British Land Regulatory News (BLND)

The British Land Company PLC Half Year Results

13 November 2019

Chris Grigg, Chief Executive said: "Our operational performance has been good and we made further progress on our mixed use strategy, including a resolution to grant planning for a new urban centre at Canada Water in London. We continue to deliver space that our customers want, with 1.3m sq ft of leasing activity across existing and new space, so occupancy remains high at 97% and developments are now 87% pre let or under offer generating £63m of rent when fully let. In a tough market, we have capitalised on opportunities to make retail sales, disposing of £236m of assets ahead of book value.

Looking forward, we expect our markets to remain uneven, but we have kept debt levels low, our balance sheet is strong and flexible and we have a broad spread of expertise across our business. We expect retail to remain challenging, so we'll focus on driving operational performance and maintaining occupancy. We see early signs that some liquidity may be returning to parts of the market, and our focus will remain on thoughtfully progressing our strategy to reduce exposure. In London, we expect the market to remain good, with supply relatively constrained and high quality space, in well-connected, vibrant parts of town continuing to attract demand from a range of businesses. These dynamics are highly supportive of our Campus approach."

Financial summary

·; Financial performance

·; Underlying EPS down 6.4% to 16.1p following £1.2bn of income producing sales since April 2018, partially mitigated by buybacks contributing 0.5p

·; Development programme will add 4.6p to annualised EPS when fully let

·; Portfolio value down 4.3%; Retail down 10.7%, Offices up 0.4% and developments up 4.6%

·; EPRA NAV down 5.4% at 856p due to valuation declines, with buybacks contributing positive 8p

·; Half year dividend up 3.0% at 15.97p; total accounting return -3.7%

·; Strong and flexible balance sheet

·; £289m of asset sales, including £194m superstore portfolio, overall ahead of book value

·; £125m share buyback completed, bringing cumulative buyback to £625m since July 2017

·; Maintained low LTV at 30.8% (March 2019: 28.1%), weighted average interest rate reduced to 2.7%

Progress on strategy: Becoming the specialist in mixed use

·; Campus-focused London Offices: A compelling, customer-focused offer

·; 671,000 sq ft of leasing activity representing £29m of headline rents; 97% occupancy

·; Under offer on a further 74,000 sq ft and in negotiations on a further 242,000 sq ft

·; Lettings and renewals on the investment portfolio overall 11% ahead of ERV

·; Committed developments 87% pre-let/under offer, generating £63m of future rent when fully let

·; Significant future optionality within the portfolio. 2.1m sq ft near and medium term development pipeline, including Norton Folgate, where enabling works have commenced

·; Storey operational across 297,000 sq ft; further 91,700 sq ft identified

·; Smaller, more focused Retail: Driving operational outperformance in a challenging market

·; 605,000 sq ft of leasing activity; 1% ahead of passing rents; 96% occupancy

·; Significantly outperforming benchmarks: footfall 440 bps ahead; LFL sales 420 bps ahead

·; £236m off-strategy assets sold since April 2019, 6% ahead of book value

·; Two thirds of store vacancies since April 2017 following CVA or administration are either re-let, under offer or in negotiations

·; Secured resolution to grant planning for our Canada Water Masterplan: valuation up 12%

·; 53 acre mixed use regeneration scheme including plans for 3,000 homes

·; Headlease drawdown expected Spring 2020

·; Continued strong performance on Sustainability benchmarks

·; GRESB 4* and awarded a green star rating for the 10th consecutive year

·; AAA MSCI rating, ranking within the top 9% overall

Summary

1 Valuation movement during the period (after taking account of capex) of properties held at the balance sheet date, including developments (classified by end use), purchases and sales

2 See Note 2 to the condensed interim set of financial statements

Results Presentation Conference Call

A presentation of the results will be broadcast via conference call and slides to accompany the call will be displayed along with a live audio broadcast via the website (Britishland.com) at 8.30am on 13 November 2019. The details for the conference call and weblink are as follows:

A dial in replay will be available later in the day for 7 days. The details are as follows:

The accompanying slides will be made available at britishland.com just prior to the event starting.

For Information Contact

CHIEF EXECUTIVE'S REVIEW

Our operational performance has been good, and we have made further progress with our mixed use strategy, including a resolution to grant planning for a new urban centre at Canada Water. We continue to deliver space that our customers want, with 1.3m sq ft of leasing across existing and new space, so occupancy remains high at 97%. In a tough market, we continue to capitalise on opportunities to make retail sales, disposing of £236m of assets ahead of book value.

Leasing & Operational Performance

Our campus strategy is really resonating with businesses and their employees alike and with occupancy of 97% across our London campuses and 96% in retail, our portfolio remains effectively full. In London, we signed 671,000 sq ft of lettings and renewals. Our developments are now 87% pre-let or under offer, securing £55m pa of future rental income. We are also successfully repurposing existing space to appeal to a broader range of occupier, with lettings to tech companies Monzo and Skyscanner at Broadgate and Regent's Place respectively (post period end) and a renewal to Visa, our biggest occupier at Paddington. Overall, offices values were up 0.4%.

We are committed to ensuring our offer meets the needs of a broad range of occupiers. In London, office customers can choose from a range of product, varied in terms of fit out, flexibility and price. Importantly, customers can tailor their requirements across these products depending on their specific need, as well as change their requirements over time as their businesses evolve. Storey Club, which provides high quality ad hoc meeting and events space is now fully operational at Paddington and we will soon launch our second standalone Storey building in Haggerston. The breadth of this customer offer, underpinned by our campuses, is key to our leasing success.

The retail market remained tough, and we saw this reflected in valuations which were down 10.7%. However, our portfolio delivered positive like for like retailer sales with footfall flat, compared to a market where both metrics were negative. Long term deals were on average 15% ahead of previous passing rent, but we have been pragmatic in our approach, to keep occupancy high and support operational performance. Shorter-term deals are often an effective way to secure a new occupier for space which has become vacant unexpectedly through a CVA or administration. More generally, this trend towards more flexible leasing is reflective of the broader market as occupiers seek seasonal or pop-up sites in different locations on a shorter term basis. We continue to be proactive in our response to CVAs: Over two thirds of store closures since April 2017 are either re-let, under offer or in negotiations. Overall, leasing was 1% ahead of previous passing rent excluding rates mitigation deals and assets being readied for development.

At Canada Water, our valuation increased 12.4% after Southwark Council's Planning Committee unanimously supported our masterplan. This means we have a resolution to grant outline planning permission for our 53-acre mixed use scheme, including detailed permission on the first three buildings. This is a major milestone for our process and is the culmination of five years masterplanning and engagement with the local community, including over 120 public consultations attracting more than 5,000 people. The next key milestone will be the drawdown of the headlease, which we are hopeful will happen in Spring 2020 meaning the earliest possible start on site would be mid-next year.

Capital Allocation & Investments

We have a clear and consistent strategy to build an increasingly mixed use business, focused on three core areas. As part of this, we plan to reduce retail to 30-35% of our portfolio over the medium term and we made further progress with the sale of 12 Sainsbury superstores for £429m (our share £194m). Today, Retail represents 41% of our business and looking forward, we see early signs that some liquidity may be returning to the market, as we commented in our FY2019 results in May. We have a structured approach to disposals and a clear view of the value of our assets, so will remain patient and opportunistic to benefit from pockets of demand.

Our financial position is strong. Despite valuation falls our leverage has remained low with disposals funding a £125m share buyback and investment in developments. We have established a unique network of campuses, to capitalise on good demand for high quality space, in well-connected, vibrant parts of town, and we expect this to continue. We have a clear long term strategy, unmatched development opportunities with optionality built in, and the financial strength and expertise across our team to navigate today’s uneven markets and thrive long term.

MARKET BACKDROP

Macro-economic context

The market backdrop remained uneven and volatile across the half as the Brexit process continued. UK GDP contracted in the second quarter of 2019 for the first time since 2012 with only services providing a positive, albeit slowing, contribution to growth. Consumer confidence has remained subdued, but unemployment remains low at under 4%. In recent months, the likelihood of a no-deal Brexit appears to have reduced, but we now face a General Election in December so the outlook remains uncertain.

London market

The London investment market saw £4.2bn of transactions over the period, below the long term average of £7.4bn. Overseas investors remained understandably cautious pending greater clarity on Brexit before investing in the London office market while vendors continue to seek premia to asset values. However, fundamentals continue to favour London as yields in central London remain attractive compared to many other European markets and cross-border investors benefit from the currency effect.

The occupational market continued to be supportive, with take up in our markets up 7% on last year, and just ahead of the long term average. To help attract the best talent, businesses are seeking high quality space in exceptional environments located in the best-connected areas. For this space, rents were stable at c.£70 psf in the City and up to £110 psf in the West End, with incentives holding steady. Flexibility remains a key theme, with landlords offering a wider variety of space. Flexible office take up continued to be strong at 21% of take up, and is estimated to account for c. 6% of the London office market. Supply remained constrained, particularly for larger space requirements and it is now common for occupiers to start looking for new space up to two years before the end of a ten-year lease. As a result, nearly 60% of development under construction has already been pre-let.

Retail market

Retail investment markets remained challenging, with volumes low, reflecting negative sentiment and a number of sellers are under pressure, encouraging more opportunistic pricing. A number of relatively small retail parks exchanged hands in recent months, although there have been very few transactions for larger lot size assets. In this context, domestic and overseas buyers have started to recognise the value opportunity in the sector, however there remains a gap in pricing expectations where vendors are well positioned. Assets with attractive alternative use potential continue to trade well.

The occupational market remains tough and this has been reflected in the number of operators entering CVA or administration, particularly over the last 18 months. In addition, retailers continue to focus on optimising their store networks in a number of ways, not limited to store closures or rental reductions. Retailers are increasingly focused on their distribution and supply chain capability, where possible utilising existing store networks to ship from store to reduce delivery times. At the same time, many are enlivening existing space with concessions or events to drive footfall or are expanding into areas of high footfall such as transport interchanges. As a result, polarisation continues to accelerate, with assets able to support or enhance these characteristics typically less impacted by the broader challenges.

OUR STRATEGY

Progress on our strategy

A Mixed Use Specialist

We have a clear long term strategy to build an increasingly mixed-use business.

Why mixed use?

We recognise that the way people use real estate is changing and that the most effective way to drive enduring demand for our space is to evolve our offer in line with those trends. Central to this is the blurring of boundaries between work and leisure time. Increasingly people expect to be able to socialise, exercise or be entertained near to their office and they want office space which reflects more flexible work patterns. There is also a growing expectation that businesses and places of work have a positive impact on both the environment and the local community. These preferences are an important driver of people's decisions around which companies they work for, the places they shop and spend time. Workspaces which meet these expectations help businesses attract and retain talent and support productivity and effectiveness.

How does it deliver value?

A successful mixed-use strategy is fully aligned to the evolving needs of our customers and how people use our places. By helping drive enduring demand for our space, it supports the delivery of long term sustainable value through rental growth and high occupancy. This makes our income streams more resilient, increasing the value of our assets. At our campuses and multi-let spaces we control not just the buildings, but the spaces between them. As such, investment we make into the broader environment has a positive impact on the value of our individual assets. As long term owners and managers of space, we are also fully incentivised to invest in the local areas and support the local communities in which we operate; we believe that by playing a role within a thriving local community, our places are better able to succeed. Our scale and unique network also mean we have the flexibility to re-allocate uses within our places over time to better reflect the needs of our customers as they change and ensure that we always make the best use of our space.

How are we delivering it?

We have a clear and consistent plan to reshape our business to comprise three core, complementary elements as part of an increasingly mixed use business:

·; Campus focused London offices: with a blend of core and flexible space, including the further build out of Storey, integrated alongside a world-class retail and leisure offering

·; A smaller, more focused Retail portfolio: high quality, well located assets focused on a smaller number of on average larger, multi-let places, especially those with mixed use potential

·; Residential: plans for 3,000 homes at Canada Water with further opportunities within our portfolio

Campus-focused London offices

At our London campuses, we create and manage some of the best connected, most accessible space in London. Located in vibrant and exciting neighbourhoods, they provide world-class, modern and sustainable offices alongside public spaces, with a range of places to spend time outside of work. These unique campus benefits are the result of specific investment over many years and represent a clear attraction to businesses seeking to hire and retain the best people.

Increasingly what differentiates our space is the range of product and depth of services we provide. We have evolved our offer to attract a much broader range of industries and occupiers and to cater to their changing needs over time. Our menu of products spans more traditional core space, typically on long term lease, with a range of services priced on a bespoke basis; to fully fitted and furnished, generally on a short to medium term lease, with a basic package of services; to Storey, our fully serviced, flexible workspace offer.

Storey is deliberately differentiated from other flexible offerings in allowing occupiers to personalise their space through their own branding while benefitting from the shared amenities in the building and on our campuses. It has helped attract new types of occupier to our campuses, particularly tech and creative businesses who benefit from being located around some of the world's leading financial, legal and professional companies. Storey has also become a valued service for existing occupiers on our campuses, providing overflow or project space, and through Storey Club at Paddington, we offer ad hoc meeting and events space to all our Paddington occupiers.

Retail plays an increasingly prominent role within our campuses, notably at Broadgate, where our development pipeline will deliver an additional 395,000 sq ft of non-office space, focused on retail, leisure and dining space. This will predominately be at ground floor, so although the total allocation will be just 12%, it makes a highly visible contribution to the campus, and has been instrumental in helping us sign a more diverse range of occupier.  

A smaller, more focused Retail portfolio

In the context of rapid and fundamental structural change in retail, we have a plan to reduce this part of our business to 30-35% of the total portfolio over the medium term. Retail will remain a significant part of British Land reflecting our longer term view that the right assets in the right locations can succeed as part of an increasingly mixed use business.

This view, set out at our recent investor day is based upon the application of realistic assumption ranges about how the UK retail market may evolve. These assumptions are informed by a range of independent, third party forecasts and current operating data. It demonstrates that it is reasonable to expect our retail portfolio will deliver positive like for like sales growth, which could be of the order of 1 - 6% per annum, on a ten year view. This analysis is summarised below; it is a high level, directional range around how the market might evolve, so is not intended as a forecast or prediction.

·; Retail Sales will grow: We assume total retail sales in the UK will grow between 2.5% and 4.5% per year on average. This assumption is based on a range of industry forecasts, from Euromonitor at the most pessimistic (2.6%) to CACI at the most optimistic (4.3%)

·; Online penetration will increase: We assume online sales will absorb the majority of this sales growth, and internet penetration of retail sales will increase from the current level of 19% to a level of between 35% and 50%

·; Applying these assumptions we derive a long term growth rate for physical retail sales of between -2% and +2% per year

·; Physical retail space will shrink benefiting trading densities: We assume that the amount of physical retail floorspace in the UK will decline over time as stores close, existing schemes are repurposed to alternate uses and few, if any, new schemes are developed. We assume a reduction of retail floorspace of between 1% to 2% per annum (in line with agents predictions, with JLL at -1.5%)

·; Taking all of these assumptions together, we derive a level of physical retail sales per sq ft growth (trading density growth) of -1% to +4% per annum for the market as a whole

·; British Land will continue to outperform: Importantly, our portfolio has consistently outperformed the industry in terms of the retail sales growth operators achieve at our assets.

·; Taking our average outperformance for FY16-FY19 of 190 bps and applying it to the derived industry trading density growth suggests that on a long term view, our portfolio could deliver retailer sales per sq ft growth of between 1 - 6% per annum

Over the last 12 months we have made retail disposals of £550m, including £236m in the first half. Underpinning this is a highly structured approach, which involves assessing every asset against a clear set of criteria to determine whether it is one we will invest and grow, maintain or sell. These criteria include external factors such as population trends, catchment quality, local competition and critical mass of the scheme, as well as factors specific to the asset, such as the potential we see for development, particularly mixed use and fulfilment (i.e. last mile delivery). Our assessment generates a score for each asset which represents its alignment to strategy. Generally, assets in London and the South East are most in line with our strategy, so we would expect to make sales from our Solus and Local Retail portfolio (outside of London), with some sales potentially from our Regional portfolio.

However, the retail investment market is currently challenging, and is likely to remain so for the short to medium term. In this context, we will remain patient and opportunistic in our approach, and only progress disposals at the right price, which deliver value and progress our long term strategy.

Residential

Residential is complementary to our existing expertise and longer term will be additive to our mixed use strategy. We see most potential to build exposure in this market at Canada Water where we have potential to deliver 3,000 homes with other opportunities in our portfolio, including Aldgate Phase 2, in our near term pipeline. Building this business organically is the most effective way of ensuring that our product is high quality, reflects our strategy, adheres to the highest standards of safety and sustainability criteria but inevitably means that it will be delivered over a longer time frame.

BUSINESS REVIEW

Key metrics

On a proportionally consolidated basis including the Group's share of joint ventures and funds

1 Where occupiers have entered CVA or administration but are still liable for rates, these are treated as occupied. If units expected to become vacant are treated as vacant, then the occupancy rate would reduce from 96.8% to 96.4%

Portfolio performance

The portfolio value was down 4.3% overall, with Retail valuations down 10.7%. Offices were up 0.4%, driven by developments which were up 4.9%. ERV growth in offices was positive reflecting an uplift in the City portfolio, while yields were flat overall, with contraction in the City offsetting mild yield expansion in the West End. All reporting segments were down in retail with the multi-let portfolio declining 12.3% overall reflecting continued negative sentiment, with limited transaction evidence, particularly on larger lot sizes. The average yield movement on our largest 5 assets ranged between 25-50 bps.

Offices performed in line with the London Office benchmark and the All Offices benchmark. Retail underperformed the Retail benchmark, which saw values down overall. Lower-yielding larger assets continue to outperform operationally but are not immune to market yield movements when compared to the benchmark which includes smaller assets which were typically less impacted. As a result and reflecting the continued strength of industrials where we have no exposure, the portfolio underperformed the IPD all property total return index by 310 bps over the period.

Capital activity

On a proportionally consolidated basis including the Group's share of joint ventures and funds

1 Includes purchase of 6 Orsman Road, Haggerston for £32m which exchanged in period and completed post period end

2 Includes Clarges residential sales of £56m, of which £6m exchanged prior to FY20 and completed in the period and £3m of which exchanged and completed post period end

The total gross value of our investment activity since 1 April 2019 was £517m with retail disposals accounting for £236m. Our sale of 12 Sainsbury superstores to Realty Income Corporation in April 2019 for £429m (our share £194m) was the largest single component of this and was achieved at a modest premium to book. In line with strategy, we have continued to make sales from our solus portfolio, including a leisure asset more than 10% ahead of book and we have exchanged on a Homebase ahead of book reflecting its attractive alternative use potential.

At Clarges, we completed on the sale of four units in the half year, and a further unit post period end, bringing total completed units to 30 with receipts totalling £415m. Two of the four remaining units have now exchanged and a further unit is under offer, leaving one unit remaining, valued at £4m. This has been a highly successful scheme for us, having delivered total profits of £200m to date.

At Aldgate, we have acquired Barratt's 50% share in our Phase 2 build-to-rent residential-led scheme which has now been added to our near term pipeline and post period end, have completed on the purchase of 6 Orsman Road, Haggerston for Storey for £32m.

Data and insights

The insights we generate from data and research, help us to understand the needs of our customers. This information can play a real and fundamental role in decision making around leasing, asset management and capital allocation helping to generate incremental value for shareholders and our customers.

In the six months under review, we completed a second wave of the London Office Benchmarking Survey, collating feedback from over 1,300 office workers on their experiences of working in a specific location. We used this data to generate benchmarks from which we could assess our own assets. This exercise provided insight into worker preferences across various demographics to support our leasing and asset management strategies. At Broadgate, we conducted a mobile app analysis to understand how Broadgate functions as a place - how it is used by workers and visitors, where else these people go and how it compares to similar schemes. This exercise highlighted the importance of campus amenities reinforcing our focus on services as a key part of our offer as well as the benefits of being located within an active neighbourhood. At Regent's Place, we held one on one in depth interviews and focus groups amongst existing occupiers, potential occupiers, community partners, agents, and residents to inform our re-brand to ensure it resonated with our target groups.

Smart Places

Our Smart Places team deliver digital placemaking across our London campuses. Progress in the six months included piloting phone-as-pass access controls and sensor-driven space utilisation technology at our head office, where we have increased our occupational density by 35% with minimal impact on the working environment. We have developed and rolled out the StoreyPortal across Storey and Storey Club allowing users to book meeting rooms, arrange catering and simplify the entry procedure for guests to streamline the overall experience. We are actively partnering with our occupiers to help them achieve their goals: we developed the "Smart fit out guide" to help occupiers understand how to make the most of Smart technology in their buildings and are trialling sensor technology for an occupier so we can work with them to ensure they use their space most efficiently.

Sustainability

Sustainability is integral to how we manage our business. Our activities can impact the environment, our customers and local communities and we take seriously our responsibility to manage these well. Improvements in these areas strengthen our relationship with our customers and improve our places, helping us drive sustainable demand for our space.

In September, we were delighted to make a ground-breaking commitment to deliver a net zero carbon portfolio, as part of an industry effort, led by the Better Buildings Partnership, to tackle the challenge of climate change. Building on our 64% reduction in carbon intensity achieved to date versus the 2009 baseline, next year we will publish our pathway for achieving net zero across both our developments and operational portfolio. As part of meeting our more immediate 2020 target of a 55% energy intensity improvement, we have undertaken audits of 40 energy intensive assets in our portfolio and are currently implementing the saving opportunities identified.

We have a good track record of delivering sustainable new buildings, with 92% of new developments on track to receive a minimum of BREEAM very good or excellent rating. At 1 Triton Square, Regent's Place, we are saving 35,600 tonnes of embodied carbon by retaining the existing structure. Through more efficient design, we will also achieve a 40% reduction in operational emissions compared to a typical UK building and are on track to achieve a BREEAM rating of Outstanding. 100 Liverpool Street is on track to achieve a BREEAM Excellent rating, Well Gold certification and a WiredScore platinum rating for internet connectivity.

At Haggerston, Shoreditch, we are experimenting with the management of a new Cross Laminated Timber building, which we acquired for Storey. The development of CLT buildings can result in a much lower embodied carbon footprint, and produce less development waste with a quicker construction time. We are also trialling a "circular" approach to furniture, using more recycled materials. At 338 Euston Road, we re-manufactured and incorporated 246 items from the previous tenant into the new offices, avoiding 2,980 kg of waste and saving £72,000.

Our investment in the prosperity of the communities that host our assets continues, and we have concluded our eighth consecutive year with the National Literacy Trust, to improve reading skills, particularly among the poorest readers. Our Young Readers Programme has now reached 42,692 children, trained 561 teachers, and given out over 128,000 books since its inception in 2011. In the half year, we were delighted that 86 customers collaborated with British Land on this programme and that 91% of teachers reported their "reluctant readers" are showing increased enjoyment of reading with 77% reporting that reluctant readers are reading more often.

Our continued strong sustainability performance is reflected in our rankings in ESG indices, including a green star rating for the tenth consecutive year in our key index, the Global Real Estate Sustainability Benchmark (GRESB), AAA rating in MSCI, and inclusion in FTSE4Good and Dow Jones Sustainability Indices (DJSI) 2019. We have been a signatory to the UN Global Compact since 2009 and will continue to support human rights, fair labour practices, good environmental performance and oppose corruption through our strategy, governance and business operations.

REAL ESTATE PERFORMANCE REVIEW

Campus focused London Offices

Key metrics

On a proportionally consolidated basis including the Group's share of joint ventures and funds

Campus operational and financial highlights

·; Portfolio value up 0.4%, with the City up 1.3% and the West End flat

·; Yields saw mild contraction in the City -3bps and mild expansion in the West End +2bps

·; ERV growth of 0.9% across the portfolio, with the City strong (+2.9%) and the West End was flat

·; Activity generating like-for-like income growth of 1.1%

·; Leasing activity covering 671,000 sq ft representing £29m of future rents

·; Under offer on a further 74,000 sq ft and in negotiations on a further 242,000 sq ft

·; Investment lettings and renewals signed 11.1% ahead of ERV

·; 294,000 sq ft rent reviews agreed 7% ahead of passing rent adding £0.9m to rents

·; Occupancy of 97.2%

Campus operational review

80% of our Offices are located on our three central London campuses, each benefitting from excellent transport connectivity and vibrant local neighbourhoods which are an important part of their appeal. Building on this, our strategy is focused on expanding the mix of uses, to enhance the retail, dining and entertainment offer, embedding our places more firmly within the local community and appealing to a broader mix of occupier. 

Enlivenment is an important part of our approach and in September, for the fourth consecutive year, British Land was Headline Partner of the London Design Festival, with both Broadgate and Paddington Central playing host to landmark installations. 

Broadgate

Momentum at Broadgate has continued, with leasing success at our developments mirrored in the standing portfolio, where we are successfully repurposing existing space. This demonstrates the strength of the campus offer beyond newly delivered space. Challenger bank Monzo will join the emerging fintech community at Broadgate, taking 122,000 sq ft at Broadwalk House on a five and a half year term (signed post period end).

At 100 Liverpool Street, Bank of Montreal committed to 60,000 sq ft and Japanese Bank SMBCE increased their commitment by 22,000 sq ft taking their total occupation to 184,000 sq ft. In addition, we are allocating 45,000 sq ft to Storey. We have made good progress on the retail side with 13 units now exchanged and a further four in process; new additions in the half included Waterstones, Reiss, L'Occitane and Tech Express. These join a line up including Watches of Switzerland, Kiehls, Neom and Gant. 

At 1 Finsbury Avenue (287,000 sq ft), which completed at the end of FY19, Mimecast and Product Madness are already in occupation and the Everyman cinema opened last month. Post period end, we exchanged on a further 30,000 sq ft to Workday, which offers cloud-based finance, HR and planning solutions. Storey accounts for 73,000 sq ft of which 15,000 sq ft has already been let. Retail leasing has continued at pace, with lettings to high quality grab and go lunch operators Farmer J, Nyokee and Butterscotch and Baraka, a Turkish-style restaurant and bar in the half.

At 135 Bishopsgate, we are now under offer on a further 30,000 sq ft leaving only 7,000 sq ft of office space available to let. With space already let to McCann, TP ICAP and Eataly, the building is 97% pre-let or under offer. 

Rent reviews were agreed on 41,000 sq ft nearly 15% ahead of passing rent and the campus is virtually full, with occupancy of 97.7%. Overall, the campus saw a valuation uplift of 1.3% reflecting ERV growth of 3.4% with yield contraction of 1bp.

Paddington Central

Existing space is also leasing well at Paddington Central, again demonstrating the unique attractions of our campus proposition. Visa recommitted to 196,000 sq ft at 1 Sheldon Square at a revised rent, with the term extended by six years. We have continued to focus on canal-side enlivenment, with a fourth barge, The Grand Duchess floating restaurant launched and a fifth, The Cheese Bar in the pipeline. Elsewhere on the campus, Pergola will be renewing their lease at 5 Kingdom Street until 2022. This brings total leasing activity at the campus to 200,000 sq ft.

The campus saw a valuation uplift of 2.0%, reflecting yield contraction of 4bps. Although Visa's lease extension increased rental income, the valuers changed their valuation approach from a headline to a net effective basis, resulting in an overall ERV decline for the campus of 1.3%. Occupancy is high at 97.0%.

Regent's Place

Reflecting trends at Broadgate and Paddington, existing space has also let well at Regent's Place, with online travel operator Skyscanner taking 45,000 sq ft of fitted space at 338 Euston Road (post period end). Storey will act as the service provider, for which they will receive a fee, demonstrating the broad range of options we now offer to customers across our core, fitted and Storey space. 

In the coming twelve months, we will be delivering a programme of public realm improvements, covering two-thirds of the campus. This will include more green spaces and places to relax and sit or work outside the office, enhancing the community feel. We have opened a café, event and community space at 17-19 Triton Square that is being delivered using sustainable materials and processes. These include recycled wood, work surfaces made from recycled materials including televisions and yoghurt pots, upcycled furniture and re-used kitchen and tableware. It will also offer bookable meeting and event space, and in the evening will host "Sessions" - a series of evening classes based on a successful programme at Meadowhall. Drawing on its location between the Knowledge Quarter, Camden and Fitzrovia, and the significant improvements we have delivered across the broader area, we will be rebranding Regent's Place as a pioneering, responsible neighbourhood, with deep community connections. 

With ERVs marginally up and yields flat, the campus valuation overall was flat. Occupancy is high at 97.9%. 

Storey: our flexible workspace brand

Storey is now operational across 297,000 sq ft, with space at each of our campuses with a further 91,700 sq ft identified. It was launched more than two years ago as a response to changes in the way people are working and is a deliberately differentiated concept, providing occupiers with high quality workspace, they can brand themselves on a shorter-term basis. 

Consistent with this more flexible approach, our offer is evolving and in April we launched Storey Club at 4 Kingdom Street, Paddington. This is a new concept providing ad hoc workspace, additional meeting rooms, private dining venues, event and workshop spaces for all our Paddington occupiers. To date, 79% of Storey occupiers at Paddington have made chargeable bookings alongside other British Land customers and partners. We are looking to roll out the concept to other campuses and standalone buildings, including our 100 Liverpool Street development at Broadgate, where we have allocated total Storey space of 45,000 sq ft. Storey are also taking 73,000 sq ft at 1 Finsbury Avenue, with lettings already to consultants Booz Allen Hamilton and digital financial services company 11:FS who have taken occupation. Consistent with our broader approach to flexibility, Storey can also provide services on our core or fitted space as an additional option.

Storey has proved highly successful at attracting new and different types of occupiers to our buildings. 72% are in the TMT sector. The average lease length is 25 months term certain and occupancy on the stabilised portfolio is 81%. This has fallen in the half due to a material expiry, although the space has now been re-let. We expect occupancy to trend around 90% longer term.

Smaller, more focused Retail

Key metrics

On a proportionally consolidated basis including the Group's share of joint ventures and funds

1 Where occupiers have entered CVA or administration but are still liable for rates, these are treated as occupied. If units expected to become vacant are treated as vacant, then the occupancy rate for Retail would reduce from 96.3% to 95.6%

Retail operational and financial highlights

·; Total Retail portfolio value down 10.7% due to weaker investor sentiment, with limited transactional evidence, particularly for larger lot sizes which saw some significant falls

·; Yield expansion of 37 bps overall

·; ERVs down 4.8%

·; Robust leasing activity with lettings/renewals covering 605,000 sq ft, 3.5% ahead of ERV, strong retention rate of 79%

·; Further 803,000 sq ft of rent reviews agreed 3.5% ahead of passing rent

·; High occupancy maintained at 96%

·; Like for like income down 3.2% including the impact of CVAs and administrations

·; Footfall marginally down 0.1%, 440 bps ahead of benchmark; like for like sales up 0.5%, 420 bps ahead of benchmark; total retailer sales down 1.0%, 280 bps ahead of benchmark

·; £236m non-core assets completed or exchanged since April 2019

Performance review 

Leasing

In a challenging environment our business continues to perform. Leasing activity has covered 605,000 sq ft, in line with our long term average. Long term deals were, on average, 3.5% ahead of ERV, 15% ahead of passing rent with an average term of 7.0 years and incentives stable at 6 months. This demonstrates that for the right space, in the right location, retailers are still prepared to pay good rents.

Our focus has been on maintaining high occupancy, so we have been nimble and pragmatic in our approach to leasing space, particularly where vacancies have arisen as a result of CVAs or administration and have been more prepared to let space on a shorter term basis or at a lower rent. In the majority of cases, no incentives are given, but terms were typically below previous passing rent. Overall our core leasing activity (excluding rates mitigation, assets to be developed and commercialisation and car park income) was 1% ahead of passing rent, and occupancy remained high at 96%. Looking forward, the pipeline is healthy although on average terms are below ERV.

We continue to benefit from the investment we have made into Meadowhall, with 29 deals accounting for more than £1m of rent. Here, long term deals were 2.7% ahead of ERV and we have attracted new occupiers including Ritual and Lovisa with a renewal to Laura Ashley. Elsewhere on the portfolio, we have completed 77 rent reviews overall adding £0.6m to rent and continued to attract new concepts, including Lost City Adventure Golf at Hull.

CVAs and administrations

Landlords have been increasingly prepared to vote against and in some cases challenge opportunistic uses of the CVA structure and as a result, we have seen terms improve. We have been pragmatic about re-leasing space affected by CVAs or administrations and have accepted discounts to passing rent where appropriate to maintain occupancy, footfall and drive supply-demand tension. Over two thirds of store closures since April 2017 are either re-let, under offer or in negotiations. 

Operational performance

Our focus on keeping the portfolio full with the right type of occupiers has ensured the businesses continues to perform well operationally, and we are expanding our outperformance on both footfall and sales. For the half year, LFL sales were positive, up 0.5%, 420 bps ahead of benchmark and increasing our twelve-month outperformance to 300 bps. Total sales, which captures both additions and improvements we have made in the period as well as the impact of store closures were down 1.0%, 280 bps ahead of benchmark. These figures only capture instore sales and do not consider online sales where the physical store plays a key role. Footfall was down 0.1% in the half, 440 bps ahead of benchmark increasing our twelve-month outperformance to 350 bps.

Capital activity

We have a clear plan to refine our Retail portfolio to deliver a smaller, more focused business, representing 30-35% of the total portfolio. This will comprise assets that meet our criteria including strength of catchment, market position, potential for rental growth and mixed use development.

We made good progress on this in the early part of the year, with the sale of 12 Sainsbury superstores to Realty Income Corporation for £429m (our share £194m) at a modest premium to book and since then have sold or exchanged on two solus assets, both at a premium to book.

As we indicated in our FY 2019 results in May, we have seen early signs that some liquidity may be returning to certain parts of the market, however, sentiment is generally weak and is likely to remain so. In this context, we will remain patient and opportunistic in our approach, and only progress disposals at the right price, which deliver value and progress our long term strategy. We have a good track record on delivering on our strategic goals having reduced our standalone superstore exposure from 11% of the total portfolio in 2014 to 1% today with just six standalone stores remaining. Retail disposals since April 2014 total £3.0bn.

DEVELOPMENT

On a proportionally consolidated basis including the Group's share of joint ventures and funds (except area which is shown at 100%)

Portfolio

Developments are a key element of our investment case as a fundamental driver of sustainable value and growth for the long term. In the current market, there are limited opportunities to acquire assets with development potential, so the capacity to develop is an important competitive advantage. Critical to our approach is the flexibility and optionality we have created, with the majority of space in our development pipeline either income producing or held at low cost, so we have attractive options we can progress as and when appropriate.

We actively manage our development risk and pre-letting our space is an important part of that approach. Reflecting our continued successful leasing activity, 87% of our recently completed and committed developments are pre-let or under offer and speculative exposure remains low at 1.1% of portfolio gross asset value. Including our near term pipeline, this will be 6%, below our internal risk threshold for speculative development of 8%.

Construction cost forecasts continue to suggest that the rate of growth has moderated from the level in recent years given the continued market uncertainty. However, there is a risk that a prolonged delay to Brexit increases material costs and reduces labour supply in 2020/21 potentially increasing cost inflation above the expected 2-4% per annum. To mitigate this risk, 96% of the costs on our committed development programme have been fixed.

Campus developments: further enhancing the mix of uses

Development is an important driver of value, enabling us to refresh our offer through new and refurbished space so we are consistently meeting the needs of today's occupiers. This has a positive impact, beyond the individual building and is reflected in our strong leasing performance on existing space as well as developments.

Completed developments

We reached practical completion at 1 Finsbury Avenue (287,000 sq ft) at the end of FY19 and are now 78% let or under offer by ERV, rising to 97% including the unlet space allocated to Storey.

Committed developments

Our committed office development pipeline covers 1.2m sq ft, of which Broadgate developments account for over two-thirds. These include 100 Liverpool Street (520,000 sq ft), which is 77% let or under offer, following commitments in the half from Bank of Montreal and SMBCE. The building is on track to achieve a BREEAM excellent rating, a Well Gold certification for Wellbeing and a WiredScore platinum rating for internet connectivity. Sustainability has been integral to the design and delivery of this building; by retaining half of the existing structure we have saved 7,200 tonnes of embodied carbon and are on track to save a further 4,100 tonnes through carbon-efficient design and use of low-carbon materials. More than half of the construction spend has been with businesses in the City and neighbouring boroughs, ensuring local people benefit from our development. At 135 Bishopsgate (335,000 sq ft), we went under offer on a further 30,000 sq ft in H1, so we are now 97% let or under offer by ERV, with just 7,000 sq ft remaining.

At 1 Triton Square, Regent's Place, we are fully pre-let on the office space to Dentsu Aegis Network on a 20-year lease. The building topped out in the period and we expect to complete in late 2020.

Near Term pipeline

Our near term pipeline now covers more than 1m sq ft. At Norton Folgate we have consent for a 335,000 sq ft scheme comprising 257,000 sq ft of office space alongside retail and residential space, to create a mixed use development which is in keeping with the historic fabric of the area. Our plans envisage a mix of floorplates, to appeal to small and growing businesses as well as more established organisations, particularly in the technology and creative sectors and we are already seeing good interest. We have commenced enabling works and would expect to begin construction next year.

At 1 Broadgate, we have consent for a 532,000 sq ft scheme, including 153,000 sq ft of retail, leisure and dining space, connecting Finsbury Avenue Square with retail at 100 Liverpool Street and the Broadgate Circle, creating a 350,000 sq ft retail, leisure and dining hub.

The most recent addition to the near term pipeline is Phase 2, Aldgate Place, a build-to-rent residential scheme delivering 160 homes with 20,000 sq ft of office space. We are refining our planning consent, subject to which we expect to start on site in Autumn 2020.

Medium Term Pipeline

We have three campus developments in the medium term pipeline, together covering more than 1m sq ft. These buildings progress our mixed use campus vision and support future income growth.

The most significant scheme is 2-3 Finsbury Avenue at Broadgate where our plans add 374,000 sq ft to the existing space to deliver a 563,000 sq ft office-led scheme. The building is currently generating an income through short term, more flexible lettings, including 51,000 sq ft allocated to Storey.

At 5 Kingdom Street, Paddington Central, we have submitted a revised planning application which would increase our consented scheme from 240,000 sq ft to 429,000 sq ft and are awaiting a decision. The scheme includes the opportunity to develop a former Crossrail works site which reverts to British Land on completion of Crossrail, providing 80,000 sq ft of community, retail, leisure and cultural facilities, reflecting feedback from focus groups and residents who we consulted on how this space could best be used. At the Gateway Building, Paddington, we have consent for a 105,000 sq ft premium hotel.

Retail development: enhancing and repositioning our portfolio for the future

In line with our disciplined approach to capital allocation and reflecting our longer term view on the role of retail within our portfolio, we do not expect to undertake significant retail development in the near term. We do however maintain a range of opportunities across our portfolio which preserve our optionality but would only commit to projects which are aligned with our strategy, most likely comprising a mixed use element, and when market conditions are supportive.

Committed developments

At Drake Circus, Plymouth, our 108,000 sq ft leisure extension completed post period end. It adds a 12-screen cinema and 14 restaurants and is 69% let or under offer.

Medium term pipeline

Our medium term pipeline is focused on mixed use opportunities. At Ealing Broadway, we are working up plans for an exciting new 292,000 sq ft office led mixed use scheme that will sit adjacent to our Ealing Broadway shopping centre, outside the new Crossrail entrance. At Eden Walk, Kingston (jointly owned with USS) our consented mixed use development plans include 380 new homes, alongside shops, restaurants and 35,000 sq ft of flexible office space. At Meadowhall, we have consent for a 333,000 sq ft leisure extension but are undertaking a review of our plans which is expected to conclude towards the end of the year.

Canada Water: 53 acre masterplan for a new urban centre in Central London

Highlights

·; Secured resolution to grant planning permission for the Canada Water Masterplan, a 5m sq ft mixed use scheme, unanimously supported by Southwark Council

·; Expect to drawdown the headlease in Spring 2020

·; Net valuation movement up 12.4% to £347m reflecting progress on planning

At Canada Water, we are working with the London Borough of Southwark to deliver a 5m sq ft mixed use scheme, including 3,000 new homes alongside a mix of commercial, retail and community space. The site is located on the Jubilee line and the London Overground, making it easily accessible from London Bridge, the West End, Canary Wharf, Shoreditch and South West London. It will also be an indirect beneficiary of Crossrail, which will reduce pressure on the Jubilee Line between Canary Wharf and Bond Street. It covers 53 acres including the dock area, providing 48 acres of developable land.

In September we received a resolution to grant outline planning on the entire 5m sq ft masterplan from Southwark Council, including detailed consent on the first three buildings, covering 576,000 sq ft. Following the completion of the S106 Agreement and issue of planning permission, we will be in a position to draw down the headlease in the Spring of next year, under the terms of the Master Development Agreement signed with Southwark Council in May 2018. This will combine the ownership of our assets at Canada Water into a single 500-year headlease, with Southwark Council as the Lessor. At that point, British Land will own 80% of the scheme with Southwark Council owning the remaining 20% and going forward, they will be able to participate in the development, up to a maximum of 20% with returns pro-rated accordingly.

The resolution to grant planning decision, which was unanimously agreed by Southwark Council, is a positive endorsement of our programme of engagement with the local community, which has included over 120 public consultations and local outreach events, attracting over 5,000 individuals. As part of this, we worked with Southwark Council, to develop a Social Regeneration Charter which captures local residents' priorities for the benefits of the development, and proposals for how these will be delivered.

Sustainability has been integral to our approach from the start, and we are committed to a strategy that ensures the masterplan will support low carbon living. In total, a minimum of 35% of the 53 acres will be public open space and we will be planting more than 1,200 additional trees, both on and offsite. Our plans will also benefit the existing and growing local community, with investment into education, health and community facilities in the local area.

The first three buildings will deliver 265 homes, of which 35% will be affordable (split 70:30 between social rent and intermediate housing), as well as a new leisure centre, new public spaces and improved pedestrian connections. Building K1 will be solely residential while building A1 will provide a mix of residential and workspace and building A2 will provide workspace and the new leisure centre. Both A1 and A2 will include retail provision at ground floor.

Potential funding structures will be explored in the new year, ahead of which, we are seeing interest in the space from a range of sectors and discussions are underway on several buildings. In the meantime, the Printworks has become an established live music venue, frequently hosting crowds of up to 5,000 and helping to drive footfall and raise awareness of the area.

The net valuation movement for Canada Water over the half year showed an uplift of 12.4% reflecting the progress made on planning, more than offsetting design costs incurred in masterplanning the scheme.

FINANCE REVIEW

1See Glossary on website for definitions. 2See Table B within supplementary disclosure for reconciliations to IFRS metrics. 3See Note 2 within condensed interim financial statements for calculation. 4See Note 10 within condensed interim financial statements for calculation and reconciliation to IFRS metrics. 5On a proportionally consolidated basis including the Group's share of joint ventures and funds.

Overview

Financial performance for the period has been resilient in the context of significant sales over the last 18 months, an especially challenging retail environment and an unpredictable UK political backdrop. Underlying earnings per share (EPS) are down 6.4% at 16.1p, while Underlying Profit is down 10.1% at £152m. The impact of lower profits on EPS has been partially mitigated by the impact of share buybacks which added 0.5p this period.

Capital activity (sales net of acquisitions and share buybacks) decreased EPS by 1.1p in the period. Setting this aside, earning were flat, with like-for-like rental growth and financing activities offsetting the impact of CVAs and administrations. Proceeds from sales have been deployed into share buybacks and our value accretive development programme. The recently completed and committed schemes are expected to generate EPS accretion of 4.6p once fully let based on ERV of £63m, of which 87% is already pre-let or under offer.

Since April 2019, we have completed £0.5bn of gross capital activity. This includes £236m sales of income producing assets, primarily the sale of 12 Sainsbury superstores to Realty Income Corporation in April 2019 for £429m (our share £194m). We also completed on £56m of residential sales at Clarges, Mayfair, £6m of which exchanged prior to this financial period and £3m of which exchanged and completed post period end. We have bought back £125m shares in the period, at an average price of 525p adding 8p to NAV.

Valuations have reduced by 4.3% on a proportionally consolidated basis although this was partially offset by the impact of the shares bought back in the period resulting in an overall EPRA net asset value (NAV) per share decline of 5.4%.

Our financial position remains strong. LTV has increased by 270bps during the period to 30.8% with valuation declines contributing 120bps and development spend contributing 110bps. These movements are partially offset by the impact of capital activity which reduced LTV by 40bps. Our weighted average interest rate reduced to a new low of 2.7%.

Presentation of financial information

The Group financial statements are prepared under IFRS where the Group's interests in joint ventures and funds are shown as a single line item on the income statement and balance sheet and all subsidiaries are consolidated at 100%.

Management considers the business principally on a proportionally consolidated basis when setting the strategy, determining annual priorities, making investment and financing decisions and reviewing performance. This includes the Group's share of joint ventures and funds on a line-by-line basis and excludes non-controlling interests in the Group's subsidiaries. The financial key performance indicators are also presented on this basis.

A summary income statement and summary balance sheet which reconcile the Group income statement and balance sheet to British Land's interests on a proportionally consolidated basis are included in Table A within the supplementary disclosures.

Management monitors Underlying Profit as this more accurately reflects the underlying recurring performance of our core property rental activity, as opposed to IFRS metrics which include the non-cash valuation movement on the property portfolio. It is based on the Best Practices Recommendations of the European Public Real Estate Association (EPRA) which are widely used alternate metrics to their IFRS equivalents.

Management also monitors EPRA NAV as this provides a transparent and consistent basis to enable comparison between European property companies. Linked to this, the use of Total Accounting Return allows management to monitor return to shareholders based on movements in a consistently applied metric, being EPRA NAV, and dividends paid.

Loan to value (proportionally consolidated) is also monitored by management as a key measure of the level of debt employed by the Group to meet its strategic objectives, along with a measurement of risk. It also allows comparison to other property companies who similarly monitor and report this measure.

Income statement

1. Underlying Profit

Underlying Profit is the measure that is used internally to assess income performance. This is presented below on a proportionally consolidated basis. No company adjustments have been made in the current or prior period and therefore this is the same as the pre-tax EPRA earnings measure which includes a number of adjustments to the IFRS reported profit before tax.

1 EPRA adjustments consist of investment and development property revaluations, gains/losses on investment and trading property disposals, changes in the fair value of financial instruments and associated close out costs. These items are presented in the 'capital and other' column of the consolidated income statement.

1.1 Underlying EPS

Underlying EPS is 16.1p, a decline of 6.4% on the prior period. This reflects Underlying Profit decline of 10.1%, partially offset by the impact of share buybacks which added 0.5p in the period. 

1.2 Net rental income

Net sales of income producing assets over the last 18 months was £0.9bn. This has reduced rents by £18m in the period, including £4m from the sale of 5 Broadgate in June 2018, £5m from the sale of the Spirit Pubs portfolio in March 2019 and £5m from superstore sales. As well as funding share buybacks we have completed over the last 18 months, proceeds from these sales are being reinvested in the development pipeline which is expected to deliver £63m in rents in future years and is already 87% pre-let or under offer (£55m). 

Retail like-for-like net rental decline is 3.2% in the period, primarily reflecting the impact of CVAs and administrations. The offices portfolio saw like-for-like growth of 1.1% which is lower than the historic run-rate due to material lease expiries. These contributed a 3% decrease to net rents however the space has either been re-let or is to be refurbished. Expiries have been offset by the impact of leasing activity in the period, including a rent review with Visa at 1 Sheldon Square.

1.3 Administrative expenses

Administrative expenses have decreased by 2% this period. The Group's operating cost ratio has increased by 220 bps to 21.7% (H1 2018/19: 19.5%) as a result of lower rental income following sales activity.

1.4 Net financing costs

Financing activity undertaken over the last 18 months has reduced costs by £2m in the period, including the issuance of a new £100m 2034 USPP note following prepayment of a £98m 2027 note, as well as repayment of £111m (BL share) of secured Broadgate bonds in October 2018.

The reduction in finance costs as a result of proceeds from net divestment and investment in developments has been partially offset by share buybacks.

We have a risk managed approach to interest rates on debt. At 30 September 2019, on average over the next 5 years the interest rate on 75% of our debt is hedged, based on current commitments. On a spot basis we are 83% hedged. Our use of caps as well as swaps means we also benefit if market rates remain low.

2. IFRS profit before tax

The main difference between IFRS profit before tax and Underlying Profit is that IFRS includes the valuation movement on investment and trading properties, fair value movements on financial instruments and capital financing costs. In addition, the Group's investments in joint ventures and funds are equity accounted in the IFRS income statement but are included on a proportionally consolidated basis within Underlying Profit.

The IFRS loss after tax for the year was £404m, compared with a loss after tax for the prior period of £48m. As a result, IFRS basic EPS was (42.9)p per share, compared to (4.9)p per share in the prior period. This primarily reflects an increase in downward valuation movement on the Group's properties of £184m, and an increase in the capital and other income loss from joint ventures and funds of £128m, both driven principally by outward yield shift of 37 bps and ERV decline of 4.8% in the Retail portfolio. In addition, prior period sales of Clarges generated profits of £65m compared £10m in this period.

The basic weighted average number of shares in issue during the period was 941m (H1 2018/19: 981m).

3. Dividends

As previously announced, we have increased the dividend by 3.0% for the six months to 30 September 2019 to 15.97p and propose a full year dividend to 31 March 2020 of 31.93p. The dividend payout ratio is 99%. 

The second interim dividend payment for the quarter ended 30 September 2019 will be 7.9825p. Payment will be made on 7 February 2020 to shareholders on the register at close of business on 3 January 2020. The second interim dividend will be a Property Income Distribution and no SCRIP alternative will be offered.

Balance sheet

Proportionally consolidated basis

1 EPRA net assets exclude the mark-to-market on derivatives and related debt adjustments, the mark-to-market on the convertible bond as well as deferred taxation on property and derivative revaluations. They include the trading properties at valuation (rather than lower of cost and net realisable value) and are adjusted for the dilutive impact of share options. No dilution adjustment is made for the £350m zero coupon convertible bond maturing in 2020. Details of the EPRA adjustments are included in Table B within the supplementary disclosures.

4. EPRA net asset value per share

The 5.4% decrease in EPRA NAV per share reflects a valuation decrease of 4.3% across the portfolio. Valuation gains in the Office portfolio and Canada Water have been more than offset by a fall in Retail values.

Office valuations were up 0.4% driven by strong leasing at our developments which were up 4.9%, including 100 Liverpool Street where values were up 13%, with ERV growth of 0.9% across the standing investments and stable yields.

Valuations in Retail are down 10.7%, with outward yield shift of 37 bps and ERV decline of 4.8%, reflecting weaker occupational demand as well as low transaction volumes, particularly for larger lot sizes. Across our five largest assets, yields have moved between 25-50bps. For smaller retail parks, a number of assets have transacted or gone under offer around the period end which have provided some valuation evidence.

While financing activity has decreased NAV by 2p, it will deliver future interest cost savings. It includes the early repayment of £83m (BL share) of bonds related to the sale of 12 Sainsburys superstores. Completion of the £125m share buyback programme during the period has contributed 8p to EPRA NAV.

5. IFRS net assets

IFRS net assets at 30 September 2019 were £7,971m, a decrease of £718m from 31 March 2019. This was primarily due to IFRS loss after tax of £404m, along with £147m of dividends paid and £125m of share purchases under the share buyback programme.

Cash flow, net debt and financing

6. Adjusted net debt1

1 Adjusted net debt is a proportionally consolidated measure. It represents the Group net debt as disclosed in Note 10 to the interim financial statements and the Group's share of joint venture and funds' net debt excluding the mark-to-market on derivatives, related debt adjustments and non-controlling interests. A reconciliation between the Group net debt and adjusted net debt is included in Table A within the supplementary disclosures.

Net sales reduced debt by £199m whilst development spend totalled £157m with a further £28m on capital expenditure related to asset management on the standing portfolio. The value of recently completed and committed developments is £1,046m, with £159m costs to come. Speculative development exposure is 1.1% of the portfolio. There are 1,013,000 sq ft of developments in our near term pipeline with anticipated cost of £533m.

7. Financing

1 Group data as presented in note 10 of the condensed interim financial statements. The proportionally consolidated figures include the Group's share of joint venture and funds' net debt and exclude the mark-to-market on derivatives and related debt adjustments and non-controlling interests.

At 30 September 2019, our proportionally consolidated LTV was 30.8%, up 270 bps from 28.1% at 31 March 2019. Valuation declines contributed 120 bps of this increase, and development spend contributed 110bps. This was partially offset by the impact of capital activity (sales net of acquisitions and share buybacks) which had reduced LTV by 40 bps. Note 10 of the condensed interim financial statements sets out the calculation of the Group and proportionally consolidated LTV.

During the period, we issued a new £100m 2034 USPP note following prepayment of a £98m 2027 note, extending debt maturity and delivering future interest cost savings. We also extended £810m of committed bank facilities by a further 1 year. The portfolio sale of 12 Sainsburys superstores triggered partial repayment of £83m of bonds (BL share).

Our liability and debt management activity has enabled us to reduce our weighted average interest rate to a new low of 2.7%. Our weighted average debt maturity is 7.9 years.

At 30 September 2019, British Land had £1.8bn of committed unsecured revolving bank facilities, £1.4bn undrawn. Based on our current commitments, these facilities and debt maturities, we have no requirement to refinance until late 2022.

The current uncertain environment reinforces the importance of a strong balance sheet and we have capacity to progress opportunities when the time is right.

Simon Carter

Chief Financial Officer

Notes to Editors

About British Land

Our portfolio of high quality UK commercial property is focused on London Offices and Retail around the UK.  We own or manage a portfolio valued at £15.4bn (British Land share: £11.7bn) as at 30 September 2019 making us one of Europe's largest listed real estate investment companies.

Our strategy is to provide places which meet the needs of our customers and respond to changing lifestyles - Places People Prefer.  We do this by creating great environments both inside and outside our buildings and use our scale and placemaking skills to enhance and enliven them. This expands their appeal to a broader range of occupiers, creating enduring demand and driving sustainable, long term performance.

Our Offices portfolio comprises three office-led campuses in central London as well as high quality standalone buildings and accounts for 55% of our portfolio. Our Retail portfolio is focused on Regional and Local multi-let centres, and accounts for 41% of our portfolio.  Increasingly our focus is on providing a mix of uses and this is most evident at Canada Water, our 53 acre redevelopment opportunity where we have plans to create a new neighbourhood for London. 

Sustainability is embedded throughout our business. Our places, which are designed to meet high sustainability standards, become part of local communities, provide opportunities for skills development and employment and promote wellbeing. In April 2016 British Land received the Queen's Award for Enterprise: Sustainable Development, the UK's highest accolade for business success for economic, social and environmental achievements over a period of five years.

Further details can be found on the British Land website at www.britishland.com 

RISK MANAGEMENT AND PRINCIPAL RISKS

For British Land, effective risk management is a cornerstone of delivering our strategy and integral to the achievement of our objective of delivering sustainable long term value. The Group's risk appetite and its integrated approach to managing risk remains as set out on pages 54-55 of the Annual Report and Accounts published in May 2019.

The Board believes that since the publication of the Annual Report and Accounts published in May 2019 there has been no material change to the Group's principal risks and the existing mitigating factors and actions remain appropriate (as set out on pages 58-61 of the 2019 Annual Report and Accounts). However, not surprisingly several principal risks continue to be elevated (as set out in the 2019 Annual Report & Accounts), as a result of the challenging external environment, with the increased level of political and economic uncertainty associated with the UK's departure from the European Union ('Brexit') and pending general election, alongside the continued challenging trading conditions in retail.

Whilst it is not possible to predict fully the impact Brexit will have on our business and our markets, the Board has undertaken a comprehensive Brexit review to understand the key risks to our business and taken appropriate action to ensure our business is both resilient and responsive in the short term, and well positioned for the long term. The key operational steps taken include working with our development contractors to minimise cost and delay risk to our development programme, increasing stocks of spare parts to ensure the continued operation of our assets and updating our Crisis Management Plans to improve our response to unpredictable events.

We are mindful of the continued uncertainty; in this context we will benefit from the resilience of our business, the quality of our portfolio and the strength of our finances.

A summary of the Group's principal risks for the second half of the year is provided below.

Principal External Risks

Economic outlook - The UK economic climate and future movements in interest rates present risks and opportunities in property and financing markets and the businesses of our occupiers which can impact both the delivery of our strategy and our financial performance.

Political and regulatory outlook - Significant political events and regulatory changes, including the UK's decision to leave the EU, bring risks both in terms of uncertainty until the outcome is known, and the impact of policies introduced. This could impact the businesses of our occupiers and the wider investment case for the UK.

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.

Occupier demand and tenant default - Underlying income, rental growth and capital performance could be adversely affected by weakening occupier demand and occupier failures resulting from variations in the health of the UK economy and corresponding weakening of consumer confidence, business activity and investment. 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 finance may adversely impact British Land's 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 of finance.

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.

Principal Internal Risks

Investment strategy - 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 and weighting; timing of investment and divestment decisions; exposure to developments; asset, tenant, region concentration; and co-investment arrangements.

Development strategy - Development provides an opportunity for outperformance but usually brings with it elevated risk. This is reflected in our decision-making process around which schemes to develop, the timing of the development, as well as the execution of these projects. Development strategy addresses several development risks that could adversely impact underlying income and capital performance including: development letting exposure; construction timing and costs (including construction cost inflation); major contractor failure; and adverse planning judgements.

Capital structure - leverage - Our capital structure recognises the balance between performance, risk and flexibility. Leverage magnifies capital 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 - Finance strategy addresses risks both to continuing solvency and profits generated. Failure to manage refinancing requirements may result in a shortage of funds to sustain the operations of the business or repay facilities as they fall due.

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 or impact the effectiveness of operations and decision making, in turn impacting business performance.

Income sustainability - We are mindful of maintaining sustainable income streams which underpin a stable and growing dividend and provide the platform from which to grow the business. 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.

Statement of directors' responsibilities

The directors confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

·; An indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·; Material related party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

The directors of British Land plc are listed on the company website www.britishland.com

By order of the Board

Simon Carter

Chief Financial Officer

12th November 2019

Independent review report to The British Land Company PLC

Report on the condensed interim financial statements

Our conclusion

We have reviewed The British Land Company PLC's condensed interim financial statements (the "interim financial statements") in the Half year results for the six months ended 30 September 2019 of The British Land Company PLC for the 6 month period ended 30 September 2019. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

·; the Consolidated balance sheet as at 30 September 2019;

·; 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 interim financial statements.

The interim financial statements included in the Half year results for the six months ended 30 September 2019 have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1 to the interim financial statements, 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.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Half year results for the six months ended 30 September 2019, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half year results for the six months ended 30 September 2019 in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Half year results for the six months ended 30 September 2019 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 Guidance and Transparency Rules sourcebook of the United Kingdom's 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.

What a review of interim 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, 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 year results for the six months ended 30 September 2019 and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

12 November 2019

Financial Statements

Consolidated Income Statement

For the six months ended 30 September 2019

All results derive from continuing operations.

1. See definition in note 2.

Consolidated Statementof Comprehensive Income

For the six months ended 30 September 2019

Consolidated balance sheet

As at 30 September 2019

* See definition in note 2.

Consolidated Statement of Cash Flows

For the six months ended 30 September 2019

Consolidated Statement of Changes in Equity

For the six months ended 30 September 2019

Six month movements in equity

Prior year movements in equity

Notes to the Accounts

For the six months ended 30 September 2019

1 Basis of preparation

The financial information for the period ended 30 September 2019 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for the year ended 31 March 2019 has been delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report, and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The financial information included in this announcement has been prepared on a going concern basis using accounting policies consistent with International Financial Reporting Standards (IFRS) as adopted by the European Union, in accordance with IAS 34 Interim Financial Reporting, and in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority. The current period financial information presented in this document has been reviewed, not audited.

The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 March 2019, which have been prepared in accordance with IFRS as adopted by the European Union.

The same accounting policies, estimates, presentation and methods of computation are followed in the half year report as applied in the Group's latest annual audited financial statements, with the exception of updating accounting policies to reflect changes required by the adoption of IFRS 16 (see below), and the tax policy, which for the interim period is as follows: The current tax charge is calculated on profits arising in the period and in accordance with legislation which has been enacted or substantially enacted at the balance sheet date.

During the period the Group adopted the following standards:

IFRS 16 - Leases

The new standard results in almost all leases held as lessee being recognised on the balance sheet, as the distinction between operating and finance leases is removed. IFRS 16 applies to leases previously classified as operating leases where the Group is lessee. IFRS 16 has not impacted operating leases held by the Group where the Group is lessor, therefore the standard does not have a material impact on the Group. The accounting for lessors has not significantly changed.

The cumulative quantitative impact for the period ended 30 September 2019 upon the adoption of this new accounting policy is an increase in investment property of £43m and a corresponding increase in liabilities of £50m. The transitional impact of IFRS 16 is a £17m increase in investment property and a corresponding increase in liabilities of £17m. The impact of IFRS 16 relating to new leases in the year is a £26m increase in investment property and a £33m increase in liabilities. The difference is due to a capital contribution. The net impact on profit/(loss) after taxation is immaterial.

IFRS 16 outlines several options for initial recognition on adoption of the standard. The Group has adopted IFRS 16 in accordance with IFRS 16 C8. In accordance with this option, comparative amounts are not restated and adjustments in opening retained earnings have not been recognised. The lease liability is calculated as the present value of the outstanding rental payments, discounted using the Group's incremental borrowing rate at the date of initial application. The right of use asset is then set as being equal to the liability therefore the impact on net assets on adoption is nil.

The adoption of IFRS 16 has a nil impact on net assets and an immaterial impact on underlying profit/(loss) before tax. Therefore the adoption of IFRS 16 will have an immaterial impact on alternative performance measures.

A number of new standards and amendments to standards and interpretations have been issued but are not yet effective for the current accounting period. None of these are expected to have a material impact on the consolidated financial statements of the Group.

The general risk environment in which the Group operates has heightened during the period, which is largely due to the continued level of uncertainty associated with the future impact of the UK's exit from the EU, the significant deterioration in the UK retail market and weaker investment markets.

Having assessed the Principal Risks, the Directors believe that the Group is well placed to manage its financing and other business risks satisfactorily, and have a reasonable expectation that the Company and the Group have adequate resources to continue in operation for at least 12 months from the signing date of these financial statements. They therefore consider it appropriate to adopt the going concern basis of accounting in preparing the financial statements.

The interim financial information was approved by the Board on 12 November 2019.

2 Performance measures

Earnings per share

The Group measures financial performance with reference to underlying earnings per share, the European Public Real Estate Association (EPRA) earnings per share and IFRS earnings per share. The relevant earnings and weighted average number of shares (including dilution adjustments) for each performance measure are shown below, and a reconciliation between these is shown within the supplementary disclosures (Table B).

EPRA earnings per share is calculated using EPRA earnings, which is the IFRS profit after taxation attributable to shareholders of the Company excluding investment and development property revaluations, gains/losses on investing and trading property disposals, changes in the fair value of financial instruments and associated close-out costs and their related taxation.

In the current period, diluted EPRA earnings per share did not include the dilutive impact of the 2015 convertible bond, as the Company's share price was below the current exchange price of 991.08 pence. IFRS diluted earnings per share would include the dilutive impact as IAS 33 ignores this hurdle to conversion, however due to the loss for the period, this would be anti-dilutive and therefore no adjustment has been made. In the prior period, both measures exclude the dilutive impact of the 2015 convertible bond, for the same reasons.

Underlying earnings per share is calculated using Underlying Profit adjusted for underlying taxation (see note 6). Underlying Profit is the pre-tax EPRA earnings measure, with additional Company adjustments. No Company adjustments were made in either the current or prior period.

Net asset value

The Group measures financial position with reference to EPRA net asset value (NAV) per share and EPRA triple net asset value (NNNAV) per share. The net asset value and number of shares for each performance measure is shown below. A reconciliation between IFRS net assets and EPRA net assets, and the relevant number of shares for each performance measure, is shown within the supplementary disclosures (Table B). EPRA net assets is a proportionally consolidated measure that is based on IFRS net assets excluding the mark-to-market on derivatives and related debt adjustments, the mark-to-market on the convertible bonds as well as deferred taxation on property and derivative valuations. They include the valuation surplus on trading properties and are adjusted for the dilutive impact of share options.

As at 30 September 2019, EPRA NAV and NNNAV did not include the dilutive impact of the 2015 convertible bond, as the Company's share price was below the current exchange price of 991.08 pence. IFRS net assets also does not include the convertible impact following the treatment of IFRS earnings per share. In the prior year period, EPRA and IFRS NAV measures excluded the dilutive impact of the 2015 convertible bond, for the same reasons.

Total accounting return

The Group also measures financial performance with reference to total accounting return. This is calculated as the movement in EPRA net asset value per share and dividend paid in the period as a percentage of the EPRA net asset value per share at the start of the period.

3 Revenue and costs

4 Valuation movements on property

5 Net financing costs

Interest on development expenditure is capitalised at the Group's weighted average interest rate of 2.1% (Six months ended 30 September 2018: 2.0%). The weighted average interest rate on a proportionately consolidated basis at 30 September 2019 was 2.7% (Six months ended 30 September 2018: 2.9%).

6 Taxation

Taxation expense attributable to Underlying Profits for the six months ended 30 September 2019 was £nil (Six months ended 30 September 2018: £nil).

7 Property

Property reconciliation

The Group's total property portfolio was valued by external valuers on the basis of fair value, in accordance with the RICS valuation - Professional Standards 2014, ninth edition, published by The Royal Institute of Chartered Surveyors. The information provided to the valuers, and the assumptions and valuations models used by the valuers are reviewed by the property portfolio team, the Head of Real Estate and the Chief Financial Officer. The valuers meet with the external auditors and also present directly to the Audit Committee on a half yearly basis.

Property valuations are inherently subjective as they are made on the basis of significant unobservable inputs, including assumptions made by the valuer which may not prove to be accurate. For these reasons, and consistent with EPRA's guidance, we have classified the valuations of our property portfolio as Level 3 as defined by IFRS 13. There were no transfers between levels in the period. Inputs to the valuation, including equivalent yields, rental values and costs to complete, are 'unobservable' as defined by IFRS 13.

During the current financial period, the Group adopted the new accounting standard IFRS 16, Leases. The right-of-use asset recognised on adoption is included within the investment and development property line item. The value of right-of-use assets included within the line is £43m. An adjustment is made to strip out the value of head lease liabilities and lease liabilities net of capital. This is done in order to reconcile the carrying value of investment and development properties to the Group property portfolio valuation at the end of the period.

The general risk environment in which the Group operates has heightened during the period, which is largely due to the continued level of uncertainty associated with the future impact of the UK's exit from the EU, the significant deterioration in the UK retail market and weaker investment markets. This environment could have a significant impact upon property valuations.

Additional property covenant information

Properties valued at £1,019m (year ended 31 March 2019: £1,019m) were subject to a security interest and other properties of non-recourse companies amounted to £966m (year ended 31 March 2019: £1,115m), totalling £1,985m (year ended 31 March 2019: £2,134m).

8 Joint ventures and funds

Summary movement for the period of the investments in joint ventures and funds

Summary income statement for the period of the investments in joint ventures and funds