British Land Company PLC · LSE:BLND
British Land — H1 2007 Earnings Presentation
68 slides from British Land's earnings presentation, November 2007
Slide 1: Half Year Results Presentation
HALF YEAR RESULTS PRESENTATION Six months ended 30 September 2007 We are real estate investors and create value by actively managing, financing and developing prime commercial property to provide the environment in which modern business can thrive. Six months ended 30 September 2007
Slide 2: Contents
Contents Introduction Investment Market Weakness & Debt Markets ‘Turmoil’ 16 Financial Highlights 1 Fundamentals Count Eventually 17 Business Highlights 2 Retail Financial Review £14.1bn – Leadership in Retail (BL Share £9.9bn) 18 Financial Highlights 3 Retail Strategy & Activity 19 Attractive Renta
Slide 3: Introduction
Introduction Stephen Hester Chief Executive Six months ended 30 September 2007
Slide 4: Financial Highlights
Introduction Financial Highlights NAV per share1 unchanged at 1682p (Q2 down 3%) – Net Assets1 £8.7bn – NNNAV up 4% to 1745p (Q2 down 3%) – Properties owned or managed £20bn Underlying pre-tax profit2 up 10%3 to £143m (Q2 £67m up 18%3) Underlying EPS2 up 30%3 to 26p (Q2 12p up 33%3) – Q2 divid
Slide 5: Business Highlights
Introduction Business Highlights Activist strategy delivering results on the customer side of the business – Good occupancy demand driving rents forward in both Offices and Retail. Underlying rental value growth (ERV) of 4.2% (Q2 2.1%), ahead of market1 at 2.4% (Q2 1.2%) – £1.9bn (gross) disposals
Slide 6: Financial Review
Financial Review Graham Roberts Finance Director Six months ended 30 September 2007
Slide 7: Financial Highlights
Financial Highlights Financial Highlights Q2 2007 H1 2007 Q2 2007 H1 2007 H1 2006 vs Q2 2006 vs H1 2006 Underlying Profit before Tax1 £67m £143m £130m + 18% + 10% Underlying Diluted Earnings per Share1 12p 26p 20p + 33% + 30% Dividend per share 8.75p2 17.5p 5.6p 3mths 6mths Sept 2007 June 2007 March
Slide 8: Attractive Rental Growth
Financial Performance Attractive Rental Growth Gross rents 0.6% higher despite £1bn Gross rental income Sept Sept net disinvestment over last 12 mths 2007 2006 % £m £m 5.5% like for like rental income growth: Properties owned throughout1 – Retail uplift of 6.3%, driven by rent Retail +6.3% 161 1
Slide 9: Underlying Profit before Tax up by 10%
Financial Performance Underlying Profit before Tax up by 10% Movement in Underlying Profit £m Six months ended Sept Sept 20071 20061 Rent reviews and new lettings (net)2 15 £m £m Effect of property purchases and sales 2 Net rental income 334 330 Admin expenses (personnel & fees) 5 Fees and other inc
Slide 10: Net Asset Value 1682p
Financial Performance Net Asset Value 1682p Movement in NAV per share1 Pence Sept June March Sept At 31 March 2007 1682 2007 2007 2007 2006 Property revaluations 38 Gains on asset disposals 5 NAV per share1 1682p 1730p 1682p 1624p Underlying profit after tax 14 Dividend paid (6) NNNAV per share 1745
Slide 11: Exceptional Financial Strength
Finance and Capital Structure Exceptional Financial Strength Key Financial Ratios2 Prudent financial ratios, especially given low income risk Sept March – Leases average 14 yrs to first break 2007 2007 – Occupancy rate of 98.1% (99.1% Net Debt – book value (£7,123m) (£7,741m) underlying1) Positive
Slide 12: Strategy & Operational Review
Strategy & Operational Review Stephen Hester Chief Executive Six months ended 30 September 2007
Slide 13: Activist Strategy
Strategy & Positioning Activist Strategy Focused on Delivering Outperformance Building the business around customer needs and so capturing superior, cash flow driven “total return” arising from high occupancy and rental growth Seeking to “add-value” at each level of the business – Sector and mar
Slide 14: £2.3bn Capital Recycling – Improve IRRs, Reduce Leverage
Portfolio Reshaping £2.3bn Capital Recycling – Improve IRRs, Reduce Leverage Sales Price BL Gain Purchases Price BL Share £m Share £m £m %1 £m One Exchange Square 406 406 5.6 Nueva Condomina, Murcia, Spain7 237 118 2 East Kilbride Shopping Centre 387 193 (2.8) 50% share of Gallagher and 100 36 50% s
Slide 15: Value Creation from £4bn Development Programme
Development Value Creation from £4bn Development Programme A key differentiator The Broadgate Tower Osnaburgh, Regent’s Place – Over 12m sq ft of developments; of which 5m sq ft committed Excellent progress to date - construction & costs on plan – capturing demand as expected – 537,000 sq ft of
Slide 16: Extra Performance from Active Asset Management
Asset Management Extra Performance from Active Asset Management £10bn of asset turnover since March 2005 to refine sector and market mix to best capture trends in customer demand and rental growth and recycling capital within selected markets to further improve growth prospects 1.6m sq ft of new
Slide 17: Portfolio Composition
Portfolio Positioning Portfolio Composition 56% Retail1 42% Offices1 PMA Forecast Market ERV Growth pa2 83% Out of Town 99% London Retail Warehouses Retail Superstores Warehouses Central London (22%) Offices (41%) Shopping Centres High Street Superstores London Offices (12%) Provincial Industrial Me
Slide 18: Prepared for a More Testing Environment - Assets
Balance Sheet Prepared for a More Testing Environment - Assets Customer appeal of British Land portfolio gives: – Exceptional defensive attributes (long leases, high occupancy) – Better growth prospects (higher reversion, less exposure to void space, higher development upside plus future ERV growt
Slide 19: Prepared for a More Testing Environment – Liabilities
Balance Sheet Prepared for a More Testing Environment – Liabilities Gearing (LTV) 44% – now at lowest level since 1994/5. Average interest rate lowered to 5.3%, interest cover improved to 1.8x and £2bn of available facilities Leverage & Interest Cover Available Facilities & Interest Rate 60 1.9 2,
Slide 20: 0.5% Valuation Decline (Q2 down 1.9%)
Valuation 0.5% Valuation Decline (Q2 down 1.9%) 6 months to 30 Sept 20071 Q21 All Retail -2.9% -3.4% Capital Return British IPD Retail Warehouses -1.9% -2.9% (ungeared)5 Land % % Superstores -2.4% -3.3% All Retail -3.1 -2.7 Shopping Centres -4.5% -4.2% All Offices 3.9 1.9 Department Stores -3.9% -4.
Slide 21: Investment Market Weakness & Debt Markets ‘Turmoil’
Market Fundamentals Investment Market Weakness & Debt Markets ‘Turmoil’ Background Impact Property markets vulnerable to a correction Still hard to be certain – macro-environment and – 1% gilt yield rise from November 06 -July 07 subjective factors too important - a ‘step too far’ – Too many mom
Slide 22: Fundamentals Count Eventually
Market Fundamentals Fundamentals Count Eventually Real economy growing, employment high, corporates healthy, inflation corralled – i.e. customers still growing Relative value in property still rational to perceive Return Prospects – Indexed Gilts1 Return Prospects – Property (at NAV)1 Return Pro
Slide 23: Retail
Retail Andrew Jones Head of Retail Six months ended 30 September 2007
Slide 24: £14.1bn – Leadership in Retail (BL Share £9.9bn)
56% Retail – 83% Out of Town £14.1bn1 – Leadership in Retail (BL Share £9.9bn2) British Land Retail Assets2 Positioned to reflect customer demand In Town – 83% of retail assets located Retail Out of Town £1.7bn (17%) - 85%+ with Open A1 use3 Out of Town Value added strengths – Positive rental ou
Slide 25: Retail Strategy & Activity
Retail Asset Management Retail Strategy & Activity Strategy based on 4 themes Customer-led strategy – driving £1,214m of sales, 1.9% above valuation – £449m reducing exposure to highly rented parks (Fort Kinnaird, Speke) Concentration on supply/ demand imbalances – £252m non core disposals (10 b
Slide 26: Capital Return -3.1%, ERV Growth 1.4%
Retail Performance Capital Return -3.1%, ERV Growth 1.4% Capital Return1 ERV Growth2 Equivalent Yield (bp movement2) British IPD British IPD British IPD Land % % Land % % Land % % Retail Warehouses -2.1 -3.3 2.1 0.8 4.5 (+18bp) 4.9 (+25bp) - Open A1 -1.4 N/A3 2.43 N/A3 4.4 (+15bp) N/A3 - Bulky -5.0
Slide 27: Retail Outlook – Investment Market
Retail Market Outlook Outlook – Investment Market Effectively ‘no bid’ in light of turmoil in financial Retail Yields markets, except ‘special’ purchasers Equivalent Yields British CBRE Sept 2007 Land %2 Prime %3 Accelerated outward yield correction across sub-sectors Open A1 Shopping Parks 4.15
Slide 28: Retail Outlook – Occupier Market
Retail Market Outlook Outlook – Occupier Market Retail market proving more resilient than forecast. Retail Sales robust – Superstores a key driver3 Though retailers discriminating in terms of locations 5 % Sales Growth – Retail sales value up 3.8%1 in 3 mths y-on-y, 4 forecast at 2.9% pa over next
Slide 29: Offices
Offices Tim Roberts Head of Offices Six months ended 30 September 2007
Slide 30: £7.4bn – Leadership in London Offices
42% Offices – 99% London £7.4bn1 – Leadership in London Offices British Land Office Assets1 Increased focus on London – 5.1m sq ft of prime London office investments – 3.8m sq ft developments – 0.8m sq ft ‘look-through’ in Canary Wharf (10.8%) London Offices Defensive prime portfolio £7.3bn (99%
Slide 31: Office Strategy & Activity
Office Asset Management Office Strategy & Activity Strategy based on 5 themes Net seller with £567m disposals at 5.2% above valuation - EBRD and Blythe Valley Concentration on supply/ demand imbalances – Focus on London Recycling capital into development programme, with £180m spent and offices
Slide 32: Development Programme Adding Value
London Office Development Development Programme Adding Value De-risking and realising profit from development Date of Practical ‘000 Pre-let Pre-let 57% of committed projects in 2007/8 pre-let – 537,000 sq ft1 of lettings signed since March, Completion sq ft ‘000 sq ft % ahead of expectations 2007
Slide 33: Capital Return 3.9%, ERV Growth 8.5%
Office Performance Capital Return 3.9%, ERV Growth 8.5% Capital Return1 ERV Growth2 Equivalent Yield (bp movement)2 British IPD British IPD British IPD Land % % Land % % Land % % City 3.2 2.2 7.9 7.7 5.1 (+29bp) 5.4 (+26bp) West End 7.9 6.5 11.7 9.9 5.0 (+11bp) 5.0 (+14bp) Provincial Offices -0.5 -1
Slide 34: Office Outlook – Investment Market
London Office Market Outlook Outlook – Investment Market Marked slow down, but demand remains, due to London’s F&BS Output expected to outperform UK GDP1 6 long term competitive advantages as a global financial and 5 Growth (% pa) services centre 4 – F&BS output forecast to outperform 3 Yields s
Slide 35: Office Outlook – Occupier Market
London Office Market Outlook Outlook – Occupier Market Take up strong at 9m sq ft YTD (City 5.1m sq ft)1 F&BS Employment Growth2 Change in Employment ('000) 70 – City vacancy rate 4.7%, Grade A just 2.3%1 50 Potential pause in demand – long-term no structural 30 change 10 – Employment growth exp
Slide 36: Summary
Summary Stephen Hester Chief Executive Six months ended 30 September 2007
Slide 37: Customer Driven Rental Growth on top of Well Constructed Defensive Value
Summary Customer Driven Rental Growth on top of Well Constructed Defensive Value, the key for Future Performance British Land ‘Defensive’ Strengths ‘Value Added’ Strengths Exceptional cash flow resilience Customer driven growth – Average lease length 14 years – Outperforming on rental growth – O
Slide 38: Appendix
Appendix EPRA Balance Sheet (proportional consolidation) 30 Portfolio Valuation By Sector 45 Reconciliation of EPRA Diluted Net Assets 31 119 Retail Warehouses £3,781m: Down 1.9% 46 EPRA Triple Net Asset Value 32 97 Superstores £2,203m: Down 2.4% 47 Income Statement (proportional consolidation) 33 M
Slide 39: EPRA Balance Sheet (proportional consolidation)
Financial Results EPRA Balance Sheet (proportional consolidation) Group JVs & Funds Sept 2007 March 2007 £m £m £m £m Total properties 13,199 2,711 15,910 16,903 Net debt (6,066) (1,057) (7,123) (7,741) Other net liabilities (48) (43) (91) (300) EPRA Diluted Net Assets 7,085 1,611 8,696 8,862 EPRA Di
Slide 40: Reconciliation of EPRA Diluted Net Assets
Financial Results Reconciliation of EPRA Diluted Net Assets Sept 2007 March 2007 £m £m Balance sheet (IFRS) net assets 8,621 8,747 Deferred tax arising on revaluations movements 134 168 Mark to market on interest rate swaps (108) (99) EPRA net assets 8,647 8,816 Adjust to fully diluted on exercise o
Slide 41: EPRA Triple Net Asset Value
Financial Results EPRA Triple Net Asset Value £m Pence per Share EPRA diluted NAV 8,696 1682 Deferred tax arising on revaluation movements (134) (26) Mark to market of debt and derivatives 458 89 EPRA NNNAV 9,020 1745 Six months ended 30 September 2007 32
Slide 42: Income Statement (proportional consolidation)
Financial Results Income Statement (proportional consolidation) £m Group JVs & Funds Sept 2007 Sept 2006 Net rental income 282 52 334 330 Fees and other income 29 - 29 34 Administrative expenses (38) (3) (41) (46) Net interest costs (149) (30) (179) (188) Underlying profit before tax 124 19 143 130
Slide 43: Reconciliation of Underlying Profit after Tax
Financial Results Reconciliation of Underlying Profit after Tax Sept 2007 Sept 2006 £m £m (Loss)/profit before tax (35) 670 Net valuation movement 252 (746) Gains on asset disposals (45) (64) Non-recurring items1 (39) - Deferred and current taxation of joint ventures & funds 3 32 Amortisation of int
Slide 44: Gross Rental Income - Sectoral Analysis
Financial Results Gross Rental Income - Sectoral Analysis 6 mths ended 30 Sept 20071 Annualised at 30 Sept 20072 Gross Rental Income Group Funds & JVs Total Group Funds & JVs Total £m £m £m £m £m £m Retail: Retail Warehouses 50 25 75 94 53 147 Superstores 36 14 50 72 26 98 Shopping Centres 45 11 56
Slide 45: Contracted Rental Increases: Lettings with Rent Free Periods
Financial Results Contracted Rental Increases L Lettings with Rent Free Periods1 6 mths ended Year ending 31 March Contracted Accounting Gross Sept March 2008 2009 2010 2011 Rental Income (£m) 2007 2008 Offices 25 25 50 51 50 50 Retail 28 22 50 43 42 41 Other - - - 1 1 1 Total rent (accounting basis
Slide 46: Contracted Rental Increases: Fixed and Minimum Uplifts
Financial Results Contracted Rental Increases Fixed and Minimum Uplifts1 6 mths ended Year ending 31 March Contracted Accounting Gross Sept March 2008 2009 2010 2011 Rental Income (£m) 2007 2008 Debenhams 20 20 40 40 40 40 Spirit Pubs 7 7 14 14 14 14 Other 14 14 28 28 28 28 Total rent (accounting ba
Slide 47: 113 Rent Reviews generating £8m pa of New Rent
Proactive Asset Management 113 Rent Reviews generating £8m pa of New Rent Rent Reviews Number New Total Increase BL Share of (Including Funds & JVs) Rent £m £m Increase £m Retail Warehouses 44 17.1 5.0 3.2 Superstores 5 7.3 1.3 1.0 Shopping Centres 31 6.6 0.7 0.6 High Street 11 5.1 0.7 0.7 London Of
Slide 48: 1.6m sq ft Lettings generating £45m pa of New Rent
Proactive Asset Management 1.6m sq ft Lettings generating £45m pa of New Rent Rent £m pa1 New Lettings & Lease Renewals Number Sq ft Total BL Share (Including Funds & JVs) ‘000 of increase2 Retail Warehouses 63 540 14.0 5.3 Shopping Centres 45 136 6.0 2.9 High Street 13 68 2.1 0.7 London Offices 21
Slide 49: Development Timeline
Development Development Timeline York House The Willis 35 Basinghall Ludgate The Broadgate Ropemaker Regent’s The Regent’s (137,000 sq ft) Building & One West Tower & 201 (593,000 sq ft) Place - Leadenhall Place - (491,000 sq ft) Coleman (127,000 sq ft) Bishopsgate Osnaburgh Building North East Stre
Slide 50: 5m sq ft of Committed Projects
Development Programme 5m sq ft of Committed Projects PC Sq ft Sept 2007 Costs to Notional Rent Pre-let Sales ‘000 Value £m Complete £m Interest £m1 £m2 £m £m4 London Offices: Ludgate West Q4 2007 127 98 9 - 6.3 4.3 - 201 Bishopsgate Q1 2008 420 235 51 5 20.3 15.28 - The Broadgate Tower Q3 2008 400 2
Slide 51: Development Prospects
Development Programme Development Prospects Sq ft Sept 2007 Costs to Notional Rent Sales Sector ‘000 Value £m Complete £m Interest £m1 £m2,3 £m4 Planning West End Office, NE Quadrant 508 51 246 18 18.8 66 Submitted Residential Colmore Row Provincial Office 284 27 87 9 9.4 - Pending Business Park, Ne
Slide 52: Prospective Unbooked Development Profits
Development Prospective Unbooked Development Profits Developments £m Illustrative sensitivity of potential development surpluses6 to yield shift and rental growth (£m) September 2007 Valuation1 1,397 Average valuation yield % Costs to Complete2 1,987 £m +50bp +25bp 5.21% -25bp -50bp Estimated headli
Slide 53: London Office Market – Agents’ Rental Growth Forecasts
London Office Market Outlook London Office Market – Agents’ Rental Growth Forecasts Agents’ Consensus City British Land Agents’ Consensus Fringe West British Land Rental Growth Forecasts Rent Reviews End Rental Growth Forecasts Rent Reviews Headline Sq ft for Current Headline Sq ft for Current Range
Slide 54: Portfolio Valuation By Sector
Portfolio Valuation Portfolio Valuation By Sector Change %1 Group Funds/JVs Total Portfolio 3mths 6mths £m £m £m % % % 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 1,927 406 2,333 14.7 -4.2 -4.5 Department Stores 765 144 909 5
Slide 55: Retail Warehouses £3,781m: Down 1.9%
Portfolio Valuation 119 Retail Warehouses £3,781m: Down 1.9% Sept 2007 March 2007 Valuation £3,781m £4,069m Rent pa £146m1 £153m Total Reversionary Income pa £176m1 £183m Average Rent psf £19.181 £20.30 Average ERV psf £22.551 £25.03 Occupancy Rate2 99.3% 99.2% Gross Initial Yield3 4.0% 3.8% Gross R
Slide 56: Superstores £2,203m: Down 2.4%
Portfolio Valuation 97 Superstores £2,203m: Down 2.4% Sept 2007 March 2007 Valuation £2,203m £2,300m Rent pa £100m £102m Total Reversionary Income pa £105m £108m Average Rent psf £20.87 £20.83 ERV Range psf £8.17 - £35.20 £8.17 - £35.45 Occupancy Rate 100.0% 100.0% Gross Initial Yield1 4.5% 4.4% Gro
Slide 57: Meadowhall £1,575m: Down 4.8%
Portfolio Valuation Meadowhall £1,575m: Down 4.8% Sept 2007 March 2007 Valuation £1,575m1 £1,640m Rent pa £77m £77m Estimated Rental Value pa £83m £83m Average Rent psf £58.33 £58.87 Occupancy Rate2 98.2% 98.0% Gross Initial Yield4 4.9% 4.7% Gross Reversionary Yield4 5.3% 5.0% Net Equivalent Yield5
Slide 58: In Town Retail £1,726m: Down 4.0%
Portfolio Valuation In Town Retail £1,726m: Down 4.0% Sept 2007 March 2007 Valuation £1,726m £2,132m - 6 Shopping Centres £614m £839m - 38 Department Stores £909m £945m - 39 High Street £203m £348m Rent pa £83m £101m Total Reversionary Income pa £95m £114m Occupancy Rate1 98.9% 98.0% Gross Initial Y
Slide 59: Broadgate £3,085m: Up 1.2%
Portfolio Valuation Broadgate £3,085m: Up 1.2% Sept 2007 March 2007 Valuation £3,085m6 £3,569m Rent pa £144m6 £169m Contracted Reversionary Income pa £165m6 £179m Average Office Contracted Rent psf £46.536 £46.90 Headline Office ERV Range psf £49.00 - £57.503 £44.00 - £55.00 Occupancy Rate1 99.8% 99
Slide 60: Regent’s Place £696m: Up 6.9%
Portfolio Valuation Regent’s Place £696m: Up 6.9%1 Sept 2007 March 2007 Valuation £696m £651m Rent pa £34m £28m Contracted Reversionary Income pa £37m £31m Average Office Contracted Rent psf £33.16 £33.02 Headline Office ERV Range psf £24.00 - £56.00 £23.50 - £49.00 Occupancy Rate3 100.0% 100.0% Gro
Slide 61: Leveraging Expertise in European Out of Town Retail
New Initiatives Leveraging Expertise in European Out of Town Retail Assets now owned or managed total €1.7bn1 Retail Parks under-represented in Europe2 15 – Largest owner of out of town retail parks in 14 13 Eurozone 12 – PREF half year total return at June 2007 of 5.7%. 11 10 18.2% IRR since ince
Slide 62: Leadership in European Out of Town Retail
New Initiatives Leadership in European Out of Town Retail Assets now owned or Average Average BL Capital Average Initial managed total €1.7bn1 Sq ft Value1 Share1 Value ERV Yield4 ‘000 €m €m € psf € psf % Spain 4,136 1,145 555 2083 143 5.23 – Assets owned or committed in PREF €1,124m1,2 Portugal 9
Slide 63: Long Leases & High Occupancy
Portfolio Statistics Long Leases & High Occupancy Average lease term to first break, years Occupancy Rate % Sept 2007 March 2007 Adj. Sept 20071 Sept 2007 March 2007 Total Portfolio 14.4 14.7 99.1 98.1 96.7 Retail Warehouses 12.7 13.4 99.3 98.8 97.8 Superstores 19.9 20.4 100.0 100.0 100.0 Shopping C
Slide 64: Yield Profile
Portfolio Statistics Yield Profile Initial Initial Yield adding Reversionary Net Equivalent Yield1 % back rent frees1 % Yield2 % Yield3 % Retail Warehouses 4.0 4.0 4.8 4.5 Superstores 4.5 4.5 4.8 4.4 Shopping Centres 4.5 4.7 5.2 5.0 Department Stores 4.6 4.7 5.3 5.2 High Street 5.0 5.2 5.4 5.0 All R
Slide 65: Strong Growth in Cash Rents in Prospect
Portfolio Statistics Strong Growth in Cash Rents in Prospect1 Sept Of which 2007 contracted £m £m Annualised Net Rents 621 621 Net Reversions2 125 61 Committed Developments3 154 29 Increase 279 90 Total 900 711 Development prospects3 86 - Plus ERV Growth Six months ended 1 Net rental income under IF
Slide 66: Annualised Net Rents and ERV Analysis
Portfolio Statistics Annualised Net Rents and ERV Analysis Annualised net rents £m1 Estimated rental value £m2 JVs & JVs & Group Trusts Total Group Trusts Total £m £m £m £m £m £m Retail Warehouses 96 50 146 113 63 176 Superstores 72 28 100 77 28 105 Shopping Centres 88 16 104 103 19 122 Department s
Slide 67: Reversionary Income: £125m
Portfolio Statistics Reversionary Income: £125m Annualised net Net reversion Reversionary rents £m £m1 Yield3 146 30 Retail Retail Warehouses 4.8 100 5 Superstores 4.8 104 18 Shopping Centres 5.2 42 6 Department Stores 5.3 10 1 High Street 5.4 402 60 All Retail 4.9 152 50 Offices: City 5.4 42 12 Wes
Slide 68: 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 2007. General property market data has been extracted from Jones Lang LaSalle, Knight Frank, PMA, CBRE, Verdict and other agents’ reports