PLANNING ADRIAN PENFOLD, HEAD OF PLANNING AND ENVIRONMENT
Investor Workshop Presentation Wednesday 31 March 2004
Planning: Creating and Protecting Value
� Existing portfolio – Planning applications – Monitoring competing planning applications
� Acquisitions – Due diligence
� Influencing planning policy – National – Regional – Local
� Development
Investor Workshop Presentation Wednesday 31 March 2004 2
Major Developments: Planning Permission Granted
Recently completed Sq ft Planning permission granted Sq ft
Thatcham Phase I 356,000 New Century Park, Coventry 850,000
Centre West, East Kilbride 285,000 201 Bishopsgate, Broadgate EC2 746,600
Under construction Ludgate West, EC4 126,000
1 and 2 Plantation Place, EC3 703,000 York House, W1 138,100
10 Exchange Square, Broadgate EC2 163,400
Centre West Plantation Place 10 Exchange Square 201 Bishopsgate
Investor Workshop Presentation Wednesday 31 March 2004 3
Major Developments: Pre-Planning Permission � Planning application submitted
– The Leadenhall Building at 122, EC3 600,000 sq ft
– 133 Houndsditch, EC3
375,000 sq ft
� Pre-application stage
– Regent’s Place, NW1 c.1m sq ft
The Leadenhall Building at 122, EC3
Investor Workshop Presentation Wednesday 31 March 2004 4
The Planning Application: Issue Checklist � Planning and Land Use � Transportation
� Townscape and Visual including � Ecology Building Heritage
� Archaeology � Daylight and Sunlight
� Wind � Socio-economics
� Air Quality � Noise and Vibration
� Ground Conditions, Contamination and � Telecommunications Hazardous Materials
� Sustainability � Demolition and Construction
� Water Resources � Civil Aviation
Investor Workshop Presentation Wednesday 31 March 2004 5
Investor Workshop Presentation Wednesday 31 March 2004 6
The Leadenhall Building at 122
The Existing Building
Investor Workshop Presentation Wednesday 31 March 2004 7
The Leadenhall Building at 122
Initial Planning Consideration
Risk Assessment
Expenditure Commitment
Appointment of Key Team Members
Investor Workshop Presentation Wednesday 31 March 2004 8
The Leadenhall Building at 122
Investor Workshop Presentation Wednesday 31 March 2004 9
The Leadenhall Building at 122: Issue Checklist �√ Planning and Land Use �√ Transportation
� Townscape and Visual including �√ Ecology Building Heritage
√
� Wind �√ Socio-economics
� Archaeology �√ Daylight and Sunlight
√
√
� Ground Conditions, Contamination and �√ Telecommunications Hazardous Materials
� Air Quality �√ Noise and Vibration
√
√
� Sustainability �√ Demolition and Construction√
� Water Resources �√ Civil Aviation√
Investor Workshop Presentation Wednesday 31 March 2004 10
Pre-Application Strategy
English Heritage
The Planning Authority (City Corporation)
The Mayor of London
The Commission for Architecture and the Built Environment
Central Government
Technical Consultation
Adjoining Owners
Investor Workshop Presentation Wednesday 31 March 2004 11
Design Quality Investor Workshop Presentation Wednesday 31 March 2004 12
Visual Impact Studies
Investor Workshop Presentation Wednesday 31 March 2004 13
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Post-Application Press Coverage
Investor Workshop Presentation Wednesday 31 March 2004 23
Investor Workshop Presentation Wednesday 31 March 2004 24
Source
British Land figures have been extracted largely from the Interim Accounts for the Half Year ended 30 September 2003, and include joint ventures, unless otherwise stated.
Certain statements are forward looking which are based on current expectations, forecasts and assumptions that involve risk and uncertainties that could cause actual outcomes and results to differ materially from those projected.
Investor Workshop Presentation Wednesday 31 March 2004 25
LETTINGS AND PRE-LETTINGS
PAUL BURGESS, DIRECTOR OF LEASING
Investor Workshop Presentation Wednesday 31 March 2004
Agenda
� Principles and Process
� Case Study: Plantation Place
� Market Snapshot
� Development Update
Investor Workshop Presentation Wednesday 31 March 2004 2
Our Principles
� Build confidence
� Approach direct
� Lead the agents Investor Workshop Presentation Wednesday 31 March 2004 3
Investor Workshop PresentationWednesday 31 March 2004 4
� The crucial difference in pre-letting
� Long term investors – long term relationships
Build Confidence
The Direct Approach Plantation Place, Marketing Suite
Investor Workshop Presentation Wednesday 31 March 2004 5
Leading the Agents
� The right role for the agent
� The oil in the machine
not the machine
� Leadership not just
management Investor Workshop Presentation Wednesday 31 March 2004 6
Our Process
Product knowledge
Get the product
right
Deal direct
Identify targets
Repeat and
persist
Investor Workshop Presentation Wednesday 31 March 2004 7
Plantation Place
� 703,000 sq ft
� 375,000 sq ft pre-let toAccenture
� Rent £54 psf
� 1 Plantation Place building work complete
� 2 Plantation Place due to complete July 2004
Investor Workshop Presentation Wednesday 31 March 2004 8
Plantation Place
� Build Confidence
� Understanding
� We can deliver
� Working with their process
Investor Workshop Presentation Wednesday 31 March 2004 9
Plantation Place
� Location advantages
� Working with their technical team
� Getting sign off
� Getting it through the lawyers
Investor Workshop Presentation Wednesday 31 March 2004 10
“Some you win…”
Working together
Letting and sub-letting
Investor Workshop Presentation Wednesday 31 March 2004 11
“Some you lose…”
� But the principles are the same
� Allen & Overy Deutsche Bank
201 Bishopsgate, Broadgate EC2
Investor Workshop Presentation Wednesday 31 March 2004 12
City Market: The Tide has Turned
� Sentiment is ahead of deals Number of Monthly
Viewings 2003
0
10
20
30
40
50
60
70
80
Trendline
� Rate of supply reducing
� Now is the time to deal
March April May June July August September October November December Source: ATIS Weatheralls
Investor Workshop Presentation Wednesday 31 March 2004 13
City Requirements: March 2004
� Lloyds: 300,000 sq ft
� AON: 275,000 sq ft
� Norton Rose: 275,000 sq ft
� Berwin Leighton Paisner: 250,000 sq ft
� Standard Chartered Bank: 150,000 sq ft
� Legal & General: 150,000 sq ft
� SJ Berwin: 150,000 sq ft
� Brit: 150,000 sq ft
� HVB: 100,000 sq ft
Investor Workshop Presentation Wednesday 31 March 2004 14
Investor Workshop Presentation Wednesday 31 March 2004 15
The Right Product 350 Euston Road, Regent’s Place NW1
Investor Workshop Presentation Wednesday 31 March 2004 16
The Right Product 51 Lime Street, EC3 (The Willis Building)
Investor Workshop Presentation Wednesday 31 March 2004 17
The Right Product 10 Exchange Square, Broadgate EC2
Investor Workshop Presentation Wednesday 31 March 2004 18
The Right Product The Leadenhall Building at 122, EC3
Investor Workshop Presentation Wednesday 31 March 2004 19
Source
British Land figures have been extracted largely from the Interim Accounts for the Half Year ended 30 September 2003, and include joint ventures, unless otherwise stated.
Certain statements are forward looking which are based on current expectations, forecasts and assumptions that involve risk and uncertainties that could cause actual outcomes and results to differ materially from those projected.
Investor Workshop Presentation Wednesday 31 March 2004 20
RENT REVIEWS PETER CLARKE, JOINT HEAD OF ASSET MANAGEMENT
Investor Workshop Presentation Wednesday 31 March 2004
2Investor Workshop Presentation Wednesday 31 March 2004 2
Introduction
� Portfolio valuation
£9.6bn
� Annualised net rents
£539m
� Number of properties1 523
� Number of tenancies1 2,200
� Average number of rent reviews pa1 440
1 Excluding residential As at 30 Sept 2003
3
Review Process
External advisor appointed
Report received
Rent review date
Negotiation
Preliminary notification R - 18 months
R - 6 months
R - 4 months
R +
Investor Workshop Presentation Wednesday 31 March 2004 3
4
Review Process
A report will be prepared covering:
� The Property
� The Lease Terms
� Location
� Valuation Considerations
� The Comparable Evidence
� Valuation
� Recommendations as to conduct of the negotiations
Investor Workshop Presentation Wednesday 31 March 2004 4
5
The Purpose of the Rent Review
“There is really no dispute that the general purpose of the provision
for rent review is to enable the landlord to obtain from time to time
the market rental which the premises would command if let on the
same terms on the open market at the review dates. The purpose
is to reflect the changes in the value of money and real
increases in the value of the property during a long term”
Sir Nicholas Browne, British Gas v Universities Superannuation Scheme
Investor Workshop Presentation Wednesday 31 March 2004 5
6
The Purpose of the Rent Review
“to my mind it is totally unrealistic to regard such clauses as conferring a
privilege upon the landlord or as imposing a burden on the tenant. Both
the landlord and the tenant recognise the obvious, viz., that such clauses
are fair and reasonable for each of them……..It is plainly for the
benefit of both of them. It is for the benefit of the tenant because without
such a clause he would never get a long lease which he required;……..It is
for the benefit of the landlord because it ensures that for the duration of the
lease he will receive a fair rent instead of a rent far below the market value
of the property which he demises.”
Lord Salmon, United Scientific Holdings v Burnley Borough Council
Investor Workshop Presentation Wednesday 31 March 2004 6
7
Review Process
Dispute Resolution
Arbitration procedures
Negotiations with tenants
Agree New Rent
Conclusion
Investor Workshop Presentation Wednesday 31 March 2004 7
8
Ascertaining Market Rental Value
Investor Workshop Presentation Wednesday 31 March 2004 8
Unit A Unit B Unit C
Rent £10,000 pa £10,500 pa
Lease term 20 years ?
20 years
9
The Purpose of Comparable Evidence
� Rent is a product of supply and demand
� Comparable evidence provides a proxy
� For most assets there is sufficient proximate evidence
� However for some assets the picture is not so clear!
Investor Workshop Presentation Wednesday 31 March 2004 9
10
Oligopoly – 4 retailers control 96% of the one stop grocery market
Asda
23%
Tesco 33%
Morrisons (post Safeway)
21%
Sainsbury's Other 19% 4%
Source: Competition Commission Report on Safeway Sept 2003 (Projected post merger shares of revenue for stores over 1,400 sq m in Great Britain, 2006)
Investor Workshop Presentation Wednesday 31 March 2004 10
11
Strong Demand for New Stores
Retailers forecast of new food superstores FY 2003/4
70
60
50
40
30
20
10
0
Source: Company Accounts, Verdict
Sainsbury's
Morrisons (including Safeway)
Asda
Tesco
Investor Workshop Presentation Wednesday 31 March 2004 11
12
The Market
� Asda is the second
largest clothing
retailer in UK:
– 6%1 of sales by volume
� Supermarkets
account for:
– 39%1 of video sales
– 66%1 of all DVD sales
1 Competition Commission Report on Safeway Sept 2003 Sainsbury’s Castle Vale, Birmingham
Investor Workshop Presentation Wednesday 31 March 2004 12
13
Foodstore Openings (edge and out of town): 1990 – 2003
0
10
20
30
40
50
60
70
80
Num
ber o
f Sto
res
Trendline
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Source: IGD
Investor Workshop Presentation Wednesday 31 March 2004 13
14
Demographics Isochrone (drive-time) Map
Investor Workshop Presentation Wednesday 31 March 2004 14
Tesco Superstore, Feltham
5 Minute Drivetime 10 Minute Drivetime 15 Minute Drivetime
15
Turnover and Profitability Modelling
Gravity Based Map
Tesco Superstore, Feltham
Spend £ 250,000 to 670,000
125,000 to 250,000
75,000 to 125,000
60,000 to 75,000
45,000 to 60,000
all others
Investor Workshop Presentation Wednesday 31 March 2004 15
16
Premium Payments: UK Market Evidence Superstore Date Sq ft Rent Premium
Sainsbury, Romford 2000 131,000 £15.00 -Sainsbury, Ashton-under-Lyne 1999 115,000 £15.00 £9.4m Sainsbury, Lisburn 1999 80,000 £17.00 £10.0m Sainsbury, Bournemouth 2001 80,000 £19.00 -Asda, Bournemouth 2001 80,000 £14.001 -Asda, Basingstoke 2001 75,000 £18.001 -Asda, Harlow 2002 75,450 £14.00 -
Tesco, Newtownabbey
Tesco, Prescott
Asda, Southport
Waitrose. Newbury
Asda, Cambridge
Tesco, Fareham
Sainsbury, Bishops Stortford
2001
1999
2000
2002
2003
2000
1999
72,000
67,400
60,000
45,000
70,000
35,000
72,350
£16.00
£14.00
£16.00
£18.00
£18.00
£15.00
£18.50
£9.2m
£3.5m £2.9m £1.5m
£3.0m
£1.8m
-
1 Minimum rental uplifts
Investor Workshop Presentation Wednesday 31 March 2004 16
17
Premium Payments
Rent paid in market for comparable store: £18.50 psf and £3m premium
Tenant’s contention
Landlord’s contention
Rental Bid for subject store:
£18.50 psf
£18.50 psf + say £2.50 psf as NPV of £3m premium = £21 psf
Investor Workshop Presentation Wednesday 31 March 2004 17
18
Rental Growth Progress
Store Type Date Rent psf % Change
Feltham Sale & Leaseback 1997 £13.68 62,000 sq ft Agreement 2002 £18.61 + 36%
Croydon Award 1997 £16.00
91,000 sq ft Agreement 2002 £21.50 + 34%
Milton Keynes Sale & Leaseback 1998 £11.00
136,000 sq ft Award 2003 £21.50 + 95%
Investor Workshop Presentation Wednesday 31 March 2004 18
19
The Big Picture Investor Workshop Presentation Wednesday 31 March 2004 19
British Land Supermarket Portfolio1
Total number 116
Total sq ft 6.2m
= £1 psf pa adds over £100m of value
1 At 30 Sept 2003, including stores in shopping centres and retail parks
20
Source
British Land figures have been extracted largely from the Interim Accounts for the Half Year ended 30 September 2003, and include joint ventures, unless otherwise stated.
Certain statements are forward looking which are based on current expectations, forecasts and assumptions that involve risk and uncertainties that could cause actual outcomes and results to differ materially from those projected.
Investor Workshop Presentation Wednesday 31 March 2004 20
ASSET BY ASSET TIM ROBERTS, JOINT HEAD OF ASSET MANAGEMENT
Investor Workshop Presentation Wednesday 31 March 2004
Asset Management Approach
Strategy
� Focus on prime assets
� Generating strong income flows
Asset by Asset
� Bottom up investment approach � Active asset management
Investor Workshop Presentation Wednesday 31 March 2004 2
Asset Management Structure
14 asset managers
dealing with over
£11bn under
management Focus on strategic
property management Outsource
day to day operational
property management
to agents Investor Workshop Presentation Wednesday 31 March 2004 3
�Evaluate Performance vs Risk, Opportunity Cost
Forecast Performance�IRRs (5 years) ungeared and geared�Exit value and yield
Analyse Investment Characteristics
�Location
�Quality of accommodation
�Security of Income
�Rental Levels�Supply and Demand
Rental Growth Potential
Asset by Asset Process
Buy
Evaluate Performance vs Risk and Opportunity Cost
�IRRs (5 years) ungeared and geared �Exit value and yield
Forecast Performance
�Review regularly �Timetable for sale �Preparation for sale
RetainSell
�Supply and Demand �Security of Income �Rental Levels
�Location �Quality of accommodation
Rental Growth Potential Analyse Investment Characteristics
Investor Workshop Presentation Wednesday 31 March 2004 4
Buying and Selling: £5.9bn of Activity Last 5 years
£billion
0.0
0.5
1.0
1.5
2.0
1999 2000 2001 2002 2003 Year ended 31 March
Property Purchases Property Sales
Investor Workshop Presentation Wednesday 31 March 2004 5
Income: Rent Reviews and Lettings
2003 2002 2001
Rent Reviews Settled
Rent passing prior to review £92m £138m £71m
Number 84 71 41
287
£16m
4.1%
Uplift in income £16.5m £5.0m £8.8m
389
£33m
4.5%
Number 317
% increase pa 6.0%
Lettings and Renewals
Uplift in income £31m
Investor Workshop Presentation Wednesday 31 March 2004 6
Principal Assets
Supermarkets 14%
Retail Warehouses 11%
78% of the total portfolio
Broadgate 28%
Regent’s Place 5%As at 30 Sept 2003
Shopping Centres
20%
Investor Workshop Presentation Wednesday 31 March 2004 7
BLU: The Transaction
� 50:50 BL Universal JV established in February 1997 with GUS
� 982 properties, mainly high street shops, with a value of £900m
� Net rental income of £71m - initial yield 7.9%
� Initial net investment by each partner of £200m
� External debt £500m
Investor Workshop Presentation Wednesday 31 March 2004 8
BLU: The Rationale
� Access to core of high quality retail assets
� Strong cash flow
� Good JV partner
� Property mandate to actively manage the portfolio - £1m pa fee
� Double gearing to enhance returns on capital
� External finance with no recourse to BL
Investor Workshop Presentation Wednesday 31 March 2004 9
BLU: The Portfolio THEN (Feb 1997)
Value £900m Number of properties 982 Average lot size £0.9m
Shopping
Supermarkets 3%
Offices 7%
Other Shops 1%78%
Centres 11%
Investor Workshop Presentation Wednesday 31 March 2004 10
BLU: Repositioning the Portfolio
£m Average lot size £m
0
100
200
300
400
500
600
700
800
900
1000
1100
£881m £925m
£1,029m £1,027m £996m
£812m £796m
0
1
2
3
4
5
6
7
1997 1998
Year ended 31 March
1999 2000 2001 2002 2003
Shops Retail Warehouses Supermarkets Shopping Centres Offices
Average lot size (rhs)
Investor Workshop Presentation Wednesday 31 March 2004 11
BLU: Sales and Purchases
Sales
� 894 properties profitably sold for £768m:
– On average 7% above valuation
– £128m, 22% above cost
– 1.1% pa contribution to BLU return
Purchases
� Proceeds partly reinvested in purchase of 13 properties for £357m:
– £246m of retail warehouses and supermarkets
– 0.2% pa contribution to BLU return
Investor Workshop Presentation Wednesday 31 March 2004 12
BLU: The Portfolio NOW (Sept 2003) Value £761m THEN (Feb 1997) Number of properties 101 Average lot size £7.5m 11%
3%Shopping
Centres Retail 7% 3% Warehouses 1%
30% 78%
Shops
40% Supermarkets 10%
Offices 17%
Investor Workshop Presentation Wednesday 31 March 2004 13
BLU Portfolio: Shops 40%
� £308m of shops
� 73% of shops are within CACI Top 20 retail cities
� Average lot size £7.5m
� 5.6% initial yield 6.6% reversionary yield
As at 30 Sept 2003
Investor Workshop Presentation Wednesday 31 March 2004 14
BLU Portfolio: Retail Warehouses 30%
� £225m of retail warehouses
� Average park size > 100,000 sq ft
� Predominately open A1 planning consents
� Average rent of £15 psf
� 5.8% initial yield 6.3% reversionary yield
The Beehive Centre, Cambridge
As at 30 Sept 2003
Investor Workshop Presentation Wednesday 31 March 2004 15
BLU: Benefits to BL Shareholders
� Since acquisition 12% annualised return to Sept 2003
� 14% pa geared on BL Equity
� £380m of hand picked assets purchased off market
� Price £120m based on NNNAV
� Initial yield 6.4% rising to 6.8%
� Initial yield on cost 6.7%
As at 30 Sept 2003
Investor Workshop Presentation Wednesday 31 March 2004 16
Summary
� Strategic view on sectors
� Prime assets generating strong income flows
� Portfolio leverage
� Regular review on asset by asset basis
� Intensive portfolio management
Investor Workshop Presentation Wednesday 31 March 2004 17
Source
British Land figures have been extracted largely from the Interim Accounts for the Half Year ended 30 September 2003, and include joint ventures, unless otherwise stated.
Certain statements are forward looking which are based on current expectations, forecasts and assumptions that involve risk and uncertainties that could cause actual outcomes and results to differ materially from those projected.
Investor Workshop Presentation Wednesday 31 March 2004 18
CONCLUSION NICK RITBLAT, EXECUTIVE DIRECTOR
Investor Workshop Presentation Wednesday 31 March 2004
Principal Assets: 84% of the Portfolio Supermarkets
14%
Retail Warehouses 11%
84% of the total portfolio
Broadgate 28%
Regent’s Place Developments Shopping Centres As at 30 Sept 2003 5% 6% 20%
Investor Workshop Presentation Wednesday 31 March 2004 2
Growing Income
Sept 2003 Of which contracted £m £m
Annualised net rents 539.11 539.1
Reversions, within 5 years 59.21
31.9
Committed developments 41.0 19.4
Increase in rents 100.2 51.3
Total 639.3 590.4
Development prospects 103.4
1 EBRD: annualised net rents reduced and reversions increased by £18.975m due to rent free period until Nov 2006
Investor Workshop Presentation Wednesday 31 March 2004 3
Key Performance Statistics
CAGR Mar 1998 – Sept 2003 Mar 1993 – Sept 2003
NAV per share plus dividends 8.6% pa 12.3% pa Net rental income 9.0% pa 13.9% pa
0
5
10
15
20
25
0
100
200
300
400
500
600
700
800
900Earnings and Dividend per share - pence Net Asset Value per share - pence
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Year ended 31 March
Underlying EPS 1 DPS Diluted NAV per share 1 Before exceptional items and gains on asset disposals, taxed at the effective rate
Investor Workshop Presentation Wednesday 31 March 2004 4
Source
British Land figures have been extracted largely from the Interim Accounts for the Half Year ended 30 September 2003, and include joint ventures, unless otherwise stated.
Certain statements are forward looking which are based on current expectations, forecasts and assumptions that involve risk and uncertainties that could cause actual outcomes and results to differ materially from those projected.
Investor Workshop Presentation Wednesday 31 March 2004 5
Recommended