British Land Co PLC - Half-year Report

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


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


Financial highlights


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

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

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

·        Half year dividend up 3.0% to 15.50p

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

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

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

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

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

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

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


Progress on strategy


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

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

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

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

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

·        Speculative development exposure remains low at 3.7%

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

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

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

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

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

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

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

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

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



Income statement

HY  2017/18

HY 2018/19


Diluted underlying earnings per share 2




Underlying Profit




IFRS profit/(loss) before tax




IFRS basic earnings per share




Dividend per share




Total accounting return ²




Balance sheet

31 March 2018

30 September 2018


Portfolio at valuation (proportionally consolidated)




EPRA Net Asset Value per share²




IFRS net assets




Loan to value ratio (proportionally consolidated)








Operational Statistics

HY  2017/18

HY 2018/19


Lettings and renewals, sq ft




Gross investment activity




Committed development, sq ft




Sustainability Performance





AAA rating

AAA rating



5* and Green Star

4* and Green Star



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

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

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

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

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

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

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

Chris Grigg, Chief Executive