British Land Regulatory News (BLND)

The British Land Company PLC Half Year Results

16 November 2016

Chris Grigg, Chief Executive said: "We've delivered a good set of results with a significant increase in underlying profits reflecting our actions and continued leasing momentum. We're mindful of future uncertainty but are confident that our secure income streams and strong finances will ensure our business remains resilient. As occupiers become more discerning we expect our high quality portfolio to benefit from increasing polarisation. The evolving environment will be reflected in our tactical decisions, particularly on development where we expect to proceed more cautiously. We have modest speculative development commitments currently, even following our decision to redevelop 100 Liverpool Street. This is a great example of the opportunities within our portfolio which provide a source of future value."

Good results for the half year driven by our actions

• Underlying PBT +16.4% to £199 million driven by like-for-like income growth of 3.4% and reductions in finance and operating costs; IFRS PBT of £(205) million (H1 2016: £823 million)

• EPRA NAV reduced by 3.0% to 891p; IFRS Net Assets at £9.2 billion (March 2016: £9.6 billion)

• Quarterly dividend of 7.3 pence bringing the half year dividend to 14.6 pence (+3.0%)

• Total accounting return of -1.5% (H1 2016: +9.1%)

Active management and quality portfolio attracting high volume of leasing, maintaining secure income

• 769,000 sq ft of lettings and renewals across the portfolio on average 11.6% ahead of ERV; 60% after the referendum

• Portfolio 98% let with average lease length of 9 years and high quality, diverse occupier base

• 68,000 sq ft Office leasing 4.9% ahead of ERV adding £2.7 million rent in virtually fully let portfolio

• £2.8 million of rent added through Office rent reviews; 18.7% ahead of previous rents

• 656,000 sq ft Retail leasing 12.9% ahead of ERV adding £6.5 million rent, increasing multi-let ERVs +1.3%

• Over 300,000 sq ft under offer across the portfolio; in discussions with occupiers from a range of sectors on Office developments across all three campuses

• Continuing outperformance in footfall (+0.1%, 240 bps ahead of benchmark) and retailer sales (-0.2%, 190 bps ahead of the benchmark)

Modest overall reduction in valuation, including larger falls on assets with short term expiries

• Portfolio valuation -2.8%; standing investments -2.8%; developments -3.0%

• Office and Residential valuation -3.3%; 21 bps yield expansion; ERVs flat +0.1% (+0.5% like-for-like basis)

• Retail and Leisure valuations -2.4%, 18 bps yield expansion; ERV growth +0.9%

Asset disposals ahead of valuation to progress strategy

• £690 million of non-core Retail asset disposals exchanged 3.6% ahead of March 2016 values, including £659 million post referendum; increases multi-let share of Retail portfolio to 76% (March 2016: 71%)

Committed to mixed-use redevelopment at 100 Liverpool Street doubling retail at Broadgate

• Committed to commence 520,000 sq ft redevelopment of 100 Liverpool Street in December; expect to more than double income, including from additional 90,000 sq ft of retail and F&B; £164 million development expenditure (BL share), completing 2019 to benefit from arrival of Crossrail; flexible accommodation designed to attract a diverse range of occupiers

• Speculative development commitment remains modest at 5%; will proceed more cautiously on other opportunities, requiring pre-lets prior to commitment or pursuing lighter touch refurbishment on key expiries

Strong financial position with further reductions in finance costs

• Proportionally consolidated LTV down 50bps at 31.6% (March 2016: 32.1%); weighted average interest rate of 3.2% (March 2016: 3.3%)

• Based on current commitments, the Group has no requirement to refinance until 2020

1 See Glossary on for definition

2 See Note 2 to the condensed set of financial statements

3 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

Investor Conference Call

A presentation of the results will take place at 9.30am today, 16 November 2016, and will be broadcast live via webcast (www.britishland.com) and conference call. The details for the conference call are as follows:

UK Toll Free Number: 0808 109 0700

Passcode: British Land

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

Replay number: 0208 196 1998

Passcode: 7368680#

For Information Contact

Investor Relations

Jonathan Rae, British Land 020 7467 2938

Media 

Pip Wood, British Land 020 7467 2838

Gordon Simpson, Finsbury 020 7251 3801

Guy Lamming, Finsbury 020 7251 3801 

Forward-looking statements

This Press Release contains certain 'forward-looking' statements. Such statements reflect current views on, among other things, our markets, activities, projections, objectives and prospects. Such 'forward-looking' statements can sometimes, but not always, be identified by their reference to a date or point in the future or the use of 'forward-looking' terminology, including terms such as 'believes', 'estimates', 'anticipates', 'expects', 'forecasts', 'intends', 'due', 'plans', 'projects', 'goal', 'outlook', 'schedule', 'target', 'aim', 'may', 'likely to', 'will', 'would', 'could', 'should' or similar expressions or in each case their negative or other variations or comparable terminology. By their nature, forward-looking statements involve inherent risks, assumptions and uncertainties because they relate to future events and depend on circumstances which may or may not occur and may be beyond our ability to control or predict. Forward-looking statements should be regarded with caution as actual results may differ materially from those expressed in or implied by such statements.

Important factors that could cause actual results, performance or achievements of British Land to differ materially from any outcomes or results expressed or implied by such forward-looking statements include, among other things: (a) general business and political, social and economic conditions globally, (b) the consequences of the referendum on Britain leaving the EU, (c) industry and market trends (including demand in the property investment market and property price volatility), (d) competition, (e) the behaviour of other market participants, (f) changes in government and other regulation, including in relation to the environment, health and safety and taxation (in particular, in respect of British Land's status as a Real Estate Investment Trust), (g) inflation and consumer confidence, (h) labour relations and work stoppages, (i) natural disasters and adverse weather conditions, (j) terrorism and acts of war, (k) British Land's overall business strategy, risk appetite and investment choices in its portfolio management, (l) legal or other proceedings against or affecting British Land, (m) reliable and secure IT infrastructure, (n) changes in occupier demand and tenant default, (o) changes in financial and equity markets including interest and exchange rate fluctuations, (p) changes in accounting practices and the interpretation of accounting standards and (q) the availability and cost of finance. The Company's principal risks are described in greater detail in the section of this Press Release headed Risk Management and Principal Risks. Forward-looking statements in this Press Release, or the British Land website or made subsequently, which are attributable to British Land or persons acting on its behalf should therefore be construed in light of all such factors.

Information contained in this Press Release relating to British Land or its share price or the yield on its shares are not guarantees of, and should not be relied upon as an indicator of, future performance, and nothing in this Press Release should be construed as a profit forecast. Any forward-looking statements made by or on behalf of British Land speak only as of the date they are made. Such forward-looking statements are expressly qualified in their entirety by the factors referred to above and no representation, assurance, guarantee or warranty is given in relation to them (whether by British Land or any of its associates, directors, officers, employees or advisers), including as to their completeness, accuracy or the basis on which they were prepared.

Other than in accordance with our legal and regulatory obligations (including under the UK Financial Conduct Authority's Listing Rules, Disclosure Rules, Transparency Rules and the Market Abuse Regulations), British Land does not intend or undertake to update or revise forward-looking statements to reflect any changes in British Land's expectations with regard thereto or any changes in information, events, conditions or circumstances on which any such statement is based. This document shall not, under any circumstances, create any implication that there has been no change in the business or affairs of British Land since the date of this document or that the information contained herein is correct as at any time subsequent to this date.

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. Refer to the Financial Review for a discussion of the IFRS results.

Notes to Editors:

About British Land

We are one of Europe's largest publicly listed real estate companies. We own, manage, develop and finance a portfolio of high quality UK commercial property, focused on Retail and London Offices and Residential. We own or manage total assets of £19.0 billion (British Land share is £13.9 billion) as valued at 30 September 2016. Our properties are home to over 1,200 different organisations ranging from international brands to local start-ups.

Our strategy is to create Places People Prefer. It is based on long term trends and creates a portfolio suited to current and future needs which are aligned to modern lifestyles. We employ our placemaking skills, and increasingly our mixed-use expertise to expand the appeal to a broader range of occupiers and drive long term performance.

Retail accounts for 49% of our portfolio. We create outstanding places for modern consumer lifestyles, places to shop eat and be entertained. Comprising over 20 million sq ft of Retail and Leisure space across regional and local multi-let destinations, superstores, department stores and leisure assets, the Retail portfolio is modern, flexible and adaptable to a wide range of formats.

Office and Residential accounts for 49% of our portfolio. It comprises 7.6 million sq ft of well-connected office-led campuses and 'campus-lite' clusters of high quality buildings. Office campuses include Regent's Place and Paddington Central in the West End and Broadgate (50% share) in the City. Other assets include The Leadenhall Building, York House, 10 Portman Square and Marble Arch House and our residential assets are at Clarges Mayfair, The Hempel Collection and Aldgate Place.

Two per cent of our portfolio is at Canada Water - a 46 acre redevelopment opportunity in our medium term pipeline to create a new mixed-use urban centre for London.

Sustainability is embedded throughout our business. Our places become part of their local communities and promote health, improve productivity and increase enjoyment. We protect asset value and generate income from energy generation and efficiency, materials innovation and flood risk reduction, and develop skills and opportunities to help local people and businesses grow. 

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 benefits achievements over the last five years.

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

CHIEF EXECUTIVE'S REVIEW

The UK's decision to leave the EU marked the start of a prolonged period of uncertainty for the country, for our industry and for our occupiers. Ahead of the referendum, we positioned the business for a range of outcomes with modest development exposure, high occupancy with long leases, and robust finances. These features and our continuing actions mean that the business has proved resilient in the first few months following the referendum, evidenced by our improved underlying profit and the continuing volume of leasing activity.

We have a range of tactical levers to address the evolving political and economic uncertainties, but our strategy, which is based on long term trends, remains unchanged. We will continue to create places that are aligned with modern lifestyles and respond to changing consumer behaviour. This means owning and operating places where we can control the broader environment, employing our placemaking skills and exploiting our mixed-use expertise to drive long-term performance. We believe that this differentiates our properties from the wider market, attracting a broader range of occupiers. In this environment, we see quality of space becoming ever more important to occupiers and that our strategy positions our assets to capture a greater share of demand.

Our level of activity in the half has been better than expected immediately following the referendum. We are pleased that this, along with the decisions we made in positioning the business, have contributed to a 16.4% increase in underlying profit to £199 million. This reflects like-for-like income growth of 3.4% driven by our asset management and placemaking activities, as well as further reductions in our finance and operating costs. As we announced in the full year results, we are increasing our dividend for the year to March 2017 by 3% to 29.2 pence per share. In line with that, the second quarter dividend at 7.3 pence per share, brings total for the half year to 14.6 pence per share.

Since the referendum, we have seen differing dynamics in our markets with leasing momentum maintained in Retail and signs of more caution amongst occupiers in Offices. Overall, we completed 769,000 sq ft of lettings and renewals across the portfolio on average 11.6% ahead of ERV, resulting in occupancy of 98% and an average lease term of 9 years.

At this time of more cautious occupier demand in the London office market, we have benefited from having only a small amount of space to let. We completed 68,000 sq ft of Office lettings in the half, including the final vacant floors at The Leadenhall Building and Marble Arch House, achieving new rental highs. We have also seen good interest in our recently completed West End Office developments at Clarges Mayfair and Yalding House which are now over a third let or under offer, all ahead of March ERVs. We are also in discussions with a number of occupiers on significant space requirements at development opportunities across all four campuses. These activities demonstrate continued interest in new workspace from occupiers across a range of sectors, attracted to high quality buildings in well-connected London locations and vibrant environments, meeting both the needs of the business and its employees. In addition, we have made good progress on capturing reversion across our campuses following significant rental growth in recent years, particularly at Regent's Place, where we have achieved a further £2.3 million uplift on rent reviews, 45% ahead of passing rent.

In Retail, the referendum has, as yet, had no discernible impact on occupier demand and letting activity in our portfolio. In total, we let or renewed 656,000 sq ft of space on average 12.9% ahead of ERV. In the multi-let portfolio, we let or renewed 373,000 sq ft, more than in the same period last year, on average 12.2% ahead of ERV. Within this, we were pleased to attract some new occupiers to our line-up that we have been targeting as well as meeting demand for additional space from our long standing retail partners. These successes reflect both our placemaking activity to improve environments and customer experience on the ground, and our enhanced data and marketing capabilities which help us attract new occupiers. In addition, we completed renewals on 8 Homebase leases, totalling 283,000 sq ft where we extended the lease term to 15 years, also increasing rents and providing a significant capital uplift for our single let portfolio.

It has been a challenging period for some parts of the retail market, with consumer confidence initially dipping and then recovering in the period since the referendum. Reflecting this, footfall and sales were both down for the six months across the wider market, by -2.3% and -2.1% respectively, but our portfolio continued to outperform with footfall marginally up (+0.1%, 240 bps ahead of the market) and sales modestly down (-0.2%, 190 bps ahead of the market). Within reported sales, there has been mixed performance across the sectors with fashion and department stores weaker, partly due to unseasonal weather, and homewares, health and beauty, and food and beverage continuing to perform strongly.

Valuations across the market were broadly flat in the first half of 2016 in an environment of increasing uncertainty, before falling following the referendum. Our portfolio has registered a valuation fall of -2.8% since March, principally due to 19 bps of outward yield shift, partially offset by ERV growth of +0.5%, profits recognised on disposals and the benefit of lease extensions. There was a wide dispersion in asset level performance with valuations on long term, secure income proving resilient, but with much greater falls on assets with near term income expiries. The IPD benchmark fell -2.1% over the period, with the valuation reduction moderated by stronger performance from Industrials, a sector that British Land does not invest in.

This valuation fall translates to a 3.0% reduction in our EPRA net asset value to 891 pence per share. This includes the impact of no longer treating the 1.5% 2012 convertible bond as dilutive as the share price was below the exchange price of 693 pence at the period end. Along with the dividend, this provides a total accounting return of -1.5% for the period.

We were pleased to exchange contracts on £690 million of non-core Retail sales in the half, including the sale of Debenhams on Oxford Street for £400 million, shortly after the referendum and a further £79 million of superstores. These sales were achieved on average 3.6% ahead of March values and have resulted in the multi-let share of our Retail portfolio increasing to 76% from 71% in March. Acquisitions in the period totalled £90 million, of which £64 million was the acquisition of the New George Street Estate in Plymouth adjacent to our existing holding at Drake Circus. Investment in developments and placemaking was £151 million for the period, resulting in net investment proceeds of £469 million. Overall, we have been net sellers of almost £1 billion of assets in the last 18 months.

The net divestment in the half has more than offset the impact of the valuation falls meaning that our proportionately consolidated LTV continued to move lower to 31.6% from 32.1% in March. The average financing cost is down 10 bps to 3.2% as a result of our financing activity and our decision to hold a higher proportion of our debt at variable rates. This, along with a £6 million reduction in our administrative costs has made a significant contribution to the increase in underlying profits. As well as being well priced, our financing is robust with average term of 8 years on drawn debt and no requirement for the group to refinance until 2020, even if the 1.5% convertible does not convert.

Together with our partners GIC, we have committed to commence development at 100 Liverpool Street in Broadgate. The building has been designed to the highest standards with flexible floorplates to appeal to a wide range of occupier requirements. It is a further major step in transforming Broadgate into a vibrant, mixed-use destination, significantly enhancing the retail and leisure offer. Occupier interest will benefit from the opening of the Liverpool Street Crossrail station, which is immediately adjacent, in 2018, adding to current discussions with potential occupiers. With this commitment, our speculative development commitment remains modest at 5%. We continue to have a range of development opportunities within our portfolio which represent a source of future value. Reflecting the uncertain environment, we will proceed more cautiously on development and are only likely to commit to further major redevelopments with the benefit of pre-lets, as indicated in our last results. We will however take steps to progress our optionality to commit to these development opportunities when we see demand, and have achieved several planning successes in the period.

The largest opportunity in our pipeline is at Canada Water where we will create a new mixed-use urban centre for London. We continue to progress the masterplan and have had encouraging discussions with potential occupiers across all possible uses, which is informing our planning application, due to be submitted in 2017.

We continue to be recognised as a sector leader for sustainable placemaking. During the period, British Land was included in the Carbon Disclosure Project's A List of the top 9% of global companies tackling climate change. For the third time, we were ranked as a European sector leader in the Global Real Estate Sustainability Benchmark and also scored in the 95th percentile of both the Dow Jones Sustainability and FTSE4Good indices. As a demonstration of sustainable placemaking in practice across our portfolio, we became members of RE100, committed to using 100% electricity from renewable sources. In addition, enhancing the wellbeing of those who shop, live and work in our places has been central to our delivery of the new leisure quarter at Glasgow Fort and public realm upgrades underway at Paddington Central.

We recognise that the outlook in our markets will remain uncertain for some time to come. We have an enduring strategy which is based on long term trends and this positions our high quality portfolio to benefit from increasing polarisation and to attract a broader range of occupiers. Our rental streams are secure, we have robust, low cost finances and we are disciplined in managing our operating expenses. The evolving environment will be reflected in our tactical decisions, particularly on development where we expect to proceed more cautiously. We have modest speculative development commitments currently, but also opportunities within the portfolio which provide a source of future value. These factors give us confidence that the business will prove resilient and is well positioned to capture upside in the future.

Chris Grigg

Chief Executive

BUSINESS REVIEW

PORTFOLIO OVERVIEW

On a proportionately consolidated basis

Overview

The UK's decision to leave the EU has significant consequences which will result in a period of uncertainty for the UK property market. Reactions have been varied. Some occupiers and investors are choosing to pause discretionary actions in the UK property market until the terms of the UK's exit become clearer and this has resulted in lower investment volumes across the market, and lower leasing activity in offices. Others are choosing to continue with their plans based on the current requirements of their business and their outlook on the impact of the referendum result. This is particularly the case in Retail where there has not yet been any discernible slowdown in leasing activity.

The drivers of performance in our sectors are likely to differ in the coming years. For Retail, performance will be driven by the overall economic performance of the UK and in particular how this translates to real wage growth and consumer spend. In Offices, demand for space in Central London is more likely to be impacted by policy and regulatory changes arising from the UK's departure from the EU, such as migration controls and passporting. Uncertainty in the occupier market may also be reflected in lower investment volumes, although the continuing gap between property yields and interest rates suggest that UK property will continue to appeal to certain investor groups.

Transactional evidence in the period since the referendum has indicated some softening in investor demand for UK property and modest pricing adjustments, reflected in yields for the IPD benchmark moving out 13 bps in the three months to September. This takes the total yield movement since March to 15 bps following a period of stable yields prior to the referendum. There is no discernible variation in yield movement across our sectors but within sectors, transactional evidence suggests that assets with long dated secure income have seen much more resilient valuation than those with shorter term income. ERV growth has moderated across both Retail and Offices but remains positive for now. The combination of these factors has resulted in the first decline in capital values reported by IPD since 2012.

Portfolio Performance

On a proportionately consolidated basis

Against this backdrop, our portfolio saw a valuation fall of -2.8% in the period vs -2.1% for IPD. The total property return of the portfolio was -0.8%, underperforming the benchmark by 100 bps. The portfolio underperformance primarily reflects British Land's lack of exposure to Industrial which has been the strongest performing segment in the UK in the period. Annualised outperformance vs IPD over the last five years remains at 160 bps on a capital return basis, and 90 bps on a total property return basis.

The capital return on the investment portfolio was -2.8% with the small amount of our portfolio in committed developments and development land falling by -3.0%. On these assets, falls in end values were offset by recognition of development profit as these projects progress towards practical completion.

Our Retail disposals, along with valuation movements, mean that our Retail and Leisure, and Offices and Residential portfolios are now equal in value at £6.8 billion, each representing 49% of the portfolio. Canada Water represents the balance of 2%. Within Retail, single-let asset disposals have increased the multi-let share of the portfolio to 76% from 71% in March. Of the multi-let, 42% is Regional and 34% Local. Following £79 million of further sales, the value of standalone superstores is now £681 million. 58% of our Office portfolio is located in the West End, with 42% in the City. Our three campuses at Regent's Place, Paddington Central and Broadgate represent 74% of the Office portfolio.

Our placemaking approach applies to both our Office campuses and our multi-let Retail assets where the quality of the environment and delivering high quality customer service and memorable experiences to employees and shoppers alike is critical to the success and long term performance of the assets. We are increasingly sharing learnings across the Retail and Office businesses, accelerated by centralising areas of expertise in areas such as development and market insight. We believe that the combination of skills and relationships required to create and operate great places, will come to the fore in our increasingly mixed-use properties - at Broadgate, for example, where we plan to add a significant amount of retail and leisure, and at Canada Water where we are planning a new mixed-use urban centre for London.

Investment Activity

On a proportionately consolidated basis

1 Of which £191m Retail sales and £9m Residential sales completing post period end

The gross value of our investment activity since 1 April 2016, as measured by our share of acquisitions, disposals, capital spend on developments and other capital projects, was £951 million.

The largest component of this activity was non-core Retail disposals of £690 million which transacted at an average yield of 4.0% and 3.6% ahead of March values. Despite the market uncertainty, £659 million of these sales contracted after the referendum. Residential sales of £20 million were spread across our developments at Aldgate Place and The Hempel and are described further below.

Reinvestment was limited over the period with development spend low at £100 million, reflecting the small size of our current committed development programme, plus a further £51 million of capex on the investment portfolio. We have been disciplined in our purchasing activity, focusing only on opportunities with compelling strategic fit and strong income characteristics. In Retail, we made £82 million of acquisitions comprising the £64 million acquisition of the New George Street Estate in Plymouth, adjacent to our existing holding at Drake Circus, and £18 million of further HUT units, taking our ownership interest in HUT to 76.5%.

Combined, this activity means that we have been a net seller of almost £1 billion of assets in the last 18 months.

Developments

On a proportionately consolidated basis (except area which is shown at 100%)

As we approached the EU referendum, a combination of the phasing of our existing development pipeline and our judgements on the pace at which to progress certain initiatives guided us to a low amount of active development, which we considered appropriate given the uncertainty over the potential range of outcomes.

During the half we completed three schemes - Phase 1 of our residential development at Aldgate Place developed in a joint venture with Barratt Homes, the 51,000 sq ft Office component of Clarges Mayfair, and our Leisure Quarter development at Glasgow Fort.

Our under construction and committed programme represents a speculative commitment of under £0.7 billion which is 5% of our portfolio value. At 30 September, we had three schemes under construction including our super-prime residential scheme at Clarges Mayfair completing in late 2017, our prime residential development at The Hempel, W1, completing before the end of 2016 and our 147,000 sq ft Office development at 4 Kingdom Street, Paddington Central which will complete in spring 2017.

We recently added 100 Liverpool Street at Broadgate to our committed programme. This development opportunity is another major step in our transformation of Broadgate into a vibrant mixed-use destination and we will start works in December once UBS have vacated the building, following their transfer to 5 Broadgate.

Following the referendum we undertook a full review of our development and capex pipeline. We will continue to monitor both occupier demand and the impact of new development completions and make choices on the appropriate course of action for each opportunity. On 1 Finsbury Avenue, for example, we are now likely to proceed with a lower cost refurbishment than was originally planned when we receive the building back from UBS in December 2016. As a result of this review our near term pipeline now comprises only 1 Finsbury Avenue and our leisure development opportunities at Drake Circus, Plymouth and New Mersey, Speke which are substantially pre-let.

Our medium term pipeline comprises over 8 million sq ft of potential development opportunities, of which 1.9 million sq ft has planning permission secured. These projects are characterised by either being income producing currently, such as Canada Water and Eden Walk, Kingston, or having low carrying values, such as our option over the land at Blossom Street and the Meadowhall Leisure Hall site which currently forms part of our surrounding ownership. The final category of assets in our medium term pipeline is those which are currently income producing but have upcoming expiries. This includes 2-3 Finsbury Avenue and 135 Bishopsgate at Broadgate, and 1 Triton Square at Regent's Place.

The most significant project in our medium term pipeline is Canada Water, a 46-acre inner-London redevelopment opportunity which we have assembled at a low cost of c.£5 million per acre. Over the last six months we have continued to develop our masterplan for a new mixed-use urban centre for London, engaging with a broad range of stakeholders including the local community, potential occupiers and the London Borough of Southwark to guide our designs. We have been encouraged by the range of interest in the development from potential occupiers and this is informing the mix of uses in our masterplan. We expect to submit a planning application in 2017. In the meantime, the Surrey Quays Shopping Centre and Leisure Park located on the site generate £8 million of annual income and we are also generating income and awareness of the opportunity with a range of events and meanwhile uses at the Printworks component of the site.

These opportunities represent a source of significant future additional value. Our focus now is to progress these opportunities to give ourselves the best range of options when we have decisions to make, by advancing planning and engaging with potential occupiers. These actions require relatively little capital but have the capacity to generate significant value.

More details on the portfolio, property performance, individual developments and assets acquired during the period can be found in the Retail and Leisure and Offices and Residential reviews and in the detailed supplementary tables.

RETAIL AND LEISURE REVIEW

Performance Highlights

On a proportionately consolidated basis

Retail Strategy

Six months ago we set out our vision to create outstanding places for modern consumer lifestyles, places to shop, eat and be entertained. Our research and data tell us today's consumer requires much more in a retail destination than just the right mix of retailers. They want a variety of food, drink and leisure in environments that promote a pleasurable experience, and events which bring the place to life, as well as, increasingly, a direct link to the communities in which the asset is located. In addition, our occupiers require easily configurable space in accessible locations, which form the core of their internet-enabled omni-channel offer.

This is the overall vision for our multi-let assets, but within this, our portfolio meets the needs of a range of shopper journeys. We classify our assets into two broad categories - Regional centres attracting visitors from a wide catchment for planned trips, and Local centres which fit into the daily lives of communities. We know that this mirrors how successful operators set themselves up to achieve a broad reach across the population, profitably maintaining both an engaging brand presence and an efficient distribution network.

During the period we conducted our True Value of Stores research with the retail consultancy Verdict, published on our website at www.britishland.com/truevalueofstores, to quantify the role of the physical store in each of today's internet-enabled shopping channels. The findings, based on feedback from 30,000 consumers, showed that 89% of all retail sales in the UK touch a physical store, confirming the relevance of physical retail in today's consumer environment and the important part it plays in the great majority of shopper journeys. This includes a 9% 'boost' on sales, excluding grocery, from click and collect transactions, and in-store browsing before purchasing online.

Our experience and our research informs our view that both Regional and Local products will succeed. In an environment where physical sales continue to decline overall, we expect the polarisation between the best centres and those which may become obsolete to accelerate. Our continuing outperformance against IPD on capital returns and ERV growth give us confidence that our properties will be amongst the winners from this polarisation.

As part of our ongoing commitment to ensuring our Retail assets benefit a wide range of stakeholders, we undertook a number of community initiatives over the period. At six regional centres we introduced our Bright Lights skills programme which provides tailored retail and customer service training and work placements with our retail and leisure occupiers. In addition, British Land has continued its partnership with the National Literacy Trust for a fifth year to support its Young Readers Programme. This year's programme encouraged over 5,000 children under the age of 11 to read for fun in their spare time, through a wide range of activities at British Land Retail assets and in schools.

We were pleased that our approach and achievements have received industry recognition, being awarded Retail Company of the Year 2016 by Estates Gazette.

Market Overview

It has been a challenging period for certain retailers, with consumer confidence initially dipping and then recovering in the period since the referendum. Reflecting this, footfall and sales were both down for the six months across the wider market, by -2.3% and -2.1% respectively, but our portfolio continued to outperform with footfall marginally up (0.1%, 240 bps ahead of the market) and sales modestly down (-0.2%, 190 bps ahead of the market). Within reported sales, there has been mixed performance across the sectors with fashion and department stores weaker, partly due to unseasonal weather, and homewares, health and beauty, and food and beverage continuing to perform strongly.

Retail occupiers are facing increasing cost pressures, from the National Living Wage, the recent business rates revaluation and from the requirement to establish online platforms and fulfilment networks. Since the referendum, the weakening pound has resulted in an increase in import costs which will also affect many retailers. These pressures mean that retailers are increasingly focusing on their most profitable stores, where they can grow sales with lower occupancy costs. Our stores are often amongst the most profitable in retailers' portfolios, and our assets remain affordable with a rent to sales ratio of only 10%. Factoring in the findings of our True Value of Stores research, we estimate that this reduces to 9%. The average business rates increase across our portfolio is expected to be just over 2% across the portfolio further supporting the relative affordability of our assets. We also commission research to increase understanding of the vital social and economic role that retail plays. This includes driving regeneration, supporting jobs and providing valuable local amenities and services.

Since the referendum, we have continued to see strong demand from occupiers for our space. This reflects the appeal of our assets, their relative affordability, and the limited impact of the referendum on consumer behaviour to date. Looking further forward, we're conscious of the potential for headwinds for consumers and retailers to impact occupier demand.

In the investment market, we have seen a continuation of the slowdown observed at the start of the calendar year, reflecting investor caution in this period of elevated uncertainty. Since the referendum, we have seen two dominant themes within the lower volume of transactions - UK funds selling assets to provide liquidity for redemptions, and local councils acquiring space to take advantage of the income yield relative to other investment opportunities. Properties traded have tended to be more secondary in nature and there has been limited evidence of prime retail transactions, particularly in the shopping park sector. The balance of evidence from these transactions, often with motivated sellers, indicates a modest outward movement in yields, which is more pronounced for secondary assets. During September, the UK funds returned to seeing net inflows.

Portfolio Performance

Our Retail and Leisure portfolio valuation fell 2.4% over the six months which, along with disposals, resulted in a reduction in value of £0.5 billion to £6.8 billion. Our ERV growth has continued, up 0.9%, reflecting our placemaking improvements and leasing activity. We saw 18 bps outward yield shift on our portfolio, to a NEY of 5.3%. Our capital performance has benefited from our sales activity, with £690 million of disposals contracted on average 3.6% ahead of March values, and lease extensions. Overall this translates to 60 bps capital return outperformance against the benchmark, with ERV growth 40 bps ahead.

The capital return on our multi-let portfolio was -3.8%, ahead of the comparative IPD shopping centre and shopping park benchmarks at -3.9% and -4.3% respectively. We achieved greater ERV growth in the multi-let portfolio, at +1.3% spread evenly across Regional and Local. Again, this is significantly ahead of the shopping centre (+0.7%) and shopping park (+0.5%) benchmarks. Evidence since the referendum implies a broad range of impacts on the investment appeal of retail assets based on a range of factors including lot size, income longevity and reversion, with yield movements on Regional assets in the range +7 bps to +41 bps and a range of +12 bps to +84 bps on Local. Those which have experienced greater yield shift are generally smaller assets in a market where UK funds have, in particular, been net sellers since the referendum.

On the single-let assets, valuation gains in Department Stores include the surplus on the disposal of Debenhams, Oxford Street. The uplift on the Solus assets includes the benefit of the portfolio regear of eight Homebase stores on new 15 year leases at increased rents. The fall in values of superstores reflects ERVs down 3.0%. We've continued to sell superstores during the half at terms ahead of March values, and our holding is now only £681 million.

Asset Management

The success of our placemaking activity, to create outstanding places for modern consumer lifestyles, is reflected in our leasing activity in the six months. We have been successful in attracting a broader range of operators to our portfolio including occupiers such as Joules, White Stuff, Pret, Comptoir Libanais, Nespresso and T2 which, together with increasing requirements from our long standing retail partners has increased demand tension, pushing ERVs +1.3% higher on our multi-let assets.

As yet the referendum has had no discernible impact on occupier demand and letting activity in our portfolio. In total, we let or renewed 656,000 sq ft of space on average 12.9% ahead of ERV. In the multi-let portfolio, we let or renewed 373,000 sq ft, more than the same period last year, on average 12.2% ahead of ERV. In addition, Homebase has signed eight new 15 year leases on a total of 283,000 sq ft within our single let portfolio at increased rents, providing significant incremental capital value there.

We have a further 290,000 sq ft of deals under offer which provides encouragement for continuing rental growth in the near term but we remain conscious of headwinds for the consumer and retailers which may impact occupier demand further out.

We settled 0.8 million sq ft of rent reviews on average 3.2% ahead of previous rent and ahead of valuation assumptions. On the multi-let portfolio, the average rental increase was 4.7% on 0.4 million sq ft.

Like-for-like rental growth was 1.7%, and 1.1% including surrender premia. This was driven by strong leasing activity, asset management activities, such as splitting units, and additional turnover income. The BHS administration had a negative 40 bps impact but we are progressing well with re-letting this space with 80% now let or under offer.

Overall, the net impact of this activity has been to maintain our occupancy at 99% and our average lease length now stands at 9 years.

Investment Activity

Gross Retail investment activity over the year was £831 million, with total sales of £690 million of which £191 million has exchanged and is scheduled to complete after the period end. Acquisitions totalled £82 million, with development spend and capex of £59 million. 

Reflecting our focus on multi-let assets, sales were predominantly single-let assets including the £400 million disposal of Debenhams on Oxford Street and £79 million of superstores. In total, Retail disposals were concluded at a yield of 4.0%, and at 3.6% ahead of March values and increased the multi-let share of the Retail portfolio to 76% from 71% in March 2016.

Our sole property acquisition was the New George Street Estate in Plymouth. This acquisition supports our strategic vision for Drake Circus, enhancing our control of the environment around our existing holdings, including our planned leisure development. It also has attractive income characteristics with NIY of 6.4% and an average lease term to break of 19.6 years.

We also acquired an additional £18 million interest in the HUT portfolio increasing our ownership to 76.5%. On average, these units were acquired at an effective net initial yield of 5.1%.

Consistent with our broader positioning as we approached the referendum, we were on site with only one Retail development over the last six months. This is the new leisure quarter at Glasgow Fort, where we have added four new restaurants as well as 600 parking spaces in a new multi-storey car park development, adding over 30% to the parking capacity. It was clear to us that availability of parking was constraining growth in shopper numbers and so we needed to address this before we could undertake initiatives to increase lettable space further at this asset. Within our portfolio, Glasgow Fort has been leading the way in taking more premium occupiers to open air locations for the first time and so the design of the building and the environment created were carefully crafted to maintain this letting momentum. With its innovative design, gardens and play areas, we have created a place which sets the standard for design and enlivenment across our portfolio.

We continue to see value in adding leisure uses to our multi-let assets and are progressing plans on two cinema and restaurant developments at Drake Circus, Plymouth and New Mersey, Speke which together are currently 71% pre-let.

Looking further ahead, we have two significant opportunities in our medium term pipeline, the 330,000 sq ft Leisure Hall at Meadowhall and the 562,000 sq ft regeneration of Kingston town centre at Eden Walk. Following an encouraging consultation period over the summer at Meadowhall, we submitted a planning application in November. We expect a response in Spring 2017. If favourable, earliest anticipated completion is 2021. At Eden Walk, we made significant progress over the period securing approval from the Greater London Authority in August. We are continuing to progress our plans to secure vacant possession to enable commencement of the development. In the meantime the asset remains well let and provides an income yield of 3.6%.

We have continued to invest in enhancing the quality of the environments across our multi-let portfolio, and providing our occupiers with the very best space. In addition to £12 million of development spend, we have spent £47 million on capex, of which £26m relates to initiatives with an immediate income return and £21m relates to enhancements to environments with a longer payback period. Within this, the most significant initiative is the £60 million refurbishment at Meadowhall (£10m spend in period - BL share) which will help reposition the centre to ensure it remains a modern shopping environment meeting the needs of today's retailers and consumers alike. The project remains on schedule to complete before the end of 2017. Where we are investing in upgrading the quality of the environments of our assets, we continue to see elevated rental growth ahead of our investment case. For the six properties where we completed works to enhance the environments in 2015, the average ERV growth in the last 12 months has been 8%.

OFFICES AND RESIDENTIAL REVIEW

Highlights

On a proportionately consolidated basis

Office Strategy and Market Overview

Uncertainty caused by the UK's vote to leave the European Union has resulted in the central London office market registering its first capital value declines since 2009 following several years of strong growth in both rents and values. We recognise the impact that this uncertainty is having on businesses in London, and their ability to make plans for the future, but we believe that London will endure as a global centre. This belief is based on feedback we have received from our occupiers since the referendum - that their employees have a strong preference for living and working in London, that London offers the best choice of flexible, quality workspace and that the critical mass of talent and inter-connected businesses means that it is the best place in Europe to be located. The City also benefits from its language, time zone and international connectivity.

London's continued appeal means that, despite the uncertainty, leasing transactions have continued, either because occupiers are not affected by Brexit, have a lease event which means that they must find space, or are prioritising the long term benefits of consolidating or growing their business in high quality space over the short term uncertainty. This is more prevalent on smaller leases but we have also seen several major international brands including Apple and Wells Fargo commit to large leasing commitments since the referendum. In addition, some businesses are choosing to manage the uncertainty by extending existing leases or taking leases with shorter committed terms.

Changes to the UK's relationship with Europe may mean that some occupiers have no choice but to relocate certain parts of their businesses to other financial centres throughout Europe. Even if this is the case, we believe that over the medium term growth sectors such as the creative and tech industries which are increasingly calling London home, will absorb much of the additional space but we do expect a period of softening demand in the meantime.

If there is a period of adjustment during which supply exceeds demand, it will be the best quality space that meets the needs of today's office workers and consumers which will succeed. Our experience tells us that organisations are increasingly focusing on the benefits that high quality workspace has on attracting and retaining the best talent, and ensuring a productive, motivated workforce who value wellbeing as a high priority.

Our focus on London campuses positions us well to benefit from any shift in demand. The mix of uses and engaging public spaces are in tune with modern lifestyles where the boundary between work and leisure is increasingly blurred. The workspaces that we provide are increasingly flexible to suit the changing requirements and scale of central London office occupiers, so we are confident of achieving broad appeal across a range of sectors. Our flexible development pipeline allows us to create space at each of our campuses when demand dictates. We also expect to be increasingly open to more flexible leasing arrangements.

Our campuses, which account for 74% of our Office portfolio, are complemented by modern multi-let buildings developed by British Land and its partners, often in clusters and benefiting from managed environments around them. These are our campus-lite properties, and include assets such as York House, Marble Arch House and 10 Portman Square in the West End, as well as Leadenhall in the City.

The London office market entered this period of uncertainty in a strong position, with vacancy below the long term average at 3.1% benefiting from a period of depressed supply from 2011 to 2015. Delivery of new space and a slowdown in the leasing market has seen vacancy rise to 4.4% in the City and 3.1% in the West End as at September 2016, remaining below the long term average. This has caused ERV growth to slow from the elevated levels of recent years, although the market still recorded positive ERV growth of 0.9% over the period. There will be at least 9 million sq ft of committed supply delivered into the market in the remainder of 2016 and 2017, above the 10 year average rate of completions, applying downward pressure on rents. Committed supply beyond 2017 is below the long term average, particularly in the West End, and developers have choices to make about how much of the speculative space which is currently planned they commit to.

The investment market saw significantly reduced volumes in the six months to September 2016 as investors anticipated and absorbed the referendum result. There remains a weight of capital looking to invest in London, particularly from overseas. However, pricing levels following the referendum are yet to be established, particularly for larger lot sizes, with only two assets over £200 million trading in the period. Pricing of these transactions and others has informed the yield expansion on our London Office portfolio of 21 bps.

In London residential, uncertainty from the UK's decision to leave the EU has compounded existing trends in the prime market where supply has moved ahead of demand. There has been limited evidence in the super prime market. We continue to believe that exceptional product, such as Clarges Mayfair, will prove attractive to those who share our view of London as an enduring global capital, particularly where they can benefit from the weaker pound when acquiring. The mainstream market in London, under £1,000 psf has remained relatively robust with steady demand, evidenced by our continuing sales at Aldgate Place.

Portfolio Performance

Influenced by market uncertainty following the referendum, the value of our Offices and Residential portfolio fell -3.3% in the half to close at £6.8 billion, primarily due to 21 bps of yield expansion. This represents a capital return for Offices 50 bps lower than the IPD benchmark for the period reflecting greater valuation falls on assets with near term expiries. ERV growth was up by 0.1%, including the impact of more modest refurbishment assumptions than previously planned at certain assets including 1 Finsbury Avenue. On a like-for-like basis with March 2016 assumptions, ERV growth is higher at 0.5%. The yield movement was greater in the City at 27 bps, where there is higher risk to occupational demand from Brexit-related policy shifts, including the potential loss of passporting. The movement in the West End was 16 bps. Overall this gives a portfolio NEY of 4.6%.

This headline performance masks a wide dispersion in asset level performance. In the current uncertainty, investors are attaching a higher premium to long term, secure income and so 5 Broadgate with its 17 year lease to UBS with index-linked uplifts saw an increase in value, while buildings with low income security, such as those which UBS will vacate shortly, saw double digit valuation declines. The fact that this averages down to 3.3% across our Office and Residential portfolio indicates the strong weighting of our portfolio towards high quality, well-let buildings with long term, secure income.

The residential portfolio, which represents 2% of our assets, has not changed in value. This reflects a modest reduction in end values, offset by profit releases as we progress towards practical completion at Aldgate Place and The Hempel.

Asset Management

We entered this period of uncertainty 99% occupied and had less than 200,000 sq ft of space to let, including development completions in the period. Despite the uncertainty, occupiers have continued to be attracted to our high quality space and this has enabled us to complete 68,000 sq ft of lettings, 4.9% ahead of March ERVs, including the final floors at both The Leadenhall Building and Marble Arch House. Recently, attention has turned to letting the 51,000 sq ft office component of our development at Clarges Mayfair which completed in the half and was launched in September, and Yalding House, another West End development of 29,000 sq ft, which also completed earlier this year. We have received good interest and have 30,000 sq ft of this space let or under offer, ahead of March ERVs. In total, we have let or put under offer half of the available space to let. The combination of this activity and rent reviews we completed has contributed to like-for-like rental growth of 6.7%.

At Regent's Place, our focus has been on capturing reversion from the current rent review cycle. We concluded rent reviews on 118,000 sq ft in the half, adding £2.3 million of annualised rent, an uplift of 45% to an average new rent of £62 psf. This brings the total rent review uplift secured across the portfolio in the last 18 months to £6.6 million. We also continue to progress plans for a major redevelopment of 1 Triton Square and in November submitted a planning application for a scheme which would add a further 121,000 sq ft to the building. Progressing that scheme would depend on securing a pre-let. We also remain focused on enhancing links with the communities in which we operate and at Regent's Place, we have successfully partnered with occupiers on the Regent's Place Community Fund, announcing five local charitable projects awarded with grants of up to £9,000 each. The fund endeavours to make a meaningful difference to people in the local area by helping smaller organisations. We are delighted to work with occupiers in this way.

At Paddington Central, our focus has been on delivering our vision for the public realm. Our phase two works to bring Kingdom Street to life, with gardens and community areas, are on track to complete in time for the launch of our development at 4 Kingdom Street in Spring 2017. This 147,000 sq ft office development topped out in May. We are also progressing our works to strengthen the campus' link with the canal side, and in June, brought the first of our barges into action as a marketing suite for the campus. As part of our continued enlivenment of the campus, we recently launched the public art installation "Message from an Unseen World" which celebrates the life and work of Alan Turing, a former Paddington resident and computer science pioneer. We are increasingly providing flexible working opportunities for existing occupiers and smaller companies who are attracted to our campus environments. At Paddington, which is virtually fully let, we identified a creative solution to add this to our offer, by activating previously redundant space within the atrium at 2 Kingdom Street to provide a flexible working operation for Central Working which went live in June 2016 and has been very successful.

We are continuing to transform Broadgate into a world class, mixed-use destination, building on its excellent location, catchment and connectivity. UBS have now taken occupation of their new 710,000 sq ft office at 5 Broadgate and so have served their break notices on 100 Liverpool Street, 1 Finsbury Avenue and 2 Finsbury Avenue. Getting this space back provides us with the opportunity to accelerate wider plans and we will start by committing to the redevelopment of 100 Liverpool Street. This 520,000 sq ft mixed-use scheme is located at the entrance to the campus and adjacent to the station for Crossrail, which will cement Broadgate's position as one of the best connected locations in London when it arrives in 2018. British Land's share of the development spend is £164 million and the returns on this investment are enhanced by the addition of 140,000 sq ft of new lettable space. 90,000 sq ft of this will be retail and food and beverage ('F&B'), accounting for almost 25% of the rent. This new space will double the amount of rent from retail and F&B at Broadgate, integrating with Broadgate Circle and taking advantage of the significant footfall at Liverpool Street station. The space will be flexible to meet a broad range of occupier requirements and we expect to complete the building in 2019, shortly after the arrival of Crossrail.

Our decision to commit to the development of 100 Liverpool Street is one outcome from a review we have conducted since the referendum of the phasing of all of our development opportunities and capex plans. At 1 Finsbury Avenue, whilst still assessing our options with our partner GIC, our preferred route is to undertake a lower cost refurbishment than previously planned to deliver the space back to the market by late 2018. In line with our aim to broaden the range of uses and occupiers at Broadgate, we plan for a mix of curated retail and leisure on the lower floors and less corporate and more flexible commercial space on the upper floors differentiating it from the remainder of the campus and in particular, 100 Liverpool Street.

We were delighted to obtain planning for a 560,000 sq ft scheme at 2-3 Finsbury Avenue in October, giving us the option to treble the size of the building. We are not able to proceed with this development until we take 3 Finsbury Avenue back from UBS in late 2018 at the earliest. Even then, it is likely that we will only proceed with this redevelopment with the benefit of a significant pre-let. In the meantime, we will pursue meanwhile uses for 2-3 Finsbury Avenue.

We are in discussions with a number of occupiers from a range of sectors on potential requirements for space at these development opportunities across all of our London campuses. In addition, we were pleased to agree terms with Credit Agricole, one of our largest occupiers at Broadgate, to extend their occupation at Broadwalk House until July 2025. This commitment reinforces Broadgate's appeal and our track record of retaining occupiers at our campuses.

Investment Activity

We have not made any office acquisitions or disposals since the year end. Our investment activity is currently focused on completing our existing developments at Clarges Mayfair, Aldgate Place, The Hempel Collection and 4 Kingdom Street, as well as progressing enabling works for 100 Liverpool Street.

We completed the 51,000 sq ft office component of our super prime mixed-use development at Clarges Mayfair in the half. We launched this exceptional scheme to the market in September and have already placed two floors under offer as well as the ground floor restaurant, comprising 18,000 sq ft, at terms ahead of our valuation assumptions, despite the uncertainty caused by the referendum. This gives us confidence that quality buildings will continue to prosper.

We continued to make good progress at our residential schemes, Aldgate Place and The Hempel Collection, selling £20 million of apartments. The prime residential market continued to soften and we achieved prices on average 4% below March values.

At Clarges Mayfair, we have already pre-sold over 50% of the residential units by value and will market the remaining 12 units, predominantly on the upper floors, on completion in late 2017. We continue to be confident that these final units will sell well.

This leaves total residential exposure, excluding pre-sold units, of £230 million, of which three quarters is at Clarges. Across our recently completed and under construction residential developments, anticipated profits remain significantly ahead of our investment case.

Including our commitment to 100 Liverpool Street, and excluding pre-sold residential, the speculative development commitment is 5% of our portfolio. 

Apart from 1 Finsbury Avenue which is in our near term pipeline, our remaining Office and Residential development opportunities are included within our medium term pipeline. This includes 2-3 Finsbury Avenue at Broadgate, 1 Triton Square at Regent's Place, 5 Kingdom Street at Paddington Central and Blossom Street in Shoreditch. We will take steps to progress plans on these projects to put ourselves in the best position to act when demand justifies it.

At Blossom Street, the Court of Appeal ruled in November that the planning permission for our proposed development could not be legally challenged, bringing the planning process to a successful conclusion. We will continue discussions with potential occupiers to secure a sufficient level of pre-lets before committing to the scheme.

FINANCE REVIEW

1 See Glossary for definitions

2 See Table B within supplementary disclosure for reconciliations to IFRS metrics

3 See Note 2 within financial statements for calculation

4 See Note 10 within financial statements for calculation and reconciliation to IFRS metrics

Overview

We delivered a good set of results, with underlying profit growth of 16.4% and underlying earnings per share (EPS) growth of 20.6%.

Portfolio valuations decreased by 2.8% on a proportionally consolidated basis and EPRA net asset value (NAV) decreased by 3.0%. This includes the impact of no longer treating the 1.5% 2012 convertible bond as dilutive as the share price was below the exchange price of 693 pence at the period end, NAV decreased by 4.1% on a like-for-like basis.

We undertook £1.0 billion of gross capital activity; proceeds from £0.5 billion of mature and non-core asset completed sales have partly been reinvested in our current committed development programme, portfolio capex and in selected acquisitions adjacent to existing assets.

Our balance sheet metrics remain strong. The proportionately consolidated loan to value ratio has decreased by 50 bps to 31.6% from 32.1% at March 2016 with the impact of fall in values more than offset by sales. Our proportionally consolidated weighted average interest rate has decreased by 10 bps to 3.2% from 3.3% at March 2016.

Underlying profit increased by 16.4% to £199 million; the impact of sales has been more than offset by like-for-like rental growth, leasing of developments, financing activity and a reduction in administrative expenses.

The increase in underlying EPS of 20.6% is more than the increase in underlying profit of 16.4% due to the 2012 convertible bond no longer being dilutive.

IFRS loss before tax for the half year of £205 million is lower than the prior period profit of £823 million, primarily due to a negative property valuation movement, resulting from outward yield shift offset in part by ERV growth.

As announced in the 2015/16 full year results, we are increasing the dividend by 3% for the year to March 2017 which gives a full year dividend of 29.20p. In line with that, the second quarter dividend at 7.30p brings the total for the half year to 14.60p.

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. 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 consistent applied metric, being EPRA NAV, and dividends paid.

Loan to value (proportionately 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 year 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 Fees and other income and administrative expenses have been restated to reflect the change in presentation of the results of Broadgate Estates, a wholly owned subsidiary of the Group at 31 March 2016. This restatement has had no impact on underlying profit. Refer to note 1 of the financial statements for further details.

2 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 Net rental income

The £3 million increase in net rental income during the year was the result of like-for-like growth and leasing of developments more than offsetting the impact of net sales. Net sales over the last 18 months have reduced rents by £11 million in the period.

Retail and Leisure growth was 1.7% (1.1% including the impact of surrender premia). This was driven by strong leasing activity, asset management activities, such as splitting units, and additional turnover income. It also includes a 40 bps drag as a result of the BHS administration, however 80% of this space is now let or under offer.

Like-for-like rental income growth was 3.4% excluding the impact of surrender premia. Office and Residential growth was 6.7%; just over half of this was due to the letting up of completed developments that are now in the like-for-like portfolio, predominantly The Leadenhall Building and Marble Arch House which are both now full, with the remainder being attributable to strong rent review activity, particularly at Regent's Place.

The successful letting of our recently completed development programme provided £6 million of additional rent this half year, benefitting from UBS' index-linked lease at 5 Broadgate.

1.2 Net financing costs

Financing costs were £18 million lower this half year.

Debt transactions over the last 18 months, including the £350 million zero coupon convertible bond, reduced costs by £12 million this half year. In the current period, we used sales proceeds to repay revolving credit facilities and we completed the repayment of the £295 million TBL Properties Limited secured debt facility. Our liability management, which is NPV positive, has reduced NAV by 2p. We have also agreed one year extensions to a portion of our unsecured facilities, in total £885 million.

Our approach to interest rate management remains an important factor in reducing interest costs. The decision to keep a portion of our debt at floating rates has seen us benefit from a saving of £5 million resulting from lower market rates. At the period end the proportion of our debt held at fixed rates was 52% on average over the next 5 years.

The impact of capital activity and developments on net financing costs was broadly balanced.

1.3 Administrative expenses

Overall, administrative expenses decreased by £6 million this half year. This is due to actions that we have taken to manage costs and reflects lower accruals on management incentives. The Group's operating cost ratio has reduced by 280 bps to 15.0% (H1 2015/16: 17.8%).

Last year, we brought the property management of our Retail assets in-house to Broadgate Estates, a wholly owned subsidiary, in line with our strategic focus on customer orientation and placemaking. In recognition of the core role Broadgate Estates now plays in how we run the business, we changed the way its results were presented in the Group income statement at 31 March 2016. For the period to 30 September 2016, this has resulted in a £2 million increase in administrative expenses and an equal and offsetting increase in net fees and other income; importantly this change has no impact on underlying profit. The prior period comparatives for administrative expenses and net fees and other income have also been restated to reflect this change in presentation.

1.4 Underlying EPS

Underlying EPS was 19.3 pence (H1 2015/16: 16.0 pence) based on underlying profit after tax of £199 million (H1 2015/16: £171 million). The increase in underlying EPS of 20.6% is more than the increase in underlying profit of 16.4% as the 2012 1.5% convertible bond is no longer dilutive. As the share price fell below the 693 pence exchange price at period end, no dilution adjustment was made (H1 2015/16: £6 million interest added back and shares increased by 57.8 million), in line with EPRA guidance.

2. IFRS profit/(loss) before tax

The main difference between IFRS profit/(loss) before tax and underlying profit is that it includes the valuation movement on investment and development properties and the fair value movements of 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 proportionately consolidated basis within underlying profit.

The IFRS loss before tax for the period was £205 million, compared to a profit before tax for the prior period of £823 million, resulting from outward yield shift and a slowdown in ERV growth, particularly following the UK's decision to leave the EU in June. This impacts IFRS profit/(loss) before tax through the valuation movement on the Group's properties which was £654 million less than the prior period and the valuation movement on the properties held in joint ventures and funds which was £422 million less than the prior period.

The £39 million decrease in IFRS net financing costs to £26 million was principally due to revaluation gains recorded in respect of the Group's convertible bonds.

IFRS basic EPS was a negative 19.0 pence per share, compared to a positive 79.8 pence per share in the prior period. The basic weighted average number of shares in issue during the period was 1,029 million (H1 2015/16: 1,022 million).

3. Dividends

As previously announced in May 2016, we proposed an increase in the dividend by 3% for the year to March 2017 which gives a full year dividend of 29.20p. In line with this, the second quarter dividend at 7.30p brings the total for the half year to 14.60p. The increase in EPS of 20.6% resulted in a reduction in the dividend pay-out ratio to 76% (H1 2015/16: 88%).

Balance sheet

1 EPRA net assets exclude the mark-to-market on effective cash flow hedges 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 valuation surplus on trading properties and are adjusted for the dilutive impact of share options. H1 2015/16 also includes an adjustment for the dilutive impact of the 1.5% convertible bond maturing in 2017. No dilution adjustment is made for the £350 million 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 3.0% decrease in EPRA NAV per share reflects a valuation decline of 2.8%. This is primarily due to outward yield movement of 19 bps, offset by ERV growth of 0.5% and the benefit of completing sales ahead of March 2016 valuations.

Retail and Leisure valuations were down 2.4% with outward yield movement of 18 bps offset by ERV growth of 0.9%; the multi-let portfolio saw stronger ERV growth of 1.3%. Investment evidence since the referendum has been focused on smaller retail centres. This is reflected in the relative yield movements between the regional and local assets; yield movements in Regional have been in the range 7 bps to 41 bps and for Local, the range is 12 bps to 84 bps.

Office and Residential valuations were down 3.3% with outward yield movement of 21 bps offset by modest ERV growth of 0.1%; the West End performed slightly better than the City, partly due to the reversion captured through rent reviews at Regent's Place. City valuations were down 4.9%; this includes the Broadgate campus which was down 5.5% reflecting a range of results; properties with lease expiries in the next 18 months were down 15% on average; conversely, UBS' new headquarters at 5 Broadgate was up 3.6% reflecting the 17 year unexpired lease term and RPI linked increases.

The 2p impact of finance transaction costs primarily relates to early repayment of term debt facilities and associated swaps. Movements in liabilities of the Group's defined benefit scheme, which is closed to new members, contributed a 2p reduction in EPRA NAV as a result of falling corporate bond rates.

There is a 10p benefit to EPRA NAV due to the reversal of the 2012 convertible bond dilution included in FY2015/16 results. As the share price fell below the 693p exchange price at period end, no dilution adjustment was made (FY2015/16: £400 million debt deducted from net asset value and diluted number of shares increased by 57.8 million). Excluding this adjustment, NAV decreases by 4.1% on a like-for-like basis.

5. IFRS net assets

IFRS net assets at 30 September 2016 were £9,181 million, a decrease of £438 million from 31 March 2016. This was primarily due to property revaluation losses in the current year, which were £257 million for the Group and £205 million for the Group's share of joint ventures and funds.

The short-term borrowings of £416 million represent the 1.5% £400 million convertible bond, which matures on 10 September 2017.

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 and the Group's share of joint venture and funds' net debt excluding the mark-to-market on effective cash flow hedges and 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.

The impact of our investment activity in the half year was a net decrease in debt of £310 million. Completed disposals included the sale of Debenhams, Oxford Street for £400 million and BL's interest in three superstores totalling £79 million (BL share). Contracts were exchanged on the sale of a portfolio of non-core Retail assets for £191 million with completion scheduled for January 2017.

Acquisitions completed in the year included the New George Street Estate in Plymouth for £64 million which will now be managed as an integrated part of Drake Circus which it is adjacent to, and the purchase of an additional 1.2% of the units in Hercules Unit Trust bringing the Group's ownership to 76.5% at the period end.

Other investment included development expenditure of £94 million and capital expenditure of £44 million related to asset management on the standing portfolio. The value of developments under construction or committed is £619 million with costs to come of £277 million. Speculative development exposure is 5% of the portfolio after taking into account residential pre-sales. There is 449,000 sq ft of developments in our near term pipeline with anticipated cost of £155 million.

7. Financing

1 The Group figures represent net debt as presented in note 10 of the 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 effective cash flow hedges and related debt adjustments and non-controlling interests.

Balance sheet metrics remain strong. LTV and weighted average interest rate on drawn debt were reduced and interest cover improved. Our proportionally consolidated LTV was 31.6% at September 2016, down 50 bps from 32.1% at March 2016 reflecting the impact of the sales and fall in property values. The group LTV reduced for similar reasons from 25.2% to 24.6%. Note 10 of the interim financial statements sets out the calculation of the Group and proportionally consolidated LTV.

The strength of the Group's balance sheet is reflected in British Land's senior unsecured credit rating which continues to be rated by Fitch at A-.

Our proportionally consolidated weighted average interest rate reduced to 3.2% at 30 September 2016 from 3.3% at 31 March 2016. This reflects a rise of 20 bps due to repayment of cheaper facilities with sales proceeds received, including from the sale of Debenhams, Oxford Street, offset by a 30 bps reduction principally as a result of our financing activity.

Our weighted average debt maturity has stayed stable at 8 years.

British Land has £1.7 billion of committed unsecured revolving banking facilities. Of these facilities, £1.6 billion have maturities of more than two years and £1.0 billion was undrawn at 30 September 2016. Based on our current commitments and these facilities, the Group has no requirement to refinance until 2020, even if the 1.5% convertible does not convert.

Further information on our approach to financing is provided in the financial policies and principles section of the audited annual report for the year ended 31 March 2016.

Lucinda Bell

Chief Financial Officer

RISK MANAGEMENT AND PRINCIPAL RISKS

For British Land, effective risk management is a cornerstone of our strategy and fundamental to the achievement of our strategic objectives in delivery of long term sustainable returns. The Group's risk appetite and its integrated approach to managing risk remains as set out on pages 57-58 of the Annual Report and Accounts published in May 2016.

The Directors have considered the principal risks and uncertainties that the company is exposed to, and which may impact performance for the remaining six months of the year, in light of the outcome of the UK's referendum on continued membership of the EU. Whilst, we consider the principal risks are unchanged from those set out on pages 60-63 of the Annual Report and Accounts published in May 2016, several risks are elevated as a result of the increased political and economic uncertainty. 

As a result of the increased economic and political risk, other principal risks that are considered to be impacted while the terms and timing of exit are negotiated, and potentially beyond, are; investor and occupier demand, availability of finance, execution of investment strategy and income sustainability.

We have continued to see good activity and interest in our portfolio since the referendum, but are mindful of the increased uncertainty and have optionality in respect of our major development decisions to respond to the changing environment. We have a high quality portfolio with secure income and robust finances.

Our principal risks and uncertainties are summarised below.

Principal External Risks

Economic outlook - The economic climate and projections for interest rates present risks and opportunities in property and financing markets and the businesses of our occupiers.

Political outlook - Significant political events and policies, including the UK's decision to leave the EU, bring risks both in terms of uncertainty until the terms of the exit are known and the impact of policies introduced. This will 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.

Development cost inflation - Cost inflation presents a risk to the profitability of our development projects and has the potential to adversely affect our overall return on investment.

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 property finance may adversely impact British Land's ability to refinance debt and drive up cost. This may also result in weaker investor demand for real estate. Increasing finance costs would reduce British Land's underlying profits.

Catastrophic business event - An external event such as a civil emergency, including a large-scale terrorist attack, cybercrime, extreme weather occurrence or environmental disaster could severely disrupt global markets (including property and finance) and cause significant damage and disruption to British Land's portfolio and operations.

Principal Internal Risks

Investment strategy - In order to meet our strategic objectives we must invest in and exit from the right properties at the right time. Significant underperformance could result from inappropriate determination and execution of our property investment strategy, including: sector selection and weighting; timing of investment and divestment decisions; exposure to developments; sector, asset, tenant, region concentration; and co-investment arrangements.

Development exposure - Development provides an opportunity for outperformance but this brings with it elevated risk. The care with which we make our decisions around which schemes to develop when, as well as our execution of these projects, must reflect this. Development risks could adversely impact underlying income and capital performance including: development letting exposure; construction timing and costs; 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 - We maintain a capital structure which recognises the balance between performance, risk and flexibility. Leverage magnifies returns, both positive and negative. An increase in leverage increases the risk of a breach of covenants on borrowing facilities and may increase finance costs.

Finance strategy execution - Our strategy addresses risks both to continuing solvency and the stability of our profits. Failure to manage the refinancing requirement may result in a shortage of funds to sustain the operations of the business or repay facilities as they fall due. This and a breach of financing covenant limits are considered to be the most significant risks to the continuing operation of British Land as a going concern.

Income sustainability - We must be mindful of maintaining sustainable income streams in order to continue to generate returns for our shareholders and provide the platform from which to grow the business through development and capital appreciation. We consider sustainability of our income streams in: execution of investment strategy and capital recycling, notably timing of reinvestment of sale proceeds; nature and structure of leasing activity; and nature and timing of asset management and development activity.

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 in the Annual Report and Accounts for the year ended 31 March 2016, which is available on the company website www.britishland.com.By order of the Board

Lucinda Bell

Chief Financial Officer

15 November 2016

Independent review report to The British Land Company PLC

Report on the condensed set of financial statements

Our conclusion

We have reviewed The British Land Company PLC's condensed set of financial statements (the "interim financial statements") in the half year results of The British Land Company PLC for the 6 month period ended 30 September 2016. 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 Rules and Transparency Rules 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 2016;

· 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 Rules and Transparency Rules 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, are the responsibility of, and have been approved by, the directors. The directors are responsible for preparing the half year results in accordance with the Disclosure Rules and Transparency Rules 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 Rules and Transparency Rules 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 Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the half year results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

15 November 2016

a) The maintenance and integrity of the The British Land Company PLC website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.

b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.