16th Aug 2007 07:01
British Land Co PLC16 August 2007 16 August 2007 THE BRITISH LAND COMPANY PLC FIRST QUARTER REPORT - TO 30 JUNE 2007 Financial Highlights: • Net Asset Value(1) per share 1730 pence, up 3% for quarter - EPRA Net Assets(1) £9.1 billion - IFRS Net Assets £9.1 billion • "Triple Net Asset Value" per share 1801 pence, up 7% for quarter - Adjusts debt and derivatives to market value, and deducts deferred tax - Highlights British Land's exceptional balance sheet resilience with debt 100% fixed rate at 5.30% average cost, and average maturity over 13 years • Underlying pre-tax profit(2) £76 million for quarter (up 4% on Q1 2006) - Headline pre-tax profit(3) £267 million - Profit on ordinary activities before tax £266 million • Underlying earnings per share(2) 14 pence for quarter (up 27% on Q1 2006) - Earnings per share 53 pence - Dividend 8.75 pence per share for the quarter, payable November (see below) - Total return(4) for quarter 3.3% • Portfolio valuation increase of 1.3% for quarter - 1.5% capital return (5), outperforming IPD (1.2%) - Valuation uplift led by London Offices (including developments) and Out-of-Town Retail - Like-for-like rental growth (ERV) at 2.2% also outperforming IPD (1.2%) • Properties owned or managed £20.4 billion Business performing well: - 5 million sq ft committed development projects progressing to plan - £1.6 billion (gross) disposals since March 2007 with more in hand, £114 million development spend and €350 million (gross) acquisition of Murcia retail complex in Spain completed - Good occupancy demand driving rents forward in both Office and Retail segments Increased cash for Shareholders: - Further increase in dividends - 35 pence expected for year to March 2008 in total, over 100% up on 2005/6 pre-REIT payout - £250 million share buyback programme announced and underway Chris Gibson-Smith, Chairman comments: "These are good first quarter results. Our space is in demand. Our newdevelopments are going up well. Our strategy is being prosecuted vigorously.Increased dividends and share repurchases reflect the strength of our business." (1) EPRA (European Public Real Estate Association) basis - Note 1 to the accounts (2) see Note 1 (3) with proportional consolidation of Funds and Joint Ventures - Table A (4) increase in EPRA NAV plus dividends paid, see Note 1 (5) calculated by IPD for our UK assets on average capital employed and excluding capitalised interest Review by the Chief Executive, Stephen Hester British Land's first quarter results are good. They show the strength of ourproperty's appeal to customers. This drives continued growth in occupancy, rentsand asset values. In turn we are pleased to pass on to shareholders tangiblereward through increased dividends and share buybacks. We are in a period where investor concerns on the macro-environment arereflected in industry stock prices but not, to date, in actual business results.Our focus remains on generating added-value and growth. At the same time, theresilience of our Company is excellent with exceptional occupancy rates, leaselengths and balance sheet strength. Whatever the resolution of macro-events, webelieve this combination is the route to long-term outperformance within ourindustry. Markets Occupancy markets are showing similar trends to recent quarters: - international service industry strength in London is drivingoccupancy and rents forward. This is both a secular and cyclical trend. There isno sign of the cycle peaking, though our business strategies remain disciplined; - retail sales are up 3.8% year on year, retailers are net acquirers ofspace and British Land's leadership in out-of-town retail (Open A1 Retail Parksand Superstores) positions us in the most favoured segment for customer demandwith positive trends, albeit in a discriminating environment. Investment markets are more mixed as investors adjust relative pricing to rentalgrowth and qualitative prospects, hitherto less focused on. British Land's assetsales, across most parts of the portfolio, averaged a 3% premium to the Marchvaluation. Issues around interest rate outlook and its read-across to propertyremain important going forward. In that context the rise in "Triple Net AssetValue" to 1801 pence per share highlights the hedging aspect of ourwell-structured low cost debt, currently with 100% fixed interest rates at anaverage 5.30% cost. Portfolio Reshaping Our continuous review of the portfolio to ensure that we retain and acquire onlythose properties we believe will provide the best future performance hasresulted in net disposals. Since March we have sold £1.6 billion of properties,made £182 million of new purchases and, jointly with PREF, completed the €350million acquisition of the Murcia retail scheme. These transactions are summarised in the table below. The sale of One ExchangeSquare, a landmark building on the Broadgate Estate, is in line with ourstrategy of recycling capital - in this case, into our City developmentprogramme. We pruned the retail portfolio further with a range of disposals.These included the East Kilbride Shopping Centre previously owned in partnershipwith Land Securities and some smaller retail warehouse properties and highstreet shops. Disposal of a number of industrial properties reflects ourcontinuing strategy of focusing on higher growth markets. Sales Price BL Share Gain 3 months to 30 June 2007 £m £m % (1) Office: One Exchange Square, Broadgate 406 406 5.6 Retail: East Kilbride Shopping Centre(2) 387 193 (2.8) 50% share of Fort Kinnaird 240 87 - Shopping Park(3) 50% share of New Mersey 209 76 5.3 Shopping Park(4) 6 retail warehouse properties 125 98 1.8 5 High Street shops(5) 44 44 1.4 Other: 5 industrial properties 62 62 6.0 5 other properties(6) 2 2 - -------- ------ ----- 1,475 968 2.7 Since 30 June 2007 Castle Vale Retail Park, Birmingham 90 90 9.9 3 High Street shops 43 43 5.7 Matalan, Sutton 14 14 4.8 -------- ------ ----- 147 147 8.2 -------------------------------------------------------------------------- Total 1,622 1,115 3.4 (1) sale price above latest year end valuation (March 2007) (2) Scottish Retail Property Limited Partnership - JV with Land Securities (3) Hercules Unit Trust (HUT) - JV with The Crown Estate (4) Hercules Unit Trust (HUT) - JV with Bank of Ireland Private Banking Limited (5) 2 properties exchanged in the quarter but completed after 30 June 2007 (6) 3 properties exchanged in the quarter but completed after 30 June 2007 Purchases Price BL Share 3 months to 30 June 2007 £m £m 50% share of Gallagher and The Shires 100 36 retail parks(1) 50% share of Whiteley Village factory 55 28 outlet centre (2) Others 27 15 ------ ----- 182 79 Since 30 June 2007 Nueva Condomina, Murcia, Spain(3) 237 118 ----------------------------------------------------------------------- Total 419 197 (1) Hercules Unit Trust (HUT) - JV with The Crown Estate (2) JV with Universities Superannuation Scheme (3) jointly with PREF: completed July 2007, following conditional exchange in March 2007 (as per year end report) In addition to these purchases we have incurred £114 million of developmentexpenditure in the quarter. Since the quarter end, we completed jointly with Pillar Retail Europark Fund(where British Land acts as property adviser and has an effective interest of40%) the purchase of Spain's prime regional shopping centre and retail park inMurcia, Nueva Condomina, for €350 million, confirming British Land/PREF'sposition as the largest owner of out-of-town retail parks in Europe. The quarter also saw the formation of two new joint ventures involving theHercules Unit Trust (where British Land acts as property adviser and has aninterest of 36.3%). The first with the Crown Estate incorporates threeproperties - HUT's Fort Kinnaird Shopping Park in Edinburgh, and the CrownEstate's Gallagher Retail Park in Cheltenham and the Shires Retail Park inLeamington Spa, the figures relating to which are included in the table. Thesecond is between HUT and Bank of Ireland Private Banking, into which HUT soldNew Mersey Shopping Park in Liverpool. These transactions provided theopportunity for recycling capital and leveraging our management added-valuewhile retaining exposure to premier out-of-town locations. Another new joint venture, this time with Universities Superannuation Scheme(USS), saw the acquisition of a factory outlet centre in Whiteley Village, nearFareham in Hampshire, which shows good potential for asset management anddevelopment. Proactive Asset Management British Land's customer-centric focus is standing us in good stead to capturerental growth and thus to bolster our asset values relative to the propertymarket overall. This is brought about by good stock selection and development, but also throughactive asset management such as negotiating lease surrenders, initiatingimprovements by better design or configuration or planning use, and reletting atenhanced rents. This quarter's examples include: - Broadgate, where we contracted in May to relocate Henderson from 4 Broadgate to our development at 201 Bishopsgate, providing them with new space suitable to their current requirements whilst releasing 4 Broadgate for a high rise redevelopment due to commence in 2009 as part of our Broadgate '2020' master plan. - Dartford, where HUT acquired a 40,000 sq ft retail warehouse let to Focus and Halfords early in 2007. A surrender of the Focus unit was negotiated and relet to Allied Carpets and MFI, which enabled their relocation from the larger 216,000 sq ft Prospect Place Retail Park at Dartford. The former Allied Carpet space has been relet to Marks & Spencer and the former MFI space relet to Asda, both at increased rents; this also enhances the attractiveness of the Park to retailers and their customers, whilst increasing overall estimated rental value, covenant strength and thus the value of the park. We continue to look for value enhancement to our assets through selectivecapital expenditure. This includes improvements at the 700,000 sq ft EastgateShopping Centre, Basildon, where a reconfiguration of the food terrace andgeneral refurbishment works currently under way will result in a more modernenvironment, attractive to retailers and their customers alike. There is continuing strong demand from customers across our portfolio. Over700,000 sq ft of our central London office space has been let since 31 March2007 or is under offer. In addition to the ongoing letting of developmentprojects referred to below, this includes lettings at York House in SeymourStreet, W1 (British Land's head office) of 33,700 sq ft to Government ofSingapore Investment Corporation at £67.50 per sq ft and 4,800 sq ft to MoorPark Capital Partners at £70 per sq ft, a new high rent, enhancing rentalvalues. Similar successes prevail throughout the retail portfolio. Since 31 March 2007some 1,070,000 sq ft of out-of-town retail space has been let or is under offerat an annual rent totalling some £28 million. These are predominantly tohousehold names such as Allied Carpets, Asda, Body Shop, Carpetright, CarphoneWarehouse, Laura Ashley, Marks & Spencer, New Look, Next, River Island, and TKMaxx. The retail portfolio has also shown pleasing rental growth - for examplethe estimated rental value of HUT's retail warehouse portfolio grew by 4.2% inthe 12 months to 30 June 2007, compared with the IPD sector index of 2.2%. Marketing is continuing to potential investment partners in Meadowhall, our 1.5million sq ft regional shopping centre at Sheffield. Despite the recent floodingin South Yorkshire, the efforts of our management team and retailers resulted inthe Centre being closed for only six days: 66 of the 274 units are closed forrefitting, but customer appeal is such that visitor numbers in the three weeksto the end of July 2007 were up 4% on the corresponding period in 2006, atribute to Meadowhall's resilience. The refitting works should be substantiallycomplete in September, complementing the opening of the new Next and Primarkstores and resulting in an even better Meadowhall going forward. Development Programme Good progress continues on our development programme, which encompasses some5 million sq ft of committed projects. - At 201 Bishopsgate and The Broadgate Tower, London EC2, construction is well advanced with 201 Bishopsgate scheduled for completion in spring 2008 and The Broadgate Tower in summer 2008. Lettings were concluded in the quarter to Henderson (referred to above) for 124,000 sq ft and also to Mayer Brown Rowe & Maw for 284,500 sq ft (including an option over 61,500 sq ft), which completes the letting of the building. At The Broadgate Tower, 155,000 sq ft (representing 39%) is under offer. - At Ludgate West, London EC4, due to complete at the end of the year, an agreement to lease has been exchanged with solicitors Charles Russell over 88,000 sq ft, representing 69% of the whole. - The developments at Ropemaker, London EC2 (completion due mid 2009), Osnaburgh Street, Regent's Place, London NW1 (due to complete late 2009) and the Leadenhall Building, London EC3 (completion due early 2011) are going to plan; and whilst construction is still at the foundation stages, substantial proportions of the construction contracts in these three projects have been locked-in. - At Puerto Venecia, Zaragoza (our 2.2 million sq ft retail scheme joint venture in Spain) development continues apace with completion due to occur on a phased basis between 2007 and 2010. As previously reported significant lettings have already been achieved with continuing good interest from major retailers. Valuation - further overall uplift The table below shows the principal valuation movements by sector for the 3month period to 30 June 2007, totalling 1.3% uplift for the quarter. The capital return from the portfolio at 1.5%, as measured by IPD (calculatedfor our UK assets on average capital employed and excluding capitalisedinterest) was ahead of the IPD Benchmark at 1.2%. Contributing to this performance was like for like growth in rental value (ERV)for the portfolio at 2.2%, ahead of the market (IPD Benchmark 1.2%), driven byCentral London offices. The net equivalent yield (after notional purchaser'scosts) on the portfolio remained at 4.7%. Valuation Group Funds/JVs(1) Total Portfolio Uplift(2) by Sector £m £m £m % %---------------- ------- --------- ------- -------- -------- RetailRetail warehouses 2,448 1,493 3,941 24.1 0.8Superstores 1,648 630 2,278 13.9 0.9Shopping centres(3) 2,004 318 2,322 14.2 (0.7)Department Stores 798 148 946 5.8 0.1High street 288 - 288 1.8 (0.1)---------------- ------- --------- ------- -------- --------All retail 7,186 2,589 9,775 59.8 0.3 Offices(4)City(5) 4,727 - 4,727 28.9 2.9West End(6) 1,109 - 1,109 6.8 4.6Business parks & 237 3 240 1.5 (0.2)provincial---------------- ------- --------- ------- -------- --------All offices 6,073 3 6,076 37.2 3.1 Industrial, 445 52 497 3.0 0.7distribution, leisure, other---------------- --------- --------- ------- -------- -------- Total(7) 13,704 2,644 16,348 100.0 1.3---------------- --------- --------- ------- -------- -------- (1) Group's share of properties in Funds and Joint Ventures (2) increase in value for three months, includes valuation movement indevelopments, purchases and sales, net of capital expenditure (3) Meadowhall Shopping Centre valuation down 0.3% to £1,644 million (up 0.2% precap-ex); ERV £83 million; net equivalent yield 4.63% (true equivalent yield4.76%) (4) includes Developments in City, West End and provincial: total value £1,163million, 7.1% of Portfolio, 5.1% Uplift for the quarter (5) Broadgate valuation up 1.8% to £3,104 million (4 Broadgate now included inDevelopment); headline ERV range £47 - £57.50 per sq ft (average headline ERVhas risen 2.9% to £50 psf); net initial yield 4.7% (assuming top up of rent freeperiods and guaranteed minimum uplifts to first review) (6) Regent's Place valuation up 4.3% to £679 million; headline ERV range £23.50 -£52.50 per sq ft; net initial yield 4.6% (assuming top up of rent free periodsand guaranteed minimum uplifts to first review) (7) annualised net rents £631 million (excluding developments) (net rental incomeunder IFRS differs from annualised net rents which are cash based, due toaccounting items such as spreading lease incentives and contracted future rentaluplifts, as well as direct property costs); portfolio current yield (gross toBritish Land, without notional purchaser's costs) 4.2%; current yield addingback rent frees 4.5%; reversionary yield (gross, five years) 5.0% The main sector drivers of the valuation increases over the quarter were: •London offices, including developments, comprising 35.7% of the portfolio rose by 3.2%, including 4.0% ERV growth on the investments, reflecting the continuing buoyancy in the occupational market. •Retail warehouse parks, at 24.1% of the portfolio increased by 0.8%, led by performance in the Open A1 parks, with ERV growth of 1.9%. •Superstores, which represent 13.9% of the portfolio rose by 0.9%, driven by rental growth but also further yield compression due to strong investor demand for this sector. •Shopping centres, being 14.2% of the portfolio showed a fall in value of 0.7% due to the small loss on sale at East Kilbride, a contingency at Meadowhall against any uninsurable losses incurred as a result of the flooding and provision for the full refurbishment expenditure at Basildon. Our investment of 17.8% in Songbird Estates PLC, which in turn owns 60.8% ofCanary Wharf Group PLC, providing a 'look through' 10.8% economic interest in7.9 million sq ft of high quality investment properties, has proved anoutstanding success. British Land invested £97 million in Songbird in June 2004.A dividend of £46 million was received in June 2007 bringing the total amount ofcash dividends received from Songbird to £113 million to date. Our remaininginvestment was valued for accounting purposes at 30 June 2007 at £225 million. Financial Results We are pleased to report increased rents, profits and values and, as a result,net asset value for the quarter. Balance Sheet EPRA net assets at 30 June 2007 were £9.1 billion or 1730 pence per share - anincrease of 3% against 31 March 2007. Other than the underlying profit lessdividend paid in the quarter, the increase arises principally through theimprovement in property valuations referred to above together with gains onproperty disposals above valuation. On a triple net asset value basis (after adjusting debt and derivatives tomarket value, and deducting deferred tax) EPRA net assets amount to1801 pence per share. The increase over the quarter in the beneficial adjustmentarising from the mark to market of debt and derivatives reflects our decision tomaintain higher proportions of fixed rate debt at a time when market interestrates have been rising. Total properties owned at 30 June 2007, including share of Funds and JointVentures, were £16.3 billion, £20.4 billion including properties undermanagement. Net debt at the quarter end, including share of Funds and Joint Ventures,amounted to £6.9 billion, giving a loan to value ratio of 41% (43% proforma forpayment of REIT conversion charge). Over the past three years we have taken advantage of an increasingly favourablebank loan market by replacing short-term, higher-margin facilities withlonger-dated, lower-margin ones. On 7 August 2007 we continued that programme bysigning a £620 million seven-year syndicated multi-currency revolving facilityat 42.5 basis points over LIBOR (the lowest margin we have achieved over thelast eight years). At the same time a more expensive £600 million facility(expiring 2010) was cancelled. Following these transactions, of the £3.1 billiontotal bank facilities committed at 30 June 2007, only £225 million is due toexpire within the next three years. Despite rising market rates our weighted average interest rate has fallen from5.36% at 31 March 2007 to 5.30% at 30 June 2007 (Group and share of Funds andJoint Ventures). This has resulted from the repayment, following sales, offloating-rate debt at higher rates of interest, whilst retaining fixed-rate debtat lower rates. Income Statement (data presented on a proportionally consolidated basis - TableA) Gross rental income for the quarter amounted to £180 million, up 2.3% againstthe corresponding period last year. Net rental income of £167 million, togetherwith net valuation gains of £158 million and £46 million in dividends receivedfrom Songbird, contributed to the headline net profit before tax of £267 millionin the quarter. The reduction in value of the Songbird investment caused by thedividend was approximately £30 million, and accordingly this amount has beenrecorded as a capital not an underlying item. Underlying earnings per share were 14 pence, an increase of 27% on thecomparable period in 2006, due partly to the increase in underlying pre-taxprofit but also to the lower tax charge as a result of our REIT status. Thetotal return for the quarter amounted to 3.3%. Cash Flow Statement The cash flow statement shows a net increase in cash and cash equivalents of£189 million, the major contributing factor being proceeds from property sales.We have adopted for the first time the direct method of presentation whichinvestors should find more informative. Dividend The first quarter dividend of 8.75 pence per share, totalling £45 million, ispayable on 16 November 2007 to shareholders on the register at close of businesson 19 October 2007 (see Note 7 to the accounts). This is consistent with theexpected total dividend for the financial year of 35 pence, compared with the2006/7 total dividend of 20.35 pence, and 17 pence for the year 2005/6, the lastfinancial year before British Land became a REIT. British Land contacts: Laura de Vere - Media 020 7467 2920 / 07739 292920Amanda Jones - Investors 020 7467 2946 / 07921 884017 Finsbury: Faeth Birch 020 7251 3801 / 07768 943171Gordon Simpson 020 7251 3801 / 07778 739237 The British Land Company PLC ANNOUNCEMENT OF FINANCIAL RESULTS For the quarter ended 30 June 2007 Consolidated Income Statement for the three month period ended 30 June 2007 Year ended Three months ended Three months ended 31 March 2007 30 June 2007 30 June 2006 Audited Unaudited Unaudited -------------- ------------- -------------- Underlying Capital Note Underlying Capital Total Underlying Capitalpre tax* and other Total pre tax* and other pre tax* and other Total £m £m £m £m £m £m £m £m £m---- ---- --- ----- ----- ----- ----- ----- -----649 649 Gross rental and related income 2 160 160 155 155 ------------------------------------------------------------------------------------------------------------------------561 561 Net rental and related income 2 141 141 136 136 50 33 83 Fees and other income 2 22 30 52 24 24 (15) (15) Amortisation of intangible asset (4) (4) (4) (4) Funds and joint ventures 37 422 459 (see also below) 9 19 28 9 69 78(78) (13) (91) Administrative expenses (20) (20) (21) (21) Net valuation gains 1,167 1,167 (includes profits on disposals) 2 145 145 362 362 (106) (106) Goodwill impairment Net financing costs 41 41 financing income 6 6 31 31(354) (354) financing charges (82) (82) (106) (106) (305) (305) refinancing charges--------------------------- -------------------------- --------------------------(313) (305) (618) (76) (76) (75) (75)--------------------------- -------------------------- -------------------------- Profit on ordinary activities 257 1,183 1,440 before taxation 76 190 266 73 427 500------ ------ ------ Taxation (277) REIT conversion charge 1 current tax (expense) income (1) (5) 1,289 deferred tax income (expense) 10 (80) ------- ------ ------ 1,013 2 9 (85)------------------------------------------------------------------------------------------------------------------------ Profit for the period after taxation attributable to 2,453 shareholders of the Company 275 415------------------------------------------------------------------------------------------------------------------------ 472p Earnings per share: basic 1 53p 80p ------ -------- ------- 470p Earnings per share: diluted 1 53p 80p ------ -------- ------- ------------------------------------------------------------------------------------------------------------------------ Share of results of funds and joint ventures 37 37 Underlying profit before taxation 9 9 9 9 Net valuation gains 257 257 (includes profits on disposals) 13 13 93 93 Realisation of cash flow hedges (on property disposals) 9 9 (5) (5) Goodwill impairment (2) (2) (2) (2) (48) (48) REIT conversion charge (19) (19) Current tax (1) (1) (2) (2) 237 237 Deferred tax (20) (20)------------------------------------------------------------------------------------------------------------------------ 37 422 459 9 19 28 9 69 78------------------------------------------------------------------------------------------------------------------------ *As defined in note 1 Consolidated Balance Sheet as at 30 June 2007 31 March 30 June 30 June 2007 2007 2006 Audited Unaudited Unaudited £m Note £m £m ---- ---- --- ---- Assets Non-current assets 12,891 Investment properties 3 12,810 11,492 1,106 Development properties 3 873 693 50 Owner-occupied property 3 50 ------- -------- ---- -------- 14,047 13,733 12,185 Other non-current assets 1,610 Investments in funds and joint ventures 4 1,621 1,402 267 Other investments 236 247 50 Intangible assets 46 61 ------- -------- ---- -------- 15,974 15,636 13,895 ------- -------- ---- -------- Current assets Trading properties 3 36 208 Debtors 315 111 198 Cash and short-term deposits 5 389 204 ------- -------- ---- -------- 406 704 351 ------- ---- -------------------------- ----- -------- ---- -------- 16,380 Total assets 16,340 14,246 ------- ---- -------------------------- ----- -------- ---- -------- Liabilities Current liabilities (54) Short-term borrowings and overdrafts 5 (65) (124) (746) Creditors (737) (456) ------- -------- ---- -------- (800) (802) (580) ------- -------- ---- -------- Non-current liabilities (6,617) Debentures and loans 5 (6,209) (5,682) (37) Other non-current liabilities (37) (38) (179) Deferred tax liabilities (158) (1,447) ------- -------- ---- -------- (6,833) (6,404) (7,167) ------- -------- ---- -------- (7,633) Total liabilities (7,206) (7,747) ------- ---- -------------------------- ----- -------- ---- -------- 8,747 Net assets 9,134 6,499 ------- ---- -------------------------- ----- -------- ---- -------- Equity 130 Share capital 6 130 130 1,263 Share premium 6 1,265 1,253 532 Other reserves 6 573 243 6,822 Retained earnings 6 7,166 4,873 ------- ---- -------------------------- ----- -------- ---- -------- 8,747 Total equity attributable to shareholders of 9,134 6,499 ------- ---- the Company -------- ---- -------- ----------------------------- 1682 p EPRA NAV per share* 1 1730 p 1592 p ------- -------- -------- * As defined in note 1 Consolidated Statement of Recognised Income and Expensefor the three month period ended 30 June 2007 Year ended Three months ended Three months ended 31 March 30 June 30 June 2007 2007 2007 Audited Unaudited Unaudited £m Note £m £m ------ ------- ------- 2,453 Profit for the period after taxation 275 415 -------- ------------------------------- Valuation movements on 184 - development properties 2 60 48 22 - other investments 2 (30) -------- ------------------------------- 206 30 48 Gains on cash flow hedges 93 - Group 103 34 21 - Funds and joint ventures 12 6 8 Actuarial gain on pension scheme 3 Fair value adjustment on consolidation (7) of former joint venture 16 Taxation on items taken directly to equity 11 (33)--------- -------------------------------- 337 Net gain recognised directly in equity 156 58 Transferred to the income statement (cash flow hedges) 21 - foreign currency derivatives 1 10 (1) - interest rate derivatives (4) 2--------- --------------------------------- 20 (3) 12------------------------------------------------------------------------------------------------------------------------ 2,810 Total recognised income and expense for the period 428 485------------------------------------------------------------------------------------------------------------------------ Reconciliation of Movements in Shareholders' Funds Year ended Three months ended Three months ended 31 March 30 June 30 June 2007 2007 2007 Audited Unaudited Unaudited £m £m £m -------- ----------- ---------- Capital items 10 - Shares issued 2 (16) - Purchase of ESOP shares (12) (4) 18 - Adjustment for share and share option awards 3 2 (91) - Dividends paid in the period (34)---------- -------------- ------------ (79) (41) (2)2,810 Total recognised income and expense for the period 428 485-------- ------------- ------------ 2,731 Movement in shareholders' funds for the period 387 483 6,016 Opening equity shareholders' funds 8,747 6,016------------------------------------------------------------------------------------------------------8,747 Closing equity shareholders' funds 9,134 6,499------------------------------------------------------------------------------------------------------ Consolidated Cash Flow Statementfor the three month period ended 30 June 2007 Three months Three months Year ended ended ended 31 March 30 June 30 June 2007 2007 2006 Audited * Unaudited Unaudited £m £m £m ---- --- ---- ---- 568 Rental income received from tenants 131 134 36 Fees and other income received 21 20 (110) Operating expenses paid to suppliers and employees (30) (21) -------- --------- --- --------- 494 Cash generated from operations 122 133 -------- --------- --- --------- (334) Interest paid (93) (58) 11 Interest received 4 4 UK corporation tax (paid) received (2) 9 (2) Foreign tax paid 32 Distributions received: funds and joint ventures 32 16 18 Songbird Estates 16 18 -------- --------- --- --------- 219 Net cash inflow from operating activities 79 122 -------- --------- --- --------- Cash flows from investing activities (309) Purchase of investment properties (98) (37) (346) Development expenditure (110) (86) 711 Sale of investment properties 742 46 (8) Purchase of investments 10 Sale of investments 2 (15) Indirect taxes in respect of investing activities (20) (6) (203) Investment in and loans to funds and joint ventures (35) (98) 80 Capital distributions received: funds and joint ventures 40 5 33 Songbird Estates 30 6 Sale of shares and loans repaid by funds and joint ventures (13) Purchase of subsidiary companies (net of cash acquired) -------- --------- --- --------- (54) Net cash inflow (outflow) from investing activities 551 (176) -------- --------- --- --------- Cash flows from financing activities 10 Issue of ordinary shares 2 (16) Purchase of ESOP shares (12) (4) (91) Dividends paid (34) 840 Issue of Meadowhall Finance PLC securitised debt (897) Redemption of MSC (Funding) PLC securitised debt 263 Issue of British Land debentures (240) Amounts paid on exchange of British Land debentures (20) Redemption of British Land debentures (305) Repayment of debt acquired with subsidiary companies 354 (Decrease) increase in bank and other borrowings (397) 130 -------- --------- --- --------- (102) Net cash (outflow) inflow from financing activities (441) 126 -------- --------- --- --------- 63 Net increase in cash and cash equivalents 189 72 128 Opening cash and cash equivalents 191 128 -------- --- --------------------------- --- --------- --- --------- 191 Closing cash and cash equivalents 380 200 -------- --- --------------------------- --- --------- --- --------- Cash and cash equivalents consists of: 198 Cash and short-term deposits 389 204 (7) Overdrafts (9) (4) -------- --- ---------------- ------------- --- --------- --- --------- 191 380 200 -------- --- ---------------- ------------- --- --------- --- --------- * Re-presented under the direct method (note 9). Notes to the accounts (unaudited) 1. Performance measures Year ended Three months ended Three months ended Three months ended 30 June 2007 30 June 2006 31 March 2007 -------------------------------- ------------------------ --------------------------Earnings Pence per Earnings per share (diluted) Earnings Pence per Earnings Pence per share £m share £m share £m----------- ----------- ----------- 257 Underlying pre tax profit - income statement 76 73 (31) Tax charge relating to underlying profit (3) (14)------------------------------------------------------------------------------------------------------------------------ 226 43p Underlying earnings per share 73 14p 59 11p------------------------------------------------------------------------------------------------------------------------ Refinancing charges and realisation of cash (305) flow hedges 9 Gains on trading property appropriations and 71 disposals 3 (13) Tax and other items 1 1------------------------------------------------------------------------------------------------------------------------ (21) (4)p EPRA earnings per share 83 16p 63 12p------------------------------------------------------------------------------------------------------------------------ 2,453 470p Profit for the period after taxation 275 53p 415 80p------------------------------------------------------------------------------------------------------------------------ The European Public Real Estate Association (EPRA) issued Best Practices Policy Recommendations in November 2006, which gives guidelines for performance measures. The EPRA earnings measure excludes investment property revaluations and gainson disposals, intangible asset movements and their related taxation and the REIT conversion charge. Underlying earnings consists of the EPRA earnings measure, with additional company adjustments. Adjustments include reversal of refinancing charges and realisation of cash flow hedges, gains on trading property appropriations anddisposals and their related taxation, costs relating to REIT conversion and prior year tax items. The weighted average number of shares in issue for the period was: basic: 521m (June 2006: 519m; March 2007: 520m); diluted for the effect of share options: 523m (June 2006: 522m; March 2007: 522m). Basic earnings per share (undiluted) for the period were 53p (June 2006: 80p; March 2007: 472p). 31 March 2007 Net asset value (NAV) 30 June 2007 30 June 2006 £m £m £m------------ ---------------- ------------ 8,747 Balance sheet net assets 9,134 6,499 Deferred tax arising on revaluation 168 movements, capital allowances and derivatives 149 1,765 Mark to market on effective cash flow hedges (99) and related debt adjustments (214) (22) Surplus arising on trading and finance lease properties 77 46 Dilution effect of share options 50 53----------------------------------------------------------------------------------------------------- 8,862 EPRA NAV 9,119 8,372----------------------------------------------------------------------------------------------------- 1682p EPRA NAV per share 1730p 1592p----------------------------------------------------------------------------------------------------- The EPRA NAV per share excludes the mark to market on effective cash flow hedges and related debt adjustments, deferred taxation on revaluations and is calculated on a fully diluted basis. At 30 June 2007, the number of shares in issue was: basic: 522m (30 June 2006: 519m; 31 March 2007: 521m); diluted for the effect of share options: 527m (30 June 2006: 526m; 31 March 2007: 527m). Total return per share of 3.3% represents growth per share in EPRA NAV of 48p plus dividends paid of 7p (see note 7) in the three months to 30 June 2007.Total return per share (before charges for REIT conversion and refinancings) for the year ended 31 March 2007 was 21.3%. 2. Income statement notes Three months Three months Year ended ended ended 31 March 30 June 30 June 2007 2007 2006 £m £m £m ---- ---- ---- Gross and net rental income --- --- --- 551 Rent receivable 141 129 37 Spreading of tenant incentives and guaranteed rent increases 10 11 9 Surrender premiums 2 5 -------- --------- -------- 597 Gross rental income 153 145 52 Service charge income 7 10 -------- --------- -------- 649 Gross rental and related income 160 155 (52) Service charge expenses (7) (11) (36) Property operating expenses (12) (8) -------- --- -------------------------------- --------- -------- 561 Net rental and related income 141 136 -------- --- -------------------------------- --------- -------- Fees and other income --- --- --- 30 Performance and management fees (from funds and joint ventures) 4 4 18 Dividend received from Songbird Estates 16 18 2 Other fees and commission 2 2 -------- --------- -------- 50 Underlying 22 24 33 Capital dividend received from Songbird Estates 30 -------- --- ----------- ----------------------- --------- -------- 83 52 24 -------- --- ----------- ----------------------- --------- -------- Net revaluation gains on property and investments Income statement --- --- 1,053 Revaluation of properties 129 362 115 Gains on property disposals 16 (1) Other revaluations and gains -------- --------- -------- 1,167 145 362 257 Share of gains of funds and joint ventures (note 4) 13 93 -------- --------- -------- 1,424 158 455 Consolidated statement of recognised income and expense 184 Revaluation of development properties 60 48 22 Revaluation of investments (30) -------- --- ----------- ----------------------- --------- -------- 1,630 188 503 -------- --- ----------- ----------------------- --------- -------- Tax (income) expense (8) Current tax: UK corporation tax (30%) 2 4 3 Foreign tax 1 -------- --------- -------- (5) 2 5 4 Adjustments in respect of prior periods (1) -------- --------- -------- (1) Total current tax expense (income) 1 5 277 REIT conversion charge (1,289) Deferred tax on income and revaluations (10) 80 -------- --------- -------- (1,013) Group total taxation (net) (9) 85 (170) Attributable to funds and joint ventures 1 22 -------- --- ----------- ----------------------- --------- -------- (1,183) Total taxation (8) 107 -------- --- ----------- ----------------------- --------- -------- Tax attributable to underlying profits for the three months ended 30 June 2007 was £3m (June 2006: £14m,March 2007 £31m). 3. Property Properties were valued on the basis of open market value, supported by market evidence, in accordance withthe Appraisal and Valuation Manual published by The Royal Institution of Chartered Surveyors. 31 March 30 June 30 June 2007 2007 2006 £m £m £m ---- --- ---- ---- 12,891 Investment properties 12,810 11,492 1,106 Development properties 873 693 50 Owner-occupied property 50 Trading properties at cost 36 -------- --------- -------- 14,047 Carrying value of properties on balance sheet 13,733 12,221 External valuation surplus on trading properties 69 (30) Head lease liabilities (29) (26) -------- ---- ---------------------------- ---- --------- -------- 14,017 Total British Land Group property portfolio valuation 13,704 12,264 -------- ---- ---------------------------- ---- --------- -------- At 30 June 2007 Group properties valued at £8,893m were subject to a security interest (30 June 2006£7,981m, 31 March 2007 £9,194m) and other properties of non-recourse companies amounted to £33m (30 June2006 £185m, 31 March 2007 £128m). 4. Funds and joint ventures Summary of British Land's share of investments in funds and joint ventures at 30 June 2007 Underlying profit (three Net Gross Gross months) Investment assets liabilities £m £m £m £m ---- ---- --- ---- ----Share of funds 4 839 1,292 (453)Share of jointventures 5 782 1,706 (924)----------------------- -------- -------- ---- --------- --------Total share ofinvestments 9 1,621 2,998 (1,377)----------------------- -------- -------- ---- --------- -------- The total investment in joint ventures is £790m, which also incorporates £8m being City of London OfficeUnit Trust (CLOUT) and its associated ventures, which is included within share of funds. British Land's share of the results of funds and joint ventures Three months Three months Year ended ended ended 31 March 30 June 30 June 2007 2007 2006 £m £m £m ---- --- --- ---- ---- 109 Gross rental income 27 31 -------- ---- ---------------- -------- -------- ---- --------- -------- 100 Net rental income 26 28 (6) Other income and expenditure (2) (2) (57) Net financing costs (15) (17) -------- --------- -------- 37 Underlying profit before taxation 9 9 257 Net valuation gains (includes profits on disposals) 13 93 Realisation of cash flow hedges (on property disposals) 9 (5) Goodwill impairment (2) (2) -------- --------- -------- 289 Profit on ordinary activities before taxation 29 100 (48) REIT conversion charge (19) Current tax (1) (2) 237 Deferred tax (20) -------- ---- ---------------------------- ---- --------- -------- 459 Profit on ordinary activities after taxation 28 78 -------- ---- ---------------------------- ---- --------- -------- 5. Net Debt 31 March 30 June 30 June 2007 2007 2006 £m £m £m ---- --- ---- ---- 3,632 Securitisations 3,625 3,663 1,175 Debentures 1,175 784 1,425 Bank loans and overdrafts 1,038 1,183 439 Other bonds and loan notes 436 176 -------- -------- -------- 6,671 Gross debt 6,274 5,806 -------- -------- -------- 19 Interest rate and currency derivative liabilities 19 39 (88) Interest rate and currency derivative assets (189) (36) -------- -------- -------- 6,602 6,104 5,809 (198) Cash and short-term deposits (389) (204) -------- --- ------------ -------- -------- -------- -------- -------- 6,404 Net debt 5,715 5,605 -------- --- ------------ -------- -------- -------- -------- -------- Gross debt includes £65m due within one year at 30 June 2007 (30 June 2006: £124m; 31 March2007: £54m). Cash and short term deposits not subject to a security interest at 30 June 2007 amount to £33m(30 June 2006: £39m; 31 March 2007 £27m). Undrawn committed bank facilities amounted to £2.1billion (30 June 2006: £1.7 billion; 31 March 2007 £1.7 billion). 6. Reserves Share Share Other Retained capital premium reserves earnings Total £m £m £m £m £m At 1 April 2006 130 1,253 176 4,457 6,016 Totalrecognisedincome andexpense 67 418 485Purchase ofESOP shares (4) (4)Adjustment forshare andshare optionawards 2 2------------------- -------- -------- -------- -------- --------At 30 June 2006 130 1,253 243 4,873 6,499 Totalrecognisedincome andexpense 289 2,036 2,325Share issues 10 10Purchase ofESOP shares (12) (12)Adjustment forshare andshare optionawards 16 16Dividends paidin the period (91) (91)------------------- -------- -------- -------- -------- --------Movement inyear to 31March 2007 10 356 2,365 2,731------------------- -------- -------- -------- -------- --------At 31 March2007 130 1,263 532 6,822 8,747 Totalrecognisedincome andexpense 41 387 428Share issues 2 2Purchase ofESOP shares (12) (12)Adjustment forshare andshare optionawards 3 3Dividends paidin the period (34) (34)------------------- -------- -------- -------- -------- --------At 30 June 2007 130 1,265 573 7,166 9,134------------------- -------- -------- -------- -------- -------- 7. Dividends The proposed first 2008 interim dividend of 8.75 pence per share, totalling £45m, was approved by the Board on 15August 2007 and is payable on 16 November 2007 to shareholders on the register at the close of business on 19 October2007. The dividend will consist of two components: a property income distribution (PID) as required by REITlegislation of 4.25 pence per share and a non PID of 4.50 pence per share. The PID element of the dividend may varyover time and is paid after deduction of withholding tax at the basic rate (22% for 2007/2008). However, certainclasses of shareholder may be able to claim exemption from deduction of withholding tax. Please refer to our website(www.britishland.com) for details. The non-PID element will be treated as a normal dividend. The 2007 final dividend of 8.25 pence per share, totalling £43m, is payable on 17 August 2007. The reconciliation of movements in shareholders' funds shows total dividends paid in the period of £34m (6.5 pence pershare) being the second 2007 interim dividend paid on 18 May 2007. The Company offers shareholders the option to reinvest their cash dividends automatically in the Company's sharesthrough the Dividend Reinvestment Plan (DRIP). Further details of the DRIP can be found on the Company's website(www.britishland.com) or by calling Lloyds TSB Registrars' DRIP helpline on 0870 241 3018. 8. Segment information Primary and secondary segmentsSince the UK is the predominant location of the Group's property portfolio, these financial statements and relatednotes represent the results and financial position of the Group's primary business segment. The secondary reportingformat by property use is shown below: Offices Retail Other TotalThree monthsended 30 June 2007 2006 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m £m £m------------------ --- ------ ------ --- ------ ------ --- ------ ------ --- ------- -------Net rentalincome: Grouponly 56 59 78 72 7 5 141 136Segment assets 6,089 5,488 8,796 7,726 1,455 1,032 16,340 14,246Capitalexpenditure 243 69 35 48 - 17 278 134------------------ --- ------ ------ --- ------ ------ --- ------ ------ --- ------- ------- Segment assets include the Group's investment in funds and joint ventures. 9. Basis of preparation The financial information for the year ended 31 March 2007 does not constitute statutory accounts as defined insection 240 of the Companies Act 1985. A copy of the statutory accounts for that year has been delivered to theRegistrar of Companies. The auditors' report on those accounts was not qualified and did not contain statements undersection 237(2) or (3) of the Companies Act 1985. The financial information included in this announcement has been prepared using accounting policies consistent withInternational Financial Reporting Standards (IFRS). The same accounting policies, presentation and methods ofcomputation are followed in the quarterly report as applied in the Group's latest annual audited financial statements,with the exception of the cash flow statement which is now presented under the direct method. This is regarded by theIASB as the preferred method of presenting cash flows and has been adopted for improved transparency. The prior yearaudited figures have been re-presented on a consistent basis. The current period financial information presented inthis document is unaudited. The quarterly financial information was approved by the Board on 15 August 2007. Table A--------- --- Summary income statement based on proportional consolidationfor the three month period ended 30 June 2007 The following pro forma information is unaudited and does not form part of the consolidated primarystatements or the notes thereto. It presents the results of the Group, with its share of the results offunds and joint ventures included on a line by line, i.e. proportional basis. The underlying profit beforetaxation and total profit after taxation are the same as presented in the consolidated income statement. Year Three months Three months ended ended ended 31 March 30 June 30 June 2007 2007 2006 £m £m £m ---- --- --- ---- --- ---- 706 Gross rental income 180 176 --------- ---------- --- ---------- 661 Net rental income 167 164 51 Fees and other income 22 24 (85) Administrative expenses (22) (23) (370) Net interest costs (91) (92) --------- ---------- --- ---------- 257 Underlying profit before taxation 76 73 (305) Debt refinancing items 9 1,424 Net valuation gains (includes profits on disposals) 158 455 (15) Amortisation of intangible asset (4) (4) 33 Songbird Estates dividend (capital) 30 (111) Goodwill impairment (2) (2) (13) REIT conversion costs --------- ---------- --- ---------- 1,270 Profit on ordinary activities before taxation 267 522 (31) Tax charge relating to underlying profit (3) (14) (325) REIT conversion charge 1,673 Deferred tax benefit (134) Other taxation 11 (93) --------- --- ----------------------------- --- ---------- --- ---------- 2,453 Profit for the period after taxation 275 415 --------- --- ----------------------------- --- ---------- --- ---------- 43p Underlying earnings per share - diluted basis 14p 11p --------- --- ----------------------------- --- ---------- --- ---------- The underlying earnings per share is calculated on underlying profit before taxation of £76m, taxattributable to underlying profits of £3m and 523m shares on a diluted basis, for the three months ended30 June 2007. Table A (continued)--------------------- Summary balance sheet based on proportional consolidationas at 30 June 2007 The following pro forma information is unaudited and does not form part of the consolidatedprimary statements or the notes thereto. It presents the composition of the EPRA net assets ofthe Group, with its share of the net assets of funds and joint ventures included on a line byline, i.e. proportional basis and assuming full dilution. 31 March 30 June 30 June 2007 2007 2006 £m £m £m ---- ---- --- ---- 10,173 Retail properties 9,775 9,174 6,165 Office properties 6,076 5,515 565 Other properties 497 462 ------- ---------- ---- ---------- 16,903 Total properties 16,348 15,151 267 Other investments 237 248 50 Intangible assets 46 61 (617) Other net liabilities (648) (299) (7,741) Net debt (6,864) (6,789) ------- ---- -------------------------- --- ---------- ---- ---------- 8,862 EPRA NAV (note 1) 9,119 8,372 ------- ---- -------------------------- --- ---------- ---- ---------- 1682 p EPRA NAV per share 1730 p 1592 p ------- ---- -------------------------- --- ---------- ---- ---------- Total property valuations including share of funds and joint ventures --- --- 14,017 British Land Group 13,704 12,264 Share of funds and joint ventures 2,815 Investment properties 2,566 2,798 77 Development properties 84 78 Trading and finance lease properties at valuation 19 (6) Head lease liabilities (6) (8) ------- ---------- ---- ---------- 2,886 2,644 2,887 ------- ---- -------------------------- --- ---------- ---- ---------- 16,903 Total property portfolio valuation 16,348 15,151 ------- ---- -------------------------- --- ---------- ---- ---------- Calculation of EPRA NNNAV per share 8,862 EPRA NAV 9,119 8,372 (168) Deferred tax arising on revaluation movements (149) (1,670) 99 Mark to market on interest rate swaps 214 22 75 Mark to market on debt 305 (313) Tax relief arising thereon 88 ------- ---- -------------------------- --- ---------- ---- ---------- 8,868 EPRA NNNAV 9,489 6,499 ------- ---- -------------------------- --- ---------- ---- ---------- 1683 p EPRA NNNAV per share 1801 p 1236 p ------- ---- -------------------------- --- ---------- ---- ---------- EPRA NNNAV is the EPRA NAV adjusted to reflect the fair value of the debt and derivatives and toinclude the deferred taxation on revaluations. INDEPENDENT REVIEW REPORT TO THE BRITISH LAND COMPANY PLC Introduction We have been instructed by the Company to review the financial information forthe three months ended 30 June 2007 which comprises the consolidated incomestatement, the consolidated balance sheet, the consolidated statement ofrecognised income and expense, the reconciliation of movement in shareholders'funds, the consolidated cash flow statement and related notes 1 to 9. We haveread the other information contained in the quarterly report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report is made solely to the Company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the Company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The quarterly report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the quarterly report in accordance with theListing Rules of the Financial Services Authority which require that theaccounting policies and presentation applied to the quarterly figures areconsistent with those applied in preparing the preceding annual accounts exceptwhere any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the three monthsended 30 June 2007. Deloitte & Touche LLPChartered AccountantsLondon15 August 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
British Land