ADRIAN PENFOLD, HEAD OF PLANNING AND …/media/Files/B/British-Land...Case Study: Plantation Place Market Snapshot Development Update Investor Workshop Presentation Wednesday 31 March

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


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


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



The Leadenhall Building at 122

The Existing Building



Initial Planning Consideration

Risk Assessment

Expenditure Commitment

Appointment of Key Team Members




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√


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


Design Quality Investor Workshop Presentation Wednesday 31 March 2004 12

Visual Impact Studies











Post-Application Press Coverage



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.


LETTINGS AND PRE-LETTINGS

PAUL BURGESS, DIRECTOR OF LEASING


Agenda

� Principles and Process

� Case Study: Plantation Place

� Market Snapshot

� Development Update


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


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


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


Plantation Place

� Build Confidence

� Understanding

� We can deliver

� Working with their process


Plantation Place

� Location advantages

� Working with their technical team

� Getting sign off

� Getting it through the lawyers


“Some you win…”

Working together

Letting and sub-letting


“Some you lose…”

� But the principles are the same

� Allen & Overy Deutsche Bank

201 Bishopsgate, Broadgate EC2


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


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



The Right Product 350 Euston Road, Regent’s Place NW1


The Right Product 51 Lime Street, EC3 (The Willis Building)


The Right Product 10 Exchange Square, Broadgate EC2


The Right Product The Leadenhall Building at 122, EC3


Source




RENT REVIEWS PETER CLARKE, JOINT HEAD OF ASSET MANAGEMENT


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 +


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


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


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


7

Review Process

Dispute Resolution

Arbitration procedures

Negotiations with tenants

Agree New Rent

Conclusion


8

Ascertaining Market Rental Value


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!


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)


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


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


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


14

Demographics Isochrone (drive-time) Map


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


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


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


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%


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




ASSET BY ASSET TIM ROBERTS, JOINT HEAD OF ASSET MANAGEMENT


Asset Management Approach

Strategy

� Focus on prime assets

� Generating strong income flows

Asset by Asset

� Bottom up investment approach � Active asset management


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


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


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


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%


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


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


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%


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)


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


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%


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


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


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


Summary

� Strategic view on sectors

� Prime assets generating strong income flows

� Portfolio leverage

� Regular review on asset by asset basis

� Intensive portfolio management


Source




CONCLUSION NICK RITBLAT, EXECUTIVE DIRECTOR


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%


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


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


Source




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ADRIAN PENFOLD, HEAD OF PLANNING AND …/media/Files/B/British-Land...Case Study: Plantation Place Market Snapshot Development Update Investor Workshop Presentation Wednesday 31 March