REG - British Land Co PLC - Half Yearly Report - Part 1 <Origin Href="QuoteRef">BLND.L</Origin> - Part 2

British LandAnnouncement

17/11/2015 07:02

- Part 2: For the preceding part double click  ID:nRSQ9196Fa 

 9,035                    
 EPRA NAV per share                            891p                               829p                     
 Non-controlling interest                      284                                333                      
 EPRA adjustments1                             (786)                              (803)                    
 IFRS net assets                               9,253                              8,565                    
 
 
1 EPRA net assets exclude the mark-to-market on effective cash flow hedges and
related debt adjustments, as well as deferred taxation on revaluations. It
includes trading properties at fair value and is adjusted for the impact of
share options and the £400 million convertible bond issued in 2012 which are
dilutive. No adjustment is made for the £350 million zero coupon convertible
bond because this is not currently dilutive. 
 
Movement in EPRA net asset value per share 
 
                                               p     
 EPRA NAV per share at 31 March 2015           829   
 Offices and Residential valuation uplift      47    
 Retail and Leisure valuation uplift           13    
 Underlying profit                             16    
 Dividends                                     (13)  
 Other                                         (1)   
 EPRA NAV per share at 30 September 2015       891   
 
 
The 7.5% increase in EPRA NAV reflects a strong valuation performance across
the portfolio with a 4.7% uplift in the period. This was the result of yield
compression of 13 bps and ERV growth of 2.3%. 
 
Returns were driven by continued performance from our standing investments, up
4.5%, and a 9% increase in developments under construction. 
 
This increase reflects the strength of the markets we are invested in and the
actions we have taken to improve and manage the portfolio which contributed
around 40% of this increase. 
 
Offices and Residential valuations were up 8.2%; the City performed slightly
more strongly than the West End, boosted by leasing activity and 5 Broadgate
which completed in the period. Retail and Leisure valuations were up 1.8%
driven by strong performance from our multi-let assets, up 2.2%. 
 
IFRS balance sheet 
 
At 30 September 2015, 33% of the property portfolio and 29% of net debt was
held within joint ventures and funds. The IFRS balance sheet shows our
investment in joint ventures and funds grouped together and shown net. On this
basis, our investment at 30 September 2015 was £3,281 million (FY 2015: £2,901
million). 
 
Cash flow, net debt and financing 
 
Adjusted net debt 
 
                                                 £m       
 Adjusted net debt at 31 March 2015              (4,918)  
 Acquisitions                                    (329)    
 Development and capex                           (160)    
 Disposals                                       371      
 Net cash from operations                        132      
 Dividends                                       (116)    
 Transactions with joint ventures and funds      121      
 Other                                           (9)      
 Adjusted net debt at 30 September 2015          (4,908)  
 
 
Significant acquisitions completed in the period included One Sheldon Square
and the purchase of an additional 5.6% of the units in the Hercules Unit Trust
bringing the Group's ownership to 74.8% at the period end (75.3% including
units acquired after the period end). 
 
Development and capital expenditure in the period reflected the spend on the
committed development programme, the replenishment of the development pipeline
and asset management on the standing portfolio. Forecast development spend of
£265 million is anticipated over the next three years on the committed
development programme. This compares to £332 million of contracted residential
sales along with a further £338 million of residential units yet to be
contracted for sale on existing committed projects. 
 
Significant disposals in the half year included 39 Victoria Street at an
attractive yield which generated an IRR of over 20% and the shopping parks in
Rotherham and Birtstall. In addition, selective disposals of standalone
foodstores totalling £74 million were completed including the sale of Tesco
Bursledon for £60 million post period end, reducing the Group's total
superstore exposure to under 6%. 
 
Financing 
 
                                               Group 1            Proportionally consolidated  
                                               30 September 2015  31 March 2015                30 September 2015  31 March 2015  
 Adjusted net debt                             £3,450m            £3,425m                      £4,908m            £4,918m        
 Principal value of gross debt                 £3,583m            £3,517m                      £5,254m            £5,202m        
 Loan to value                                 26%                28%                          34%                35%            
 Weighted average interest rate of drawn debt  3.1%               3.3%                         3.6%               3.8%           
 Interest cover                                3.0                3.0                          2.8                2.6            
 Weighted average debt maturity of drawn debt  7.3 years          7.8 years                    8.2 years          8.7 years      
 
 
1 Group presented after elimination of non-controlling interests 
 
Balance sheet metrics in the current year remained strong. On a proportionally
consolidated basis, LTV and the weighted average interest rate on drawn debt
were reduced while interest cover was improved. The decrease in LTV to 34% was
driven by valuation performance. In line with our strategy, we have not geared
up on the market yield shift. 
 
We continue to achieve attractive financings which improve earnings and
liquidity. We have raised over £650 million of debt finance since 31 March
2015 including a zero coupon £350 million senior unsecured convertible bond
due 2020 which provides further diversification of our sources of finance, and
includes flexible settlement options. We have also extended the term and
reduced pricing on a joint venture facility and a British Land bi-lateral
revolving facility, contributing to reduced financing costs. 
 
Overall, financing activity completed in the period has reduced the
proportionally consolidated weighted average interest rate from 3.8% to 3.6% 
 
British Land has £1.8 billion of committed revolving unsecured banking
facilities, of which £1.6 billion have maturities of more than two years. 
 
We continue to manage our interest rate exposure and currently, on average,
59% of projected net debt (including our share of joint ventures and funds)
over the next five years is fixed. 
 
Further information on our approach to financing is provided in the financial
policies and principles section of the audited annual report for the year
ended 31 March 2015. 
 
PRINICPAL RISKS AND UNCERTAINTES 
 
Principal Risks and Uncertainties 
 
Assessment of risk is a cornerstone of our strategy and our embedded risk
management is fundamental to its delivery. Our approach to risk management
remains as set out on pages 56-57 of the Annual Report and Accounts published
in May 2015. 
 
The Directors' assessment is that the principal risks and uncertainties that
the company is exposed to and which may impact performance in the remaining
six months of the financial year, are unchanged from those set out on pages
58-61 of the Annual Report and Accounts published in May 2015. 
 
Our principal risks and uncertainties are summarised below. 
 
External Risks 
 
Economic outlook - The continuing economic recovery and the prospect of
increasing interest rates present risks and opportunities in property and
financing markets and the businesses of our occupiers. 
 
Political outlook - Significant political events and policies, including
potential referendum on EU membership, bring risks both in terms of
uncertainty until the outcome is known and the impact of policies introduced,
including on the investment case for the UK, and the UK's relationship with
Europe. 
 
Commercial property investor demand - Reduction in investor demand for UK real
estate may result 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 the relative attractiveness of other asset
classes. 
 
Development cost inflation - Cost inflation presents a risk to the
profitability of our development projects and has the potential to adversely
affect our cash position and overall return on investment. 
 
Occupier demand and tenant default - Underlying income, rental growth and
capital performance could be adversely affected by weakening occupier demand
resulting from variations in the health of the UK economy and corresponding
weakening of consumer confidence, business activity and investment. In
addition, occupier failures may adversely impact underlying income and capital
performance. Changing consumer and business practices (including 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. 
 
Availability and cost of finance - Reduced availability of property financing
may adversely impact British Land's ability to refinance facilities and result
in weaker investor demand for real estate. Increasing finance costs would
reduce British Land's underlying income. 
 
Catastrophic business event - An external event such as a civil emergency,
including a large-scale terrorist attack, extreme weather occurrence or
environmental disaster could severely disrupt global markets (including
property and finance) and cause significant damage and disruption to British
Land's portfolio and operations. 
 
Internal Risks 
 
Investment strategy - In order to meet our strategic objectives we must invest
in and exit from the right properties at the right time. Significant
underperformance could result from inappropriate determination and execution
of our property investment strategy, including: sector selection and
weighting; timing of investment and divestment decisions; exposure to
developments; sector, asset, tenant, region concentration; and co-investment
arrangements. 
 
Development - Development provides an opportunity for outperformance but this
brings with it elevated risk. The care with which we make our decisions around
which schemes to develop when, as well as our execution of these projects,
must reflect this. Development risks could adversely impact underlying income
and capital performance including: development letting exposure; construction
timing; major contractor failure; and adverse planning judgements. 
 
Income sustainability - We must be mindful of maintaining sustainable income
streams in order to continue to generate returns for our shareholders and
provide the platform from which to grow the business through development and
capital appreciation. We consider sustainability of our income streams in:
execution of investment strategy and capital recycling, notably timing of
reinvestment of sale proceeds; nature and structure of leasing activity; and
nature and timing of asset management and development activity. 
 
Capital Structure - leverage - We must maintain a capital structure which
recognises the balance between performance, risk and flexibility. Leverage
magnifies returns, both positive and negative. An increase in leverage
increases the risk of a breach of covenants on borrowing facilities and may
increase finance costs. 
 
Finance Strategy Execution - We must be judicious in the management of our
financing as our strategy here addresses risks both to our continuing solvency
and the stability of our profits. Failure to manage the refinancing
requirement may result in a shortage of funds to sustain the operations of the
business or repay facilities as they fall due. This and a breach of financing
covenant limits are considered to be the most significant risks to the
continuing operation of British Land as a going concern. 
 
People - A number of critical business processes and decisions lie in the
hands of a few people. Failure to recruit, develop and retain staff and
Directors with the right skills and experience may result in significant
underperformance. 
 
DIRECTORS' RESPONSIBILITY STATEMENT 
 
We confirm that to the best of our knowledge: 
 
a)   the condensed set of financial statements has been prepared in accordance
with IAS 34; 
 
b)   the interim management report includes a fair review of the information
required by DTR 4.2.7R (indication of important events during the first six
months and description of principal risks and uncertainties for the remaining
six months of the year); and 
 
c)   the interim management report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related party transactions and changes
therein). 
 
GOING CONCERN 
 
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out in the Chief
Executive's Review and Business Review. The financial position of the Group,
its cash flows, liquidity position and borrowing facilities, are described in
the tables below. 
 
The Group has considerable undrawn debt facilities and cash deposits in excess
of current drawn banking facilities. There is substantial headroom against the
covenants for its unsecured banking facilities, details of which are included
on in Note 10. It also benefits from a diverse and secure income stream from
leases with long average lease terms. As a consequence, the Directors believe
that the Group is well placed to manage its business risks satisfactorily
despite the current uncertain economic outlook and consider it appropriate to
adopt the going concern basis of accounting in preparing the interim financial
statements. 
 
Lucinda Bell 
 
Chief Financial Officer 
 
Independent review report to The British Land Company PLC 
 
Report on the condensed set of financial statements 
 
Our conclusion 
 
We have reviewed the condensed set of financial statements, defined below, in
the half-yearly financial report of The British Land Company PLC for the six
months ended 30 September 2015. Based on our review, nothing has come to our
attention that causes us to believe that the condensed set of financial
statements are not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European Union and the
Disclosure and Transparency Rules of the United Kingdom's Financial Conduct
Authority. 
 
This conclusion is to be read in the context of what we say in the remainder
of this report. 
 
What we have reviewed 
 
The condensed set of financial statements, which are prepared by The British
Land Company PLC, comprise: 
 
·      the consolidated balance sheet as at 30 September 2015; 
 
·      the consolidated income statement and consolidated statement of
comprehensive income for the period then ended; 
 
·      the consolidated statement of cash flows for the period then ended; 
 
·      the consolidated statement of changes in equity for the period then
ended; and 
 
·      the explanatory notes to the condensed set of financial statements. 
 
As disclosed in note 1, the financial reporting framework that has been
applied in the preparation of the full annual financial statements of the
group is applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union. 
 
The condensed set of financial statements included in the half-yearly
financial report have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority. 
 
What a review of condensed set of financial statements involves 
 
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. 
 
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK and Ireland) and, consequently,
does not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion. 
 
We have read the other information contained in the half-yearly financial
report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set of
financial statements. 
 
Responsibilities for the condensed set of financial statements and the review 
 
Our responsibilities and those of the directors 
 
The half-yearly financial report, including the condensed set of financial
statements, is the responsibility of, and has been approved by, the directors.
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority. 
 
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review. This report, including the conclusion, has been prepared for and only
for the company for the purpose of complying with the Disclosure and
Transparency Rules of the Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is shown or
into whose hands it may come save where expressly agreed by our prior consent
in writing. 
 
PricewaterhouseCoopers LLP 
 
Chartered Accountants 
 
16 November 2015 
 
London 
 
The maintenance and integrity of The British Land Company PLC's website is the
responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept
no responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the website. 
 
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions. 
 
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