British Land Regulatory News (BLND)

The British Land Company PLC Half Year Results

14 November 2018

Chris Grigg, Chief Executive said: "This has been another period of good operational and strategic progress. Our London office developments are letting up ahead of schedule and on better terms than expected - a clear endorsement of our campus offering and the quality of space we are delivering. In a particularly challenging retail market, we remained focused on delivering operationally day-to-day while at the same time progressing our strategy and refining our portfolio. With £634m of retail assets sold or under offer in the last 12 months, we have sold a total of £2.8bn since April 2014. We remain thoughtful in our capital allocation, extending our share buyback after selling 5 Broadgate at book value. At the same time, we again reduced leverage so we are well placed to further progress the strategic initiatives we set out in May to build an increasingly mixed use business.

Looking forward, demand for the highest quality London office space is expected to continue, but we remain alert to potential uncertainties as the Brexit process unfolds. We expect retail to remain challenging in both the occupier and investment markets as the impact of long-term structural change is compounded by short-term headwinds. Against this backdrop, our strategy is clear, consistent and focused on the long term. We have created attractive options across our business to drive future growth and benefit from the expertise, financial strength and flexibility to deliver them."

Financial highlights

· Robust performance following £1.2bn of net sales of income producing assets in 18 months

· Strong 5.8% LFL rental growth in Offices more than offset £6m impact of CVAs & Admins

· Underlying EPS down 10% due to impact of one off surrender premia received last year

· Half year dividend up 3.0% to 15.50p

· Portfolio value down 1.9%; Retail down 4.5% and Offices up 0.7% with developments up 7.2%

· EPRA NAV 939p, down 2.9%; total accounting return of -1.3% (H118: +4.2%)

· Strong and flexible balance sheet with a disciplined approach to capital allocation

· £842m of asset sales, further reducing leverage to 26.7% (March 2018: 28.4%)

· 5 Broadgate sold for £1bn (our share £500m), delivering 18% return per annum

· £1.3bn of financing activity including £1.1bn of new debt facilities

· £94m of the £200m share buyback extension completed as at 13 November 2018

Progress on strategy

· Campus-focused London Offices: Unique campus offer is delivering

· 273,000 sq ft of leasing activity generating £7.5m of future headline rents; 98% occupancy

· Additional 148,000 sq ft let to McCann post period end; under offer on a further 162,000 sq ft

· Lettings and renewals on the investment portfolio 6.5% ahead of ERV

· Committed development pipeline generating £63m of future rent, now 69% pre-let/under offer

· Speculative development exposure remains low at 3.7%

· Storey operational across 130,000 sq ft; 87% let or under offer; further 186,000 sq ft identified

· Smaller, more focused Retail: Operational outperformance in a challenging market

· 457,000 sq ft of leasing activity; 5.0% ahead of ERV; 98% occupancy

· Continue to outperform benchmarks: total sales 150 bps ahead; footfall 210 bps ahead

· £634m assets sold or under offer in the last 12 months

· Annualised rental impact of CVAs & Admins over the last 18 months of £14.7m of which £5.5m already let or in negotiation

· Residential, principally Build to Rent: Working to establish scale in this growth market

· Exclusive discussions ongoing to acquire an operator to enhance scale and operational expertise

· 4,000 - 5,000 residential unit opportunities identified across our portfolio, including Canada Water

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

3 Including 148,000 sq ft let to McCann post period end

Results Presentation and Investor Conference Call

A presentation of the results will take place at 9.30am on 14 November 2018 and will be broadcast live via webcast (britishland.com) and conference call. The details for the conference call are as follows:

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

A video replay of the event will be available at britishland.com from 2pm on 14 November 2018. The accompanying slides will be made available at britishland.com just prior to the event starting.

For Information Contact

CHIEF EXECUTIVE'S REVIEW

Financial performance in the half was robust despite ongoing uncertainties caused by Brexit and a particularly challenging retail environment. Our results reflect significant capital activity; over the last 18 months, we have made net sales of £1.2bn of income producing assets as we focus on reshaping our Retail portfolio and recycling capital out of dry or mature assets. The 10% reduction in Underlying EPS to 17.2p is primarily due to one off surrender premia in the prior period. Setting this aside, EPS is flat as strong like for like rental growth in Offices and the benefits of the share buyback offset the impact of retail CVAs and administrations and capital activity. Reinvestment in our development programme will add approximately 4p annualised to future EPS once income-producing. Overall, NAV was down 2.9% with valuations 1.9% lower. The Retail portfolio was down 4.5% reflecting challenges in the market, with Office valuations up 0.7% and developments delivering a strong performance up 7.2%, demonstrating the benefit of our proactive approach.

In May, we outlined our strategic plan to deliver an increasingly mixed-use business. As we do this, we have three key elements of our strategy: a campus-focused London Office business; a smaller, more focused Retail business; and Residential, primarily Build to Rent. We have made good progress against each of these in the half.

In Offices, developments have let up ahead of schedule and on better terms than expected meaning that 69% of our committed pipeline is now let or under offer. This equates to £43m of future income already secured and significantly reduces our development risk. Recently, we signed McCann, one of the world's leading advertising agency networks, alongside interdealer broker TP ICAP at 135 Bishopsgate clearly demonstrating how the transformation we are delivering at Broadgate is appealing to a broader range of occupiers than ever before. Regent's Place and Paddington Central are both full, and we have further progressed the rollout of Storey, which continues to perform well and is operational across our campuses.

In Retail, occupiers continue to face short term cyclical headwinds and rapid structural change. The clearest evidence of this was the number of CVAs from operators with challenged models. We have seen polarisation play out in the context of CVAs with the best stores seeing little or no reduction in rent and this is reflected in our portfolio, where we have seen fewer closures than the market overall. We are not immune however and the annualised rental impact of CVAs and administrations occurring over the last 18 months is £14.7m. £9.5m of this relates to space which has become vacant, which we have been focused on reletting with good early progress with £5.5m already let or in negotiation. At the same time, we have continued to reshape our portfolio to deliver a smaller Retail business focused on assets that meet our criteria of what will succeed long-term and have sold or placed under offer £634m of retail assets over the last 12 months.

In Residential, we have identified significant opportunities to progress a Build to Rent business across our existing portfolio and are in exclusive discussions with an operator to enhance the scale and expertise we need.

We continue to take a thoughtful approach to capital allocation. We sold 5 Broadgate at book value for £1bn (our share £500m) and extended our share buyback programme by £200m with £94m already completed, meaning we have bought back £394m in the last 18 months. At the same time we further reduced leverage, so we have the flexibility to pursue the many opportunities we have created across our business. These include Canada Water, where we submitted planning permission and signed our Master Development Agreement with our partners, Southwark Council during the half.

Looking forward, we expect retail to remain challenging but interest in the highest quality London office space to remain good. We are alert to potential uncertainties caused by Brexit and as a Board we have considered the impact of a range of outcomes on our business. We are confident in the quality of our portfolio and the long-term secure income profile of our business; our portfolio is virtually full, our committed developments are substantially pre-let so our speculative exposure is low, and we are encouraged by the continued good demand for our space. Against this backdrop, our strategy is clear, consistent and focused on the long term. We have created attractive options across our business and have the expertise, financial strength and flexibility to deliver them.

Chris Grigg, Chief Executive

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 97.8% to 97.0%

2 Including 148,000 sq ft let to McCann post period end

UK macro-economic backdrop

Despite the uncertainty caused by the ongoing Brexit process, UK GDP continued to grow in the half - albeit at moderate levels - and unemployment remained at its lowest level since 1975. However, consumers remained under pressure with only marginal real wage growth and some regions including London saw house prices fall. The period saw several high profile retailer failures and in this context, consumer confidence in the economic outlook weakened. In August, the Bank of England raised interest rates for only the second time since the Global Financial Crisis, reflecting continued economic momentum and with inflation remaining elevated.

London market

Prime London property remains a compelling investment proposition for investors, particularly those from overseas. The market was strong in the first quarter, reflecting several large sales to Asian investors but activity slowed in the second quarter. Well-let, best-in-class or trophy assets continue to generate good interest and transact at tight yields, but optimistic pricing for larger non-prime assets has seen a number withdrawn from the market as polarisation continues to be a key theme.

On the occupational side, take up overall was ahead of the 10 year average, and held up well in the City although was slightly weaker in the West End. The period saw strong demand from the creative sectors, representing 18% of take up and flexible workspace providers, representing 16%. Banking and Financial Services also showed good demand despite Brexit-related uncertainties, accounting for 15%. Vacancy levels in both the West End and the City are in line with ten year averages and the development pipeline across London is largely pre-let for those completing in 2018, demonstrating the growing focus on modern, quality space. The London supply pipeline is likely to shift further outwards as some 40% of space previously expected to be delivered in 2020 is not yet under construction.

In Residential, annual house price growth was low at just 1.6%, and was negative in London, with the prime and super prime markets most challenging as political uncertainty and proposed changes in the tax regime weighed on demand.

Retail market

In Retail, investment markets were significantly weaker, reflecting challenges in the occupational market. Demand remained good for well-let, solus assets, especially those with alternative use potential. However, the market was weak for all but the highest quality multi-let assets with transaction volumes low.

Structural and cyclical headwinds have continued to play out, and there have been further CVAs and administrations from retailers with more challenged models, particularly those with high leverage who have been slow to adapt to rapid structural change. These retailers have closed stores to focus on smaller networks generally at a lower overall rent.

Our strategy: Building the Specialist in Mixed Use

In May, we outlined the future shape of British Land. We are building an increasingly mixed use business, focusing on three core elements:

· A campus-focused London office business: 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 business: including high quality, well located Regional and Local assets. Focused on a smaller number of on average larger, multi-let places, especially those with mixed use potential

· Residential, primarily Build to Rent: progressing existing opportunities within our portfolio, including Canada Water and exploring ways to build scale and expertise including via bolt on acquisitions

These strategic aspirations are focused around the fundamental long term trends driving our markets.

A campus-focused London office business

In Offices we are focused on our London campuses where we can curate a mix of uses to meet a broader range of needs that reflect the demands of modern, urban lifestyles. Our development pipeline is focused on our central London campuses and will deliver best-in-class workspace in world-class mixed use environments. Today, people and businesses work more flexibly, with increasing demand from small and fast-growing companies, driving demand for quality space on more flexible terms. This is what Storey our flexible workspace business provides. It allows occupiers to differentiate their space through their own branding whilst benefitting from shared amenities in the building and on our campuses.

A smaller, more focused Retail business

Positioning our Retail portfolio to succeed in the long term is a key strategic focus.

We have a clear view of the important but evolving role retail will continue to play as part of our increasingly mixed-use business. This is based on our understanding of the rapid structural shifts, driven primarily by the internet, that are revolutionising the way people shop. The role of the store is changing, causing retailers to reassess the type and amount of physical retail space they need. One of these changes is the increasing role of click and collect, an important part of an omni-channel approach; surveys across our portfolio show usage has doubled in the last two years with c. 5% of visitors using the service on a given day, almost twice the national average. The importance of networks which provide this logistical support and also act as a showroom is clear but these trends continue to evolve.

Today, these long-term structural trends are being accelerated by short-term cyclical headwinds creating a challenging market backdrop. We know that the type of space that will remain successful has changed and reduced, and we expect this to continue. In this context, we remain ruthlessly focused on the long-term and are reshaping our portfolio to deliver a smaller overall Retail business focused on assets that can succeed.

We have been proactively reshaping our portfolio over several years, with c. £2.4bn of retail assets sold and a further £419m exchanged or under offer since April 2014. Of those assets sold, department stores account for £614m, reducing our exposure to 1% of the portfolio. Department store disposals mainly comprise a number of assets from a portfolio of Debenhams stores acquired in 2005 which has delivered an IRR since purchase of 9.4% to September 2018. Multi-let assets which do not fit our strategy have also been an important area of focus, accounting for £559m of assets sold; we have also sold £995m of superstores and £196m of leisure and other solus assets.

As we make progress, we have a clear and well-established set of demanding criteria that inform our investment activity and believe that the best of both Local and Regional retail assets can succeed.

We are focused on owning only the highest quality Local, multi-let assets with genuine mixed-use potential. These Local assets must have leading competitive positions in the most attractive consumer markets of the UK, primarily in London and the South East. Located in urban areas, they incorporate a good mix of retailers complemented by a high-quality food, beverage and leisure offer that reflects the needs of the specific market.

Alongside this, we see a role for best-in-class Regional centres which benefit from exceptional market positions, are well connected and are the right size with the right mix of units to underpin good supply/demand tension for the space and support pricing and occupancy.

Across our portfolio, we believe we can drive enduring demand for our space by curating world-class destinations that reflect modern consumer lifestyles.

Residential, primarily Build to rent:

Build to rent is a new area of focus for British Land but is complementary to our existing expertise and is an important part of our mixed use vision. The market is underpinned by sound fundamentals, with housing generally undersupplied relative to demand and ability to buy constrained, making renting an attractive option for a growing number of people. Added to this, ownership is relatively fragmented, creating an opportunity for professionally-managed, quality space especially in London and the south east.

We have made good progress against each of these areas since May. Key achievements and our indicative view of the shape of the business in five years is set out below:

Portfolio performance

The portfolio value was down 1.9% overall, primarily due to Retail, where valuations were down 4.5%. Office valuations were marginally ahead, up 0.7%, driven by Office developments, where our continued leasing success delivered an uplift of 7.5%. ERV growth was negative in Retail, led by Department Stores and Local retail centres, where occupier challenges were most pronounced; these categories saw outwards yield shift of 119 bps and 20 bps respectively. The Offices portfolio saw marginal ERV growth, against a market backdrop of broadly stable rents and incentives, with yields flat.

The portfolio underperformed the IPD all property total return index by 310 bps over the period, largely reflecting the continued strength of the industrial sector within the index, where we have no exposure. Offices underperformed the sector benchmark by 70 bps on a total returns basis, reflecting the relative strength of regional offices while Retail underperformed by 230 bps due to a relatively stronger performance by London high streets, superstores and solus retail parks across the market.

Investment and development

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

1 Includes £32m Orsman Road, Haggerston, which exchanged in the period but has not yet completed

2 Includes sale of Richmond which exchanged in FY18 and completed in the current period. Includes Clarges residential sales, all of which exchanged prior to FY19 and completed in the period

We completed £842m of asset disposals, bringing the total gross value of our investment activity since 1 April 2018 to £1.1bn. The most significant transaction in the period was the sale of 5 Broadgate for £1bn (our share £500m) in line with book value. Overall, this development generated a total property return of 18% per annum for British Land.

We also completed £139m of retail sales, on average 7% ahead of book value bringing the 12 month run rate to £215m with a further £419m exchanged or under offer. This means that together, we have sold, or placed under offer £634m of retail assets in the last year.

At Clarges, our prime residential-led development in Mayfair, we completed the sale of 19 units in the period for £203m. This brings total completed units to 21 and a further three units have exchanged but are yet to complete. We have commenced formal marketing of the remaining 10 units and interest remains encouraging although the wider market has become more challenging meaning the valuation of the remaining units has been reduced. To date, completed and exchanged sales at Clarges stand at £334m, and the scheme has delivered total profits of nearly £200m with £123m sales to go.

Development spend totalled £107m in the half with the majority on our committed pipeline at Broadgate and Regent's Place.

Development activity

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

1Total site area is 5m sq ft

Across our portfolio, we have created attractive options for development that progress our strategic focus on mixed use places. Critical to our approach is the flexibility and optionality we have created; the majority of space in our pipeline is currently income producing or held at low cost meaning we have attractive options we can progress when the time is right. With limited opportunity to make accretive acquisitions in the current market, this is an important competitive advantage.

We are careful to manage our development risk and pre-letting our space is an important part of that approach. Reflecting our successful leasing activity 69% of our committed developments are pre-let or under offer and speculative exposure remains low at 3.7% of portfolio gross asset value. Including our near term pipeline, this will be under 7%, which is 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. However, there is a risk that a disorderly Brexit increases material costs and reduces labour supply in 2019/20 potentially increasing cost inflation above the expected 3-4% per annum. To manage this, 93% of the costs on our committed development programme have been fixed.

Campus-focused London Offices: Unique campus offer is delivering

Offices key metrics

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

1 Including 148,000 sq ft let to McCann post period end

Office highlights

· Portfolio value up 0.7%, with the City up 1.4% and West End up 0.3%

· Yields stable, with no movement in the West End and 1 bp expansion in the City

· ERV growth of 20 bps in the West End and 10 bps in the City

· Further strong leasing activity, covering 273,000 sq ft, adding £7.5m of future rents; additional 148,000 sq ft let to McCann which completed post period end (421,000 sq ft total leasing activity)

· Under offer on a further 162,000 sq ft and in negotiations on a further 428,000 sq ft

· Investment lettings and renewals signed 6.5% ahead of ERV

· Rent reviews agreed on 171,000 sq ft, 6.0% ahead of passing rent

· Occupancy increased to 98.2%; Regent's Place and Paddington Central virtually full

· Activity generating like-for-like income growth of 5.8%

· 5 Broadgate sold at book value (our share £500m) generating a total property return of 18% pa for British Land

Campus Review

80% of our Offices are located on our three central London campuses, where we continue to expand the mix of uses, leveraging the benefits of these vibrant local neighbourhoods, which are some of London's most exciting areas as well as excellent transport infrastructure to curate places which meet a broader range of needs. 

Broadgate

At Broadgate, our leasing activity has again been excellent, covering 369,000 sq ft. This included 148,000 sq ft to McCann, one of the world's leading advertising agency networks, who have signed a 15 year lease post period end at our 135 Bishopsgate development, relocating from the West End. This is the latest in a series of lettings to technology and creative businesses, demonstrating that our placemaking activity is transforming Broadgate and resonating with a much broader range of occupier than ever before. At the same time, TP ICAP re-commited to Broadgate with a 123,000 sq ft letting, also at 135 Bishopsgate. 

At our 1 Finsbury Avenue development (1FA), Mimecast committed to an additional 34,000 sq ft bringing their total occupation to 113,000 sq ft, the largest technology letting in the City this year. We signed Everyman, the boutique cinema operator for a 3-sceen cinema, covering 11,000 sq ft and are let or under offer on a further 8,000 sq ft of retail and leisure space at 1FA and 100 Liverpool Street on terms significantly ahead of ERV. Our letting to Eataly, announced earlier in the year is driving interest from a broader mix of retail and leisure operators to Broadgate, building real momentum for a new London destination for food, retail and culture.

Elsewhere on the campus, we let 26,000 sq ft at 201 Bishopsgate to Bravura, a wealth management advisor, and completed 43,800 sq ft of lettings to tech and creative business at 3FA including Onfido, Tessian, Neyber and Publica.

The successful leasing activity we have delivered across our three developments at Broadgate was a key driver of value for the campus, which was our strongest performing, up 1.5% in the six months. The transformation and range of space we are delivering has attracted a more diverse mix of occupiers, and following the sale of 5 Broadgate, Banks and Financial Services now account for around half of rents (including developments) down from two thirds two years ago. 

Paddington Central

At Paddington, where occupancy is 99%, we made 19,000 sq ft of lettings and renewals, nearly 11% ahead of ERV. We have continued to expand the retail and leisure offering, including Pall Mall, a boutique barber shop with six outlets in London and one in New York and Department of Coffee and Social Affairs, another boutique operator with coffee shops in London and Chicago. Following the successful launch of Storey at 4 Kingdom Street further space has now been allocated and take up has been encouraging. 

In recent months, our placemaking activities have focused on enlivenment, including a floating market in August, film and sports screenings in the amphitheatre and the return of Pergola, an 850-cover outdoor dining experience, for a new season in April. This activity, together with the regeneration of the broader area driven in part by the arrival of Crossrail next year, has notably improved the overall perception of the campus. Our most recent engagement surveys showed our net promotor score as a place to work had increased from 43 to 63 with more than 80% of campus and local workers spending on food and beverage at the campus at least weekly.

Paddington saw an overall valuation uplift of 1%, benefitting from yield contraction (2 bps) with ERVs marginally ahead (+0.2%). 

Regent's Place

At Regent's Place, where we are fully occupied, we signed 15,000 sq ft of new lettings, predominately by Storey at 338 Euston Road and agreed rent reviews on 42,000 sq ft, 9.5% ahead of previous passing rent. The campus saw a valuation gain of 0.8% again underpinned by our development activity, which at Regent's Place is focused on 1 Triton Square, where we are fully let on the office space to Dentsu Aegis Network, covering 310,000 sq ft.

We are currently developing plans for a programme of public realm improvements, which will enhance the existing connections with Regent's Park, the residential areas to the north and the Knowledge Quarter, an area one-mile in radius which is home to a cluster of academic, cultural, research, scientific and media organisations. Our plans will introduce more green space and support a more diverse range of uses, experiences and activities throughout the year. 

Storey

The successful roll out of Storey, our flexible workspace brand has continued. It is now operational in five buildings across all three campuses, covering a total of 130,000 sq ft and 87% of space is let or under offer. All the space at Broadgate, Regent's Place and level 4 at 4 Kingdom Street, Paddington Central is fully let or under offer, with level 5 at 4 Kingdom Street, which was launched in July 2018 now 79% let or under offer. Progress has been slower at International House, Ealing Broadway, where we have reduced the overall space allocation and a new marketing plan is in place.

Storey is deliberately a differentiated concept, providing occupiers with the opportunity to brand the space themselves whilst benefiting from shared facilities in the building and the advantages our campuses provide. The average lease length is 21 months and the average occupier headcount is 50 people. It continues to achieve attractive premiums to ERV of 42% on leased space. 

Overall, nearly 50% of Storey occupiers by area are in the technology or telecoms sector, but we are appealing to a broad mix. Nominet, the official registry for .uk domain names; UPL, a chemicals company; and Madison Square Gardens, a live sports and entertainment company all signed in the period. As well as these new occupiers, Storey provides overflow space for existing occupiers, with 41% of occupiers by rent being existing British Land customers. 

Looking forward, we have identified a further 186,000 sq ft including 10,000 sq ft of club space at 4 Kingdom Street, 73,000 sq ft at our 1FA development in Broadgate and over 65,000 sq ft in standalone assets. These include Wells Street in our existing West End portfolio and Orsman Road in Haggerston, located in north of Shoreditch which was exchanged in the period.

Offices development

Developments were a key driver of value in the half, reflecting our strong success leasing up committed developments. 69% of the ERV in our committed pipeline is now let or under offer and this is part of our broader approach to risk management.

Committed developments

Our committed pipeline covers 1.5m sq ft. 366,000 sq ft is at 1 Triton Square, Regent's Place where we are fully pre-let on the office space to Dentsu Aegis Network on a 20-year lease.

The remaining 1.1m sq ft sits across three buildings at our Broadgate campus. 100 Liverpool Street is the largest at 521,000 sq ft and will be one of Europe's smartest office buildings, with a single digital spine connecting systems within the building to personalise elements of the working environment including temperature and light as well as monitor the use of space. We are aiming for a WiredScore platinum rating for internet connectivity and infrastructure and a Well Gold certification for wellbeing. The building is now 38% let or under offer by ERV; Sumitomo Mitsui Banking Corporation Europe are taking 160,000 sq ft and we have a number or retailers signed or under offer. We are phasing the completion of our Broadgate developments with 100 Liverpool Street completing in Q1 2020 and 1FA and 135 Bishopsgate completing during 2019. Following recent lettings these two developments are 42% and 94% respectively let or under offer by ERV, which at 1FA excludes an allocation to Storey of 73,000 sq ft.

Near-Term pipeline

Looking ahead, our near term pipeline covers 440,000 sq ft of consented opportunities we could potentially progress in the next twelve months. It includes our option for a mixed use scheme at Blossom Street, Shoreditch and the Gateway Building at Paddington Central, where we have planning for a hotel.

At Blossom Street our option covers more than two-acres of land. We have consent for a 335,000 sq ft mixed use development, integrating 258,000 sq ft of office space, alongside retail and residential, to create a mixed use development that builds on the historic fabric of the area. Our plans envisage a mix of floorplates, to appeal to small and growing businesses, particularly in the technology and creative sectors.

In line with our strategic focus on expanding the mix of uses at our campuses, our plans at Paddington Central include the Gateway, a 105,000 sq ft premium hotel. We are currently assessing our options in relation to this opportunity.

Medium-Term Pipeline

Looking further ahead, we have created opportunities within our existing portfolio to grow and develop our business well into the future. Our medium term pipeline covers 1.5m sq ft of which two-thirds has planning permission in place.

At Broadgate, we have consent for a 563,000 sq ft scheme at 2-3 Finsbury Avenue (2FA and 3FA) adding 374,000 sq ft to the existing space. In the meantime, these buildings are generating a good income through short term, more flexible lets including 53,500 sq ft Storey space at 2FA. In addition, our 1,700 sq ft events space at 3FA launched in the period. At 1-2 Broadgate, we submitted planning on a 533,000 sq ft redevelopment. Our plans include 160,000 sq ft of retail, leisure and dining connecting Finsbury Avenue Square with retail at 100 Liverpool Street and the Broadgate Circle to create a 350,000 sq ft retail, leisure and dining hub.

At 5 Kingdom Street, Paddington Central, we have existing consent for a 240,000 sq ft office-led scheme; our plans will increase this to more than 371,000 sq ft and we expect to submit a revised application later this year. The site sits above the Box, a 70,000 sq ft site which will become redundant on the completion of Crossrail, when ownership reverts to British Land. This represents an interesting opportunity to create an alternative use, potentially retail, leisure or events space.

Sustainability

At Broadgate, where work is ongoing to create a world class, mixed-use destination, we are maximising the social value created by development through a partnership with our major contractor, Sir Robert McAlpine, and around 40 sub-contractors. In the first year: 12 apprentices have gained experience on the site, building skills for the future; 14 construction workshops were run for children from the local primary school; and local Boroughs have received 44% of the construction spend.

The Regent's Place Community Fund, which supported 2,600 local people in FY18, has now attracted further partners and almost doubled its annual donations to £59,000. This will be invested in local projects that support employability, social cohesion, health and wellbeing in the surrounding neighbourhood.

Smaller, more focused Retail: Operational outperformance in a challenging market

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 98.0% to 97.5% in March 2018 and from 97.6% to 96.1% in September 2018

Retail highlights

· Total portfolio value down 4.5%, with performance mixed reflecting market challenges

· Yield expansion of 14 bps overall

· ERVs down 1.5%

· Robust leasing activity, covering 457,000 sq ft, 5.0% ahead of ERV, adding £2m to future rents

· Completed over 50 rent reviews, 2.1% ahead of passing rent

· High occupancy maintained at 98%

· Annualised rental impact of CVAs & admins over the last 18 months of £14.7m

· £9.5m of this impact relates to rent lost due to store closures with £5.5m already let or in negotiations

· Like for like income growth excluding the impact of CVAs and administrations of 0.2%

· Footfall down 1.2%, 210 bps ahead of benchmark; Total sales down 0.6%, 150 bps ahead of benchmark

· £634m sold or under offer in the last twelve months; total Retail disposals since April 2014 c. £2.8bn

Operational Review 

In a challenging market, we have completed 154 lettings and renewals, covering 457,000 sq ft, 5.0% ahead of ERV. Looking forward, our pipeline of deals under offer is lower than in previous years but is broadly in line with ERV. Tenant incentives have not changed materially overall, although agreements have varied across our schemes, reflecting the relative variances in occupier demand. At Meadowhall we signed 15 long term deals, including G Star, Fat Face and Waterstones, totalling £800,000 of rent and the centre is 99% occupied. Our recent £60m refurbishment is delivering results and leaves us well placed to meet demand for the kind of modern, well-located space successful retailers demand. This is evidenced by our total sales performance, which were up 1% in the twelve months following refurbishment. At Ealing Broadway, conveniently located in the centre of this affluent London suburb and soon to benefit from Crossrail, we signed Neon Sheep, a new accessories brand and Explore Learning, a learning and tuition centre.

Footfall was down 1.2% in the period, but we have continued to outperform the benchmark (210 bps ahead) demonstrating that despite changes in the way people shop, our centres are still relatively well placed. Total sales, which takes into account our asset management initiatives, were down 0.6% outperforming the benchmark by 150 bps, although same store sales, which strips out these improvements showed decline of 2.5% but was 90 bps ahead of the benchmark. These figures only capture instore sales and exclude online sales where the physical store plays a key role, including shipping direct from store, an approach more retailers are adopting, as well as click and collect and online purchases first browsed in store.

Our survey data show an increasingly important contribution of physical retail to an omni-channel strategy. Click and Collect usage has doubled at our centres in the last two years to 5.3% of visitors using the service that day - almost twice the national benchmark. Those who use Click and Collect are valuable visitors, spending nearly twice what non-Click and Collect users spend. 6.0% of visitors at our centres are returning an item, up from 4.4% two years ago, and of those, 76% go on to spend on retail with 24% spending on food and beverage. More of our visitors are also engaging with our food and beverage offer, with F&B spend up 5% this year.

The annualised impact of CVAs and administrations which occurred over the last 18 months is currently £14.7m. We have been focused on reletting the space that has become vacant and early progress has been good, with £5.5m of the £9.5m rent lost due to store closures already let or in negotiation. The full impact on our Retail portfolio is summarised below, including examples for Homebase and New Look:

Capital activity

In line with the strategy set out in May, we have been committed to re-shaping our retail portfolio for several years and have made further good progress. We completed £139m of asset disposals, on average 7% ahead of book value, bringing the 12-month run rate to £215m and are exchanged or under offer on a further £419m, in line with September book value. This brings total Retail disposals since April 2014 to c. £2.8bn. We have continued to see good demand for solus and leisure assets, which have sold well ahead of book although demand for smaller, multi-let assets is weaker and transactions are generally taking longer to complete.

Despite this, there are examples of larger, high quality multi-let assets transacting on attractive terms. This includes our own centre at Fort Kinnaird, Edinburgh, where we were pleased to welcome M&G Real Estate as our new joint venture partner, following the Crown Estate's sale of its 50% share. This transaction was slightly below March book value and demonstrates the continuing interest in good quality retail by major UK institutions. As part of this transaction, the Crown Estate also took full ownership of the Gallagher Shopping Park in Cheltenham, acquiring the 50% from HUT it did not already own. Again, this transaction was only slightly below March book value.

Our focus continues to be on well-located, high quality, multi-let assets with mixed use potential. This strategy underpins our acquisition of Royal Victoria Place in Tunbridge Wells, an affluent town with heritage architecture in London's commuter zone with strong demographics and an undersupply of good quality retail. The centre has consent for a redevelopment covering one-third of the space with potential to significantly expand the mix of uses. It was acquired for £91.8m in May 2018, equating to a capital value per sq ft of £330 and a 4.5% initial yield.

We made £37m of capex investment into our assets. Asset management initiatives accounted for £16m, of which two thirds was income producing capex and one third was spending on the public realm. Development capex of £21m accounted for the remaining investment.

Retail development

In line with our disciplined approach to capital allocation, we consistently review our capital spending plans and in the current environment would expect the overall level of capital spend to be lower than our usual run rate. However, we maintain a range of opportunities across our portfolio which preserve our optionality but would only commit where market conditions and long term prospects are supportive.

Committed developments

At Drake Circus, Plymouth, we are on site with a 108,000 sq ft leisure extension which will add a 12 screen cinema and 14 restaurants. The scheme is 62% let and under offer and we expect to reach practical completion in Autumn 2019.

Medium term pipeline

Our medium term pipeline is increasingly focused on mixed use opportunities and includes a £400m redevelopment of Eden Walk, Kingston (owned jointly with USS), where we have consent for 380 new homes, 28 new retail units, 12 restaurants and cafés and 35,000 sq ft of flexible office space. At Ealing Broadway, which will benefit from Crossrail in 2019, we are working up plans for a wider mixed use development covering nearly 300,000 sq ft. At Meadowhall, we have consent for a 333,000 sq ft leisure extension but are currently undertaking a review of our plans given broader market uncertainty which is expected to conclude towards the end of the year. We have further opportunities at George Street in Plymouth, adjacent to our Drake Circus Regional Retail centre which cover 45,000 sq ft.

Sustainability

At Fort Kinnaird, Edinburgh, the Retail & Skills Centre celebrated its fifth anniversary by winning the Estates Gazette Collaborators Award. Our innovative partnership with councils from East Lothian, City of Edinburgh and Midlothian, as well as the Capital City Partnership, Department of Work and Pensions, and Skills Development Scotland improves local skills and access to jobs for people who may not otherwise be provided with support. Since opening in 2013, the Centre has supported 652 employers, trained 2,663 people and helped 3,585 people into work, improving opportunities for people in surrounding neighbourhoods and creating the skilled workforce that our customers value.

Canada Water: A unique redevelopment opportunity in London

Highlights

· 5m sq ft mixed use development scheme

· Master development agreement signed with Southwark Council in May 2018

· Planning application including detailed planning submission on the first three buildings and outline planning for the whole scheme submitted May 2018

· Valuation up 0.3% to £293m

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 benefits from excellent transport connectivity with Canary Wharf and the West End two and twelve minutes respectively on the Jubilee line and Shoreditch just ten minutes away by Overground. It covers 53 acres including the dock area, providing 48 acres of developable land.

We started engaging on our masterplan proposals in 2014 and since then have held over 120 public consultation and local outreach events. These have attracted over 11,000 people who provided 12,000 comments on our plans, enabling us to shape a design with strong local appeal. Together with Southwark Council, we have now committed to a Social Regeneration Charter which will ensure that residents in the borough benefit from the development.

In May, we submitted our planning application, which included a detailed application on the project's first three buildings together covering nearly 580,000 sq ft. Our plans include 265 homes of which 35% will be affordable. Building A1 will provide both residential and workspace and building A2 will be focused on workspace and a new leisure centre, with both providing a small amount of retail at ground floor. K1, the third building will be wholly residential. These buildings are part of a major first phase covering 1.9m sq ft of mixed use space.

The development agreement which we signed in May 2018 sets out the terms of a new headlease, which consolidates our holdings into a single 500 year headlease with Southwark Council as the Lessor. This structure effectively aligns the ownership of these assets, with British Land owning 80% and Southwark Council owning the remaining 20%. Southwark Council will have the opportunity to participate in the development of the individual plots, up to a maximum of 20% and returns will be pro-rated accordingly. This headlease becomes effective on the fulfilment of a number of conditions, most importantly achieving outline planning consent for the whole masterplan and detailed planning consent for the first three buildings.

Subject to planning approvals, construction of the first detailed plots could begin in the second half of 2019. Potential funding structures will be explored when we have greater visibility on timing, ahead of which, we are already 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 and electronic music venue, frequently hosting crowds of up to 5,000. Ticket sales and visitors are now up to 300,000 with 31 shows scheduled for the Autumn season.

The valuation of Canada Water increased to £293m benefitting from progress made with our planning application although we continue to incur feasibility costs in relation to the Masterplan.

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 robust in the context of significant net divestment over the last 18 months and a challenging retail environment. Underlying earnings per share (EPS) are down 10.4% at 17.2p, while Underlying Profit is down 14.6% at £169m, reflecting one off surrender premia of £20m received in the prior period.

Setting aside the surrender premia, Underlying EPS is flat with strong like-for-like rental growth in Offices and the benefits of share buyback offsetting the impact of net divestment and retail CVAs and administrations. There is an estimated 4p of annualised uplift to come in future years from the committed development programme, which is already 69% pre-let or under offer, and a further c.0.8p expected on completion of the share buyback programme.

Valuations have reduced by 1.9% on a proportionally consolidated basis resulting in an EPRA net asset value per share (NAV) decline of 2.9%, albeit this was partially offset by the impact of the £50m shares bought back in the period.

We have completed £1.1bn of gross capital activity (£0.6bn of net capital activity) in the half. This comprises £639m sales of income producing assets, primarily our 50% interest in 5 Broadgate for £500m, which sold at book value, representing a net initial yield of 4%. In addition, we made Retail sales totalling £139m, 7% ahead of book value, at an average yield of 4.5%. We have a further £419m of Retail sales exchanged or under offer, in line with September book value. With the sales made in H2 last year, this brings our running total of assets sold, exchanged and under offer over the last 12 months to £634m. We completed on £203m of residential sales during the half, which exchanged prior to this financial year.

We remain thoughtful about the use of proceeds from these disposals. During the half we extended the share buyback programme by £200m, with £50m completed to September, adding 2p to NAV. The remainder is expected to complete by the end of the financial year. Share buybacks completed in the last 18 months have added 17p to NAV. We have also invested £273m into development, purchases and capital spend to position our business for future growth.

Our financial metrics remain strong. LTV has decreased by a further 170bps during the period to 26.7% despite the valuation fall. The reduction was driven by net sales reducing LTV by 350bps, partially offset by the share buyback and investment into the development programme. Our weighted average interest rate remains low at 2.9%. We have been active in debt markets, with £1.3bn of activity, including £1.1bn of new facilities.

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 statements 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 Group's financial performance and 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. 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. This is presented below on a proportionally consolidated basis:

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 17.2p, a decline of 10.4% on the prior period. This reflects Underlying Profit decline of 14.6%, offset by the impact of £350m share buyback completed to date which added 0.6p in the period. The share buyback programme, once completed, is expected to add a further c.0.8p to EPS on an annualised basis, assuming current share price levels. 

1.2 Net rental income

The £30m decrease in net rental income is primarily a result of surrender premia received in the prior period in addition to the impact of net divestment over the last 18 months. The impact of CVAs and administrations has been more than offset by like-for-like growth.

Net sales of income producing assets of £1.2bn over the last 18 months have reduced net rents by £10m in the period, including the £5m reduction from the sale of 5 Broadgate in June this year, and £3m reduction from the sale of The Leadenhall Building in May 2017. Proceeds from these sales are being reinvested in the committed development pipeline, which is expected to deliver £63m of ERV in future years.

Excluding the impact of CVAs and administrations, like-for-like rental growth across the portfolio is 2.3%, increasing net rents by £7m. This has been driven by 5.8% growth within Offices, resulting from strong leasing activity across our campuses, particularly at 4 Kingdom Street. Retail like-for-like growth is broadly flat at 0.2%.

Occupier CVAs and administrations in the Retail portfolio have reduced net rents by £6m from last half year, principally Fabb Sofas (£1.6m), Mothercare (£1.1m) and Poundworld (£0.8m).

1.3 Administrative expenses

Administrative expenses have marginally increased this period due to investment in key strategic areas. The Group's operating cost ratio has increased by 330 bps to 19.5% (H1 2017/18: 16.2%) driven by a combination of slightly increased costs and lower rents.

1.4 Net financing costs

Financing activity undertaken over the last 18 months has reduced costs by £4m in the period. Principally, this relates to the early redemption of our 9.125% 2020 Debenture and the tender and partial redemption of £84m of our 5.357% 2028 and 5.0055% 2035 Debentures.

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

We have a risk managed approach to financing and are mindful of the current interest rate environment. At 30 September 2018, on a spot basis, the interest rate on 92% of our debt is hedged. On average over the next five years, based on projected debt, we are 63% hedged.

2. IFRS profit before tax

The main difference between IFRS profit before tax and Underlying Profit is that it includes the valuation movement on investment and development properties and the fair value movements on financial instruments. 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 before tax for the year was £42m, compared with a profit before tax for the prior period of £238m. This reflects the change in valuation movement on the Group's properties which was £393m less than the prior period, and the capital and other income result from joint ventures and funds being £35m less than the prior period, both driven principally by outward yield shift of 14 bps and ERV decline in the Retail portfolio. In addition, the result on disposal of investment properties and investments was £26m lower than the prior period. These items were partially offset by £57m of additional trading property sale profits, as a result of the completion of a number of Clarges units in the period, along with a £146m positive movement in capital financing charges due to recycling of cumulative losses within the hedging and translation reserve in relation to a hedging instrument which was no longer hedge accounted in the prior period.

IFRS basic EPS was (4.9)p per share, compared to 23.2p per share in the prior period, driven principally by the decline in property valuations. The basic weighted average number of shares in issue during the period was 981m (H1 2017/18: 1,028m).

3. Dividends

As indicated in May 2018, we have increased the dividend by 3.0% for the 6 months to 30 September 2018 to 15.50p and propose a full year dividend to 31 March 2019 of 31.00p.

The second interim dividend payment for the quarter ended 30 September 2018 will be 7.75p. Payment will be made on 8 February 2019 to shareholders on the register at close of business on 4 January 2019. The second interim dividend will be a Property Income Distribution and no SCRIP alternative will be offered.

The dividend pay-out ratio is 90% for the period (H1 2017/18: 78%).

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 bonds 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 2.9% decrease in EPRA NAV per share reflects a valuation decrease of 1.9% across the portfolio. Valuation gains in the Office portfolio of 0.7% have been more than offset by a 4.5% fall in Retail values as a result of weakening sentiment and the impact of occupier CVAs and administrations.

Office valuations were up 0.7% driven by strong leasing at our developments, including 135 Bishopsgate where values are up 26%, with marginal ERV growth of 0.2% across the standing investments and relatively stable yields. ERV growth of 0.2% reflects specific asset lettings we've completed and the resulting washover effect. 

Valuations in Retail are down 4.5%, with outward yield shift of 14bps and ERV decline of 1.5%, reflecting the impact of CVAs and administrations on both the investment and occupational markets, particularly at our smaller retail assets outside the South-East and department stores. However, the performance within the portfolio has been varied, and we continue to see ERV growth at high quality, well positioned assets with good supply/demand tension. Investment demand remains for long term, secure income assets. 

The 3p impact of financing activity primarily relates to the commitment to repay a portion of secured Broadgate bonds and termination of the associated interest rate swaps, however the impact of this is NPV neutral overall. The £50m progress made on the share buyback programme during the half has contributed 2p to EPRA NAV. We expect to complete the remainder of the programme by the end of the financial year, being further accretive to NAV.

5. IFRS net assets

IFRS net assets at 30 September 2018 were £9,261m, a decrease of £245m from 31 March 2018. This was primarily due to IFRS loss before tax of £42m, along with £148m of dividends paid and £50m 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 £661m in the period. Completed sales included 5 Broadgate for £500m (BL share) and, in line with our strategy of focusing on multi-let assets, 5 standalone assets totalling £110m (BL share) and one retail park (Cheltenham Gallagher). We completed purchases of £113m during the period, the majority of which is Tunbridge Wells, and exchanged on the purchase of Orsman Road, which is due to complete in the second half.

We've also spent £102m on developments and a further £4m on capital expenditure related to asset management on the standing portfolio. The value of committed developments is £715m, with £353m costs to come. Speculative development exposure is 3.7% of the portfolio after taking into account residential pre-sales. There are 440,000 sq ft of developments in our near term pipeline with anticipated cost of £364m.

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.

The above include the impact of repayment of secured Broadgate bonds and associated swaps, committed prior to 30 September 2018 and completed in October 2018.

Since March, we have completed £1.3bn of financing activity, including £1.1bn of new facilities.

We completed the amendment and extension of our largest syndicated RCF at £735m, with 12 banks, at an initial margin of 90 bps and new maturity of five years. We also renewed a bi-lateral RCF of £125m for 5 years. Both may be extended by a further two years at our request and on each bank's approval.

We committed to the repayment of £223m (£111m our share) of secured Broadgate bonds, releasing 1-2 Broadgate and 2-3 Finsbury Avenue from the securitisation, providing greater flexibility and optionality over these buildings as we continue to progress our vision for Broadgate. This transaction completed in October 2018, initially reducing NAV, with a corresponding increase in earnings over the remaining life of the redeemed bonds. Our financing activity over the period has been overall NPV neutral. 

In October, we issued £231m US Private Placement notes to four investors for 7-10 years (average of 8.2 years), at blended pricing of Libor +124bps.

We are pleased with the ongoing support from all the lenders, which provides liquidity and flexible finance from diverse sources.

At 30 September 2018, our proportionally consolidated LTV was 26.7%, down 170 bps from 28.4% at 31 March 2018 due to net disposals, offset by share buybacks, development spend and the valuation decline. This positions us well to enable investment into our development pipeline. Note 10 of the condensed interim financial statements sets out the calculation of the Group and proportionally consolidated LTV.

Our liability and debt management activity has enabled us to keep our weighted average interest rate low at 2.9%, despite the impact of net divestment and increase in market rates. Our interest cover has reduced to 3.7 times as a result of proportionately lower Underlying Profits.

Our weighted average debt maturity is largely unchanged at 8.5 years.

At 30 September 2018, British Land has £1.8bn of committed unsecured revolving bank facilities, £1.5bn undrawn. Based on our current commitments, these facilities and debt maturities, we have no requirement to refinance until late 2021.

The Group's senior unsecured credit rating is single 'A', having been upgraded during the last financial year.

The current 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 Retail around the UK and London Offices.  We own or manage a portfolio valued at £16.8bn (British Land share: £12.9bn) as at 30 September 2018 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 Retail portfolio is focused on Regional and Local multi-let centres, and accounts for 49% of our portfolio.  Our Offices portfolio comprises three office-led campuses in central London as well as high quality standalone buildings and accounts for 48% 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 48-49 of the Annual Report and Accounts published in June 2018.

The Board has updated its assessment of the principal risks facing the Group, including those that would impact the business model, future performance, solvency or liquidity. Whilst, we consider there has been no material change to the Group's principal risks, as set out on pages 52-55 of the Annual Report and Accounts published in May 2018, several risks are elevated as a result of the challenging external environment, with the increased level of political uncertainty associated with the UK's departure from the European Union ('Brexit'), alongside the continued challenging trading conditions in retail.

The risk considered to be elevated since the year end due to continuing Brexit uncertainty is the political and regulatory outlook. While it is not possible to predict fully the impact Brexit will have on our business and our markets, the Board is continuing to monitor external events and is taking appropriate action to ensure we are prepared for short term risks that could be faced in an immediate aftermath of a deal not being reached between the UK and EU to ensure our business is both resilient and responsive in the short term, and well positioned for the long term.

In addition, we consider the principal risks of occupier demand and investor demand to be elevated since the year end due to the continued challenging trading conditions in retail with several recent high profile CVAs and administrations. This could impact our ability to execute our investment strategy and present an increased risk to income sustainability, albeit the latter is mitigated in part by significant progress in letting our committed development programme.

We have had an active period and made further good progress against our strategy, but 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.

Our principal risks and uncertainties are summarised 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 customers 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 customers 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.

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.

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.

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 interim 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 The British Land Company plc are listed on the Company website www.britishland.com.

By order of the Board

Simon Carter

Chief Financial Officer 13 November 2018

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 of The British Land Company PLC for the six month period ended 30 September 2018. 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 2018;

· 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 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, 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 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 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 and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLPChartered AccountantsLondon 

13 November 2018

Consolidated income statement

For the six months ended 30 September 2018

All results derive from continuing operations.

1 See definition in note 2.

consolidated statement OF COMPREHENSIVE INCOME

For the six months ended 30 September 2018

consolidated BALANCE SHEET

AS AT 30 SEPTEMBER 2018

* See definition in note 2.

consolidated statement OF CASH FLOWS

For the six months ended 30 September 2018

Consolidated Statement of Changes in Equity

For the six months ended 30 September 2018

Six month movements in equity

Prior year movements in equity

Notes to the accountsfor the six months ended 30 September 2018

1 Basis of preparation

The financial information for the period ended 30 September 2018 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 2018 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 and in accordance with IAS 34 Interim Financial Reporting. 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 2018, 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 9 and IFRS 15 (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 9 - Financial instruments

The new standard results in changes in the classification of all financial assets excluding derivatives. This re-classificaiton does not have a quantitative impact on the financial statements.

The new standard introduces an expected credit loss model, requiring expected credit loss to be recognised on all financial assets held at amortised cost. The quantitative impact for the period ended 30 September 2018 upon application of this new accounting policy for assessing asset impairment is to recognise an expected credit loss of £3m, with a corresponding reduction in financial assets held at amortised costs of £3m. The Group has previously provided for a materially similar balance against trade and other receivables and therefore the resulting reclassification of existing provisions has not had a material impact on the net assets of the Group.

IFRS 15 - Revenue from contracts with customers

The new standard sets out a five-step model for the recognition of revenue and establishes principles for reporting useful information to users of financial statements about the nature, timing and uncertainty of revenues and cash flows arising from an entity's contracts with customers. The new standard does not apply to rental income which is in the scope of IAS 17, but does apply to service charge income, management and performance fees and trading property disposals. Adoption of IFRS 15 has not had a quantitative impact upon the consolidated Group financial statements. It has resulted in some minor qualitative disclosure in relation to some revenue items, detailed in Note 3 to the financial statements.

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, except the following set out below:

IFRS 16 - Leases, is effective for the Group's year ending 31 March 2020. For lessees, it will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases will be removed. The accounting for lessors will not significantly change. As a result on adoption of the new standard, these changes are not expected to have a material impact on the consolidated financial statements of the Group.

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 13 November 2018.

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 1,023 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, as the Company's share price had not exceeded the level required for the convertible conditions attached to the bond to trigger conversion into shares.

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 2018, 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 1,023 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, as the Company's share price had not exceeded the level required for the convertible conditions attached to the bond to trigger conversion into shares.

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 2.0% (Six months ended 30 September 2017: 2.1%). The weighted average interest rate on a proportionately consolidated basis at 30 September 2018 was 2.9% (Six months ended 30 September 2017: 3.0%).

1 Prior period charge of £115m represents a reclassification adjustment of cumulative losses within the hedging and translation reserve to capital profit and loss, in relation to a hedging instrument which was no longer hedge accounted. The recognition of this amount in capital financing charges had no impact on EPRA NAV.

6 Taxation

Taxation expense attributable to Underlying Profits for the six months ended 30 September 2018 was £nil (Six months ended 30 September 2017: £nil).

7 Property

Property reconciliation