Q2 & Half Year Results

15th Nov 2007 07:02

British Land Co PLC15 November 2007 15 November 2007 THE BRITISH LAND COMPANY PLC INTERIM REPORT FOR THE SIX MONTHS TO 30 SEPTEMBER 2007 Financial Highlights: • Net Asset Value(1) per share unchanged at 1682 pence (Q2 down 3%) - EPRA Net Assets(1) £8.7 billion - IFRS Net Assets £8.6 billion - Properties owned or managed £20 billion • "Triple Net Asset Value" per share 1745 pence, up 4% (Q2 down 3%) - Adjusts debt and derivatives to market value, and deducts deferred tax • Underlying pre-tax profit(2) £143 million, up 10% (Q2 £67 million up 18%) - IFRS loss on ordinary activities before tax £35 million • Underlying earnings per share(2) 26 pence, up 30% (Q2 12 pence up 33%) - IFRS earnings per share nil - Dividend 8.75 pence per share for the quarter to September 2007 (payable February 2008) making 17.5 pence for the six months, more than treble that of last year (and consistent with 35 pence full year target) - £250 million share buyback programme announced and underway, £125 million completed up to 30 September • Exceptional balance sheet resilience - Portfolio 99% let(3) with 14.4 years average lease length - Debt 100% fixed rate at 5.3% average cost and average maturity of 12.7 years • Portfolio valuation decrease of 0.5% for the six months (Q2 1.9% decrease) - Capital return(4) -0.5%, ahead of IPD Benchmark at -0.9%, due to outperformance on rental value growth (ERV) - Like for like rental value growth of 4.2% versus IPD 2.4% - Outward yield shift of 21bps overall (Offices 25bps, Retail 20bps) - Valuations decreased principally within the Retail portfolio, down 2.9%; Offices (including developments) show 3.6% increase with ERV growth offsetting outward yield shift Activist strategy progressing well: - £1.9 billion (gross) disposals since March 2007, overall 3% above valuation - Good occupancy demand, driving rents forward in both Office and Retail sectors - Development programme on schedule - Over 710,000 sq ft Office lettings and 740,000 sq ft Retail lettings since March 2007, including development pre-lets, capturing occupier demand and lowering risk (1) EPRA (European Public Real Estate Association) basis - Note 1 to the accounts(2) see Note 1(3) includes accommodation subject to asset management initiatives and under offer(4) calculated by IPD for our UK assets on average capital employed and excluding capitalised interest Chris Gibson-Smith, Chairman comments: The interim results are ahead on underlying profit and rents and unchanged fromthe start of our financial year at the Net Asset Value per share level. Theproperty market correction, currently ongoing, has led to valuation mark-downsin Q2 offsetting progress in Q1. British Land is not immune from the widermarket but we are facing those difficult conditions from an advantaged position.Our strategy is settled and clear, our buildings appeal to customers and ourbalance sheet is robust. Stephen Hester, Chief Executive Officer comments: We entered the property market correction with significant positives - a strongbalance sheet, 100% fixed interest rates, and among the highest occupancy ratesand lease lengths in our industry. Customer focus and our activist strategy arehelping us outperform at the rental level and we firmly believe that aninvestment in British Land offers clear value. However, more than one quarter islikely to be needed to complete the market correction which may well be unevenin timing and across participants. 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 943171Ed Simpkins 020 7251 3801 / 07947 740551 REVIEW BY THE CHIEF EXECUTIVE, STEPHEN HESTER In the first half of our financial year we are pleased to report good progressfrom the customer side of our business. As a result we have delivered rentalrises ahead of the market and higher underlying profits. However in terms of NetAsset Value (NAV) per share it seems that we have been running hard to standstill. The combination of interest rate rises and more recent debt marketturmoil left real estate pricing vulnerable to the correction now underway.While we could not predict the debt market problems, we consistently highlightedthe changing interest rate/yield relationship and tried to position our strategyin that light. The NAV picture masks considerable strengths and accomplishments. During the sixmonths we harvested some of the fruits of the activist and customer focusedstrategy adopted in recent years. The appeal of our buildings, new and old,captured notable new lettings with rental growth again outstripping the marketoverall. Developments remain a source of distinctive value and we were pleasedto profitably complete and let buildings, giving reality to our carefullymanaged risk profile and allowing the commencement of new projects for futureyears. Our portfolio reshaping saw a further £1.9 billion of disposals, making £6.1billion gross since 2005. We believe this has added value through weeding outour most likely under-performers, by asset and by sector, whilst reducinggearing in the face of a vulnerable market. British Land's strategy is clear - we set it out two years ago and have beenexecuting against those goals. We anticipated the end of the bull market and theconsequent need for added-value from active portfolio recycling and assetmanagement and development - all in the context of a disciplined risk managementculture. We reaped gains from property price inflation with acquisitions takinggearing to its highest ever level in 2005 (59% Loan to Value - LTV) and broughtit down again to the lowest level since 1995 in June this year before theproperty market had turned. Our entire balance sheet was refinanced to give us100% fixed interest rates, the lowest cost of debt (5.3%) in our sector andaverage maturities of 12.7 years - with some £2 billion of additional undrawncommitted financing should opportunities present themselves. Gearing countsagainst us when asset values fall but, over a cycle, remains an importantpositive for our business. Our 99% occupancy rate and 14.4 year lease lengths also give strong defensiveattributes but just as important underpin our growth prospects by confirmingthat our properties are in demand. Rental growth at British Land has outstrippedthe market since March 2006. In sectoral terms, we have used our active management mandate to substantiallywithdraw from weaker customer markets in industrial, provincial offices andin-town retail whilst expanding in Europe and indexed leases. Even in the strongmarkets of London Offices and Out of town Open A1 Retail, we top-sliced holdingsin key assets, in particular cutting our office exposure to make room forprofitable development delivery without further increasing exposure to sectorcyclicality. Markets As is often the case, real estate's customer markets do not align perfectly withinvestment market pricing. By and large those sectors and sub-sectors wherecustomers are enjoying business success continue to show strong occupancy andconsequent rental growth. London Offices and Out of town Retail, British Land'skey picks, showed annualised ERV growth rates of 18.2% and 3.3% respectively inthe first half. If anything, Retail customer demand is better than commonly presumed, at leastfor scarce out of town space where sales densities are rising. The picture inLondon Offices has been even stronger given its cyclical boost. It is prematureto know how much the debt market turmoil of recent weeks will dent this picture.We believe the market outcome may have parallels to 1998 when customer demandrecovered within the next 12 months - but inevitably there will be uncertainty for a period. While the City/Canary Wharf are in theory most directly impacted, if at all, rents are much cheaper and the market rather deeper than large parts of the core West End market where we have little presence. Clearly the greatest discussion point is what is currently occurring ininvestment markets. These are suffering a price correction brought on by thecombination of interest rate rises until July followed by increases in the riskpremia demanded by investors following the debt market turmoil which started inAugust. Because property's asset backed cash flow growth can be projected overmany years, relatively small rises in required return brought about by priceadjustments in other investment classes can have a significant negative priceeffect. We believe that the likely scale of price correction is limited by real estate'sdefensive cash flows and risk adjusted prospective returns - but inevitably itremains hard to predict as other markets move and investor sentiment isvolatile. Given the limited current transaction data available to valuers, therecould well be uneven price changes and yield movements across different valuersand companies for comparable assets into which little can be read until clearerhard evidence is available. Hence the price correction seems likely to take morethan one quarter to be accomplished. To put current events in context, remember, British Land's NAV per share hasrisen 59% in the last three years, outperforming its peers, even after thisquarter's results - and underlying pre-tax profit has doubled over the sameperiod. We perceive value in our shares and have already completed half of the£250 million share buyback announced in July with that in mind. Activity during the six months Portfolio reshaping Total purchases and sales in the first six months reached some £2.3 billiongross. We seek to add value through this activity in two ways: to improve futureperformance by selling low growth or riskier assets and sectors (and viceversa); and to manage financial gearing in the light of perceived market risk. In London Offices the strong investment market earlier this year enabled us toachieve high sale prices for assets where we saw (risk adjusted) growthprospects as lower than those expected from reinvesting the proceeds into ouroffice development programme. The sale of One Exchange Square, a landmarkbuilding on the Broadgate Estate, for £406 million is in line with thisstrategy. Blythe Valley Park, Solihull, was sold in September for a total consideration ofup to £161 million. The extensive site was developed by British Land (withSolihull Metropolitan Borough council) to provide c.500,000 sq ft of officeaccommodation, and outline planning consent was achieved for a major extensionto the park of up to 2 million sq ft of offices. This sale concentrates thefocus on our core office investments in London. In the Retail sector, the portfolio has been pruned further by: - enhancing our retail warehouse park profile through sales of assets with slower rental growth prospects- the sale of the East Kilbride Shopping Centre, owned in partnership with Land Securities- sales of more high street shops, reducing our in town investments. Disposal of a number of industrial properties reflects our continuing strategyof focusing on higher growth sectors. A disappointment was the withdrawal from partial sale of Meadowhall, our 1.5million sq ft regional shopping centre at Sheffield, in September; a victim ofadverse investment market conditions. The asset is a resilient one with goodcustomer appeal and disposals elsewhere preclude any need to sell below fairvalue. Sales Price, £m BL Share, Gain, %(1) £m 6 months to September 2007 Retail: East Kilbride Shopping Centre(2) 387 193 (2.8) 50% share of Fort Kinnaird Shopping 240 87 Park(3) 8 retail warehouse properties 228 202 5.5 50% share of New Mersey Shopping 209 76 5.3 Park(4) 10 High Street shops 115 115 4.1 Offices: One Exchange Square, Broadgate 406 406 5.6 Blythe Valley Park, Phases I & II(5) 161 161 4.0 Other: 7 industrial properties 86 86 2.7 Cardigan Fields, Leeds 40 40 (1.6) 8 other properties 6 6 - 1,878 1,372 3.2 Since 30 September 2007 2 retail warehouses(6) 24 6 1.3 Debenhams, Luton 11 11 (4.6) 35 17 (2.4) 1,913 1,389 3.1 (1) sale price versus latest year end valuation (March 2007)(2) Scottish Retail Property Limited Partnership - JV with Land Securities(3) Gibraltar Limited Partnership - JV between Hercules Unit Trust (HUT) and The Crown Estate(4) Speke Unit Trust - JV between HUT and Bank of Ireland Private Banking Limited(5) including conditional deferred elements of the sale consideration (gain calculated on estimated present value)(6) Hercules Income Fund (HIF) Purchases Price, £m BL Share, £m 6 months to September 2007 Nueva Condomina, Murcia, Spain(1) 237 118 50% share of Gallagher and The Shires retail 100 36 parks(2) 50% share of Whiteley Village factory outlet 55 28 centre(3) Others 34 18 426 200 (1) jointly with PREF: completed July 2007, following conditional exchange in March 2007 (as per year end report)(2) Gibraltar Limited Partnership - JV between HUT and The Crown Estate(3) JV with Universities Superannuation Scheme The purchase of Spain's prime regional shopping centre and retail park in Murcia, Nueva Condomina, for €350 million, was completed jointly with Pillar Retail Europark Fund (PREF), where British Land acts as property adviser and has an effective interest of 40%, confirming British Land/PREF's position as thelargest owner of out of town retail parks in Europe. Two new joint ventures involving the Hercules Unit Trust (where British Landacts as property adviser and has an interest of 36.3%) have been established.The first with the Crown Estate incorporates three properties - HUT's FortKinnaird Shopping Park in Edinburgh, and the Crown Estate's Gallagher RetailPark in Cheltenham and the Shires Retail Park in Leamington Spa. The second isbetween HUT and Bank of Ireland Private Banking, into which HUT sold New MerseyShopping Park in Liverpool. These transactions provide the opportunity forrecycling capital and leveraging our management added-value, while retainingexposure to premier out of town locations. A further new joint venture, with the Universities Superannuation Scheme (USS),involved the acquisition of a factory outlet centre in Whiteley Village, nearFareham in Hampshire, which shows good potential for asset management anddevelopment. St Stephen's Shopping Centre, Hull, opened for trading in September. Thedevelopment was forward purchased by British Land in July 2005 at £135 million(with completion of the acquisition later this year). The Centre, anchored by a146,000 sq ft Tesco Extra, includes a wide covered 'street' with a further420,000 sq ft of retail and leisure accommodation. Completed and under offerlettings (in total 83%) include the major fashion retailers and discussions aretaking place for the remaining space. In addition to these purchases we have incurred £180 million of expenditure ondevelopment projects in the six months. Development programme Committed Cost £m(2)developments PC(1) Sq ft Total To complete Value Sept 07 Notional Rent Let/ Sales '000 £m Interest pa Pre-let £m(5) £m(3) £m(4) £m(4) ----------- ------ ------ ----- ------ ------ ------ ----- ----- -----LondonOffices:Ludgate West Q4 2007 127 50 9 98 - 6.3 4.3 -201 Q1 2008 420 128 51 235 5 20.3 15.2(8) -BishopsgateBroadgate Q3 2008 400 190 73 276 7 22.0 8.3(9) -TowerRopemaker Q2 2009 593 229 189 209 25 32.0 - -PlaceOsnaburghStreet(6) Q3 2009 490 258 225 101 18 21.5 - 52TheLeadenhall Q1 2011 612 407 357 138 36 38.2 - -Building ------------ ------ ------ ----- ------ ------ ------ ----- ----- -----Total 2,642 1,262 904 1,057 91 140.3 27.8 52OfficesRetail ParksPuertoVenecia,Zaragoza(7) Q4 2007/ 2,159 109 99 87 8 9.6 1.1 22 Q4 2010Giltbrook,Nottingham Q2 2008 199 46 35 20 4 3.8 - 1---------- ------ ------ ----- ------ ------ ------ ----- ----- ----- Total 5,000 1,417 1,038 1,164 103 153.7 28.9 75========== ====== ====== ===== ====== ====== ====== ===== ===== ===== (1) estimated practical completion of construction(2) estimated construction cost(3) from 1 October 2007 to PC(4) current estimated headline rent (excludes provision for tenants' incentives)(5) parts of development expected to be sold, no rent allocated - see also footnote 6 below(6) Regent's Place, development includes 110,000 sq ft residential, expected to be sold(7) joint venture (Eurofund Investments Zaragoza) - BL share 50%(8) excludes further 74,000 sq ft under tenants' options (Henderson and Mayer Brown). Mayer Brown also have the option (until December 2007) to assign to British Land their lease of 55,000 sq ft of existing City offices, in which event there will be a compensating reduction in the rent free period on their new accommodation at 201 Bishopsgate(9) excludes further 26,000 sq ft under tenants' options Data for Group and its share of Funds and Joint Ventures (except areas shown at 100%) The Basinghall Street City office development pre-sold by City of London OfficeUnit Trust (British Land share 35.9%) completed as scheduled in Q2 2007. 2.6 million sq ft London Office developments Our London Office development programme represents an added-value way for us tomeet customer needs, producing high quality buildings of architectural merit inthe right locations, offering flexible, efficient floor plates and an attractiveworking environment. Strong progress has been made in the first six months of this year, withconstruction of all projects progressing broadly on schedule. Lettings of537,000 sq ft (plus 100,000 sq ft under tenants' options) have been achievedsince March 2007, representing 57% (or 67% if the options are exercised) of ourLondon office developments due to be completed in 2007 and 2008, capturingoccupier demand and confirming the appeal of our new buildings. Projects completing in 2007 and 2008: 201 Bishopsgate and The Broadgate Tower, London EC2, are well advanced and onprogramme for completion in 2008, together representing the largest Citydevelopment built neither with pre-lets nor by an occupier. Lettings have beenconcluded: • in May to Henderson Group plc for 123,000 sq ft and in June to Mayer, Brown, Rowe & Maw LLP for 184,000 sq ft, plus options to them over a further 74,000 sq ft. These agreements cover 75% of the offices at 201 Bishopsgate (or 93% if the options are exercised); • in September to Reed Smith Richards Butler LLP for 142,000 sq ft plus options over a further 26,000 sq ft, at the 35-storey Broadgate Tower, at r ents of £62.50 per sq ft for the top floors (and an average initial rent overall of £58 per sq ft). This letting represents 36% of the offices in the Tower (or 42% if the options are taken up). At Ludgate West, London EC4, an agreement to lease has been exchanged withsolicitors Charles Russell LLP over 88,000 sq ft, representing 69% of the whole. 2009 onwards: The developments at Ropemaker Place, London EC2, Osnaburgh Street, Regent'sPlace, London NW1 and The Leadenhall Building, London EC3 are also going toplan. Whilst construction is still at the earlier stages, substantialproportions (67%) of the construction costs in these three projects have beenlocked-in. At Leadenhall, demolition of the existing building is well advanced to preparefor construction of a new striking City office tower, which we consider will beseen as London's finest such tower. Innovative engineering is enabling thepiling and foundation works for the new building to progress concurrently withthe ongoing demolition, attracting considerable interest in the process. Our development of the Regent's Place estate has redefined this area of London'sWest End, creating a new working environment with modern office floorplates,together with retail and public spaces - meeting occupier demand withaccommodation not otherwise available in the crowded West End, and generatingrental growth. At Osnaburgh Street, construction is proceeding well on a mixeduse scheme of 380,000 sq ft offices and 110,000 sq ft of residentialaccommodation. At the North East Quadrant planning approval is awaited for afurther 384,000 sq ft of offices and 124,000 sq ft of residential units. The Building Research Establishment Environmental Assessment Method (BREEAM)evaluates a broad range of the environmental impacts of new buildings. All ourLondon office developments have target or provisional BREEAM ratings ofExcellent (i.e. at the top of the scale). As examples of these environmentalfactors, the appeal of The Broadgate Tower and 201 Bishopsgate is enhanced bytheir use of recycled materials and their energy efficiency (they are expectedto produce a 29% lower level of CO2 emissions than is stipulated by currentbuilding regulations) and the design of Ropemaker Place also incorporates highlyefficient plant to reduce energy use and emissions. 2.4 million sq ft Retail projects in UK and Spain Giltbrook Retail Park, Nottingham was purchased in mid-2006. We redesigned theproject, achieved a revised planning consent and are proceeding with a 199,000sq ft mixed used scheme of retail and industrial space, with improvedenvironmental attributes. Construction of the retail park is progressing wellwith access for tenants expected mid-2008. Over 90% of the new park is underoffer, at rents in excess of projections, to tenants including BHS, Comet, Argos, Mamas & Papas and Starbucks. At Puerto Venecia, Zaragoza (our 2.2 million sq ft retail scheme joint venturein Spain) development continues apace with completion due to occur on a phasedbasis between the end of 2007 and 2010. As previously reported significantlettings have already been achieved with continuing good interest from majorretailers. The IKEA store opened in May 2007, anchoring the retail park, and wehave contracted with El Corte Ingles, Spain's largest department store operator,to anchor the shopping centre with an owner occupied store of distinctivedesign, providing over 400,000 sq ft. Other tenants for the retail park includeLeroy Merlin, Conforama, Porcelanosa and most recently PC City as well asseveral Spanish multiple retailers which means that over 85% of the retail parkhas been pre-let, pre-sold or is under offer, with units planned to beginopening from Easter 2008. We are in the process of further design enhancementfor the retail and leisure centre, with good interest from major occupiers. Development Sq ft Cost Value, Notional Rent Sales Planningprospects '000 £m(1) Sept 2007 Interest pa £m £m(2) £m(3) ------------------ ------ ----- ----- ------ ------ ----- ------- Regent's NE Quadrant 508 246 51 18 18.8 66 SubmittedPlaceColmore Row Provincial 284 87 27 9 9.4 - Pending OfficeNew CenturyPark(4) Business 582 76 11 2 4.0 6 Detailed Park/ DistributionMeadowhalladditionalland Mixed use 1,270 289 25 10 22.4 38 PendingTheale Residential 204 33 16 2 4.3 - DetailedPreston Deepdale 67 14 3 - 1.2 - Detailed Retail Park4 Broadgate City Office 407 207 118 16 26.2 - Pending----------- --------- ------ ----- ----- ------ ------ ----- -------Euston West End ) master planning in progress PendingStation(5) Retail, office, residentialCanada Mixed use ) OutlineWater(6) ============ ======== ====== ===== ===== ====== ====== ==== ======= (1) estimated construction cost to complete(2) during construction to PC(3) current estimated headline rent (excluding cost of tenant incentives)(4) joint venture with Goodman Real Estate (UK) Limited(5) in partnership with Network Rail(6) joint venture with Canada Quays Limited In February British Land was selected by Network Rail as its development partnerfor a major mixed use redevelopment of Euston Station. We are working withNetwork Rail to prepare a masterplan for the creation of a landmark stationinterchange. The 15 acre site will accommodate up to 4 million sq ft of mixeduse development including retail, office, residential and a new station,realising its commercial potential and assisting with the on-going regenerationof the area. Following settlement of legal agreements and completion of theoutline design process, a planning application is expected to be submitted inearly 2009. We are also working with Sheffield City Council for the master-planning of theland we own adjacent to Meadowhall Shopping Centre. The proposals, includingoffices, residential and car showroom facilities have attracted interest frompotential commercial occupiers. Proactive Asset Management The focus of our management teams on customer requirements is continuing to addvalue to our properties through a range of asset management activities includingfacilitating change in customer space needs and initiating improvements bybetter design or configuration or planning use. Examples during the six monthsinclude: •Broadgate, where we contracted in May to relocate Henderson from 4 Broadgate to 124,000 sq ft in our development at 201 Bishopsgate, providing them with new space suitable to their current requirements whilst releasing 4 Broadgate for a high rise redevelopment with potential to commence in 2009 as part of our Broadgate '2020' master plan; •Dartford, where HUT acquired a 40,000 sq ft two unit retail warehouse scheme 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 Living, both at increased rents; •Deepdale Shopping Park, Preston, a 230,000 sq ft scheme owned by HUT, where a surrender of units occupied by Birthdays and Brantano was agreed, and the units extended and relet as two units of 5,500 sq ft each to River Island and JD, creating a new high rent for the park. We relocated Brantano into a larger 6,500 sq ft unit which was created by negotiating the surrender of a 10,000 sq ft unit occupied by Holiday Hypermarket and subdividing the space into two units, with the smaller unit relet to Holiday Hypermarket. At the same location we demolished a public house to construct a 9,700 sq ft food court for restaurants and cafes such as KFC and Costa Coffee, and as part of the planning negotiation for the new food court an amended consent was agreed for the 19,500 sq ft Marks & Spencer unit to enable food retailing; •Orbital Shopping Park, Swindon, where units let to Homebase and to Comet were subdivided to allow a halving of their requirements (though at increased rents per sq ft). The vacant space created has been let to Marks & Spencer on attractive terms, boosting the overall prospective performance of the Park. We also continue to seek value enhancement to our assets through selectivecapital expenditure, as shown by the following examples: •improvements at the 700,000 sq ft Eastgate Shopping Centre, Basildon, where a reconfiguration of the food terrace and general refurbishment works currently under way will result in a more modern environment, attractive to retailers and their customers alike; •at 338 Euston Road, a 111,000 sq ft multi-let office building within our Regent's Place estate, a major refurbishment of potential and existing vacant space together with common services is underway to result in more attractive space for both existing and potential occupiers. There is ongoing demand from customers across our portfolio; 175,000 sq ft ofour central London office space has been let since 31 March 2007, in addition tothe letting of development projects referred to above. This includes lettingsat: •York House in Seymour Street, W1 (British Land's head office) where Government of Singapore Investment Corporation has taken 33,700 sq ft and Moor Park Capital Partners has taken 4,800 sq ft; terms have been agreed on a further 9,000 sq ft of office space (the majority of the remaining space). Rents achieved via these lettings reflect the building's premium design and location; €155 Bishopsgate, where Sempra Energy has taken the entire 38,000 sq ft level 5, comprising refitted Category A space, on a lease term to 2019 at an initial rent of £57.50 per sq ft, a new high at Broadgate; we have also retained RCM at 155 Bishopsgate with a lease re-gear for 13,881 sq ft for 12 years at £54.50 per sq ft, a substantial enhancement on rents passing; •Plantation Place South, where Axis Specialty Europe, a leading diversified specialty insurance and reinsurance business, has taken level 4, comprising 19,011 sq ft on a 15 year lease at £51 per sq ft; all contributing to establishing rental growth. Our leadership in the retail park market is underscored by British Land/HUTaccounting for 20% of the total retail park take up from occupiers over thecalendar year to September, including one third of take up from high streetretailers. Since 31 March 2007 some 1.2 million sq ft of retail warehouse spacehas been let or is under offer at an annual rent totalling some £34 million.These are predominantly to household names such as Allied Carpets, Asda, BodyShop, Carpetright, Carphone Warehouse, Laura Ashley, Marks & Spencer, New Look,Next, River Island, and TK Maxx. ------------------ -------- --------- --------------New lettings and lease renewals Number Sq ft Rent, £m pa(including Funds and Joint Ventures) '000------------------ -------- --------- -------------- New total BL share of increase------------------ -------- --------- --------- ----------Retail Warehouses 63 540 14.0 5.3Shopping Centres 45 136 6.0 2.9High Street 13 68 2.1 0.7Central London Offices 21 175 9.1 7.3Other 61 125 2.6 1.1------------------ -------- --------- ------- -------- 203 1,044 33.8 17.3Development pre-lets, London Offices 4 537 27.8 27.8 -------- --------- ------- -------- 207 1,581 61.6 45.1------------------ -------- --------- ------- -------- Headline rents, before tenants' incentives (rent frees) and includingunconditional contracts exchanged with forward completions During the six months we have also made good progress with rent reviewsconcluding 113 reviews at overall 6% above the external valuer's applicable ERV,generating an increase in current rental income to British Land of over £8million per annum. ------------------ -------- ---------------------Rent reviews Number Rent, £m pa(including Funds and JointVentures) ------------------ ------- -------- -------- New total Increase BL share of increase------------------ -------- -------- -------- --------Retail Warehouses 44 17.1 5.0 3.2Superstores 5 7.3 1.3 1.0Shopping Centres 31 6.6 0.7 0.6High Street 11 5.1 0.7 0.7Central London Offices 3 24.5 2.7 2.7Other 19 1.0 0.2 0.2------------------ -------- -------- -------- -------- 113 61.6 10.6 8.4------------------ -------- -------- -------- -------- During the six month period we settled rent reviews at some of our largerproperties at significantly higher than their estimated rental values. At 2 & 3Triton Square, Regent's Place, rents payable by Abbey on their 199,000 sq fthead office increased to c. £47 per sq ft, 29% above the previous rent passingand 16% above the ERV. We were helped in achieving this by a lease renewal withRegus at 338 Euston Road which set a new rental high for the estate of £50 persq ft. At Meadowhall visitor numbers have been consistently better than the nationalfootfall index for shopping locations throughout the UK (per the British RetailConsortium). Following flooding in June, 130 stores on the lower level have beenrefitted. Together with a number of key new lettings to retailers such as AllSaints, Hobbs, Puma, Henleys and The Pier, this has created a broader and moreexciting retail offer than ever before - and terms have been agreed with Topshopfor a new 40,000 sq ft flagship store. In addition a brand new 165,000 sq ft twolevel mall, known as The Gallery, opened in September attracting leading retailnames and housing the major new stores for Next and Primark. Portfolio Valuation The investment market is currently difficult following recent financial marketturmoil, with the consequent lack of liquidity and higher interest ratesresulting in a reduced number of transactions whilst investors wait to assessthe changing conditions. Our valuers have reflected this uncertainty in anegative (upwards) adjustment to investment yields though clear supportingtransaction evidence is not readily available at present. This process iscontinuing as seen in data since September from CBRE and other sources (see note8 to table below). The table shows the principal valuation movements by sector for the three andsix month periods to 30 September 2007, totalling 0.5% decline for the 6 months(Q2 -1.9%). The capital return from the portfolio at -0.5%, as measured by IPD (calculatedfor our UK assets on average capital employed and excluding capitalisedinterest) compared favourably with the IPD Benchmark at -0.9% (Q2 British Land-1.9%, IPD -2.0%). Contributing to this performance was like for like growth in rental value (ERV)for the portfolio over the six months at 4.2%, ahead of the market in eachsector (IPD Benchmark 2.4%). The net equivalent yield (after notionalpurchaser's costs) on the portfolio moved out 21bps (like for like) to 4.9% overthe six months, a slightly larger shift than that applicable to the IPDBenchmark of 20bps. Given the prime nature of our portfolio, underpinned by itsoccupancy, lease lengths and rental growth, we would expect that widening riskpremia will be reflected in valuations elsewhere, reversing the relative yieldmovement versus IPD in time. ------------- ------ -------- ------- ------- ------------Valuation Group Funds/JVs(1)Total Portfolio Change %(2)by sector £m £m £m %------------- ------ -------- ------- ------- -------- ------- 3 mths 6 mths------------- ------ -------- ------- ------- -------- -------Retail Retail Warehouses 2,285 1,496 3,781 23.8 (2.9) (1.9)Superstores 1,589 614 2,203 13.8 (3.3) (2.4)Shopping Centres(3) 1,927 406 2,333 14.7 (4.2) (4.5)Department Stores 765 144 909 5.7 (4.0) (3.9)High Street 203 - 203 1.3 (3.2) (2.7) ------------- ------ -------- ------- ------- -------- -------All retail 6,769 2,660 9,429 59.3 (3.4) (2.9) Offices(4)City(5) 4,805 - 4,805 30.2 0.1 2.9West End(6) 1,156 - 1,156 7.3 3.1 7.7Provincial 93 13 106 0.6 - (0.1) ------------- ------ -------- ------- ------- -------- -------All offices 6,054 13 6,067 38.1 0.6 3.6 Industrial,distribution, 376 38 414 2.6 (4.2) (3.0)leisure, other ------ -------- ------- ------- -------- --------------------Total(7) 13,199 2,711 15,910 100.0 (1.9) (0.5)------------- ------ -------- ------- ------- -------- ------- (1) Group's share of properties in Funds and Joint Ventures(2) change in value for 3 months and 6 months to 30 September 2007, includes valuation movement in developments, purchases and sales, net of capital expenditure(3) Meadowhall Shopping Centre valuation down 4.8% (£79 million) to £1,575 million; ERV £83 million; net equivalent yield 4.87% (true equivalent yield 5.02%)(4) includes Developments in City, West End and provincial: total value £1.3 billion, 8.1% of Portfolio, 7.9% uplift for the 6 months(5) Broadgate valuation up 1.2% to £3,085 million (4 Broadgate included in Development); headline ERV range £49 - £57.50 per sq ft (average headline ERV has risen 7.4% to £52 psf); net initial yield 4.77% (assuming top up of rent free periods and guaranteed minimum uplifts to first review); net equivalent yield 5.08%(6) Regent's Place valuation up 6.9% to £696 million; headline ERV range £24.00 - £56.00 per sq ft; net initial yield 4.6% (assuming top up of rent free periods and guaranteed minimum uplifts to first review); net equivalent yield 5.08%(7) annualised net rents £621 million (excluding developments) (net rental income under IFRS differs from annualised net rents which are cash based, due to accounting items such as spreading lease incentives and contracted future rental uplifts, as well as direct property costs); portfolio initial yield (gross to British Land, without notional purchaser's costs) 4.3%; initial yield adding back rent frees 4.6%; reversionary yield (gross, five years) 5.1%.(8) CB Richard Ellis equivalent yields for prime investment property: Retail Parks Shopping City Offices West End (Open User) Centres OfficesSeptember 2007 4.00% 4.75% 4.50% 3.75%November 2007 4.50% 5.00% 5.00% 4.25% The main sector impacts on the valuation movements over the six months were: •London Offices including developments, comprising 37.5% of the portfolio, saw outward yield shift of 25bps but value rose by 3.7% as a result of 8.7% ERV growth on the investments, reflecting continuing strength in the occupational market, demonstrated by the recent lettings in the developments and strong rent review settlements; •Retail warehouse parks, at 23.8% of the portfolio, saw outward yield shift of 18bps and valuation reduced by 1.9%, less than the decline on the IPD Benchmark for the segment, due to ERV growth of 2.1% on the British Land investments above 0.8% IPD; •Superstore valuations, which represent 13.8% of the portfolio, reduced by 2.4% (a 15bps outward yield shift), reflecting less rental growth being established in this six months due to a limited number of market transactions; •Shopping centres, being 14.7% of the portfolio, showed a fall in value of 4.5% (a 24bps outward yield shift) due to several factors: the small loss on sale at East Kilbride, provision for the full refurbishment expenditure at Basildon, and, of greater impact, a 24bps outward yield shift on Meadowhall Shopping Centre. This positions the Centre at the most conservative yield valuation relative to other comparables it has ever had since purchase in 1999. Trading is good but the asset scale makes valuation here inevitably part art, part science. Our investment in Songbird Estates providing a 'look through' 10.8% economicinterest in Canary Wharf produced a further dividend of £46 million in June 2007bringing the total amount of cash dividends received from Songbird to £113million to date. Our remaining investment was valued for accounting purposes at30 September 2007 at £225 million. Financial results Highlights for the 6 months September 2007 September 2006 Change ended: Income Statement £m £m % Underlying pre-tax profit(1) 143 130 +10 Gross rental income 300 291 +3 - proportional basis(2) 355 353 +1 Net interest costs 149 157 -5 - proportional basis(2) 179 188 -5 pence pence IFRS diluted earnings per 0 111 -100 share(1) Underlying diluted earnings per 26 20 +30 share(1) Dividend per share 17.5 5.6 +213 As at: September 2007 March 2007 Balance Sheet Net Assets £8,621m £8,747m -1 EPRA(1) NAV per share 1682 pence 1682 pence - EPRA(2) NNNAV per share 1745 pence 1683 pence +4 (1) see Note 1 (2) see Table A (non-statutory proportional consolidation, including share of Funds and Joint Ventures) The above table illustrates continuing growth in underlying pre-tax profits, aswell as (on an IFRS basis) the negative impact of the downward overall valuationfor the last quarter outweighing the valuation gains in the first quarter - andresulting in no change in net asset value per share for the six months. Income Statement (data presented on a proportionally consolidated basis - tableA) Gross rental income for the six months amounted to £355 million, fractionally upagainst the corresponding period last year as new lettings offset net salesactivity. Slightly higher net rental income of £334 million, together withreduced administrative expenses at £41 million and reduced net interest costs of£179 million contributed to the underlying profit before taxation of £143million for the six months - up 10% against the corresponding period last year. Like for like rental income (based on investment properties without fixed orminimum rental uplifts owned throughout the current and prior period) increasedin the six months by 5.5% compared with the corresponding period last year. Thisincludes a 4.3% uplift on office rents driven by new lettings; retail was up6.3%, including a 9.8% increase for retail warehouses due to rent reviews andnew lettings. The underlying profit includes £16 million from the June dividend from Songbird.The additional £30 million received has been recorded as a capital not anunderlying item, and an offsetting reduction in Songbird carrying value booked. The most significant movement in the IFRS income statement during the six monthswas the valuation reduction (less profits on disposals) of £207 million, being anet loss of £365 million for the quarter ended 30 September 2007 offset by a netgain of £158 million recorded for the quarter ended 30 June 2007. Overall, thishas resulted in a headline pre-tax loss for the six months of £32 million. Nettax credits reduce this figure to a loss after taxation for the six months of £2million. Underlying diluted earnings per share amounted to 26 pence for the six months,an increase of 30% over the corresponding period in the previous year. Balance Sheet EPRA net assets at 30 September 2007 were £8.70 billion, compared with £8.86billion six months before. This gives a net asset value per share of 1682 pence- unchanged from 31 March 2007 due to the reduced number of shares in issue as aresult of the share buy back programme, with £125 million having been spentduring the six month period. On a triple net asset value basis (after adjusting debt and derivatives tomarket value, and deducting deferred tax) EPRA net assets amount to 1745 penceper share - an increase of 4% against 31 March 2007. With underlying profits andthe benefit of share buy backs being balanced by the valuation reduction (lessgains on property disposals) and the dividend, the increase during the sixmonths arises largely from the beneficial mark to market of debt andderivatives, at a time when market interest rates have been rising. Total properties owned at 30 September 2007, including share of Funds and JointVentures, were £15.9 billion, or £20 billion including properties undermanagement. Cash Flow Statement The cash flow statement shows a net increase in cash and cash equivalents of£259 million, or £422 million before repayment of bank and other borrowings. Amajor contributing factor to the increase is £1,123 million receipts fromproperty sales, less £118 million of purchases and £217 million of developmentand other capital expenditure. Other significant outgoings from non-operatingactivities include the share buy backs of £125 million and the REIT conversioncharge paid of £291 million. Dividend The second quarter dividend of 8.75 pence per share, totalling £45 million, ispayable on 15 February 2008 to shareholders on the register at close of businesson 18 January 2008. This is in addition to the first quarter dividend of 8.75pence per share, making a total of 17.5 pence for the half year - consistentwith the expected total dividend for the financial year of 35 pence. Thesedividends represent a significant increase compared with the 2006/7 totaldividend of 20.35 pence and 17 pence for the year 2005/6, the last financialyear before British Land became a REIT. The dividend consists of a property income distribution (PID) of 4.25 pence anda non-PID element of 4.5 pence as explained in note 7 of the accounts. Total return (NAV growth plus dividends) for the six month period was 0.9%. Financing Activity Financing statistics 30 September 2007 31 March 2007------------------------- ------------ ------------ Group:Net debt £5,968m £6,404mWeighted average debt maturity 14.0 yrs 14.1yrsWeighted average interest rate 5.27% 5.32%% of net debt at fixed/capped interestrates 100% 96%Interest cover(1) 1.83 1.70Loan to value(2) 40% 41%Unsecured debt to unencumbered assets 26% 28%Undrawn committed facilities £1,855m £1,657m Group and share of Funds and Joint Ventures:Net debt(3) £7,123m £7,741mWeighted average debt maturity 12.7 yrs 12.7 yrsWeighted average interest rate 5.30% 5.36%Interest cover(1 1.80 1.69Loan to value(2) 44% 45%------------------------- ------------ ---------- (1) Underlying profit before interest and tax / net interest excluding refinancing charges(2) debt to property and investments(3) see Table A Over the past three years we have taken the opportunity of then favourableconditions in the banking market to replace short-term, higher margin facilitieswith longer-dated lower margin lines. Since the year end we continued thatprogramme by arranging new bank loans of £950 million in total, including a £620million seven-year syndicated multi-currency revolving facility at 42.5 basispoints over Libor completed in August 2007, and a £250 million bi-lateralfacility completed in October 2007, in spite of the recent uncertainties in thefinancial markets. Following these transactions, we have a total of more than £3billion of committed bank lines, with only £275 million due to expire over thenext three years. Within these lines, nearly £2 billion are presently undrawn,providing ample capacity for our development programme and for opportunitiesthat may arise in the market. Despite rising market rates our weighted average interest rate has fallen from5.36% at 31 March 2007 to 5.30% at 30 September 2007 (Group and share of Fundsand Joint Ventures). This has resulted from the repayment, following sales, offloating-rate debt at higher rates of interest, whilst retaining fixed-rate debtat lower rates. We have also hedged the interest rate applicable to theborrowing required to finance our development programme, so are not exposed torising costs in this respect. In July 2007 we arranged a bank facility of €220 million to assist with theacquisition jointly by British Land and PREF of Nueva Condomina, our majorshopping centre in Murcia, Spain. Property sectoral outlook Retail - £9.4 billion invested - £9.9 billion including completed value of committed developments and contracted purchases in Europe - 83% of which is out of town Our retail portfolio is largely positioned in prime assets which best captureoccupier demand, with 83% in out of town locations, of which more than 85% havethe favourable open A1/open restricted planning uses. These allow us to alignourselves with our customers and deliver the space they require, also enablingus to offer active asset management initiatives, to generate rental growth andincrease value. For example, there is increasing retailer requirement in out oftown for smaller units where we have responded by changing unit sizes,permitting installation of mezzanines and providing imaginative new formats forcustomer services, including new catering outlets. The results are parksattracting a greater variety of retailers that generate increased footfall,shopper dwell times and spend - factors which in turn drive up turnover and soaffordable rents. We expect to continue to deliver these improvements and see apositive outlook for continued rental growth in this chosen sub-sector. These value added strengths are building upon the strong defensive qualities ofour prime portfolio: high occupancy of 99%, an average lease length of 16 yearsand 15% reversionary income, including fixed uplifts and expiry of rent freeperiods. Since March 2007 we have reduced exposure to bulky goods and solusretail warehouses, and in town units, with total sales of £1.2 billion, overallat 1.9% above valuation. Lettings of 540,000 sq ft have been concluded at ourretail parks plus 136,000 sq ft at our shopping centres. Together with rentreviews over the same period these captured reversions and will deliver a £14million increase to the retail rent roll. In addition, we have 2.4 million sq ftof retail developments in the UK and in Spain, progressing well. The difficulties in the financial markets and the overall increase in the costof borrowing for debt buyers have effectively produced a "no bid" position inthe investment market, except for 'special' purchasers. As a result, despitesignificant stock availability, there are very few transactions and yields havemoved out, and are continuing to do so. The net equivalent yield on our retailportfolio overall has increased over the six months to September by 20bps (4.4%)and we note that CBRE prime yields for open A1 shopping parks have moved outfrom 4.0% in September to 4.5% in November. We have also seen evidence ofslowing rental growth, particularly on second tier retail warehouse parks. Primeassets, such as our open A1 retail parks, Meadowhall regional shopping centreand the best superstores, although not immune from these market factors, arebetter placed; they have higher growth prospects due to strong trading,accordingly increased retailer demand, which against restricted supply resultsin improving rents. Going forward, although it is likely that the market willsee more outward yield shift, these retail assets should benefit from greaterdifferentiation in yield levels versus more secondary investments to reflecttheir relative prospects. The occupational market, which will continue to be a key influence in settingvalues, has a relatively positive outlook. Despite some disappointing figuresfrom a handful of retailers, the general retail market is proving more resilientthan most forecasts - and commentators are beginning to note this evidence.Retail sales data (from ONS) shows an increase in value of 3.8% for the threemonths to September 2007 over the three months to September 2006, whileforecasts (from Verdict) indicate growth at 2.9% per annum over the next fiveyears. The UK food retail sub-sector remains robust, with major operators reportinghealthy results and sales growth. These operators are continuing to requirelarger sales areas, as well as trialling new non-food formats, while supplyremains highly restricted so maintaining competition for any available sites.The open A1 retail schemes are also seeing continued strong occupier demand,with the trend for high street retailers to extend their operations or explorenew formats in out of town positions. The bulky goods occupier market is moresubdued but there are pockets of demand from furniture and home retailers whoare expanding or exploring new concept stores. However, there is greater supplyof these parks which will tend to dampen rental growth. Demand is thinner for intown trading and there is greater supply (often from developments) which removesthe demand/supply tension, resulting in larger incentives to attract tenants andhigher levels of voids. We have continued our strategy of disposals to reduce exposure to more "mature"assets with limited opportunities to create rental growth and establishedBritish Land's market leadership in prime retail investments, primarily out oftown, which are best positioned to reflect customer demand. Offices - £6.1 billion invested - £7.4 billion including completed value of committed developments - 99% of which is Central London Over the course of the first half of this year, by profitably selling our mainprovincial office holding, Blythe Valley Business Park, as reported earlier fora price of up to £161 million, our office portfolio is now effectively fullyfocused on London. This is where we want to be - we have market leadership inLondon and it is where we expect outperformance. Our strategy of providing occupiers with the right accommodation and 'best inclass' property and management services, coupled with a healthy occupationalmarket, has paid off. With 537,000 sq ft of lettings (plus options), our nearterm development programme is now majority pre-let, and our existing officeportfolio has almost complete occupancy at over 99%. The rents agreed on recentlettings at both of our major estates, Regent's Place and Broadgate, have setnew rental highs, helping to prove rental growth. We also enjoy good security ofincome with a weighted average lease length of more than 10 years. The development pre-lets achieved have taken advantage of a strong occupationalLondon market and simultaneously partially de-risked the programme, allowing usto recognise some profit, with more to come. We are also significantly hedgedagainst the effects of construction cost inflation on our developments. The net increase in valuation of the office portfolio of 3.6% has been theresult primarily of the rental growth generated in our investments, plus ouractive asset management and development programme. These have been partiallyoffset by the negative impact of outward yield shift of 25bps seen across theoffice portfolio during the first half of the year. As far as the medium term outlook is concerned we remain positive. The Londonoffice market has had solid take-up over the summer (we signed over 240,000 sqft of new lettings in August and September alone) and year to date take up inboth of our key markets, the City and the West End, has been well above trend.Vacancy rates across the Capital are low and the feedback from our customers isthat they are intensely occupying and using their accommodation, with little orno slack for expansion - not a bad starting point to be at. However, behind these positive indicators, there is a sign that the recentturmoil in credit markets is creating hesitancy from occupiers in the financialand business services sectors. It is too early to say whether this will bemerely a pause, as it was in 1998. If it does follow a similar pattern, thentake up will dip and job growth will flatten, and rents will level out. In themedium term we believe that the competitive advantages that London has as aworld financial centre remain intact, and the demand from occupiers will endure.Indeed, the market uncertainty, together with rising construction and financecosts, might limit some of the anticipated increases in supply that we have beenwatchful of, especially in the City, at the end of this decade and beyond. In the meantime, the investment market is sitting and watching for signs of howsupply and demand will react. The hold-up in the frantic pace of investmentactivity seen in the early part of the year, plus more scrutiny of risk versusreturn, means that yields have already softened. We suspect the areas which areparticularly vulnerable to more correction are secondary "riskier" assets orabsolute prime where the retail funds have until recently been competingfiercely with each other to invest their unitholders' money, and now on thewhole have no further buying requirements. We have taken the opportunity over the last two years to sell over £1 billion ofour lower growth office properties. At 30 September our top quality investmentportfolio is showing average net equivalent yields in the City at 5.1% and theWest End at 5%, comparing conservatively to absolute prime yields (per CBRE forSeptember) of 4.5% in the City and 3.75% in the West End (CBRE prime yields forNovember are 5.0% City, 4.25% West End). Our developments for completion in 2007/8 are already 57% let and the projects for completion in 2009 onwards are wellpositioned to capture demand. The locations of those projects are balancedbetween City and West End, spread as to timing, and we believe favourably placedin relation to the competition. Consequently we have a strong yet defensiveprime London office portfolio, with the potential to add value and outperform. Further portfolio analysis --------------- ------- -------- ------ -------- --------Current Annualised Reversionary Initial Reversionary Net Equivalentreversion net rents(1) income(2) yield(3) yield(3) yeild(4) (excluding £m (5 years)£m % (5 years)% %developments) --------------- ------- -------- ------ -------- --------Retail RetailWarehouses 146 30 4.0 4.8 4.5Superstores 100 5 4.5 4.8 4.4ShoppingCentres 104 18 4.5 5.2 5.0DepartmentStores 42 6 4.6 5.3 5.2High Street 10 1 5.0 5.4 5.0 --------------- ------- -------- ------ -------- --------All retail 402 60 4.3 4.9 4.7 Offices City 152 50 4.1 5.4 5.1West End 42 12 4.2 5.4 5.0Business Parks& Provincial 2 - 5.2 5.6 5.6 --------------- ------- -------- ------ -------- --------All offices 196 62 4.1 5.4 5.1 Industrial, distribution,leisure, other 23 3 5.4 6.3 6.2 --------------- ------- -------- ------ -------- --------Total 621 125(5) 4.3(6) 5.1 4.9 --------------- ------- -------- ------ -------- -------- (1) net rental income under IFRS differs from annualised net rents which are cash based, due to accounting items such as spreading lease incentives and contracted future rental uplifts, as well as direct property costs(2) includes rent reviews and lease break/expiry and letting of vacant space at current ERV (as determined by external valuers) within 5 years, plus expiry of rent free periods(3) gross yield to British Land (without notional purchaser's costs)(4) after purchaser's costs(5) £61m contracted under expiry of rent free periods and minimum rental increases(6) initial yield after adding back rent frees 4.6% ---------------- ------------ ----------- ----------Leases and occupancy Average lease Underlying(1) Occupancy rate(excluding developments) term,years to occupancy rate % first break %---------------- ------------ ----------- ----------Retail Retail Warehouses 12.7 99.3 98.8Superstores 19.9 100.0 100.0Shopping Centres 12.5 98.1 96.0Department Stores 29.3 100.0 100.0High Street 9.2 98.4 98.3---------------- ------------ ----------- ----------All retail 16.0 99.2 98.4 Offices City 10.4 99.2 98.9West End 10.4 99.5 94.7Business Parks &Provincial 16.6 97.5 97.5---------------- ------------ ----------- ----------All offices 10.5 99.2 98.0 Industrial, distribution,leisure, other 24.6 96.1 94.1---------------- ------------ ----------- ----------Total 14.4 99.1 98.1---------------- ------------ ----------- ---------- (1) the underlying occupancy rate includes accommodation subject to asset management initiatives and under offer Principal Risks and Uncertainties for the remaining six months of the financial year The most significant risks to British Land's business relate to either propertyor financing. Over the remaining six months of this financial year, the most significant riskwithin the former category is the future value to be placed on property assetsin a climate of uncertainty among investors. These conditions have affected ourvaluation at the half year, and the prevailing investment market sentiment willimpact the independent valuer's assessment of our property portfolio (upwards ordownwards) and our resultant net asset value for the third quarter and full yearaccordingly. The high quality of British Land's portfolio and the continuingtenant demand for our product should help to mitigate any further downwardmovement. Financing within British Land is not considered a risk or uncertainty withsubstantial liquidity available under committed facilities, borrowings 100%fixed and a weighted average debt expiry of 12.7 years. Responsibility Statement We confirm that to the best of our knowledge: (a) the condensed set of financial statements has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting"; and(b) the interim management report includes a fair review of the information required by Sections DTR 4.2.7R and DTR 4.2.8R of the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. By order of the Board Graham Roberts Finance Director Consolidated Income Statement for the period ended 30 September 2007 Year ended Six months ended Six months ended 31 March 2007 30 September 2007 30 September 2006 Audited Unaudited Unaudited -------------- -------------- -------------- Under- Under- Under- lying Capital lying Capital lying Capitalpre tax* & other Total pre tax* & other Total pre tax* & other Total £m £m £m Note £m £m £m £m £m £m 649 649 Gross rental and related income 2 326 326 315 315----------------------------------------------------------------------------------------------------------------------- 561 561 Net rental and related income 2 282 282 274 274 50 33 83 Fees and other income 2 29 30 59 33 33 (15) (15) Amortisation of intangible assets (5) (5) (8) (8) 37 422 459 Funds and joint ventures 19 (52) (33) 22 133 155 (see also below) (78) (13) (91) Administrative expenses (38) (38) (42) (42) 1,167 1,167 Net valuation movement and 2 (151) (151) 643 643 gains on disposal (106) (106) Goodwill impairment Net financing costs 41 41 financing income 15 15 46 46 (354) (354) financing charges (164) (164) (203) (203) (305) (305) refinancing charges (228) (228) ------ ------ ------ ------ ------ ------ ------ ------ ------ (313) (305) (618) (149) (149) (157) (228) (385) ------ ------ ------ ------ ------ ------ ------ ------ ------ 257 1,183 1,440 Profit (loss) on ordinary 143 (178) (35) 130 540 670 activities before taxation ------ ------ ------ Taxation (277) REIT conversion charge 1 current tax (expense) income (1) (6) 1,289 deferred tax income (expense) 34 (86) ------ ------ ------ 1,013 2 33 (92)----------------------------------------------------------------------------------------------------------------------- 2,453 (Loss) profit for the period (2) 578 after taxation attributable to shareholders of the Company ----------------------------------------------------------------------------------------------------------------------- 472p Earnings per share: basic 1 0p 111p ------ ------ ------ 470p diluted 1 0p 111p ------ ------ ------ ----------------------------------------------------------------------------------------------------------------------- Share of results of funds and joint ventures 37 37 Underlying profit before taxation 19 19 22 22 257 257 Net valuation movement and gains (56) (56) 167 167 on disposal Realisation of cash flow hedges 9 9 (on property disposals) (5 (5) Goodwill impairment (2) (2) (2) (2) (48) (48) REIT conversion charge (19) (19) Current tax (3) (3) (2) (2) 237 237 Deferred tax (30) (30)----------------------------------------------------------------------------------------------------------------------- 37 422 459 19 (52) (33) 22 133 155---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- * As defined in note 1 Consolidated Balance Sheet as at 30 September 2007 31 March 30 September 30 September 30 June 2007 2007 2006 2007 Audited Unaudited Unaudited Unaudited £m Note £m £m £m Assets Non-current assets 12,891 Investment properties 3 12,216 12,540 12,810 1,106 Development properties 3 961 800 873 50 Owner-occupied property 3 57 50------- ---------- ---------- ---------- 14,047 13,234 13,340 13,733 Other non-current assets 1,610 Investments in funds and joint ventures 4 1,614 1,204 1,621 267 Other investments 236 252 236 50 Intangible assets 45 57 46 Goodwill 105 ------- ---------- ---------- ---------- 15,974 15,129 14,958 15,636 ------- ---------- ---------- ---------- Current assets Trading properties 3 49 208 Debtors 210 129 315 198 Cash and short-term deposits 5 453 195 389 ------- ---------- ---------- ---------- 406 663 373 704 ---------------------------------------------------------------------------------------------------------------------- 16,380 Total assets 15,792 15,331 16,340 ---------------------------------------------------------------------------------------------------------------------- Liabilities Current liabilities (54) Short-term borrowings and overdrafts 5 (117) (140) (65) (746) Creditors (484) (482) (737) ------- ---------- ---------- ---------- (800) (601) (622) (802) ------- ---------- ---------- ---------- Non-current liabilities (6,617) Debentures and loans 5 (6,385) (6,420) (6,209) (37) Other non-current liabilities (42) (47) (37) (179) Deferred tax liabilities (143) (1,615) (158) ------- ---------- ---------- ---------- (6,833) (6,570) (8,082) (6,404) ------- ---------- ---------- ---------- (7,633) Total liabilities (7,171) (8,704) (7,206) ---------------------------------------------------------------------------------------------------------------------- 8,747 Net assets 8,621 6,627 9,134 ---------------------------------------------------------------------------------------------------------------------- Equity 130 Share capital 6 130 130 130 1,263 Share premium 6 1,266 1,255 1,265 532 Other reserves 6 501 274 573 6,822 Retained earnings 6 6,724 4,968 7,166 ---------------------------------------------------------------------------------------------------------------------- 8,747 Total equity attributable to shareholders of the Company 8,621 6,627 9,134 ---------------------------------------------------------------------------------------------------------------------- 1682p EPRA NAV per share* 1 1682p 1624p 1730p ------- ---------- ---------- ---------- * As defined in note 1 Consolidated Statement of Recognised Income and Expensefor the period ended 30 September 2007 Year ended Three months ended Six months ended 31 March 30 September 30 September 2007 2007 2006 2007 2006 Audited Unaudited Unaudited £m Note £m £m £m £m 2,453 (Loss) profit for the period after taxation (277) 163 (2) 578 -------- -------- -------- -------- -------- Valuation movements 184 - on development properties 2 34 59 94 107 - on owner-occupied property 2 7 7 22 - on other investments 2 5 (30) 5 -------- -------- -------- -------- -------- 206 41 64 71 112 (Losses) gains on cash flow hedges 93 - Group (83) (23) 20 11 21 - Funds and joint ventures (16) (1) (4) 5 8 Actuarial gain on pension scheme 3 Fair value adjustment on consolidation (7) of former joint venture (7) (7) 16 Tax on items taken directly to equity (9) (12) 2 (45) -------- -------- -------- -------- -------- 337 Net (loss) gain recognised directly in equity (67) 21 89 79 Transferred to the income statement (cash flow hedges) 21 - foreign currency derivatives 1 3 2 13 (1) - interest rate derivatives (7) (11) 2 -------- -------- -------- -------- -------- 20 (6) 3 (9) 15 ---------------------------------------------------------------------------------------------------------------------- Total recognised income and expense 2,810 for the period (350) 187 78 672----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- Reconciliation of Movements in Shareholders' Funds Year ended Three months ended Six months ended 31 March 30 September 30 September 2007 2007 2006 2007 2006 Audited Unaudited Unaudited £m £m £m £m £m Capital items 10 - Shares issued 1 2 3 2 (16) - Purchase of ESOP shares (9) (12) (13) - Ordinary shares purchased and held as Treasury shares (125) (125) 18 - Adjustment for share and share option awards 4 9 7 11 (91) - Dividends paid in the period (43) (61) (77) (61) -------- -------- -------- -------- -------- (79) (163) (59) (204) (61) 2,810 Total recognised income and expense for the period (350) 187 78 672 -------- -------- -------- -------- -------- 2,731 Movement in shareholders' funds for the period (513) 128 (126) 611 6,016 Opening equity shareholders' funds 9,134 6,499 8,747 6,016 ---------------------------------------------------------------------------------------------------------------------- 8,747 Closing equity shareholders' funds 8,621 6,627 8,621 6,627 ---------------------------------------------------------------------------------------------------------------------- Consolidated Cash Flow Statementfor the period ended 30 September 2007 Year Three months Six months ended ended ended 31 March 30 September 30 September 2007* 2007 2006* 2007 2006* Audited Unaudited Unaudited £m £m £m £m £m 568 Rental income received from tenants 123 126 254 260 36 Fees and other income received 4 10 25 30 (110) Operating expenses paid to suppliers and employees (23) (34) (53) (55) ------- -------- -------- -------- -------- 494 Cash generated from operations 104 102 226 235 ------- -------- -------- -------- -------- (334) Interest paid (87) (100) (180) (158) 11 Interest received 6 4 10 8 UK corporation tax (paid) received (2) (2) 7 (2) Foreign tax paid (1) (1) 32 Distributions received: funds and joint ventures 6 7 38 23 18 Songbird Estates 16 18 ------- -------- -------- -------- -------- 219 Net cash inflow from operating activities 28 11 107 133 ------- -------- -------- -------- -------- Cash flows from investing activities (309) Purchase of investment properties (20) (44) (118) (81) (346) Development and other capital expenditure (107) (70) (217) (156) 711 Sale of investment properties 381 239 1,123 285 REIT conversion charge paid (291) (291) (8) Purchase of investments 10 Sale of investments 2 (15) Indirect taxes in respect of investing activities 52 5 32 (1) (203) Investment in and loans to funds and joint ventures (50) (8) (85) (106) 80 Capital distributions received: funds and joint ventures 10 80 50 85 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) 4 4 ------- -------- -------- -------- -------- (54) Net cash (outflow) inflow from investing activities (25) 206 526 30 ------- -------- -------- -------- -------- Cash flows from financing activities 10 Issue of ordinary shares 1 2 3 2 (16) Purchase of ESOP shares (9) (12) (13) Purchase of Treasury shares (125) (125) (91) Dividends paid (43) (61) (77) (61) 840 Issue of Meadowhall Finance PLC securitised debt (897) Redemption of MSC (Funding) PLC securitised debt 263 Issue of British Land debentures 221 221 (240) Amounts paid on exchange of British Land debentures (201) (201) (20) Redemption of British Land debentures (20) (20) (305) Repayment of debt acquired with subsidiary companies (296) (296) 354 Increase (decrease) in bank and other borrowings 234 142 (163) 272 ------- -------- -------- -------- -------- (102) Net cash inflow (outflow) from financing activities 67 (222) (374) (96) ------- -------- -------- -------- -------- 63 Net increase (decrease) in cash and cash equivalents 70 (5) 259 67 128 Opening cash and cash equivalents 380 200 191 128 ---------------------------------------------------------------------------------------------------------------------- 191 Closing cash and cash equivalents 450 195 450 195 ---------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents consists of: 198 Cash and short-term deposits 453 195 453 195 (7) Overdrafts (3) (3) ---------------------------------------------------------------------------------------------------------------------- 191 450 195 450 195 ---------------------------------------------------------------------------------------------------------------------- * Re-presented under the direct method (note 11). Consolidated Income Statement for the period ended 30 September 2007 Year ended Three months ended Three months ended 31 March 2007 30 September 2007 30 September 2006 Audited Unaudited Unaudited -------------- -------------- -------------- Under- Under- Under- lying Capital lying Capital lying Capitalpre tax* & other Total pre tax* & other Total pre tax* &other Total £m £m £m Note £m £m £m £m £m £m 649 649 Gross rental and related income 2 166 166 160 160----------------------------------------------------------------------------------------------------------------------- 561 561 Net rental and related income 2 141 141 138 138 50 33 83 Fees and other income 2 7 7 9 9 (15) (15) Amortisation of intangible assets (1) (1) (4) (4) 37 422 459 Funds and joint ventures (see also 10 (71) (61) 13 64 77 below) (78) (13) (91) Administrative expenses (18) (18) (21) (21) 1,167 1,167 Net valuation movement and gains on 2 (296) (296) 281 281 disposal (106) (106) Goodwill impairment Net financing costs 41 41 financing income 8 8 15 15 (354) (354) financing charges (81) (81) (97) (97) (305) (305) refinancing charges (228) (228)------ ------ ------ ------ ------ ------ ------ ------ ------ (313) (305) (618) (73) (73) (82) (228) (310)------ ------ ------ ------ ------ ------ ------ ------ ------ 257 1,183 1,440 Profit (loss) on ordinary activities 67 (368) (301) 57 113 170 before taxation------ ------ ------ Taxation (277) REIT conversion charge 1 current tax (expense) income (1) 1,289 deferred tax income (expense) 24 (6) ------ ------ ------ 1,013 2 24 (7) ---------------------------------------------------------------------------------------------------------------------- 2,453 (Loss) profit for the period after (277) 163 taxation attributable to shareholders of the Company ---------------------------------------------------------------------------------------------------------------------- 472p Earnings per share: basic 1 (54)p 31p ------ ------ ------ 470p diluted 1 (54)p 31p ------ ------ ------ ---------------------------------------------------------------------------------------------------------------------- Share of results of funds and joint ventures 37 37 Underlying profit before taxation 10 10 13 13 257 257 Net valuation movement and gains on (69) (69) 74 74 disposal (5) (5) Goodwill impairment (48) (48) REIT conversion charge (19) (19) Current tax (2) (2) 237 237 Deferred tax (10) (10) ---------------------------------------------------------------------------------------------------------------------- 37 422 459 10 (71) (61) 13 64 77 ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- * As defined in note 1 Notes to the accounts (unaudited) 1. Performance measures Year ended Three months ended 30 September Six months ended 30 September 31 March 2007 2007 2006 2007 2006 --------------------- ------------------------------------------------------------------------------Earnings Pence per Earnings per share Earnings Pence per Earnings Pence per Earnings Pence per Earnings Pence per £m share (diluted) £m share £m share £m share £m share 257 Underlying pre tax profit 67 57 143 130 - income statement (31) Tax charge relating to (3) (12) (6) (26) underlying profit----------------------------------------------------------------------------------------------------------------------- 226 43p Underlying earnings per 64 12p 45 9p 137 26p 104 20p share----------------------------------------------------------------------------------------------------------------------- Exceptional item net (160) (160) of tax (305) Refinancing charges and 9 realisation of cash flow hedges 71 Gains on trading property 3 appropriations and disposals (13) Tax and other items 1 (48) 2 (47)----------------------------------------------------------------------------------------------------------------------- (21) (4)p EPRA earnings per share 65 12p (163) (31)p 148 28p (100) (19)p----------------------------------------------------------------------------------------------------------------------- 2,453 470p (Loss) profit for the (277) (54)p 163 31p (2) 0p 578 111p period after taxation ----------------------------------------------------------------------------------------------------------------------- The European Public Real Estate Association (EPRA) issued Best Practices PolicyRecommendations in November 2006, which gives guidelines for performancemeasures.The EPRA earnings measure excludes investment property revaluations andgains on disposals, intangible asset movements and their related taxation andthe REIT conversion charge. Underlying earnings consists of the EPRA earnings measure, with additionalcompany adjustments. Adjustments include reversal of refinancing charges andrealisation of cash flow hedges, gains on trading property appropriations anddisposals and their related taxation, costs relating to REIT conversion andprior year tax items. The weighted average number of shares in issue for the six month period was:basic: 519m (three months ended 30 September 2007: 516m; year ended 31 March2007:520m; six months ended 30 September 2006: 519m; three months ended 30September 2006: 520m); diluted for the effect of share options: 520m (threemonths ended 30 September 2007: 517m; year ended 31 March 2007: 522m; sixmonths ended 30 September 2006: 522m; three months ended 30 September 2006:523m). Basic earnings per share (undiluted) for the six month period were 0p(three months ended 30 September 2007: (54p); year ended 31 March 2007: 472p;six months ended 30 September 2006: 111p; three months ended 30 September 2006:31p). 31 30 30 30 March September September June 2007 Net asset value (NAV) 2007 2006 2007 £m £m £m £m 8,747 Balance sheet net assets 8,621 6,627 9,134 168 Deferred tax arising on revaluation movements, 134 1,908 149 capital allowances and derivatives Goodwill (105) (99) Mark to market on effective cash flow hedges (108) (214) and related debt adjustments Surplus arising on trading and finance lease properties 78 46 Dilution effect of share options 49 53 50 ---------------------------------------------------------------------------------------------------------------------- 8,862 EPRA NAV 8,696 8,561 9,119---------------------------------------------------------------------------------------------------------------------- 1682p EPRA NAV per share 1682p 1624p 1730p---------------------------------------------------------------------------------------------------------------------- The EPRA NAV per share excludes the mark to market on effective cash flow hedgesand related debt adjustments, deferred taxation on revaluations and iscalculated on a fully diluted basis. At 30 September 2007, the number of shares and potential shares in issue (on afully diluted basis) was 517m (30 June 2007: 527m; 31 March 2007: 527m; 30September 2006: 527m). Total return per share of 0.9% represents growth per share in EPRA NAV of 0pplus dividends paid of 15p (see note 7) in the six months to 30 September 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 Year ended Three months ended Six months ended 31 March 30 September 30 September 2007 2007 2006 2007 2006 £m £m £m £m £m Gross and net rental income 551 Rent receivable 135 134 276 263 Spreading of tenant incentives and guaranteed 37 rent increases 11 12 21 23 9 Surrender premiums 1 3 5 --------- -------- -------- -------- -------- 597 Gross rental income 147 146 300 291 52 Service charge income 19 14 26 24 --------- -------- -------- -------- -------- 649 Gross rental and related income 166 160 326 315 (52) Service charge expenses (19) (14) (26) (25) (36) Property operating expenses (6) (8) (18) (16)---------------------------------------------------------------------------------------------------------------------- 561 Net rental and related income 141 138 282 274---------------------------------------------------------------------------------------------------------------------- Fees and other income Performance and management fees (from funds 30 and joint ventures) 6 7 11 11 18 Dividend received from Songbird Estates 16 18 2 Other fees and commission 1 2 2 4 --------- -------- -------- -------- -------- 50 Underlying 7 9 29 33 33 Capital dividend received from Songbird Estates 30---------------------------------------------------------------------------------------------------------------------- 83 7 9 59 33---------------------------------------------------------------------------------------------------------------------- Net revaluation gains on property and investments Income statement 1,053 Revaluation of properties (312) 267 (191) 607 115 Gains on property disposals 16 14 40 36 (1) Other revaluations and gains --------- -------- -------- -------- -------- 1,167 (296) 281 (151) 643 257 Share of gains of funds and joint ventures (note 4) (69) 74 (56) 167 --------- -------- -------- -------- -------- 1,424 (365) 355 (207) 810 Consolidated statement of recognised income and expense 184 Revaluation of development properties 34 59 94 107 Revaluation of owner-occupied property 7 7 22 Revaluation of investments 5 (30) 5---------------------------------------------------------------------------------------------------------------------- 1,630 (324) 419 (136) 922---------------------------------------------------------------------------------------------------------------------- Tax expense (income) (8) Current tax: UK corporation tax (30%) 1 1 3 5 3 Foreign tax 1 --------- -------- -------- -------- -------- (5) 1 1 3 6 4 Adjustments in respect of prior periods (1) (2) --------- -------- -------- -------- -------- (1) Total current tax expense (income) 1 1 6 277 REIT conversion charge (1,289) Deferred tax on income and revaluations (24) 6 (34) 86 --------- -------- -------- -------- -------- (1,013) Group total taxation (net) (24) 7 (33) 92 (170) Attributable to funds and joint ventures 2 10 3 32 ---------------------------------------------------------------------------------------------------------------------- (1,183) Total taxation (22) 17 (30) 124 ---------------------------------------------------------------------------------------------------------------------- Tax attributable to underlying profits for the six months ended 30 September2007 was £6m (three months to 30 September 2007: £3m, year to 31 March 2007:£31m, six months to 30 September 2006: £26m, three months to 30 September 2006:£12m). 3. Property Total property interests are £15,910m at 30th September 2007 comprisingproperties held by the Group of £13,199m, share of properties held by funds of£1,349m and share of properties held by joint ventures of £1,362m. Propertieswere valued on the basis of market value, supported by market evidence, inaccordance with the Appraisal and Valuation Standards published by The RoyalInstitution of Chartered Surveyors. 31 March 30 September 30 September 30 June 2007 2007 2006 2007 £m £m £m £m 12,891 Investment properties 12,216 12,540 12,810 1,106 Development properties 961 800 873 50 Owner-occupied property 57 50 Trading properties at cost 49 -------- -------- -------- -------- 14,047 Carrying value of properties on balance sheet 13,234 13,389 13,733 External valuation surplus on trading properties 73 (30) Head lease liabilities (35) (33) (29) -------- ---------------------------------------------------------------------------------------------------------------------- 14,017 Total British Land Group property portfolio valuation 13,199 13,429 13,704 ---------------------------------------------------------------------------------------------------------------------- At 30 September 2007 Group properties valued at £8,762m were subject to asecurity interest (30 June 2007: £8,893m, 31 March 2007: £9,194m, 30 September2006: £8,993m) and other properties of non-recourse companies amounted to £12m(30 June 2007: £33m, 31 March 2007: £128m, 30 September 2006: £8m). 4. Funds and joint ventures Summary of British Land's share of investments in funds and joint ventures at 30 September 2007 Underlying Underlying profit profit (three (six Net Gross Gross months) months) Investment assets liabilities £m £m £m £m £mShare of funds 5 9 871 1,393 (522)Shares of joint ventures 5 10 743 1,503 (760)----------------------------------------------------------------------------------------------------------------------Total share of investments 10 19 1,614 2,896 (1,282)---------------------------------------------------------------------------------------------------------------------- The total investment in joint ventures is £748m, which also incorporates £5mbeing City of London Office Unit Trust (CLOUT) and its associated ventures,which is included within share of funds. Amounts owed to joint ventures at 30 September 2007 were £28m (30 June 2007:£28m, 31 March 2007: £32m, 30 September 2006: £31m). British Land's share of the results of funds and joint ventures Year ended Three months ended Six months ended 31 March 30 September 30 September 2007 2007 2006 2007 2006 £m £m £m £m £m 109 Gross rental income 28 31 55 62---------------------------------------------------------------------------------------------------------------------- 100 Net rental income 26 28 52 56 (6) Other income and expenditure (1) (1) (3) (3) (57) Net financing costs (15) (14) (30) (31) -------- -------- -------- -------- -------- 37 Underlying profit before taxation 10 13 19 22 257 Net valuation movement and gains on disposal (69) 74 (56) 167 Realisation of cash flow hedges (on property 9 disposals) (5) Goodwill impairment (2) (2) -------- -------- -------- -------- -------- 289 (Loss) profit on ordinary activities before taxation (59) 87 (30) 187 (48) REIT conversion charge (19) Current tax (2) (3) (2) 237 Deferred tax (10) (30)---------------------------------------------------------------------------------------------------------------------- 459 (Loss) profit on ordinary activities after taxation (61) 77 (33) 155---------------------------------------------------------------------------------------------------------------------- 5. Net debt 31 March 30 September 30 September 30 June 2007 2007 2006 2007 £m £m £m £m 3,632 Securitisations 3,612 3,668 3,625 1,175 Debentures 1,175 1,138 1,175 1,425 Bank loans and overdrafts 1,279 1,324 1,038 439 Other bonds and loan notes 436 430 436 -------- -------- -------- -------- 6,671 Gross debt 6,502 6,560 6,274 -------- -------- -------- -------- 19 Interest rate and currency derivative liabilities 22 49 19 (88) Interest rate and currency derivative assets (103) (34) (189) -------- -------- -------- -------- 6,602 6,421 6,575 6,104 (198) Cash and short-term deposits (453) (195) (389)---------------------------------------------------------------------------------------------------------------------- 6,404 Net debt 5,968 6,380 5,715---------------------------------------------------------------------------------------------------------------------- Gross debt includes £117m due within one year at 30 September 2007 (30 June2007: £65m; 31 March 2007: £54m; 30 September 2006: £140m). The principal amount of gross debt at 30 September 2007 was £6,519m. Included inthis, the principal amount of secured borrowings and other borrowings of non-recourse companies was £5,041m. Cash and short-term deposits not subject to a security interest at 30 September2007 amount to £90m (30 June 2007: £33m; 31 March 2007: £27m; 30 September 2006:£39m). Undrawn committed bank facilities amounted to £1,855m (30 June 2007:£2,093m; 31 March 2007: £1,657m; 30 September 2006: £1,600m). 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 Total recognised income and expense 67 418 485Purchase of ESOP shares (4) (4)Adjustment for share and share option awards 2 2----------------------------------------------------------------------------------------------------------------------At 30 June 2006 130 1,253 243 4,873 6,499 Total recognised income and expense 31 156 187Share issues 2 2Purchase of ESOP shares (9) (9)Adjustment for share and share option awards 9 9Dividends paid in the period (61) (61)----------------------------------------------------------------------------------------------------------------------Movement in six months to 30 September 2006 2 98 511 611----------------------------------------------------------------------------------------------------------------------At 30 September 2006 130 1,255 274 4,968 6,627 Total recognised income and expense 258 1,880 2,138Share issues 8 8Purchase of ESOP shares (3) (3)Adjustment for share and share option awards 7 7Dividends paid in the period (30) (30)----------------------------------------------------------------------------------------------------------------------Movement in year to 31 March 10 356 2,365 2,731----------------------------------------------------------------------------------------------------------------------At 31 March 2007 130 1,263 532 6,822 8,747 Total recognised income and expense 41 387 428Share issues 2 2Purchase of ESOP shares (12) (12)Adjustment for share and share option awards 3 3Dividends paid in the period (34) (34)----------------------------------------------------------------------------------------------------------------------At 30 June 2007 130 1,265 573 7,166 9,134 Total recognised income and expense (72) (278) (350)Share issues 1 1Purchase of ESOP shares Ordinary shares purchased and held as Treasury shares (125) (125)Adjustment for share and share option awards 4 4Dividends paid in the period (43) (43)----------------------------------------------------------------------------------------------------------------------Movement in six months to30 September 2007 3 (31) (98) (126)----------------------------------------------------------------------------------------------------------------------At 30 September 2007 130 1,266 501 6,724 8,621---------------------------------------------------------------------------------------------------------------------- At 30 September 2007, of the issued 25p ordinary shares, 3m shares were held inthe ESOP Trust (30 June 2007: 3m, 31 March 2007: 3m, 30 September 2006: 3m),10m shares were held as Treasury shares (30 June 2007, 31 March 2007, 30September 2006: nil) and 509m shares were in free issue (30 June 2007: 518m, 31March 2007: 518m, 30 September 2006: 517m). All issued shares are fully paid. 7. Dividends The proposed second 2008 interim dividend of 8.75 pence per share, totalling£45m, was approved by the Board on 14 November 2007 and is payable on 15February 2008 to shareholders on the register at the close of business on 18January 2008. The dividend will consist of two components: a property incomedistribution (PID) as required by REIT legislation of 4.25 pence per share and anon-PID of 4.50 pence per share. The PID element of the dividend may vary overtime and is paid after deduction of withholding tax at the basic rate (22% for2007/2008). However, certain classes of shareholder may be able to claimexemption from deduction of withholding tax. Please refer to our website(www.britishland.com) for details. The non-PID element will be treated as anormal dividend. The first 2008 interim dividend of 8.75 pence per share, totalling £45m, ispayable on 16 November 2007. The reconciliation of movements in shareholders' funds shows total dividendspaid in the six month period to 30 September 2007 of £77m being the second 2007interim dividend of £34m (6.5 pence per share) paid on 18 May 2007 and the 2007final dividend of £43m (8.25 pence per share) paid on 17 August 2007. The Company offers shareholders the option to reinvest their cash dividendsautomatically in the Company's shares through the Dividend Reinvestment Plan(DRIP). The DRIP will apply to both the PID and non-PID elements of the dividendfor those shareholders who have elected to participate in the plan. Furtherdetails of the DRIP can be found on the Company's website (www.britishland.com)or by calling Equiniti's DRIP helpline on 0870 241 3018. 8. Segment information Since the UK is the predominant location of the Group's property portfolio,these financial statements and related notes represent the results and financialposition of the Group's primary business segment. The secondary reporting formatby property use is shown below: Offices Retail Other Total 2007 2006 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m £m £m----------------------------------------------------------------------------------------------------------------------Six months ended 30 SeptemberNet rental income: Group only 112 116 157 146 13 12 282 274Capital expenditure 342 138 60 299 16 17 418 454Segment assets 6,066 5,635 8,379 8,585 1,347 1,111 15,792 15,331Three months ended 30 SeptemberNet rental income: Group only 56 57 79 74 6 7 141 138Capital expenditure 99 69 25 251 16 140 320---------------------------------------------------------------------------------------------------------------------- Segment assets include the Group's investment in funds and joint ventures. 9. Contingent liabilities TPP Investments Limited, a wholly owned ring-fenced special purpose subsidiary,is a partner in The Tesco British Land Property Partnership and, in thatcapacity, has entered into a secured bank loan under which its liability islimited to £23m (30 June 2007, 31 March 2007, 30 September 2006: £23m) andrecourse is only to the partnership assets. 10. Related party transactions Details of transactions with funds and joint ventures including debt guaranteesby the Company are given in notes 2 and 9. Amounts owed to joint ventures aredetailed in note 4. There have been no material changes in the related party transactions described in the last annual report. 11. Basis of preparation The financial information for the year ended 31 March 2007 does not constitutestatutory accounts as defined in section 240 of the Companies Act 1985. A copyof the statutory accounts for that year has been delivered to the Registrar ofCompanies. The auditors' report on those accounts was not qualified and did notcontain statements under section 237(2) or (3) of the Companies Act 1985. The financial information included in this announcement has been prepared usingaccounting policies consistent with International Financial Reporting Standards(IFRS) and in accordance with IAS 34 'Interim Financial Reporting'. The sameaccounting policies, presentation and methods of computation are followed in thequarterly report as applied in the Group's latest annual audited financialstatements, with the exception of the cash flow statement which is now presentedunder the direct method. This is regarded by the IASB as the preferred method ofpresenting cash flows and has been adopted for improved transparency. The prioryear audited figures have been re-presented on a consistent basis. The currentperiod financial information presented in this document is unaudited. The interim financial information was approved by the Board on 14 November 2007. Table A Summary income statement based on proportional consolidationfor the period ended 30 September 2007 The following pro forma information is unaudited and does not form part of theconsolidated primary statements or the notes thereto. It presents the results ofthe Group, with its share of the results of funds and joint ventures included ona line by line, i.e. proportional basis. The underlying profit before taxationand total profit after taxation are the same as presented in the consolidatedincome statement. Year ended Three months ended Six months ended 31 March 30 September 30 June 30 September 2007 2007 2007 2007 2006 £m £m £m £m £m 706 Gross rental income 175 180 355 353 --------- ---------- --------- --------- --------- 661 Net rental income 167 167 334 330 51 Fees and other income 7 22 29 34 (85) Administrative expenses (19) (22) (41) (46) (370) Net interest costs (88) (91) (179) (188) --------- ---------- --------- --------- --------- 257 Underlying profit before taxation 67 76 143 130 (305) Debt refinancing items 9 9 (228) 1,424 Net valuation movement and gains on disposal (365) 158 (207) 810 (15) Amortisation of intangible assets (1) (4) (5) (8) 33 Songbird Estates dividend (capital) 30 30 (111) Goodwill impairment (2) (2) (2) (13) REIT conversion costs --------- ---------- --------- --------- --------- 1,270 (Loss) profit on ordinary activities before taxation (299) 267 (32) 702 (31) Tax charge relating to underlying profit (3) (3) (6) (26) (325) REIT conversion charge 1,673 Deferred tax benefit 24 10 34 (134) Other taxation 1 1 2 (98)---------------------------------------------------------------------------------------------------------------------- 2,453 (Loss) profit for the period after taxation (277) 275 (2) 578---------------------------------------------------------------------------------------------------------------------- 43p Underlying earnings per share - diluted basis 12p 14p 26p 20p---------------------------------------------------------------------------------------------------------------------- The underlying earnings per share is calculated on underlying profit beforetaxation of £143m, tax attributable to underlying profits of £6m and 520m shareson a diluted basis, for the six months ended 30 September 2007 and underlyingprofit before taxation of £67m, tax attributable to underlying profits of £3mand 517m shares on a diluted basis, for the three months ended 30 September2007. Table A (continued) Summary balance sheet based on proportional consolidationas at 30 September 2007 The following pro forma information is unaudited and does not form part of theconsolidated primary statements or the notes thereto. It presents thecomposition of the EPRA net assets of the Group, with its share of the netassets of funds and joint ventures included on a line by line, i.e. proportionalbasis and assuming full dilution. 31 March 30 September 30 September 30 June 2007 2007 2006 2007 £m £m £m £m 10,173 Retail properties 9,429 9,770 9,775 6,165 Office properties 6,067 5,619 6,076 565 Other properties 414 508 497 ------- ---------- ---------- ------- 16,903 Total properties 15,910 15,897 16,348 267 Other investments 237 253 237 50 Intangible assets 45 57 46 (617) Other net liabilities (373) (262) (648) (7,741) Net debt (7,123) (7,384) (6,864)---------------------------------------------------------------------------------------------------------------------- 8,862 EPRA NAV (note 1) 8,696 8,561 9,119---------------------------------------------------------------------------------------------------------------------- 1682p EPRA NAV per share (note 1) 1682p 1624p 1730p---------------------------------------------------------------------------------------------------------------------- Total property valuations including share of funds and joint ventures 14,017 British Land Group 13,199 13,429 13,704 Share of funds and joint ventures 2,815 Investment properties 2,630 2,379 2,566 77 Development properties 87 83 84 Trading and finance lease properties at valuation 12 (6) Head lease liabilities (6) (6) (6) ------- ---------- ---------- ------- 2,886 2,711 2,468 2,644---------------------------------------------------------------------------------------------------------------------- 16,903 Total property portfolio valuation 15,910 15,897 16,348---------------------------------------------------------------------------------------------------------------------- Calculation of EPRA NNNAV per share 8,862 EPRA NAV 8,696 8,561 9,119 (168) Deferred tax arising on revaluation movements (134) (1,820) (149) 99 Mark to market on interest rate swaps 108 214 75 Mark to market on debt 350 (148) 305 Tax relief arising thereon 44---------------------------------------------------------------------------------------------------------------------- 8,868 EPRA NNNAV 9,020 6,637 9,489---------------------------------------------------------------------------------------------------------------------- 1683p EPRA NNNAV per share 1745p 1259p 1801p---------------------------------------------------------------------------------------------------------------------- EPRA NNNAV is the EPRA NAV adjusted to reflect the fair value of the debt andderivatives and to include the deferred taxation on revaluations. INDEPENDENT REVIEW REPORT TO THE BRITISH LAND COMPANY PLC Introduction We have been engaged by the Company to review the condensed set of financialstatements in the half-yearly financial report for the six months ended 30September 2007 which comprises the consolidated income statement, theconsolidated balance sheet, the consolidated statement of recognised income andexpense, the reconciliation of movement in shareholders' funds, theconsolidated cash flow statement and related notes 1 to 11. We have read theother information contained in the half-yearly financial report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe information in the condensed set of financial statements. This report is made solely to the Company in accordance with InternationalStandard on Review Engagements (UK and Ireland) 2410 issued by the AuditingPractices Board. Our work has been undertaken so that we might state to theCompany those matters we are required to state to them in an independent reviewreport and for no other purpose. To the fullest extent permitted by law, we donot accept or assume responsibility to anyone other than the Company, for ourreview work, for this report, or for the conclusions we have formed. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approvedby, the directors. The directors are responsible for preparing the half-yearlyfinancial report in accordance with the Disclosure and Transparency Rules ofthe United Kingdom's Financial Services Authority. As disclosed in note 11, theannual financial statements of the group are prepared in accordance withInternational Financial Reporting Standards as adopted by the EuropeanUnion.The condensed set of financial statements included in this half-yearlyfinancial report has been prepared in accordance with International AccountingStandard 34 "Interim Financial Reporting," as adopted by the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview. Scope of Review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly, wedo not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the half-yearly financialreport is not prepared, in all material aspects, in accordance withInternational Accounting Standard 34 as adopted by the European Union and theDisclosure and Transparency Rules of the United Kingdom's Financial ServicesAuthority. Deloitte & Touche LLPChartered AccountantsLondon14 November 2007 This information is provided by RNS The company news service from the London Stock Exchange

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