REG - British Land Co PLC British Land Jersey - Final Results - Part 1 <Origin Href="QuoteRef">BLND.L</Origin> - Part 3
17/05/2017 07:06
- Part 3: For the preceding part double click ID:nRSQ3583Fb
our financial position is sufficiently flexible and resilient· Our resilient business model focuses on a high quality
portfolio, with secure income streams and robust finances
Political and regulatory Significant political events and regulatory changes, including the decision to leave the EU, brings risks principally in · Whilst we are not able to influence the outcome of significant political events, we do take the uncertainty related to such ↑ There remains uncertainty about the nature of Britain's exit from and future relations with the EU, alongside how this could impact the UK economy. Furthermore, the global geopolitical and trade environment remains uncertain.
outlook two areas:· reluctance of investors events and the range of possible outcomes into account when making strategic investment and financing decisions· Internally we
We are confident that the natural resilience of our business, with its long leases, high occupancy and robust financial position, together with the actions we have taken, leaves our business well positioned.
and businesses to make investment and occupational decisions whilst the outcome review and monitor proposals and emerging policy and legislation to ensure that we take the necessary steps to ensure
remains uncertain and· on determination of the outcome, the impact on the case for investment in the UK, and on specific policies and regulation introduced, particularly those which directly impact real estate compliance. Additionally we engage public affairs consultants to ensure that we are properly briefed on the potential policy and
or our customers regulatory implications of political events. Where appropriate, we act with other industry participants and representative
bodies to
contribute to the debate on regulatory changes
Commercial property investor demand Reduction in investor demand for UK real estate may result · The Risk Committee reviews the property market quarterly to assess whether any changes to the market outlook present risks ↑ Investment volumes were lower in 2016, although there has been a pick-up in activity more recently, particularly in central London offices. UK property continues to appeal to certain investors underpinned by the relatively wide yield gap between property yields and long term interest rates, further supported by currency movements.
in falls in asset valuations and could arise from variations in:· the health of the UK economy· the attractiveness of investment in the UK· availability of finance, and· relative attractiveness and opportunities which should be reflected in the execution of
The market for the most attractive assets remains liquid and in the central London office market there have been a number of high profile transactions including our sale of The Leadenhall Building.
of other asset classes our strategy and our capital allocation plan. The Committee considers indicators such as margin between property yields and
Prime yields have remained broadly stable, although market pricing is becoming increasingly polarised with some softening in demand for more secondary assets. We have continued to be active and successfully sold £1.5 billion of assets, overall at 9% ahead of valuation.
borrowing costs and property capital growth forecasts which are considered alongside the Committee members' knowledge and
experience of market activity and trends· We focus on prime assets and sectors which we believe will be less susceptible over
the medium term to a reduction in occupier and investor demand· Strong relationships with agents and direct investors active
in the market· We stress test our business plan for the effect of a change in property yields
Occupier demand Underlying income, rental growth and capital performance could be adversely affected by weakening occupier demand and occupier failures resulting from variations in the health · The Risk Committee reviews indicators of occupier demand quarterly including consumer confidence surveys, employment and ERV ↑ In retail, demand remained firm in the year, despite wider uncertainty from consumers and retailer alike. However, retailers are facing a more challenging environment with cost pressures from a number of sources increasing the National Living Wage, the recent business rates revaluation, an increase in import costs due to the weakening pound and from the requirements of omni-channel. These pressures mean that retailers are increasingly focusing on the most profitable stores, where they can grow sales with lower occupancy costs. Our continued upgrading of our retail properties and targeted engagement with occupiers, positions us well to benefit from increasing polarisation.
and tenant default of the UK economy and corresponding weakening of consumer confidence, business activity and investment.Changing consumer and business practices including growth forecasts, alongside the Committee members' knowledge and experience of occupier plans, trading performance and leasing
While occupier demand in the London office market has been more cautious post-referendum, take-up has since picked up with overall take-up over the year in-line with the 10-year average. London's broad appeal means that demand has continued to originate from a range of industries including strong demand from the creative and technology sectors. We have seen vacancy rates rising in both the City and West End following recent development completions and expect this to apply downward pressure on market rents; however accelerating polarisation towards higher quality places will provide support for rents in the best locations.
the growth of internet retailing, flexible working practices, and demand for energy efficient buildings, new technologies, new legislation and alternative locations may result in earlier than anticipated obsolescence of our buildings if evolving occupier and regulatory requirements are not met. activity in guiding execution of our strategy· We have a high quality, diversified occupier base and monitor concentration of
As well as policy and regulatory changes arising from the UK's departure from the EU, such as migration controls and passporting, office occupiers also face challenges as they adapt to economic, social and technology challenges. Our focus on London campuses providing attractive and engaging environments are increasingly flexible to suit the changing requirements and scale of central London office occupiers and positions us well to benefit from any shift in demand.
exposure to individual occupiers or sectors. We perform rigorous occupier covenant checks ahead of approving deals and on
an ongoing basis so that we can be proactive in managing exposure to weaker occupiers· Ongoing engagement with our occupiers.
Through our Key Occupier Account programme we work together with our occupiers to find ways to best meet their evolving
requirements· Our sustainability strategy links action on occupier health and wellbeing, energy efficiency, community and
sustainable design to our business strategy. Our social and environmental targets help us comply with new legislation and
respond to customer demands; for example, we expect all office developments to be BREEAM Excellent
Availability Reduced availability of finance may adversely impact ability to refinance debt and/or drive up cost. These factors may also result in weaker investor demand for real estate. Regulation and capital costs of lenders may increase cost · Market borrowing rates and real estate credit availability are monitored by the Risk Committee quarterly and reviewed ←→ There has been market volatility reacting to macro economic and political uncertainties. However, there remains good availability of finance in debt and capital markets (secured and unsecured) to UK REITs and other good quality real estate investors. Development finance without pre-lets is more difficult to obtain.
and cost of finance. regularly in order to guide our financing actions in executing our strategy· We monitor our projected LTV and our debt
We have continued to achieve attractive financings and agreed one year extensions on a total of £1.4 billion of our unsecured facilities and agreed a new £100 million bi-lateral facility in the year.
of finance requirements using several internally generated reports focused on borrowing levels, debt maturity, available facilities and
interest rate exposure· We maintain good long term relationships with our key financing partners· The scale and quality of
our business enables us to access a diverse range of sources of finance with a spread of repayment dates. We aim always to have
a good level of undrawn, committed, unsecured revolving facilities to ensure we have adequate financing availability to support
business requirements and opportunities· We work with industry bodies and other relevant organisations to participate in any
debate on emerging finance regulations where our interests and those of our industry are affected
Catastrophic business An external event such as a civil emergency, including a large-scale terrorist attack, cyber crime, extreme weather occurrence, environmental disaster or power shortage could severely disrupt global markets (including property and finance) and cause significant damage and disruption to British Land's portfolio and operations. · We maintain a comprehensive crisis response plan across all business units as well as a head office business continuity ←→ The Home Office threat level from international terrorism remains 'Severe'. Our business continuity plans and asset emergency procedures have been reviewed and enhanced where appropriate.
event plan· The Risk Committee monitors the Home Office terrorism threat levels and we have access to security threat information
We are mindful of cyber security risks and have enhanced our security position as well as rolling out cyber awareness training across both British Land and Broadgate Estates. We continue to monitor the cyber threat landscape including the impact on our supply chain and any implications of new regulations.
services· Asset emergency procedures are regularly reviewed and scenario tested. Physical security measures are in place at
properties and development sites· Our Sustainability Committee monitors environmental and climate change risks. Asset risk
assessments are carried out to assess a range of risks including security, flood, environmental, health and safety· We have
implemented corporate cyber security systems which are supplemented by incident management, disaster recovery and business
continuity plans, all of which are regularly reviewed to be able to respond to changes in the threat landscape and
organisational requirements· We also have appropriate insurance in place across the portfolio.
Catastrophic business
event
An external event such as a civil emergency, including a large-scale terrorist
attack, cyber crime, extreme weather occurrence, environmental disaster or
power shortage could severely disrupt global markets (including property and
finance) and cause significant damage and disruption to British Land's
portfolio and operations.
· We maintain a comprehensive crisis response plan across all business units
as well as a head office business continuity plan· The Risk Committee
monitors the Home Office terrorism threat levels and we have access to
security threat information services· Asset emergency procedures are
regularly reviewed and scenario tested. Physical security measures are in
place at properties and development sites· Our Sustainability Committee
monitors environmental and climate change risks. Asset risk assessments are
carried out to assess a range of risks including security, flood,
environmental, health and safety· We have implemented corporate cyber
security systems which are supplemented by incident management, disaster
recovery and business continuity plans, all of which are regularly reviewed to
be able to respond to changes in the threat landscape and organisational
requirements· We also have appropriate insurance in place across the
portfolio.
←→ The Home Office threat level from international terrorism remains
'Severe'. Our business continuity plans and asset emergency procedures have
been reviewed and enhanced where appropriate.
We are mindful of cyber security risks and have enhanced our security position
as well as rolling out cyber awareness training across both British Land and
Broadgate Estates. We continue to monitor the cyber threat landscape including
the impact on our supply chain and any implications of new regulations.
Internal risks
Investment strategyResponsible executives: In order to meet our strategic objectives we aim to invest in and exit from the right properties at the right time. Underperformance could result from changes in market sentiment as well as inappropriate determination and execution of our property investment strategy, including:· sector selection Our investment strategy is determined to be consistent with our target risk appetite and is based on the evaluation of the ←→ Whilst the outlook in our markets will remain uncertain for some time, we have an enduring strategy which is based on long term trends and this positions our high quality portfolio to benefit from increasing polarisation and to attract a broader range of occupiers. In line with our strategic priorities, we have accelerated our focus on lifestyle oriented real estate; we have recycled capital to maximise returns and we are getting closer to our customers.
Chris Grigg, and weighting· timing of investment and divestment decisions· exposure to developments· asset, tenant, region concentration· co-investment arrangements external environment.· Progress against the strategy and continuing alignment with our risk appetite is discussed at each Risk
During the year we have made £1.5 billion of asset disposals at 9% above valuation. We have been disciplined in our investment activity, with £195 million of acquisitions of properties which are complementary to existing assets and £292 million capital spend on developments and placemaking.
Charles Maudsley, Committee with reference to the property markets and the external economic environment· The Board carries out an annual
Tim Roberts strategic review of the overall corporate strategy including the Group's current and prospective asset portfolio · Individual
investment decisions are subject to robust risk evaluation overseen by our Investment Committee including consideration of
returns
relative to risk adjusted hurdle rates· Review of prospective performance of individual assets and their business plans· We
foster collaborative relationships with our co-investors and enter into ownership agreements which balance the interests of the
parties
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