British Land Company Plc · LSE:BLND
British Land — H1 2009/10 Earnings Presentation
57 slides from British Land's earnings presentation, November 2009
Slide 1: Half Year 2009/10 Results
If Year 2009/10 Results a 7 British Land
Slide 2: Agenda
Agenda • Introduction Chris Grigg • Financial Review Graham Roberts • Property Review Tim Roberts • Planning for the Future Chris Grigg Six months ended 30 September 2009
Slide 3: An Encouraging Performance
An Encouraging Performance • NAV per share up 3% in Q2 • Positive like for like income growth • Good levels of lettings, maintaining high occupancy • Portfolio rebalanced and balance sheet strengthened • Structured investment framework focused on exploiting opportunities Six months ended 30 Septembe
Slide 4: Financial Review
Financial Review Graham Roberts Six months ended 30 September 2009
Slide 5: Financial Highlights
Financial Highlights H1 2009 H1 2008 Q2 2009 Q1 2009 Underlying profit before tax1 £129m £144m £66m £63m Underlying EPS1 15p 22p3 8p 7p Portfolio valuation movement - 2.4% - 10.8% + 1.4% - 3.7% NAV2 per share 372p 864p3 372p 361p • NAV per share up 3% since June • Q2 dividend 6.5p4, equivalent to 26
Slide 6: Underlying Profit £129m (Q2: £66m)
Underlying Profit £129m (Q2: £66m) • Underlying profits 10% below H1 2008 Underlying Profit (£m)4 H1 2009 H1 2008 – Impact of sales (£18m) – Impact of developments (£10m) Net rental income 291 317 – Release of credit risk provision1 £16m • Q2 2009 in line with Q1 2009 Fees & other income5 6 10 • 0.7
Slide 7: Future Growth Potential
Future Growth Potential New investments – Profit Effect1 Letting of Completed Developments- Profit Effect1 Net Initial Yield Valuers’ ERV £m pa 5% 6% 7% 8% £m pa -10% Current +10% £500m 18 23 28 33 25% 6 7 8 New investment £750m 24 31 38 46 50% 13 14 15 % Let £1,000m 30 39 49 58 75% 19 21 23 £1,250m
Slide 8: NAV Per Share 372p
NAV Per Share 372p Movement in NAV1 pence NAV1 per share at 31 March 2009 398 Property and investment revaluations & asset disposals (38) Underlying profit after tax 7 Dividend paid (6) NAV1 per share at 30 June 2009 361 Property and investment revaluations & asset disposals 9 Underlying profit afte
Slide 9: Sustainable Cash Flow
Sustainable Cash Flow 98% of current rent still contracted 3 years time1 • 98% of current rent still contracted in 3 years 600 time: 500 Annualised Rent £m pa – £24m pa of further cash contracted from 400 rents frees and fixed/minimum uplifts 300 – Only 6% of rent subject to break/expiry 200 100 • O
Slide 10: Strong Balance Sheet & Liquidity
Strong Balance Sheet & Liquidity Key Financing Ratios Pro forma1 £2.9bn of Committed Undrawn Bank Facilities 3.0 Portfolio valuation £7.2bn 2.5 Net Debt – inc. share of Funds & JVs £3.9bn 2.0 LTV – Group 29% £bn LTV – inc. share of Funds & JVs 53% 1.5 Net Borrowings to Adjusted Capital & Reserves2 4
Slide 11: Property Review
Property Review Tim Roberts Six months ended 30 September 2009
Slide 12: £11.3bn Portfolio (BL Share £7.2bn)
£11.3bn Portfolio (BL Share £7.2bn1) Dec-08: Retail 59% - Offices 39% • Value add from active asset management Meadowhall 12% Broadgate 25% • Reduced exposure to single assets Rest of £10.2bn Retail 47% Rest of Offices 14% • Customer-focused portfolio Other 2% – Well located properties with customer
Slide 13: Portfolio Activity
Portfolio Activity • Broadgate JV and £206m1 of other disposals 39 Victoria Street, SW1 • £128m1 of new investments – Including 39 Victoria St (8.4% NIY) & Sunderland (8.6% NIY) • £8.1m pa2 of additional rent from active asset management – 1.9m sq ft of rent reviews (16% above previous rent) – 1.4m
Slide 14: Portfolio Valuation
Portfolio Valuation • Portfolio value increased 1.4% in Q2 (-2.4% over 6 months) Portfolio Valuation LAST 3 MONTHS • UK portfolio outperformed IPD by 1.1% over 6 months +3.0% -1.1% • 70% of assets increased in value in Q2 (53% since March) +1.4% • ERV decline1 of 6.1% over 6 months, slowed in Q2 to
Slide 15: Secure Income & High Quality Customers
Secure Income & High Quality Customers • Secure income from quality portfolio Only 6% of rent expiring in next 3 years (IPD 20%) – 94% occupancy1 (Retail 98%1; Offices 86%1) 10 – New lettings and renewals achieved average lease length of 13 years to first break 8 – Only 6% of rent expiring over the
Slide 16: Retail Market Outlook
Retail Market Outlook • Like for like sales positive, but off weak comparables BL Retail Vacancy only 2% vs. 7% for IPD – BL retail footfall up 0.8% vs. national average 0.1%1 10 • Demand thin, but some new entrants (e.g. John Lewis Home, Republic, Best Buy) 8 Vacancy rate (%) • Competition for occu
Slide 17: London Office Market Outlook
London Office Market Outlook • London office vacancy 10%1, likely to peak next year London Speculative Construction & Vacancy2 10 14 • Take up (annual rolling basis) 7.9m sq ft1, but signs Speculative Construction (m sq ft) of activity on Grade A accommodation 12 8 10 Vacancy rate (%) • Speculative
Slide 18: Planning for the Future
Planning for the Future Chris Grigg Six months ended 30 September 2009
Slide 19: Market Outlook
Market Outlook • Marked improvement in the investment market – Greatest demand centred around smaller lot size, long lease and good covenants – But transaction volumes still low – bidders currently outweigh available stock – Bank lending has returned – albeit small scale • Occupational market remain
Slide 20: A Stronger, More Balanced Portfolio
A Stronger, More Balanced Portfolio • Limited single asset concentration Balanced exposure to sub-sectors1 – Meadowhall now 8% (Dec-08: 12%) Retail City (20%) – Broadgate now 15% (Dec-08: 25%) Warehouses (Broadgate 15%) (27%) • Better risk profile – Reduced exposure to largest single tenant West End
Slide 21: Strengthened Financial Position
Strengthened Financial Position • Group LTV reduced from 54% to 29%1 since Dec-08 – Proportionally consolidated reduced from 60% to 53%1 • Strong debt profile with 11 years average maturity • £3.3bn of cash and low cost undrawn facilities • Financial structure providing flexibility and robustness fo
Slide 22: Investing with Confidence
Investing with Confidence Value-Add Opportunistic • Strong portfolio combined with• robust Timelinefinancials of 3-7 years put British Land • Timeline of 1-3 good in a very years position • Medium liquidity requirement • High liquidity requirement • Heavy asset management • Low asset management • Do
Slide 23: Investment Framework
Investment Framework Core Value-Add Opportunistic • Timeline of 7+ years • Timeline of 3-7 years • Timeline of < 3 years • Liquidity requirement: Low • Liquidity requirement: Medium • Liquidity requirement: High • Asset management: Low • Asset management: Heavy • Asset management: Variable • Lease l
Slide 24: Investment Framework – Existing Portfolio
Investment Framework – Existing Portfolio Core Value-Add Opportunistic Including … Superstores Retail Parks, Shopping Centres, Land, Sundry Department Stores Offices, Development Value1 £1.8bn (26%) £5.2bn (72%) £0.2bn (2%) Properties 180 140 30 Lease length2 20 years 10 years Occupancy rate3 100% 9
Slide 25: Case Study – Value-Add Investment
Case Study – Value-Add Investment Hylton Riverside Retail Park, Sunderland (HUT) Transaction • £19m (BL Share £7m) (8.6% net initial yield) • 118,000 sq ft with Open A1 consent • Fully let, 12 years average lease length Investment Thesis • Active asset management to increase footfall and rent – Low
Slide 26: Case Study – Value-Add Investment
Case Study – Value-Add Investment 39 Victoria Street, SW1 Transaction • £40m (8.4% net initial yield) • 76,000 sq ft of offices • Fully let until July 2012 Investment Thesis • Good, well located building • Fully let for c.3 years (£47 psf) • Option play in 3 years time – Re-gear with existing occupi
Slide 27: An Integrated Approach
An Integrated Approach • Investment framework provides a tool for improved decision-making – not a management structure • Combines disciplined investment with key asset management advantage • Added talent and real estate expertise with 2 new executive directors: – Stephen Smith (CIO) will formulate
Slide 28: Focused on Exploiting Opportunities
Focused on Exploiting Opportunities Current bids: £500m Screening: further £2bn Core (18%) Opportunistic (16%) Core (48%) Value-Add (82%) Value-Add (36%) Other (36%) Offices (22%) Retail (42%) Retail (78%) Offices (22%) Six months ended 30 September 2009 23
Slide 29: Well Positioned for the Future
Well Positioned for the Future • Strong property portfolio • Robust financials • Disciplined approach to exploit new investment opportunities – Better balance of risk and returns – Assess new investments across sectors – Evaluate existing portfolio more rigorously – Make more disciplined decisions o
Slide 30: Appendix
Appendix Six months ended 30 September 2009
Slide 31: Investment Framework - Illustrative Criteria
Investment Framework - Illustrative Criteria Core Value-Add Opportunistic Investment Criteria Investment Criteria Investment Criteria • Security and quality of income • Initial yield above cost of debt • Significant value to be created in – strong covenant • High rental growth potential the short-te
Slide 32: EPRA Balance Sheet (proportional consolidation)
EPRA Balance Sheet (proportional consolidation) £m Group Funds & JVs Sept 2009 Pro forma1 Total properties 5,532 2,761 8,293 7,202 Net debt (3,095) (1,729) (4,824) (3,928) Other net liabilities (264) (5) (269) (115) EPRA Net Assets 2,173 1,027 3,200 3,159 EPRA Diluted NAV per share 372p 367p Loan to
Slide 33: Reconciliation of EPRA NAV & NNNAV
Reconciliation of EPRA NAV & NNNAV Sept 2009 £m Pence per Share March 2009 £m Balance sheet (IFRS) net assets 3,041 354 3,209 Deferred tax arising on revaluation movements 30 3 25 Mark to market on effective cash flow hedges and 128 15 153 related debt adjustments Adjust to fully diluted on exercise
Slide 34: Rental Income Growth
Rental Income Growth • Gross rents 11% lower due to sales Gross Rental income (£m) H1 2009 H1 2008 Properties owned throughout2 • Retail + 2.7% 135 131 • 0.7% like for like rental income growth due to new lettings and rent reviews: • Offices & other - 2.3% 91 93 Total – like for like + 0.7% 226 224
Slide 35: Income Statement (proportional consolidation)
Income Statement (proportional consolidation) £m Group JVs & Funds H1 2009 H1 2008 Net rental income 208 83 291 317 Fees and other income 6 - 6 10 Administrative expenses (29) (3) (32) (33) Net interest costs (88) (48) (136) (150) Underlying profit before tax 97 32 129 144 Net valuation movement (in
Slide 36: Reconciliation of Underlying Profit before Tax
Reconciliation of Underlying Profit before Tax £m H1 2009 H1 2008 IFRS (Loss) before tax (113) (1,327) Net valuation movement (includes disposals) 232 1,472 Deferred and current taxation of joint ventures & funds 3 (8) Amortisation of intangible asset 7 7 Underlying profit before tax 129 144 Six mon
Slide 37: Gross Rental Income - Sectoral Analysis
Gross Rental Income - Sectoral Analysis Accounting Gross Rental 6 months to 30 Sept 20091 Annualised as at 30 Sept 20092,3 Income (£m pa) Group Funds & JVs Total Group Funds & JVs Total Retail Warehouses 51 36 87 99 73 172 Superstores 4 25 29 8 50 58 Shopping Centres 9 25 34 17 49 66 Department Stor
Slide 38: Contracted Rental Increases
Contracted Rental Increases Contracted Accounting H1 2009 H2 2009 2010 2011 2012 2013 2014 Gross Rental Income (£m) Lettings with rent free periods1 Retail 26 27 53 54 54 53 53 Offices & other 22 23 45 45 44 43 41 Total rent (accounting basis) 48 50 98 99 98 96 94 Of which total cash flow 38 39 77 8
Slide 39: Future Growth Potential - Assumptions
Future Growth Potential - Assumptions Illustrative impact on underlying (accounting) profit before tax generated from new property investments and letting of completed developments (including Regent’s Place One & Two – due for completion Q3 2009), using the following assumptions: New investments • N
Slide 40: Debt Maturity Profile
Debt Maturity Profile Group Debt (£1.7bn)1 Funds & JVs Non Recourse Finance (BL Share £2.9bn)1 700 700 600 600 500 500 400 400 £m £m 300 300 200 200 100 100 0 0 2010 2015 2020 2025 2030 2035 2010 2015 2020 2025 2030 2035 1 Pro forma for Broadgate JV (50% share of Broadgate), completed 3 November 200
Slide 41: Unsecured Group Debt Financial Covenants
Unsecured Group Debt Financial Covenants 175% maximum ratio for Net Borrowings to Adjusted 70% maximum ratio for Net Unsecured Borrowings to Capital & Reserves – 41% pro forma1 Unencumbered Assets – 11% pro forma1 Adjusted Capital & Reserves £m Unencumbered Assets £m Share capital & reserves 3,022 G
Slide 42: Sales & New Investments
Sales & New Investments Sales (£m) Price BL Share New Investments (£m) Price BL Share 50% interest in Broadgate, EC2 1,066 1,066 Underwriting of HUT convertible bond issuance 50 50 13 Department Stores 159 113 39 Victoria Street, SW1 40 40 8 Retail Warehouses 224 78 Increase in PREF holding 31 31 2
Slide 43: Committed Developments
Committed Developments PC Sq ft Sep 2009 Costs to Notional Rent Pre-let Yield Sales Value Complete Interest ‘000 £m £m1 £m2 £m3 £m3 %4 £m5 Regent’s Place One & Two Q3 2009 380 138 19 1 15.6 - 8.1 - (Offices) One Osnaburgh Street Q3 2009 110 45 11 - - - - 58 (Residential) Puerto Venecia, Zaragoza 201
Slide 44: Prospective Developments
Prospective Developments Sector Sq ft Sep 2009 Planning ‘000 Value £m The Leadenhall Building City Office 610 57 Detailed West End Regent’s Place – NEQ 500 28 Detailed Office/Residential Colmore Row Provincial Office 280 8 Detailed Meadowhall Additional Land Mixed Use 2,200 9 Outline Potential Refur
Slide 45: Portfolio Valuation By Sector
Portfolio Valuation By Sector Group Funds & Total Change %2 Pro forma3 £m JVs £m1 £m 3 months 6 months Total £m Portfolio % Retail Warehouses 1,355 877 2,232 3.2 -1.9 2,232 31.0 Superstores 117 1,009 1,126 4.9 5.5 1,126 15.6 Shopping Centres 168 832 1,000 -0.2 -5.9 1,000 13.9 Department Stores4 378
Slide 46: Reconciliation of Portfolio Valuation Movement
Reconciliation of Portfolio Valuation Movement Group Funds & JVs Total £m £m £m Valuation at 31 March 2009 5,810 2,815 8,625 Disposals1 (221) (141) (362) Purchases, Development and Other Capital Expenditure 91 35 126 Change in ownership of PREF - 111 111 Revaluations (174) (58) (232) Decrease in Hea
Slide 47: Portfolio Performance
Portfolio Performance Capital Return, %1 ERV Growth, %2 Initial yield movement, bp2 3 months 6 months 3 months 6 months 3 months 6 months Retail Warehouses 4.5 0.8 -0.4 -2.9 - 37 -9 Superstores 4.9 5.5 - 0.4 - 30 - 32 Shopping Centres -0.2 -4.6 -0.6 -3.9 11 34 Department Stores 5.2 4.9 -0.3 -8.9 -25
Slide 48: Top 10 Properties
Top 10 Properties Sq ft BL Rent Occupancy Lease 000 Share £m pa1 rate % length, yrs 1 Broadgate 4,400 50% 179 93 9 2 Meadowhall Shopping Centre 1,400 50% 77 98 12 3 Regent’s Place2 830 100% 30 99 8 4 Fort Kinnaird Shopping Park 570 18% 17 100 9 5 Glasgow Fort Shopping Park 390 36% 13 100 10 6 Ropema
Slide 49: Future Income Profile
Future Income Profile Retail Office Other Total Rental Income – Cash Flow Basis1 £m pa £m pa £m pa £m pa Annualised rents 328 127 16 471 Contracted from fixed uplifts and expiry of rent free periods3 13 21 2 364 Rent reviews & lease renewals2,3 14 (26) - (12) Letting of current vacant space 8 24 1 3
Slide 50: Top 10 Retail & Office Customers
Top 10 Retail & Office Customers Retail % of rent1 Office % of rent1 Tesco 7% UBS 5% Sainsbury’s 7% HM Government 2% Debenhams 5% RBS 2% Homebase 2% Bank of Tokyo-Mitsubishi UFJ 2% Kingfisher (B&Q) 2% Herbert Smith 2% Next 2% JP Morgan 1% Asda 1% Reed Smith 1% Boots 1% Deutsche Bank 1% Curry’s 1% Ma
Slide 51: Average Rent psf
Average Rent psf Excluding Developments (£psf pa)1 Rent2 ERV3 Retail Warehouses 21 23 Superstores 20 21 Shopping Centres 27 30 Department Stores4 11 12 All Retail 20 22 City 47 38 West End 41 35 All Offices 45 37 Other 15 18 Total 24 24 1 Pro forma for Broadgate JV (50% share of Broadgate), complete
Slide 52: Annualised Rents & ERV Analysis
Annualised Rents & ERV Analysis Rental Income - Cash Flow Basis1,2 Annualised rents (£m pa)3 Estimated rental value (£m pa)4 (Excluding Developments) Group Funds & JVs Total Group Funds & JVs Total Net reversion Retail Warehouses 100 56 156 109 65 174 18 Superstores 8 61 69 8 63 71 2 Shopping Centre
Slide 53: Portfolio Yield Profile
Portfolio Yield Profile Initial Top-up Reversionary Net Equivalent Excluding Developments (%)1 Yield2 Initial Yield2,3 Yield2 Yield4 Retail Warehouses 7.2 7.5 8.0 7.3 Superstores 6.1 6.1 6.3 5.9 Shopping Centres 7.4 7.8 8.6 7.2 Department Stores5 7.0 8.0 8.1 7.8 All Retail 7.0 7.3 7.7 7.0 City 6.3 7
Slide 54: Long Leases & High Occupancy
Long Leases & High Occupancy Average lease length (yrs) Occupancy rate (%) Excluding Developments1 To expiry To first break Underlying2 Overall Retail Warehouses 12.8 11.7 98.4 97.8 Superstores 17.6 17.6 100.0 100.0 Shopping Centres 12.0 11.4 96.7 94.7 Department Stores3 30.5 27.5 100.0 100.0 All Re
Slide 55: Rental Income Subject to Rent Review
Rental Income Subject to Rent Review Annualised Rent Potential Uplift4 Year to 30 September (£m pa)1,2 20103 2011 2012 Total 20103 2011 2012 Total Retail Warehouses 45 25 17 87 2 1 1 4 Superstores 26 13 4 43 2 - - 2 Shopping Centres 18 6 14 38 1 1 - 2 Department Stores5 - - - - - - - - All Retail 89
Slide 56: Rental Income Subject to Lease Break or Expiry
Rental Income Subject to Lease Break or Expiry Year to 30 September (£m pa)1,2 2010 2011 2012 2013 2014 2010-12 2010-14 Retail Warehouses 2 2 2 4 4 6 14 Superstores - - - 1 - - 1 Shopping Centres 4 2 3 2 5 9 16 Department Stores3 - - - - - - - All Retail 6 4 5 7 9 15 31 City 3 5 - 12 10 8 30 West En
Slide 57: Disclaimer
Disclaimer The information contained in this presentation has been extracted largely from the Half Year Results Announcement for the six months ended 30 September 2009. This presentation may contain certain “forward-looking” statements. By their nature, forward-looking statements involve risk and un