlined in the Group's audited financial statements for the year ended 31 March 2023 in response to the IFRS Interpretations Committee (IFRIC) Agenda Decision in relation to Lessor Forgiveness of Lease Payments (IFRS 9 and IFRS 16). This change of accounting policy has led to a restatement of the 30 September 2022 comparatives disclosed in these condensed consolidated interim financial statements. The restatement arises due to the reversal of previously recognised amortisation (of the concessions previously granted to tenants) in the six-month period to 30 September 2022. The overall restatement quantum is GBP2m and results in a decrease to the loss for the period after taxation from GBP34m to GBP32m. Within the condensed consolidated interim financial statements, the restatement has resulted in a change to the following balances:
-- Gross rental income; and -- Joint venture result.
The quantitative impact on each balance has been outlined in the table below.
Tenant deposits
The Group changed its accounting policy in relation to tenant deposits as detailed in the Group's audited financial statements for the year ended 31 March 2023 in response to the IFRIC Agenda Decision in relation to Demand Deposits with Contractual Restrictions in Use. This change of accounting policy has led to a restatement of the 30 September 2022 comparatives disclosed in the consolidated statement of cash flows. The restatement has led to the Group recognising GBP5m of rental deposits and a further GBP26m of service charge deposits within cash and cash equivalents as at 30 September 2022. Additionally, the Group will also recognise service charge income and expense related cash flows leading to a restatement of the 30 September 2022 comparatives for income received from tenants and operating expenses paid to suppliers and employees of GBP27m respectively.
The quantitative impact on each balance has been outlined in the table below.
30 September Rental 30 September 2022 concessions Tenant deposits 2022 Published Restatement Restatement Restated GBPm GBPm GBPm GBPm --------------------------------------------------- ------------ ------------ --------------- ------------ Consolidated income statement (extract) Revenue 215 1 - 216 Joint ventures (50) 1 - (49) Loss for the period after taxation (34) 2 - (32) Consolidated statement of cash flows (extract) Income received from tenants 163 - 27 190 Operating expenses paid to suppliers and employees (74) - (27) (101) Cash and cash equivalents at 1 April 74 - 31 105 Cash and cash equivalents at 30 September 118 - 31 149 Cash and cash equivalents consist of: Tenant deposits - - 31 31 Performance measures (Note 2) Underlying Profit (Table A) 136 2 - 138 Underlying diluted earnings per share (pence) 14.5 0.2 - 14.7 --------------------------------------------------- ------------ ------------ --------------- ------------
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 profit 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.
Underlying earnings per share is calculated using Underlying Profit adjusted for Underlying taxation, with the dilutive measure being the primary disclosure measure used. Underlying Profit is the pre-tax EPRA earnings measure, with additional Company adjustments for items which are considered to be unusual and/or significant by virtue of their size and nature. In the current period to 30 September 2023, GBP25m of rent receivable, GBP149m of surrender premia receivable, and GBP54m of tenant incentive impairment were excluded from the calculation of Underlying Profit (see Note 3 for further details). No Company adjustments were made in the prior period to 30 September 2022.
Restated(1) Six months ended 30 Six months ended 30 September 2023 September 2022 ------------------- --------------------------------- --------------------------------- Relevant Relevant Relevant number Earnings Relevant number Earnings earnings of shares per share earnings of shares per share Earnings per share GBPm million pence GBPm million pence ------------------- --------- ---------- ---------- --------- ---------- ---------- Underlying Underlying basic 141 927 15.2 137 927 14.8 Underlying diluted 141 929 15.2 137 930 14.7 ------------------- --------- ---------- ---------- --------- ---------- ---------- EPRA EPRA basic 261 927 28.2 137 927 14.8 EPRA diluted 261 929 28.1 137 930 14.7 ------------------- --------- ---------- ---------- --------- ---------- ---------- IFRS Basic (61) 927 (6.6) (32) 927 (3.5) Diluted (61) 927 (6.6) (32) 927 (3.5) ------------------- --------- ---------- ---------- --------- ---------- ----------
1. Prior period comparatives have been restated for a change in accounting policy in respect of rental concessions. Refer to Note 1 for further information.
Net asset value
The Group measures financial position with reference to EPRA Net Tangible Assets ('NTA'), Net Reinvestment Value ('NRV') and Net Disposal Value ('NDV'). The net assets and number of shares for each performance measure is shown below. A reconciliation between IFRS net assets and the three EPRA net asset valuation metrics, and the relevant number of shares for each performance measure, is shown within the supplementary disclosures (Table B). EPRA NTA is a measure that is based on IFRS net assets excluding the mark-to-market on derivatives and related debt adjustments, the carrying value of intangibles, as well as deferred taxation on property and derivative valuations. The metric includes the valuation surplus on trading properties and is adjusted for the dilutive impact of share options.
30 September 2023 31 March 2023 -------------------------- ----------------------------------- ----------------------------------- Relevant Net asset Relevant Net asset Relevant number value Relevant number value net assets of shares per share net assets of shares per share Net asset value per share GBPm million pence GBPm million pence -------------------------- ----------- ---------- ---------- ----------- ---------- ---------- EPRA EPRA NTA 5,278 934 565 5,487 933 588 EPRA NRV 5,809 934 622 6,029 933 646 EPRA NDV 5,549 934 594 5,658 933 606 -------------------------- ----------- ---------- ---------- ----------- ---------- ---------- IFRS Basic 5,367 927 579 5,525 927 596 Diluted 5,367 934 575 5,525 933 592 -------------------------- ----------- ---------- ---------- ----------- ---------- ----------
Total accounting return
The Group also measures financial performance with reference to total accounting return. This is calculated as the movement in EPRA NTA per share and dividend paid in the period as a percentage of the EPRA NTA per share at the start of the period.
Six months ended 30 Six months ended 30 September 2023 September 2022 ------------------------ ----------------------------------- ----------------------------------- Movement Dividend Movement Dividend in NTA per share Total in NTA per share Total per share paid accounting per share paid accounting pence pence return pence pence return ------------------------ ---------- ---------- ----------- ---------- ---------- ----------- Total accounting return (23) 11.04 (2.0%) (32) 11.60 (2.8%) ------------------------ ---------- ---------- ----------- ---------- ---------- -----------
3 Revenue and costs
Restated(1) Six months ended 30 Six months ended 30 September 2023 September 2022 --------------------------------------------------- -------------------------------- ----------------------------- Capital Capital Underlying and other(2) Total Underlying and other Total GBPm GBPm GBPm GBPm GBPm GBPm --------------------------------------------------- ---------- ------------- ----- ---------- ---------- ----- Rent receivable(2) 152 25 177 160 - 160 Spreading of tenant incentives and contracted rent increases 5 - 5 8 - 8 Surrender premia(2) 1 149 150 - - - --------------------------------------------------- ---------- ------------- ----- ---------- ---------- ----- Gross rental income 158 174 332 168 - 168 --------------------------------------------------- ---------- ------------- ----- ---------- ---------- ----- Service charge income 33 - 33 30 - 30 Management and performance fees (from joint ventures) 9 - 9 6 - 6 Other fees and commissions 12 - 12 12 - 12 --------------------------------------------------- ---------- ------------- ----- ---------- ---------- ----- Revenue 212 174 386 216 - 216 --------------------------------------------------- ---------- ------------- ----- ---------- ---------- ----- Service charge expenses (28) - (28) (26) - (26) Property operating expenses (19) - (19) (18) - (18) Release of impairment of trade debtors and accrued income 11 - 11 3 - 3 Provisions for impairment of tenant incentives and contracted rent increases(2) - (54) (54) (1) - (1) Other fees and commissions expenses (10) - (10) (9) - (9) --------------------------------------------------- ---------- ------------- ----- ---------- ---------- ----- Costs (46) (54) (100) (51) - (51) --------------------------------------------------- ---------- ------------- ----- ---------- ---------- ----- 166 120 286 165 - 165 --------------------------------------------------- ---------- ------------- ----- ---------- ---------- -----
1. Prior period comparatives have been restated for a change in accounting policy in respect of rental concessions. Refer to Note 1 for further information.
2. On 25 September 2023, the Group completed a deed of surrender in relation to an in-force lease of one of its investment properties. The consideration for the surrender was a GBP149m premium paid by the tenant on the completion date. In line with the requirements of IFRS 16, the surrender transaction was treated as a modification to the lease, with the surrender premium received recognised in full through the income statement at the point of completion, which represented the modified termination date of the lease. At the point of modification, the lease had associated tenant incentive balances of GBP54m, and as the right to receive these amounts was extinguished through the lease modification, with an impairment recognised in full through the income statement at the point of completion. Also at the point of modification, the lease had an associated deferred lease premium balance of GBP25m, which in line with the surrender premium received, was recognised in full through the income statement at the point of completion. Owing to the unusual and significant size and nature of this transaction, and in line with the Group's accounting policies, all elements of the transaction have been included within the Capital and other column of the income statement.
4 Valuation movements on property
Six months Six months ended ended 30 September 30 September 2023 2022 GBPm GBPm --------------------------------------------------------------------------------------- ------------- ------------- Revaluation of properties (201) (189) Revaluation of properties held by joint ventures accounted for using the equity method (126) (126) --------------------------------------------------------------------------------------- ------------- ------------- (327) (315) --------------------------------------------------------------------------------------- ------------- -------------
5 Net financing
Six months Six months ended ended 30 September 30 September 2023 2022 GBPm GBPm --------------------------------------------------------------------- -------------------------------- ------------- Underlying Financing charges Facilities and overdrafts (27) (12) Derivatives 26 11 Other loans (37) (38) Obligations under head leases (2) (2) -------------------------------- ------------- (40) (41) Development interest capitalised 10 6 -------------------------------- ------------- (30) (35) Financing income Deposits, securities and liquid investments - 4 --------------------------------------------------------------------- -------------------------------- ------------- Net financing charges - Underlying (30) (31) --------------------------------------------------------------------- -------------------------------- ------------- Capital and other Financing income Valuation movement on translation of foreign currency debt and investments - 3 Valuation movement on fair value hedge accounted debt (10) 26 Valuation movement on fair value hedge accounted derivatives 5 (22) Valuation movement on non-hedge accounted derivatives 15 140 -------------------------------- ------------- 10 147 --------------------------------------------------------------------- -------------------------------- ------------- Net financing income - Capital and other 10 147 --------------------------------------------------------------------- -------------------------------- ------------- Total financing income 10 151 Total financing charges (30) (35) --------------------------------------------------------------------- -------------------------------- ------------- Net financing (charges) income (20) 116 --------------------------------------------------------------------- -------------------------------- -------------
Interest on development expenditure is capitalised at the Group's weighted average interest rate at 30 September 2023 of 2.6% (30 September 2022: 3.0%). The weighted average interest rate on a proportionately consolidated basis at 30 September 2023 was 3.4% (30 September 2022: 3.5%).
6 Property
Property reconciliation
Six months ended 30 Year ended 31 March September 2023 2023 -------------------------------------------------------------- ------------------------------ ------------------------------ Investment Investment and and development development properties properties Level Trading Level Trading 3 properties Total 3 properties Total GBPm GBPm GBPm GBPm GBPm GBPm -------------------------------------------------------------- ----------- ---------- ----- ----------- ---------- ----- Carrying value at the start of the period/year 5,677 22 5,699 7,032 18 7,050 Additions * property purchases 58 - 58 158 - 158 * development expenditure 91 - 91 152 4 156 * capitalised interest and staff costs 9 - 9 13 - 13 * capital expenditure on asset management initiatives 31 - 31 62 - 62 189 - 189 385 4 389 ----------- ---------- ----- ----------- ---------- ----- Disposals (120) - (120) (945) - (945) Revaluations included in income statement (201) - (201) (798) - (798) Movement in tenant incentives and contracted rent uplift balances (50) - (50) 3 - 3 ----------- ---------- ----- ----------- ---------- ----- Carrying value at the end of the period/year 5,495 22 5,517 5,677 22 5,699 ----------- ---------- ----- ----------- ---------- -----
Lease liabilities (101) (102) Less surplus on right-of-use assets(1) (9) (9) Valuation surplus on trading properties 6 7 -------------------------------------------------------------- ----------- ---------- ----- ----------- ---------- ----- Group property portfolio valuation at the end of the period/year 5,413 5,595 Non-controlling interests (13) (13) -------------------------------------------------------------- ----------- ---------- ----- ----------- ---------- ----- Group property portfolio valuation at the end of the period/year attributable to shareholders 5,400 5,582 -------------------------------------------------------------- ----------- ---------- ----- ----------- ---------- -----
1. Relates to the fair value of right-of-use assets in excess of their associated lease liabilities. 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 GBP5,413m (31 March 2023: GBP5,595m) above.
Additions include capital expenditure in response to climate change, in line with our Sustainability Strategy to reduce both the embodied carbon in our developments and the operational carbon across the Group's standing property portfolio.
The Group's total property portfolio was valued by external valuers on the basis of fair value, in accordance with the RICS Valuation - Global Standards 2022, published by The Royal Institute of Chartered Surveyors. 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, the Chief Financial Officer and the Chief Executive Officer. The valuers meet with the external auditors and also present directly to the Audit Committee on a half yearly basis.
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. These key unobservable inputs are net equivalent yield and estimated rental values for investment properties, and costs to complete for development properties. Further analysis and sensitivity disclosures of these key unobservable inputs have been included below. There were no transfers between levels in the current period nor in the prior year comparative.
There has been no change in the valuation methodology used for investment property.
Information about the impact of changes in unobservable inputs (Level 3) on the fair value of the Group's property portfolio valuation for the six months ended 30 September 2023
Impact on valuations Impact on valuations Impact on valuations ------------- ---------------------- ---------------------- ---------------------- Fair value at 30 September -25bps +25bps 2023 +5% ERV -5% ERV NEY NEY -5% costs +5% costs GBPm GBPm GBPm GBPm GBPm GBPm GBPm ------------------------- ------------- ---------- ---------- ---------- ---------- ---------- ---------- Campuses(1) 1,570 65 (60) 81 (75) - - Retail & London Urban Logistics 2,641 105 (104) 106 (100) - - Developments 1,202 102 (100) 106 (97) 36 (37) ------------------------- ------------- ---------- ---------- ---------- ---------- ---------- ---------- Group property portfolio valuation 5,413 272 (264) 293 (272) 36 (37) ------------------------- ------------- ---------- ---------- ---------- ---------- ---------- ----------
1. Includes trading properties at fair value.
Information about fair value measurements using unobservable inputs (Level 3) for the six months ended 30 September 2023
Costs to complete ERV per sq ft Equivalent yield per sq ft --------------- ------------- ------------ ------------------- -------------------- --------------------- Fair value at 30 September 2023 Valuation Min Max Average Min Max Average Min Max Average Investment GBPm technique GBP GBP GBP % % % GBP GBP GBP --------------- ------------- ------------ ---- ---- ------- ---- ---- -------- ----- ----- ------- Investment Campuses 1,542 methodology 20 136 62 4 8 6 - 158 30 Retail & London Urban Investment Logistics 2,641 methodology 2 31 19 4 23 7 - 33 5 Residual Developments 1,202 methodology 29 106 74 5 7 5 145 1,503 725 --------------- ------------- ------------ ---- ---- ------- ---- ---- -------- ----- ----- ------- Total 5,385 Trading properties at fair value 28 --------------- ------------- ------------ ---- ---- ------- ---- ---- -------- ----- ----- ------- Group property portfolio valuation 5,413 --------------- ------------- ------------ ---- ---- ------- ---- ---- -------- ----- ----- -------
All other factors being equal:
-- a higher equivalent yield or discount rate would lead to a decrease in the valuation of an asset;
-- an increase in the current or estimated future rental stream would have the effect of increasing the capital value; and
-- an increase in the costs to complete would lead to a decrease in the valuation of an asset.
However, there are interrelationships between the unobservable inputs which are partially determined by market conditions, which would impact on these changes.
Additional property covenant information
Properties valued at GBP1,124m (31 March 2023: GBP1,135m) were subject to a security interest and other properties of non-recourse companies amounted to GBP638m (31 March 2023: GBP612m), totalling GBP1,762m (31 March 2023: GBP1,747m).
7 Joint ventures
Summary movement for the period of the investments in joint ventures
Equity Loans Total GBPm GBPm GBPm -------------------------------------- ------ ----- ----- At 1 April 2023 1,419 787 2,206 Additions 21 57 78 Disposals (23) 1 (22) Share of (loss) profit after taxation (92) 18 (74) Distributions and dividends: * Revenue (36) (1) (37) Hedging and exchange movements 6 - 6 -------------------------------------- ------ ----- ----- At 30 September 2023 1,295 862 2,157 -------------------------------------- ------ ----- -----
Summary income statement for the period of the investments in joint ventures
Restated(1) Six months ended Six months ended 30 September 2023 30 September 2022 -------------------------------------------- -------------------- -------------------- GBPm GBPm GBPm GBPm 100% BL Share 100% BL Share -------------------------------------------- ------- ----------- ------- ----------- Revenue 242 111 216 104 Costs (76) (34) (63) (30) -------------------------------------------- ------- ----------- ------- ----------- 166 77 153 74 Administrative expenses (3) (1) (3) (1) Net financing charges (62) (27) (53) (25) ------- ----------- ------- ----------- Underlying Profit 101 49 97 48 Net valuation movement (272) (126) (285) (126)
Capital financing income 11 3 89 30 ------- ----------- ------- ----------- Loss before taxation (160) (74) (99) (48) ------- ----------- ------- ----------- Taxation - - (4) (1) -------------------------------------------- ------- ----------- ------- ----------- Loss after taxation (160) (74) (103) (49) -------------------------------------------- ------- ----------- ------- ----------- Loss split between controlling and non-controlling interests Attributable to non-controlling interests - - - - Attributable to shareholders of the Company (160) (74) (103) (49) -------------------------------------------- ------- ----------- ------- -----------
1. Prior period comparatives have been restated for a change in accounting policy in respect of rental concessions. Refer to Note 1 for further information.
8 Debtors
30 September 31 March 2023 2023 GBPm GBPm ------------------------------- ------------ -------- Trade and other debtors 28 22 Prepayments and accrued income 19 12 47 34 ------------------------------- ------------ --------
9 Net debt
9.1 Fair value and book value of net debt
30 September 2023 31 March 2023 -------------------------------------------- ---------------------------------- ---------------------------------- Fair value Book value Difference Fair value Book value Difference GBPm GBPm GBPm GBPm GBPm GBPm -------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Debentures and unsecured bonds 1,392 1,506 (114) 1,533 1,627 (94) Bank debt and other floating rate debt 736 731 5 645 640 5 -------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Gross debt 2,128 2,237 (109) 2,178 2,267 (89) -------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Interest rate and currency derivative liabilities 78 78 - 67 67 - Interest rate and currency derivative assets (144) (144) - (144) (144) - Cash and cash equivalents (152) (152) - (125) (125) - -------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Total net debt 1,910 2,019 (109) 1,976 2,065 (89) -------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Net debt attributable to non-controlling interests 1 1 - 1 1 - -------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Net debt attributable to shareholders of the Company 1,911 2,020 (109) 1,977 2,066 (89) -------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Total net debt 1,910 2,019 (109) 1,976 2,065 (89) -------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Amounts payable under leases 122 122 - 126 126 - -------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Net debt (including lease liabilities) 2,032 2,141 (109) 2,102 2,191 (89) -------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Net debt attributable to non-controlling interests (including lease liabilities) 1 1 - 1 1 - -------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Net debt attributable to shareholders of the Company (including lease liabilities) 2,033 2,142 (109) 2,103 2,192 (89) -------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
The fair values of debentures and unsecured bonds 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 advisor. 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.
9.2 Loan to value ('LTV')
LTV is the ratio of principal value of gross debt less cash, short term deposits and liquid investments to the aggregate value of properties and investments, excluding non-controlling interests.
EPRA LTV has been disclosed in Table E.
Group LTV
30 September 31 March 2023 2023 GBPm GBPm ------------------------------------------------------------------------ ------------ -------- Group LTV 28.0% 27.4% ------------------------------------------------------------------------ ------------ -------- Principal value of gross debt 2,255 2,250 Less debt attributable to non-controlling interests - - Less cash and short term deposits (statement of cash flows)(1) (124) (99) Plus cash attributable to non-controlling interests 1 1 ------------------------------------------------------------------------ ------------ -------- Total net debt for LTV calculation 2,132 2,152 ------------------------------------------------------------------------ ------------ -------- Group property portfolio valuation (Note 6) 5,413 5,595 Investments in joint ventures (Note 7) 2,157 2,206 Other investments and property, plant and equipment (balance sheet)(2) 60 61 Less property and investments attributable to non-controlling interests (13) (13) ------------------------------------------------------------------------ ------------ -------- Total assets for LTV calculation 7,617 7,849 ------------------------------------------------------------------------ ------------ --------
1. Cash and short term deposits exclude tenant deposits of GBP28m (31 March 2023: GBP26m).
2. The GBP18m (31 March 2023: GBP19m) difference between other investments and plant, property and equipment per the balance sheet totalling GBP78m (31 March 2023: GBP80m), relates to a right-of-use asset recognised under a lease which is classified as property, plant and equipment which is not included within Total assets for the purposes of the LTV calculation.
Proportionally consolidated LTV
30 September 31 March 2023 2023 GBPm GBPm ----------------------------------------------------------------------- ------------ -------- Proportionally consolidated LTV 36.9% 36.0% ----------------------------------------------------------------------- ------------ -------- Principal value of gross debt 3,462 3,448 Less attributable to non-controlling interests - - Less cash and short term deposits(1) (232) (228) Plus cash attributable to non-controlling interests 1 1 ----------------------------------------------------------------------- ------------ -------- Total net debt for proportional LTV calculation 3,231 3,221 ----------------------------------------------------------------------- ------------ -------- Group property portfolio valuation (Note 6) 5,413 5,595
Share of property of joint ventures 3,304 3,316 Other investments and property, plant and equipment (balance sheet)(2) 60 61 Less property attributable to non-controlling interests (13) (13) ----------------------------------------------------------------------- ------------ -------- Total assets for proportional LTV calculation 8,764 8,959 ----------------------------------------------------------------------- ------------ --------
1. Cash and short term deposits exclude tenant deposits of GBP51m (31 March 2023: GBP49m).
2. The GBP18m (31 March 2023: GBP19m) difference between other investments and plant, property and equipment per the balance sheet totalling GBP78m (31 March 2023: GBP80m), relates to a right-of-use asset recognised under a lease which is classified as property, plant and equipment which is not included within Total assets for the purposes of the LTV calculation.
9.3 Net Debt to EBITDA
Net Debt to EBITDA is the ratio of principal amount of gross debt less cash, short term deposits and liquid investments to earnings before interest, tax, depreciation and amortisation (EBITDA).
The Group ratio excludes non-recourse and joint venture borrowings and includes distributions and other receivables from non-recourse companies and joint ventures.
Group Net Debt to EBITDA
30 September 31 March 2023 2023 GBPm GBPm ------------------------------------------------------------------------------------------- ------------ -------- Group Net Debt to EBITDA 6.0x 6.4x ------------------------------------------------------------------------------------------- ------------ -------- Principal amount of gross debt 2,255 2,250 Less non-recourse borrowings (297) (298) Less cash and short term deposits (statement of cash flows)(1) (124) (99) Plus cash attributable to non-recourse companies 24 37 ------------------------------------------------------------------------------------------- ------------ -------- Total net debt for group Net Debt to EBITDA calculation 1,858 1,890 ------------------------------------------------------------------------------------------- ------------ -------- Underlying Profit (Table A) 142 264 Plus Net financing charges (Note 5) 30 60 Less Underlying Profit due to joint ventures and non-recourse companies(2) (76) (144) Plus distributions and other receivables from joint ventures and non-recourse companies(3) 57 107 Plus depreciation and amortisation (Table A) 3 7 ------------------------------------------------------------------------------------------- ------------ -------- Total EBITDA for group Net Debt to EBITDA calculation 156 294 ------------------------------------------------------------------------------------------- ------------ -------- Annualisation adjustment x2 - ------------------------------------------------------------------------------------------- ------------ -------- Annualised EBITDA for group Net Debt to EBITDA calculation 312 294 ------------------------------------------------------------------------------------------- ------------ --------
1. Cash and short term deposits exclude tenant deposits of GBP28m (31 March 2023: GBP26m).
2. Underlying Profit due to joint ventures GBP49m (31 March 2023: GBP92m) as disclosed in the consolidated income statement and Underlying Profit due to non-recourse companies GBP27m (31 March 2023: GBP52m).
3. Distributions and other receivables from joint ventures GBP37m (31 March 2023: GBP73m) as disclosed in the consolidated statement of cash flows and distributions and other receivables from non-recourse companies GBP20m (31 March 2023: GBP34m).
Proportionately consolidated Net Debt to EBITDA
30 September 31 March 2023 2023 GBPm GBPm ------------------------------------------------------------------------ ------------ -------- Proportionally consolidated Net Debt to EBITDA 8.0x 8.4x ------------------------------------------------------------------------ ------------ -------- Principal amount of gross debt 3,462 3,448 Less cash and short term deposits(1) (232) (228) Plus cash attributable to non-controlling interests 1 1 ------------------------------------------------------------------------ ------------ -------- Total net debt for proportional Net Debt to EBITDA calculation 3,231 3,221 ------------------------------------------------------------------------ ------------ -------- Underlying Profit (Table A) 142 264 Plus Net financing charges (Table A) 57 111 Plus depreciation and amortisation (Table A) 3 7 ------------------------------------------------------------------------ ------------ -------- Total EBITDA for proportional Net Debt to EBITDA calculation 202 382 ------------------------------------------------------------------------ ------------ -------- Annualisation adjustment x2 - ------------------------------------------------------------------------ ------------ -------- Annualised Total EBITDA for proportional Net Debt to EBITDA calculation 404 382 ------------------------------------------------------------------------ ------------ --------
1. Cash and short term deposits exclude tenant deposits of GBP51m (31 March 2023: GBP49m).
9.4 British Land Unsecured Financial Covenants
The two financial covenants applicable to the Group unsecured debt are shown below:
30 September 31 March 2023 2023 GBPm GBPm ---------------------------------------------------------------------------------- ------------ -------- Net Borrowings not to exceed 175% of Adjusted Capital and Reserves 39% 38% ---------------------------------------------------------------------------------- ------------ -------- Principal amount of gross debt 2,255 2,250 Less the relevant proportion of borrowings of the partly-owned subsidiary/ non-controlling interests - - Less cash and short term deposits (statement of cash flows)(1) (124) (99) Plus the relevant proportion of cash and deposits of the partly-owned subsidiary/ non-controlling interests 1 1 ---------------------------------------------------------------------------------- ------------ -------- Net Borrowings 2,132 2,152 ---------------------------------------------------------------------------------- ------------ -------- Share capital and reserves (balance sheet) 5,367 5,525 Deferred tax liabilities (Table A) 8 6 Trading property surpluses (Table A) 1 7 Exceptional refinancing charges (see below) 154 161 Fair value adjustments of financial instruments (Table A) (94) (44) Less reserves attributable to non-controlling interests (balance sheet) (13) (13) ---------------------------------------------------------------------------------- ------------ -------- Adjusted Capital and Reserves 5,423 5,642 ---------------------------------------------------------------------------------- ------------ --------
1. Cash and short term deposits exclude tenant deposits of GBP28m (31 March 2023: GBP26m).
In calculating Adjusted Capital and Reserves for the purpose of the unsecured debt financial covenants, there is an adjustment of GBP154m (31 March 2023: GBP161m) to reflect the cumulative net amortised exceptional items relating to the refinancings in the years ended 31 March 2005, 2006 and 2007.
30 September 31 March 2023 2023 GBPm GBPm ------------------------------------------------------------------------------------------- ------------ -------- Net Unsecured Borrowings not to exceed 70% of Unencumbered Assets 33% 32% ------------------------------------------------------------------------------------------- ------------ -------- Principal amount of gross debt 2,255 2,250 Less cash and deposits not subject to a security interest (being GBP124m less cash subject to a security interest of GBP7m) (117) (86) Less principal amount of secured and non-recourse borrowings (932) (933) ------------------------------------------------------------------------------------------- ------------ -------- Net Unsecured Borrowings 1,206 1,231 ------------------------------------------------------------------------------------------- ------------ -------- Group property portfolio valuation (Note 6) 5,413 5,595 Investments in joint ventures (Note 7) 2,157 2,206 Other investments and property, plant and equipment (balance sheet)(1) 60 61 Less investments in joint ventures (Note 7) (2,157) (2,206) Less encumbered assets (Note 6) (1,762) (1,747) ------------------------------------------------------------------------------------------- ------------ -------- Unencumbered Assets 3,711 3,909 ------------------------------------------------------------------------------------------- ------------ --------
1. The GBP18m (31 March 2023: GBP19m) difference between other investments and plant, property and equipment per the balance sheet totalling GBP78m (31 March 2023: GBP80m), relates to a right-of-use asset recognised under a lease which is classified as property, plant and equipment which is not included within Unencumbered Assets for the purposes of the covenant calculation.
9.5 Fair value hierarchy
The table below analyses financial instruments carried at fair value, by the valuation method. The different levels are defined as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The fair value of interest rate and currency derivatives are determined using the present value of estimated future cash flows and discounted based on the applicable yield curves derived from quoted interest rates and the appropriate exchange rate at the balance sheet date.
30 September 2023 31 March 2023 ------------------------------------------------------- -------------------------- -------------------------- 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 - (144) - (144) - (144) - (144) Other investments - fair value through profit and loss - - (48) (48) - - (48) (48) ------------------------------------------------------- ----- ----- ----- ----- ----- ----- ----- ----- Assets - (144) (48) (192) - (144) (48) (192) ------------------------------------------------------- ----- ----- ----- ----- ----- ----- ----- ----- Interest rate and currency derivative liabilities - 78 - 78 - 67 - 67 ------------------------------------------------------- ----- ----- ----- ----- ----- ----- ----- ----- Liabilities - 78 - 78 - 67 - 67 ------------------------------------------------------- ----- ----- ----- ----- ----- ----- ----- ----- Total - (66) (48) (114) - (77) (48) (125) ------------------------------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
There have been no transfers between levels in the period.
10 Dividend
The Interim dividend payment for the six months ended 30 September 2023 will be 12.16p. Payment will be made on 5 January 2024 to shareholders on the register at close of business on 24 November 2023. The Interim dividend will be a Property Income Distribution (PID) and no SCRIP alternative will be offered.
The 2023 Final dividend of 11.04p pence per share, totalling GBP102m was paid on 28 July 2023. The whole of the 2023 Final dividend was a PID and no scrip alternative was offered. GBP87m was paid to shareholders, and GBP15m of withholding tax was retained.
11 Segment information
Operating segments
The Group allocates resources to investment and asset management according to the sectors it expects to perform over the medium term.
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 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 period.
From 1 April 2023 the Group renamed the Retail & Fulfilment operating segment to Retail & London Urban Logistics, in line with our evolving strategy. There have been no changes in the allocation of the segment results or assets as a consequence of this change.
Segment result
Six months ended 30 September Retail & London Campuses Urban Logistics Unallocated Total ------------------------ -------------- ------------------- -------------- ------------------- Restated(1) Restated(1) 2023 2022 2023 2022 2023 2022 2023 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm ------------------------ ------ ------ ------ ----------- ------ ------ ------ ----------- Gross rental income British Land Group 48 65 109 101 - - 157 166 Share of joint ventures 55 54 29 29 - - 84 83 ------------------------ ------ ------ ------ ----------- ------ ------ ------ ----------- Total 103 119 138 130 - - 241 249 ------------------------ ------ ------ ------ ----------- ------ ------ ------ ----------- Net rental income British Land Group 42 63 109 88 - - 151 151 Share of joint ventures 49 49 26 24 - - 75 73 ------------------------ ------ ------ ------ ----------- ------ ------ ------ ----------- Total 91 112 135 112 - - 226 224 ------------------------ ------ ------ ------ ----------- ------ ------ ------ ----------- Operating result British Land Group 51 58 108 92 (26) (28) 133 122 Share of joint ventures 43 54 25 19 (2) (1) 66 72 ------------------------ ------ ------ ------ ----------- ------ ------ ------ -----------
Total 94 112 133 111 (28) (29) 199 194 ------------------------ ------ ------ ------ ----------- ------ ------ ------ ----------- Restated(1) Six months Six months ended ended 30 September 30 September 2023 2022 Reconciliation to Underlying Profit before taxation GBPm GBPm --------------------------------------------------------------- -------------- ------------- Operating result - proportionately consolidated (Table A) 199 194 Net financing charges - proportionately consolidated (Table A) (57) (56) --------------------------------------------------------------- -------------- ------------- Underlying Profit 142 138 --------------------------------------------------------------- -------------- ------------- Reconciliation to loss before taxation --------------------------------------------------------------- -------------- ------------- Underlying Profit 142 138 Capital and other (192) (159) Underlying Profit attributable to non-controlling interests 1 1 --------------------------------------------------------------- -------------- ------------- Total loss before taxation (49) (20) --------------------------------------------------------------- -------------- -------------
1. Prior period comparatives have been restated for a change in accounting policy in respect of rental concessions. Refer to Note 1 for further information.
Of the operating result above, GBP199m (six months ended 30 September 2022: GBP194m restated) was derived from within the UK.
Segment assets
Campuses Retail & London Total Urban Logistics ------------------------ ---------------------- ---------------------- ---------------------- 30 September 31 March 30 September 31 March 30 September 31 March 2023 2023 2023 2023 2023 2023 GBPm GBPm GBPm GBPm GBPm GBPm ------------------------ ------------ -------- ------------ -------- ------------ -------- Property assets British Land Group 2,728 2,972 2,681 2,619 5,409 5,591 Share of joint ventures 2,663 2,687 641 629 3,304 3,316 ------------------------ ------------ -------- ------------ -------- ------------ -------- Total 5,391 5,659 3,322 3,248 8,713 8,907 ------------------------ ------------ -------- ------------ -------- ------------ --------
Reconciliation to net assets
30 September 31 March 2023 2023 British Land Group GBPm GBPm ------------------------------------------------------------- ------------ -------- Property assets 8,713 8,907 Other non-current assets - proportionately consolidated 78 141 ------------------------------------------------------------- ------------ -------- Non-current assets 8,791 9,048 ------------------------------------------------------------- ------------ -------- Other net current liabilities - proportionately consolidated (360) (384) EPRA net debt (Table A) (3,153) (3,127) Other non-current liabilities - (50) ------------------------------------------------------------- ------------ -------- EPRA NTA 5,278 5,487 ------------------------------------------------------------- ------------ -------- Non-controlling interests 13 13 EPRA adjustments (Table A) 76 25 ------------------------------------------------------------- ------------ -------- IFRS net assets 5,367 5,525 ------------------------------------------------------------- ------------ --------
12 Related party transactions
There have been no material changes in the related party transactions described in the last annual report.
13 Contingent liabilities
The Group and joint ventures have contingent liabilities in respect of legal claims, guarantees and warranties arising in the ordinary course of business. It is not anticipated that any material liabilities will arise from contingent liabilities.
14 Share capital and reserves
Ordinary shares of 25p GBPm each ------------------------------ ---- ----------- Issued, called and fully paid At 1 April 2023 234 938,334,977 Share issues - 181,601 ------------------------------ ---- ----------- At 30 September 2023 234 938,516,578 ------------------------------ ---- -----------
At 30 September 2023, of the issued 25p ordinary shares, 7,376 shares were held in the ESOP trust (31 March 2023: 7,376), 11,266,245 shares were held as treasury shares (31 March 2022: 11,266,245) and 927,242,957 shares were in free issue (31 March 2023: 926,997,041). No treasury shares were acquired by the ESOP trust during the period. All issued shares are fully paid.
15 Subsequent events
There have been no significant subsequent events post the balance sheet date.
Supplementary Disclosures
Table A: Summary income statement and balance sheet
Summary income statement based on proportional consolidation for the six months ended 30 September 2023
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 included on a line by line basis and excluding non-controlling interests.
Restated(1) Six months ended 30 September Six months ended 30 September 2023 2022 --------------- ------------------------------------------------ ------------------------------------------------- Less Less Joint non-controlling Proportionally Joint non-controlling Proportionally Group ventures interests consolidated Group ventures interests consolidated GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm --------------- ----- -------- --------------- -------------- ----- --------- --------------- -------------- Gross rental income(2) 163 85 (2) 246 172 83 (2) 253 Property operating expenses(3) (8) (8) 1 (15) (16) (9) 1 (24) ----- -------- --------------- -------------- ----- --------- --------------- -------------- Net rental income 155 77 (1) 231 156 74 (1) 229 Administrative expenses(4) (42) (1) - (43) (43) (1) - (44) Net fees and other income 11 - - 11 9 - - 9 ----- -------- --------------- -------------- ----- --------- --------------- -------------- Ungeared Income Return 124 76 (1) 199 122 73 (1) 194 Net financing charges (30) (27) - (57) (31) (25) - (56) --------------- ----- -------- --------------- -------------- ----- --------- --------------- -------------- Underlying Profit 94 49 (1) 142 91 48 (1) 138 --------------- ----- -------- --------------- -------------- ----- --------- --------------- -------------- Underlying taxation (1) - - (1) (1) - - (1) --------------- ----- -------- --------------- -------------- ----- --------- --------------- -------------- Underlying Profit after
taxation 141 90 48 (1) 137 --------------- ----- -------- --------------- -------------- ----- --------- --------------- -------------- Valuation movement (327) (315) Other capital and taxation (net)(5) 129 150 --------------- ----- -------- --------------- -------------- ----- --------- --------------- -------------- Result attributable to shareholders of the Company (57) (28) --------------- ----- -------- --------------- -------------- ----- --------- --------------- --------------
1. Prior period comparatives have been restated for a change in accounting policy in respect of rental concessions. Refer to Note 1 for further information.
2. Group gross rental income includes GBP5m (six months ended 30 September 2023: GBP4m) of all inclusive rents relating to service charge income and excludes the GBP25m (six months ended 30 September 2023: GBPnil) of rent receivable and GBP149m (six months ended 30 September 2023: GBPnil) of surrender premia received within the Capital and other column of the income statement (see Note 3).
3. Group property operating expenses excludes GBP54m (six months ended 30 September 2023: GBPnil) of provisions for impairment of tenant incentives and contracted rent increases within the Capital and other column of the income statement (see Note 3).
4. Administrative expenses includes GBP3m (six months ended 30 September 2023: GBP4m) of depreciation and amortisation.
5. Includes other comprehensive income, movement in dilution of share options and the movement in items excluded for EPRA NTA.
Summary balance sheet based on proportional consolidation as at 30 September 2023
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 included on a line-by-line basis and excluding non-controlling interests.
Mark-to-market EPRA EPRA on derivatives Valuation Intangibles NTA NTA Share Less and related surplus and 30 31 of joint non-controlling Share debt Head on trading Deferred September March Group ventures interests options adjustments leases properties tax 2023 2023 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm -------------- ------- -------- --------------- ------- -------------- ------ ---------- ----------- --------- ------- Campuses properties 2,773 2,695 - - - (78) 1 - 5,391 5,659 Retail & London Urban Logistics properties 2,744 631 (13) - - (40) - - 3,322 3,248 ------- -------- --------------- ------- -------------- ------ ---------- ----------- --------- ------- Total properties(1) 5,517 3,326 (13) - - (118) 1 - 8,713 8,907 Investments in joint ventures 2,157 (2,157) - - - - - - - - Other investments 56 - - - - - - (8) 48 50 Other net (liabilities) assets (338) (128) 1 17 - 118 - - (330) (343) Deferred tax liability (6) (2) - - - - - 8 - - Net debt (2,019) (1,039) (1) - (94) - - - (3,153) (3,127) -------------- ------- -------- --------------- ------- -------------- ------ ---------- ----------- --------- ------- Net assets 5,367 - (13) 17 (94) - 1 - 5,278 5,487 -------------- ------- -------- --------------- ------- -------------- ------ ---------- ----------- --------- ------- EPRA NTA per share (Note 2) 565p 588p -------------- ------- -------- --------------- ------- -------------- ------ ---------- ----------- --------- -------
1. Included within the total property value of GBP8,713m (31 March 2023: GBP8,907m) are right-of-use assets net of lease liabilities of GBP9m (31 March 2023: GBP9m), 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.
EPRA Net tangible assets movement
30 September 2023 31 March 2023 ----------------- ------------------- ------------------ Pence per Pence per GBPm share GBPm share ----------------- ------- ---------- ------- --------- Opening EPRA NTA 5,487 588 6,806 730 Income return 141 15 263 28 Capital return (248) (27) (1,367) (147) Dividend paid (102) (11) (215) (23) ----------------- ------- ---------- ------- --------- Closing EPRA NTA 5,278 565 5,487 588 ----------------- ------- ---------- ------- ---------
Table B: EPRA Performance measures
EPRA Performance measures summary table
Restated(1) Six months ended Six months ended 30 September 2023 30 September 2022 ------------------------------------------------- -------------------- -------------------- Pence per Pence per GBPm share GBPm share ------------------------------------------------- ------ ------------ ------ ------------ EPRA Earnings - basic 261 28.2 137 14.8 - diluted 261 28.1 137 14.7 ------------------------------------------------- ------ ------------ ------ ------------ Percentage Percentage ------------------------------------------------- ------ ------------ ------ ------------ EPRA Net Initial Yield 5.4% 4.5% EPRA 'topped-up' Net Initial Yield 6.0% 5.2% EPRA Vacancy Rate 6.7% 6.1% ------------------------------------------------- ------ ------------ ------ ------------ EPRA Cost Ratio (including direct vacancy costs) 14.8% 19.5% EPRA Cost Ratio (excluding direct vacancy costs) 7.0% 13.7% ------------------------------------------------- ------ ------------ ------ ------------
1. Prior period comparatives have been restated for a change in accounting policy in respect of rental concessions. Refer to Note 1 for further information.
30 September 2023 31 March 2023 --------- ------------------- ----------------- Pence per Pence per GBPm share GBPm share --------- ------ ----------- ----- ---------- EPRA NTA 5,278 565 5,487 588 EPRA NRV 5,809 622 6,029 646 EPRA NDV 5,549 594 5,658 606 --------- ------ ----------- ----- ---------- Percentage Percentage --------- ------ ----------- ----- ---------- EPRA LTV 39.9% 39.5% --------- ------ ----------- ----- ----------
Calculation and reconciliation of Underlying/EPRA/IFRS Earnings and Underlying/EPRA/IFRS Earnings per share
Restated(1) Six months Six months ended ended 30 September 30 September 2023 2022 GBPm GBPm ---------------------------------------------------------------------------------------- ------------- ------------- Loss attributable to the shareholders of the Company (61) (32) Exclude:
Group - Underlying taxation 1 - Group - Capital and other taxation 11 11 Group - valuation movement 201 189 Group - (profit) loss on disposal of investment properties and revaluation of investments (2) 20 Group - Capital and other revenue and costs (see Note 3) (120) - Joint ventures - valuation movement (including result on disposals) 126 126 Joint ventures - capital financing income (3) (30) Joint ventures - deferred tax - 1 Changes in fair value of financial instruments and associated close-out costs (10) (147) Non-controlling interests in respect of the above (1) - ---------------------------------------------------------------------------------------- ------------- ------------- Underlying Profit 142 138 ---------------------------------------------------------------------------------------- ------------- ------------- Group - Underlying current taxation (1) (1) ---------------------------------------------------------------------------------------- ------------- ------------- Underlying Earnings - basic and diluted 141 137 ---------------------------------------------------------------------------------------- ------------- ------------- Group - Capital and other revenue and costs (see Note 3) 120 - ---------------------------------------------------------------------------------------- ------------- ------------- EPRA Earnings - basic and diluted 261 137 ---------------------------------------------------------------------------------------- ------------- ------------- Loss attributable to the shareholders of the Company (61) (32) ---------------------------------------------------------------------------------------- ------------- ------------- IFRS Earnings - basic and diluted (61) (32) ---------------------------------------------------------------------------------------- ------------- -------------
1. Prior period comparatives have been restated for a change in accounting policy in respect of rental concessions. Refer to Note 1 for further information.
Six months Six months ended ended 30 September 30 September 2023 2022 Number Number million million --------------------------------------------------------------- ------------- ------------- Weighted average number of shares 938 938 Adjustment for Treasury shares (11) (11) --------------------------------------------------------------- ------------- ------------- IFRS/EPRA/Underlying weighted average number of shares (basic) 927 927 --------------------------------------------------------------- ------------- ------------- Dilutive effect of share options - - Dilutive effect of ESOP shares 2 3 --------------------------------------------------------------- ------------- ------------- EPRA/Underlying weighted average number of shares (diluted) 929 930 --------------------------------------------------------------- ------------- ------------- Remove anti-dilutive effect (2) (3) --------------------------------------------------------------- ------------- ------------- IFRS weighted average number of shares (diluted) 927 927 --------------------------------------------------------------- ------------- -------------
Net assets per share
30 September 2023 31 March 2023 ----------------------------------------------------------- ------------------- ---------------- Pence per Pence per GBPm share GBPm share ----------------------------------------------------------- ------- ---------- ----- --------- IFRS net assets 5,367 5,525 ----------------------------------------------------------- ------- ---------- ----- --------- Deferred tax arising on revaluation of derivatives 8 6 Mark-to-market on derivatives and related debt adjustments (94) (44) Dilution effect of share options 17 14 Surplus on trading properties 1 7 Intangible assets (8) (8) Less non-controlling interests (13) (13) ----------------------------------------------------------- ------- ---------- ----- --------- EPRA NTA 5,278 565 5,487 588 ----------------------------------------------------------- ------- ---------- ----- --------- Intangible assets 8 8 Purchasers' costs 523 534 ----------------------------------------------------------- ------- ---------- ----- --------- EPRA NRV 5,809 622 6,029 646 ----------------------------------------------------------- ------- ---------- ----- --------- Deferred tax arising on revaluation movements (8) (7) Purchasers' costs (523) (534) Mark-to-market on derivatives and related debt adjustments 94 44 Mark-to-market on debt 177 126 ----------------------------------------------------------- ------- ---------- ----- --------- EPRA NDV 5,549 594 5,658 606 ----------------------------------------------------------- ------- ---------- ----- ---------
EPRA NTA is the Group's primary measure of net assets and assumes that entities buy and sell assets, thereby crystallising certain levels of unavoidable deferred tax. Due to the Group's REIT status, deferred tax is only provided at each balance sheet date on properties outside the REIT regime. As a result deferred taxes are excluded from EPRA NTA for properties within the REIT regime. For properties outside of the REIT regime, deferred tax is included to the extent that it is expected to crystallise, based on the Group's track record and tax structuring. EPRA NRV reflects what would be needed to recreate the Group through the investment markets based on its current capital and financing structure. EPRA NDV reflects shareholders' value which would be recoverable under a disposal scenario, with deferred tax and financial instruments recognised at the full extent of their liability.
30 September 31 March 2023 2023 Number Number million million ------------------------------------- ------------ -------- Number of shares at period/year end 938 938 Adjustment for treasury shares (11) (11) ------------------------------------- ------------ -------- IFRS/EPRA number of shares (basic) 927 927 ------------------------------------- ------------ -------- Dilutive effect of share options 5 3 Dilutive effect of ESOP shares 2 3 ------------------------------------- ------------ -------- IFRS/EPRA number of shares (diluted) 934 933 ------------------------------------- ------------ --------
EPRA Net Initial Yield and 'topped-up' Net Initial Yield
30 September 30 September 2023 2022 GBPm GBPm ------------------------------------------------------------------ ------------ ------------ Investment property - wholly-owned 5,400 5,942 Investment property - share of joint ventures 3,304 3,701 Less developments, residential and land (1,817) (1,358) ------------ ------------ Completed property portfolio 6,887 8,285 Allowance for estimated purchasers' costs 473 589 ------------------------------------------------------------------ ------------ ------------ Gross up completed property portfolio valuation (A) 7,360 8,874 ------------------------------------------------------------------ ------------ ------------ Annualised cash passing rental income 430 435 Property outgoings (33) (33) ------------------------------------------------------------------ ------------ ------------ Annualised net rents (B) 397 402 ------------------------------------------------------------------ ------------ ------------ Rent expiration of rent-free periods and fixed uplifts(1) 41 59 ------------------------------------------------------------------ ------------ ------------ 'Topped-up' net annualised rent (C) 438 461 EPRA Net Initial Yield (B/A) 5.4% 4.5% EPRA 'topped-up' Net Initial Yield (C/A) 6.0% 5.2% ------------------------------------------------------------------ ------------ ------------ Including fixed/minimum uplifts received in lieu of rental growth 6 4 ------------------------------------------------------------------ ------------ ------------ Total 'topped-up' net rents (D) 444 465 Overall 'topped-up' Net Initial Yield (D/A) 6.0% 5.2% ------------------------------------------------------------------ ------------ ------------ 'Topped-up' net annualised rent 438 461 ERV vacant space 32 30 Reversions 5 (4) ------------------------------------------------------------------ ------------ ------------ Total Estimated Rental Value (E) 475 487 Net Reversionary Yield (E/A) 6.5% 5.5% ------------------------------------------------------------------ ------------ ------------
1. The weighted average period over which rent-free periods expire is 1 year (30 September 2022: 1 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 30 September 2023, 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 were 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 un-rented, lettable space as a proportion of the total rental value of the completed property portfolio.
EPRA Vacancy Rate
30 September 30 September 2023 2022 GBPm GBPm ----------------------------------------------------------------------- ------------ ------------ Annualised potential rental value of vacant premises 32 30 Annualised potential rental value for the completed property portfolio 483 489 EPRA Vacancy Rate 6.7% 6.1% ----------------------------------------------------------------------- ------------ ------------
EPRA Cost Ratios
Restated(1) Six months Six months ended ended 30 September 30 September 2023 2022 GBPm GBPm ---------------------------------------------------------------------------------------- ------------- ------------- Property operating expenses 7 15 Administrative expenses 42 43 Share of joint ventures expenses 9 10 Less: Performance & management fees (from joint ventures) (9) (6) Net other fees and commissions (2) (3) Ground rent costs and operating expenses de facto included in rents (13) (12) ---------------------------------------------------------------------------------------- ------------- ------------- EPRA Costs (including direct vacancy costs) (A) 34 47 Direct vacancy costs (18) (14) ---------------------------------------------------------------------------------------- ------------- ------------- EPRA Costs (excluding direct vacancy costs) (B) 16 33 Gross rental income less ground rent costs and operating expenses de facto included in rents 152 159 Share of joint ventures (Gross Rental Income less ground rent costs) 78 82 ---------------------------------------------------------------------------------------- ------------- ------------- Total Gross rental income (C) 230 241 EPRA Cost Ratio (including direct vacancy costs) (A/C) 14.8% 19.5% EPRA Cost Ratio (excluding direct vacancy costs) (B/C) 7.0% 13.7% ---------------------------------------------------------------------------------------- ------------- ------------- Reversal of impairment of tenant debtors, tenant incentives and accrued income (D) (10) (1) Adjusted Cost Ratio (including direct vacancy costs and excluding impairment of tenant debtors, tenant incentives and accrued income) (A-D)/C 19.1% 19.9% Adjusted Cost Ratio (excluding direct vacancy costs and excluding impairment of tenant debtors, tenant incentives and accrued income) (B-D)/C 11.3% 14.1% ---------------------------------------------------------------------------------------- ------------- ------------- Overhead and operating expenses capitalised (including share of joint ventures) 5 3 ---------------------------------------------------------------------------------------- ------------- -------------
1. Prior period comparatives have been restated for a change in accounting policy in respect of rental concessions. Refer to Note 1 for further information.
In the current and prior periods employee costs in relation to staff time on development projects are 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 reversal of impairment of tenant debtors, tenant incentives and accrued income which are exceptional items in the current period, to show the impact of these items on the ratios.
Table C: Gross rental income
Restated(1) Six months Six months ended ended 30 September 30 September 2023 2022 GBPm GBPm ------------------------------------------------------------- ------------- ------------- Rent receivable 239 232 Spreading of tenant incentives and contracted rent increases 4 19 Surrender premia 3 2 ------------------------------------------------------------- ------------- ------------- Gross rental income 246 253 ------------------------------------------------------------- ------------- -------------
1. Prior period comparatives have been restated for a change in accounting policy in respect of rental concessions. Refer to Note 1 for further information.
The current and prior period information is presented on a proportionally consolidated basis, excluding non-controlling interests.
Table D: Property related capital expenditure
Six months ended 30 Year ended 31 March September 2023 2023 ------------------------------------------- ----------------------- ----------------------- Joint Joint Group ventures Total Group ventures Total GBPm GBPm GBPm GBPm GBPm GBPm ------------------------------------------- ----- --------- ----- ----- --------- ----- Acquisitions 58 - 58 158 - 158 Development 91 100 191 156 106 262 Investment properties Incremental lettable space - - - - - - No incremental lettable space 30 11 41 60 26 86 Tenant incentives 1 3 4 2 1 3 Other material non-allocated types of expenditure 2 2 4 3 3 6 Capitalised interest 7 3 10 10 3 13 ------------------------------------------- ----- --------- ----- ----- --------- ----- Total property related capex 189 119 308 389 139 528 ------------------------------------------- ----- --------- ----- ----- --------- ----- Conversion from accrual to cash basis 10 (3) 7 (50) (6) (56) ------------------------------------------- ----- --------- ----- ----- --------- ----- Total property related capex on cash basis 199 116 315 339 133 472 ------------------------------------------- ----- --------- ----- ----- --------- -----
The above is presented on a proportionally consolidated basis, excluding non-controlling interests and business combinations. The 'Other material non-allocated types of expenditure' category contains capitalised staff costs of GBP4m (31 March 2023: GBP6m).
Table E: EPRA LTV
30 September 2023 31 March 2023 ---------------------------------------- ---------------------------------------- Proportionately consolidated Proportionately consolidated ------------------------------ ---------------------------------------- ---------------------------------------- Share Share of Joint Non-controlling of Joint Non-controlling Group Ventures interests Total Group Ventures interests Total GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm ------------------------------ ----- --------- --------------- ----- ----- --------- --------------- ----- Include: Gross debt 2,255 1,207 - 3,462 2,250 1,198 - 3,448 Net payables 213 101 - 314 271 93 - 364 Exclude: Cash and cash equivalents (152) (131) 1 (282) (125) (152) 1 (276) ------------------------------ ----- --------- --------------- ----- ----- --------- --------------- ----- EPRA Net Debt (a) 2,316 1,177 1 3,494 2,396 1,139 1 3,536 ------------------------------ ----- --------- --------------- ----- ----- --------- --------------- ----- Include: Property portfolio valuation 5,413 3,304 (13) 8,704 5,595 3,316 (13) 8,898 Other financial assets 48 - - 48 50 - - 50 Intangibles 8 - - 8 8 - - 8 ------------------------------ ----- --------- --------------- ----- ----- --------- --------------- ----- EPRA Total Property Value (b) 5,469 3,304 (13) 8,760 5,653 3,316 (13) 8,956 ------------------------------ ----- --------- --------------- ----- ----- --------- --------------- ----- EPRA LTV (a/b) 42.3% 39.9% 42.4% 39.5% ------------------------------ ----- --------- --------------- ----- ----- --------- --------------- -----
Supplementary Tables
Data includes Group's share of Joint Ventures
HY24 rent collection
Rent due between 25 March 2023 and 28 September 2023 Offices Retail Total ----------------------------------------------------- ------- ------- ------- Received 99% 98% 99% Outstanding 1% 2% 1% ----------------------------------------------------- ------- ------- ------- 100% 100% 100% ----------------------------------------------------- Total GBP94m GBP133m GBP227m ----------------------------------------------------- ------- ------- -------
September quarter 2023 rent collection
Rent due between 29 September 2023 and 8 November 2023 Offices Retail Total ------------------------------------------------------- ------- ------ ------ Received 97% 93% 95% Outstanding 3% 7% 5% ------------------------------------------------------- ------- ------ ------ 100% 100% 100% ------------------------------------------------------- Total GBP42m GBP51m GBP93m ------------------------------------------------------- ------- ------ ------
Purchases
Price Price Annualised (100%) (BL Share) Net Rents Since 1 April 2023 Sector GBPm GBPm GBPm(1) ----------------------------- ------------ ------- ----------- ---------- Completed Westwood Retail Park, Thanet Retail Park 55 55 4 Total 55 55 4 ------------------------------------------- ------- ----------- ----------
Sales
Price Price Annualised (100%) (BL Share) Net Rents Since 1 April 2023 Sector GBPm GBPm GBPm(1) -------------------------------------- ------------------- ------- ----------- ---------- Completed Burton Upon Trent, Sainsburys Other Retail 8 8 1 Riverside Retail Park, Coleraine Retail Park 10 10 1 126-134 Baker Street Office 17 17 1 Vodafone Portfolio Office 96 96 5 Exchanged Vodafone Portfolio (Addison House)(3) Office 29 29 1 Other(2) Residential/Retail 13 10 1 Total 173 170 10 ----------------------------------------------------------- ------- ----------- ----------
1. BL share of annualised rent topped up for rent frees
2. Of which GBP8m completed post period end
3. Completed post period end
Portfolio Valuation by Sector
Change(1) -------------------------------- ----- -------------- ----- ------------ Group Joint ventures Total At 30 September 2023 GBPm GBPm GBPm % GBPm -------------------------------- ----- -------------- ----- ----- ----- West End 1,994 330 2,324 (2.5) (60) City 439 2,027 2,466 (4.6) (124) Canada Water & other Campuses 170 304 474 (9.2) (48) Residential(2) 116 2 118 0.8 1 Campuses 2,719 2,663 5,382 (4.0) (231) -------------------------------- ----- -------------- ----- ----- ----- Retail Parks 1,877 183 2,060 0.2 4 Shopping Centre 311 440 751 0.0 0 London Urban Logistics 261 10 271 0.6 2 Other Retail 232 8 240 (0.8) (2) Retail & London Urban Logistics 2,681 641 3,322 0.1 4 -------------------------------- ----- -------------- ----- ----- ----- Total 5,400 3,304 8,704 (2.5) (227) -------------------------------- ----- -------------- ----- ----- ----- Standing Investments 4,198 2,699 6,897 (2.5) (179) Developments 1,202 605 1,807 (2.6) (48) -------------------------------- ----- -------------- ----- ----- -----
On a proportionally consolidated basis including the Group's share of joint ventures and excluding non-controlling interests
1. Valuation movement during the period (after taking account of capital expenditure) of properties held at the balance sheet date, including developments (classified by end use), purchases and sales
2. Standalone residential
Gross Rental Income(1)
6 months to 30 September Annualised as at 30 September 2023 2023 -------------------------------- ---------------------------- --------------------------------- Accounting Basis GBPm Group Joint ventures Total Group Joint ventures Total -------------------------------- ----- -------------- ----- ------- ---------------- ------ West End 41 8 49 56 16 72 City 7 45 52 9 90 99 Other Campuses 5 2 7 9 4 13 Campuses 53 55 108 74 110 184 -------------------------------- ----- -------------- ----- ------- ---------------- ------ Retail Parks 74 8 82 138 14 152 Shopping Centre 21 21 42 39 41 80 London Urban Logistics 4 - 4 7 - 7 Other Retail 10 - 10 18 1 19 Retail & London Urban Logistics 109 29 138 202 56 258 -------------------------------- ----- -------------- ----- ------- ---------------- ------ Total 162 84 246 276 166 442 -------------------------------- ----- -------------- ----- ------- ---------------- ------
On a proportionally consolidated basis including the Group's share of joint ventures and excluding non-controlling interests
Residential consists of only developments and ground rents, thereby excluded from gross rental income analysis
1. Gross rental income will differ from annualised valuation rents due to accounting adjustments for fixed & minimum contracted rental uplifts and lease incentives
Portfolio Net Yields(1,2)
EPRA net EPRA topped Overall topped Net Net As at 30 initial up net up net equivalent Net equivalent reversionary September yield initial yield initial yield yield yield movement yield ERV Growth 2023 % %(3) %(4) % bps %(5) %(6) ---------------- -------- -------------- --------------- ----------- --------------- --------------- ---------- West End 3.7 4.5 4.5 5.3 27 5.9 3.2 City 4.4 5.0 5.0 5.3 38 6.1 3.5 Other Campuses 5.6 5.6 6.0 5.7 21 6.5 0.0 Campuses 4.1 4.8 4.8 5.3 32 6.0 3.2 ---------------- -------- -------------- --------------- ----------- --------------- --------------- ---------- Retail Parks 6.7 7.3 7.4 6.7 13 6.8 4.0 Shopping Centre 8.0 8.5 8.6 8.0 10 8.0 2.6 London Urban Logistics 3.2 3.2 3.3 4.7 9 5.0 3.1 Other Retail 6.8 7.0 7.1 7.0 6 6.2 0.5 Retail & London Urban Logistics 6.8 7.3 7.4 6.9 12 6.9 3.3 ---------------- -------- -------------- --------------- ----------- --------------- --------------- ---------- Total 5.4 6.0 6.0 6.1 23 6.5 3.2 ---------------- -------- -------------- --------------- ----------- --------------- --------------- ----------
On a proportionally consolidated basis including the Group's share of joint ventures and excluding non-controlling interests
Residential consists of only developments and ground rents, thereby excluded from yield analysis
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. Net reversionary yield is the anticipated yield to which the initially yield will rise (or fall) once the rent reaches the estimated rental value, assuming 100% occupancy
6. As calculated by MSCI
Total Property Return (as calculated by MSCI)
6 months to 30 September 2023 Offices Retail Total ------------------------------ ---------------- ---------------- --------------- British British British % Land(2) MSCI Land(2) MSCI Land MSCI ------------------------------ -------- ------ -------- ------ ------- ------ Capital Return (3.8) (8.1) 0.2 (2.5) (2.3) (2.7) ERV Growth 3.2 1.4 3.3 0.5 3.2 1.8 Yield Movement(1) 32 bps 56 bps 12 bps 17 bps 23 bps 22 bps Income Return 1.3 1.9 3.5 2.9 2.1 2.3 ------------------------------ -------- ------ -------- ------ ------- ------ Total Property Return (2.5) (6.3) 3.7 0.4 (0.2) (0.5) ------------------------------ -------- ------ -------- ------ ------- ------
On a proportionally consolidated basis including the Group's share of joint ventures and excluding non-controlling interests
1. Net equivalent yield movement
2. British Land Offices reflects Campuses; British Land Retail reflects Retail & London Urban Logistics
Top 20 Occupiers by Sector
% of Retail & London % of Urban Logistics Campuses As at 30 September 2023 rent As at 30 September 2023 rent -------------------------------- ---------------- ------------------------- --------- Retail & London Urban Logistics Campuses -------------------------------- ---------------- ------------------------- --------- Next 4.8 Meta 12.8 Walgreens (Boots) 4.2 dentsu 6.3 M&S 3.7 Herbert Smith Freehills 3.9 Currys Plc 2.9 SEFE Energy 3.5 TJX (TK Maxx) 2.8 Sumitomo Mitsui 3.0 JD Sports 2.7 Deutsche Bank 2.6 Frasers Group 2.6 Janus Henderson 2.3 DFS Furniture 2.1 TP ICAP Plc 2.1 Tesco Plc 2.0 The Interpublic Group 2.1 TGI Friday's 2.0 Softbank Group 2.1 Kingfisher 1.9 Reed Smith(1) 2.0 Asda Group 1.8 Bank of Montreal 1.9 Hutchison Whampoa 1.8 Mayer Brown 1.9 Sainsbury 1.7 Mimecast Plc 1.7 Homebase 1.7 Milbank LLP 1.7 River Island 1.4 Credit Agricole 1.6 Primark 1.4 Accor 1.6 Pets at Home 1.4 Visa International 1.5 H&M 1.3 Dimensional Fund Advisors 1.2 Smyths Toys 1.1 Government 1.1 -------------------------------- ---------------- ------------------------- --------- Total top 20 45.3 Total top 20 56.9 -------------------------------- ---------------- ------------------------- ---------
1. Taking into account their pre-let of 114,000 sq ft at Norton Folgate, % contracted rent would rise to 6.3%
Major Holdings
Lease BL Share Sq ft Rent (100%) Occupancy length As at 30 September 2023 % '000(5) GBPm pa(1,4) rate %(2,4) yrs(3,4) ------------------------- -------- -------- ------------- ------------ --------- Broadgate 50 4,468 191 97.0 5.9 Regent's Place 100 1,052 62 87.6 5.4 Paddington Central 25 958 13 99.7 8.3 Meadowhall, Sheffield 50 1,500 71 99.4 3.4 Glasgow Fort, Glasgow 100 510 36 98.3 4.9 Teesside, Stockton 100 569 29 97.6 3.4 Hannah Close, Wembley 100 246 4 100.0 2.3 Ealing Broadway, London 100 540 12 98.8 3.4 Drake's Circus, Plymouth 100 1,190 32 93.4 5.1 Giltbrook, Nottingham 100 198 13 100.0 6.3 ------------------------- -------- -------- ------------- ------------ ---------
1. Annualised EPRA contracted rent including 100% of joint ventures
2. Includes accommodation under offer or subject to asset management
3. Weighted average to first break
4. Excludes committed and near term developments
5. Owned and managed
Lease Length & Occupancy
Average lease length Occupancy rate yrs % -------------------------------- ---------------------- ---------------------------- EPRA As at 30 September 2023 To expiry To break Occupancy Occupancy(1,2,3) -------------------------------- ----------- --------- ---------- ---------------- West End 6.4 5.7 89.7 90.0 City 7.2 5.9 90.0 96.7 Other Campuses 10.6 7.6 100.0 100.0 Residential(4) 12.3 12.3 100.0 100.0 Campuses 6.9 5.8 90.1 93.8 -------------------------------- ----------- --------- ---------- ---------------- Retail Parks 6.0 4.5 97.1 99.2 Shopping Centre 5.3 4.0 93.6 96.8 London Urban Logistics 3.2 1.8 99.8 99.8 Other Retail 8.2 7.6 96.4 97.4 Retail & London Urban Logistics 5.9 4.5 96.2 98.4 -------------------------------- ----------- --------- ---------- ---------------- Total 6.3 5.0 93.3 96.2 -------------------------------- ----------- --------- ---------- ----------------
1. EPRA Occupancy vs Occupancy: Occupancy includes space under offer or subject to asset management
2. Space allocated to Storey is shown as occupied where there is a Storey tenant in place otherwise it is shown as vacant. Total occupancy for Campuses would rise from 93.8% to 94.4% if Storey space was assumed to be fully let
3. Where occupiers have entered administration or CVA but are still liable for rates, these are treated as occupied. If units in administration are treated as vacant, then the occupancy rate for Retail & London Urban Logistics would reduce from 98.4% to 97.5%, and total occupancy would reduce from 96.2% to 95.7%
4. Standalone residential
Portfolio Weighting
2023 2023 2022 As at 30 September % GBPm % -------------------------------- ---- ------ ---- West End 26.7 2,324 29.4 City 28.3 2,466 29.3 Canada Water & other Campuses 5.5 474 4.8 Residential(1) 1.3 118 1.1 Campuses 61.8 5,382 64.6 -------------------------------- ---- ------ ---- Of which London 97 5,234 98 Retail Parks 23.7 2,060 21.2 Shopping Centre 8.6 751 8.2 London Urban Logistics 3.1 271 3.3 Other Retail 2.8 240 2.7 Retail & London Urban Logistics 38.2 3,322 35.4 -------------------------------- ---- ------ ---- Total 100 8,704 100 -------------------------------- ---- ------ ---- Of which London 68 5,901 71 -------------------------------- ---- ------ ----
On a proportionally consolidated basis including the Group's share of joint ventures and excluding non-controlling interests
1. Standalone residential
Annualised Rent & Estimated Rental Value (ERV)
Annualised rent (valuation ERV Average rent basis) GBPm GBPpsf GBPm(1) -------------------------------- ------------------------------ ----- ------------------- As at 30 September 2023 Group Joint ventures Total Total Contracted(2) ERV -------------------------------- ------ --------------- ----- ----- ------------- ---- West End(3) 56 15 71 104 67.7 77.7 City(3) 5 83 88 121 56.6 65.3 Other Campuses 6 - 6 8 27.8 35.1 Campuses 67 98 165 233 55.5 62.9 -------------------------------- ------ --------------- ----- ----- ------------- ---- Retail Parks 143 14 157 154 22.7 20.8 Shopping Centre 40 42 82 79 25.8 23.7 London Urban Logistics 8 - 8 12 14.0 21.9 Other Retail 17 1 18 17 14.3 12.8 Retail & London Urban Logistics 208 57 265 262 22.3 20.8 -------------------------------- ------ --------------- ----- ----- ------------- ---- Total 275 155 430 495 29.4 30.4 -------------------------------- ------ --------------- ----- ----- ------------- ----
On a proportionally consolidated basis including the group's share of joint ventures and funds and excluding non-controlling interests, and excluding committed, near term and assets held for development
Residential consists of only developments and ground rents, thereby excluded from rent analysis
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
Rent Subject to Open Market Rent Review
For year to 31 March 2024 2025 2026 2027 2028 2024-26 2024-28 As at 30 September 2023 GBPm GBPm GBPm GBPm GBPm GBPm GBPm -------------------------------- ----- ----- ----- ----- ----- ------- ------- West End 3 14 9 - 2 26 28 City 13 8 26 4 1 47 52 Other Campuses - 1 - - - 1 1 Campuses 16 23 35 4 3 74 81 -------------------------------- ----- ----- ----- ----- ----- ------- ------- Retail Parks 6 10 9 10 5 25 40 Shopping Centre 2 4 2 3 2 8 13 London Urban Logistics - 1 - - - 1 1 Other Retail 2 1 - 1 1 3 5 Retail & London Urban Logistics 10 16 11 14 8 37 59 -------------------------------- ----- ----- ----- ----- ----- ------- ------- Total 26 39 46 18 11 111 140 -------------------------------- ----- ----- ----- ----- ----- ------- -------
On a proportionally consolidated basis including the Group's share of joint ventures and excluding non-controlling interests, and excluding committed, near term and assets held for development
Residential consists of only developments and ground rents, thereby excluded from open market rent analysis
1. Standalone residential
Rent Subject to Lease Break or Expiry
For year to 31 March 2024 2025 2026 2027 2028 2024-26 2024-28 As at 30 September 2023 GBPm GBPm GBPm GBPm GBPm GBPm GBPm -------------------------------- ----- ----- ----- ----- ----- ------- ------- West End 2 8 14 4 7 24 35 City 8 10 13 5 3 31 39 Other Campuses 1 - - - 1 1 2 Campuses 11 18 27 9 11 56 76 -------------------------------- ----- ----- ----- ----- ----- ------- ------- Retail Parks 20 20 25 22 14 65 101 Shopping Centre 10 10 16 9 13 36 58 London Urban Logistics 1 1 4 - 2 6 8 Other Retail 1 3 1 1 - 5 6 Retail & London Urban Logistics 32 34 46 32 29 112 173 -------------------------------- ----- ----- ----- ----- ----- ------- ------- Total 43 52 73 41 40 168 249 -------------------------------- ----- ----- ----- ----- ----- ------- ------- % of contracted rent 9 11 16 9 8 36 53 -------------------------------- ----- ----- ----- ----- ----- ------- -------
On a proportionally consolidated basis including the Group's share of joint ventures and excluding non-controlling interests excluding committed and near term, and assets held for development
Residential consists of only developments and ground rents, thereby excluded from lease break or expiry analysis
Committed Developments
Pre-let Gross 100% Current Cost & under Yield As at 30 September BL Share sq ft PC Calendar Value to come ERV offer on Cost 2023 Sector % '000 Year GBPm GBPm(1) GBPm(2) GBPm(4) % ---------------------- ------------- -------- ------ ----------- ------- -------- -------- -------- --------- Norton Folgate Office 100 335 Q4 2023 346 77 24.4 9.2 5.4 The Priestley Centre Life Science 100 84 Q1 2024 30 12 3.3 2.0 8.1 3 Sheldon Square Office 25 140 Q1 2024 39 4 2.6 2.2 6.4 Aldgate Place, Phase 2 Residential 100 138 Q2 2024 111 28 6.7 0.1 5.0 Peterhouse Expansion Life Science 100 96 Q1 2025 20 44 4.7 - 6.4 1 Broadgate(4) Office 50 545 Q2 2025 158 166 20.0 13.7 6.0 Canada Water Robert's Close, K1(3) Residential 50 62 Q4 2023 4 - - - --------- Mixed The Dock Shed, A2(3) Use 50 246 Q4 2024 25 29 5.5 - 1-3 Deal Porters Way, Mixed A1(3) Use 50 270 Q4 2024 50 57 3.6 - Blended 7 ---------------------- ------------- -------- ------ ----------- ------- -------- -------- -------- --------- Total Committed 1,916 783 417 70.8 27.2 ------------------------------------- -------- ------ ----------- ------- -------- -------- -------- ---------
On a proportionally consolidated basis including the group's share of joint ventures (except area which is shown at 100%)
1. From 30 September 2023. 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. The London Borough of Southwark has confirmed they will not be investing in Phase 1, but retain the right to participate in the development of subsequent plots up to a maximum of 20% with their returns pro-rated accordingly
4. Pre-let & under offer excludes 114,000 sq ft of office space under option
5. Gross yield on costs is calculated by dividing the ERV of the project by the total development costs, including the land value at the point of commitment, and any actual /estimated capitalisation of interest
Near Term Development Pipeline
100% sq Earliest Current Cost to As at 30 September ft Start Value come ERV Planning 2023 Sector BL Share% '000 on Site GBPm GBPm(1) GBPm(2) Status ---------------------- ----------------- --------- ------- -------- ------- -------- -------- ---------------- London Mandela Way, Southwark Urban Logistics 100 144 Q1 2024 19 53 4.7 Consented 1 Triton Square Life Science 100 318 Q2 2024 353 85 34.0 Pre-submission London The Box, Paddington Urban Logistics 100 152 Q2 2024 35 47 6.5 Consented London Verney Road, Southwark Urban Logistics 100 200 Q4 2024 27 76 7.4 Submitted 2 Finsbury Avenue Office 50 747 Q1 2024 94 376 35.7 Consented Canda Water Printworks, H1 & H2 Mixed Use 50 311 Q4 2024 - 105 8.6 Consented ---------------------- ----------------- --------- ------- -------- ------- -------- -------- ---------------- Total Near Term 1,872 528 742 96.9 ----------------------------------------- --------- ------- -------- ------- -------- -------- ----------------
On a proportionally consolidated basis including the group's share of joint ventures (except area which is shown at 100%)
1. From 30 September 2023. 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)
Medium Term Development Pipeline
100% Sq As at 30 September BL Share ft 2023 Sector % '000 Planning Status ---------------------- ------------- --------- -------- ----------------- 1 Appold Street Office 50 397 Consented International House, Ealing Office 100 165 Consented Euston Tower Office 100 539 Pre-submission 5 Kingdom Street Office 100 112 Consented London Urban Finsbury Square Logistics 100 81 Pre-submission London Urban Thurrock Logistics 100 644 Submitted Enfield, Heritage London Urban House Logistics 100 437 Consented London Urban Hannah Close, Wembley Logistics 100 668 Pre-submission London Urban Meadowhall Logistics 50 611 Outline Consented West One Development Mixed Use 25 72 Consented Ealing - 10-40, The Broadway Mixed Use 100 318 Consented Canada Water Plot H3 Office 50 313 Outline Consented Zone L Residential 50 200 Consented Plot F2 Mixed Use 50 448 Consented Future phases(1) Mixed Use 50 3,230 Outline Consented ---------------------- ------------- --------- -------- ----------------- Total Medium Term 8,235 ------------------------------------- --------- -------- -----------------
On a proportionally consolidated basis including the group's share of joint ventures (except area which is shown at 100%)
1. The London Borough of Southwark has the right to invest in up to 20% of the completed development. The ownership share of the joint venture between British Land and AustralianSuper will change over time depending on the level of contributions made, but will be no less than 80%
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 and developments. 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', 'ambition', 'mission', 'objective', '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 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, changes and/or developments as regards: (a) general business and political, social and economic conditions globally, (b) the United Kingdom's withdrawal from, and evolving relationship with, the European Union, (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) government, law or regulation including in relation to the environment, landlord and tenant law, 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, work stoppages and increased costs for, or shortages of, talent, (i) climate change, natural disasters and adverse weather conditions, (j) terrorism, conflicts or 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) cyber-attacks and other disruptions and reliability and security of IT infrastructure, (n) occupier demand and tenant default, (o) financial and equity markets including interest and exchange rate fluctuations, (p) accounting practices and the interpretation of accounting standards (q) the availability and cost of finances, including prolonged higher interest rates, (r) public health crises, and (s) changes in construction supplies and labour availability or cost inflation. The Company's principal risks are described in greater detail in the section of this Press Release headed "Risk Management and Principal Risks" and in the Company's latest annual report and accounts (which can be found at www.britishland.com). 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 UK 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 or circumstances on which any such statement is based. This document shall not, under any circumstances, create any implication that there has been no change in the business or affairs of British Land since the date of this document or that the information contained herein is correct as at any time subsequent to this date.
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.
[1] MSCI performance is reweighted to match the British Land portfolio composition at a sector level
[2] CBRE, Q3 23
[3] MSCI, 6 months to September 23
[4] British Retail Consortium, May 23
[5] Savills: +100,000 sq ft UK
[6] Costar
[7] CBRE, Q3 23
[8] CBRE and company estimates
[9] Savills, U.S. Department of Energy: Office of Scientific and Technical Information, UK Government: Office for Life Sciences
[10] LDC
[11] Savills: inner London
[12] Of which GBP37m completed post period end
[13] Minimum Energy Efficiency Standard
[14] 2023 GRESB Development Benchmark Report: score for Northern Europe/ Diversified - Office/ Residential
[15] CBRE, Q3 23
[16] JLL, Q3 23
[17] Cushman & Wakefield, September 23
[18] Cushman & Wakefield, Q3 23
[19] Savills, August 23
[20] Savills, Q3 23
[21] Of which GBP29m completed post period end
[22] The Home Quality Mark is an independently assessed certification scheme for new homes, with a simple star rating based on a home's design, construction and sustainability. Every home with an HQM certificate meets standards that are significantly higher than minimum standards such as Building Regulations
[23] MSCI 2 year All Property total return, which was -1.7% per annum
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November 13, 2023 02:00 ET (07:00 GMT)
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