Year End 2008 Results Presentation Transcript/media/Files/B/British-Land... · 2016-03-01 · Year...

Year ended 31 March 2008

We are real estate investors and create value by actively managing, financing and developing prime commercial property to provide the environment in which modern business can thrive.


Results Presentation


IntroductionStephen Hester

Chief Executive

Good morning everyone.

A couple of preliminaries, of course, the line up is as usual in terms of presenters today. In addition to myself, Graham Roberts our Finance Director, and our two property supremos Tim Roberts and Andrew Jones. We also have dotted around the audience here some other people from British Land. And, of course, led distinguishably by Chairman past and present here on the front row, and welcome to you as well.

We also have put on your chairs in front of you the normal press release, and a little booklet of the slides. The booklet is in more ecologically friendly form than in the past. A very readily palpable and recyclable instead of using any of these plastic covers that you can't get rid of. And so our investor relations team considers that a great advance in line with our corporate philosophies, and I agree with that.

Anyway, we will try and rattle through the presentation and of course, as usual take questions at the end.


Financial SummaryQ4 results show profits up with valuations down, but at markedly slower rate than Q3

– EPS1 up 18%2, Underlying pre-tax profit1 up 10%2

– Valuation down 2.2%, NAV down 4%

Portfolio valuation down 10.0% for the full year– Business outperforming IPD (+1.9% on Capital Return3) due to attractive rental growth– Portfolio net equivalent yield now 5.6% (up 92bps on March 2007)

NAV per share4 at 1344p (down 20% on March 2007) – NNNAV per share 1438p reflecting valuable debt structure– Net Assets4 £6.9bn. Properties owned or managed £17.9bn

Underlying pre-tax profit1 up 11% to £284m for the year

Underlying EPS1 up 23%2 to 53p– Dividend up 72% to 35p for the year (Q4 8.75p) – next year’s aggregate dividend targeted at 37.5p

Exceptional balance sheet strength combined with sector leading income resilience– Debt 100% fixed at 5.29%, 12.9 years average life - £2.4bn more committed and available– 14.7 years average lease length, 99% occupancy rate5

1

Introduction

1 Underlying pre-tax profit and EPS excludes gains on property revaluations and disposals, intangible asset movements, refinancing charges and £30m capital element of the Songbird dividend

2 Increase on prior year3 IPD Capital Return is based on average capital employed and excludes capitalised interest and Europe4 EPRA (European Public Real Estate Association) basis 5 Underlying occupancy rate including accommodation subject to asset management and under offer

The summary of the year, in financial terms, can be seen in two components. The things that are to do with cash and that are most closely impacted by the things we can do went up. And the things to do with values which, of course ultimately does represent cash when you realize them, and that are influenced by global markets, went down.

Our fourth quarter results showed that pattern, albeit as we had expected a markedly slower rate of decline. And for the year as a whole we have valuations down 10%, earnings per share up 23%.

We outperformed IPD. We'll talk about that more later, driven by rental growth, driven by our customers. We also highlighted the strength of our balance sheet with the triple net number not going down at all in the fourth quarter, due to the value of our debt.

Our dividends are not only up 72% for the year, but we intend to put them up a further 7% next year. And the balance sheet both on the asset side and on the liabilities side, giving us an important platform of strength to weather these difficult times.


Business HighlightsActivist strategy adding value even in tough markets

– £3.2bn (gross) disposals at 4.1% NIY1 (follows £1.5bn sold in prior year)– Like for like rental income growth of 5.7%, ahead of market2 at 2.5%– Underlying rental value growth (ERV) of 6.2% (Q4 1.1%), ahead of market2 at 4.0% (Q4 0.6%)– Product quality and location capturing customer demand in both Offices and Retail - 2.4m sq ft of new

lettings3 and 210 rent reviews settled overall at 5.7% above ERV– 745,000 sq ft of developments profitably completed - remaining development programme well spaced

and benefiting from British Land’s strength

Investment market conditions remain challenging– UK real estate prices have adjusted fastest to global “credit crunch” – IPD capital values down 14.2% since

June 2007 (outward yield shift of 109 bps)2

– Decline in property values continues but has slowed in 2008 to date. Still a range of possible outcomes– Increased signs of investor interest at current levels. Sentiment remains volatile however – Strategic actions ahead of market decline significantly reduced impact on Company

Introduction

2

1 Net Initial Yield2 IPD3 Including development pre-lets

Now, we have twin duties in difficult times in terms of the business. We want to be as defensive, as resilient, as we can in the face of the uncertainties that are behind and in front of us. And we want to preserve and enhance growth prospects for the future. And both of those two jobs require hard work.

We believe, despite the difficult market conditions, that the activist strategy that we put forward can be demonstrated. And we'll talk about that more this morning.

You can see it in the purchases and sales, over £3billion in this financial year. You can see it in our rental growth, ahead of the market. You can see it in our new lettings, the fact that the rent reviews have not slowed down in terms of the percent over ERV that we've been getting in the fourth quarter.

We nevertheless do remain in challenging investment market conditions. The UK has been the most transparent and fastest to react in commercial property. It is, therefore, on a relative basis representing value again most quickly and most clearly.

The decline is slowing, and I think we are moving from a phase of reaction to financial market crisis to a phase of, if you like, cooler assessment of what the economic slowdown does to our customers. We are seeing increased signs of investor interest. But it's very clear that there will be some more decline and that sentiment remains volatile.

With that introduction let me ask Graham to go through the numbers with you.


Financial ReviewGraham Roberts

Finance Director

Thank you Stephen, and good morning. Just to run through the highlights for you.


Financial Highlights

Financial Performance

1 Underlying pre-tax profit and EPS excludes gains on property revaluations and disposals, intangible asset movements, refinancing charges and £30m capital element of the Songbird dividend

2 Comprising 17p PID (subject to withholding tax at basic rate of 22% for 2007/8 and 20% for 2008/9 for relevant shareholders) and 18p non PID3 EPRA (European Public Real Estate Association) basis4 Increase in EPRA NAV (pre-exceptional) plus dividends paid

+ 72%20.35p35p2Dividends per Share

21.3%- 18.1%Total Return4

- 22%£8.9bn£6.9bnNet Assets3

+ 23%43p53pUnderlying Diluted Earnings per Share1

1683p

1682p

£257m

2007

- 15%1438pNNNAV per share

- 20%1344pNAV per share3

+ 11%£284mUnderlying Profit before Tax1

Change2008

3

On income measures we were up strongly, Underlying Profits before Tax up by 11% at £284million. Earnings per share up 23% boosted by the full year REIT tax status. And in that context - in terms of the activity we've done over the last three years - Underlying Profits are up by over £100million.

That is reflected in the increased dividends that we have, 72% increase compared to last year. And as Stephen said, we are announcing an increase to 37.5pence per share as the target for the current year.

On valuation measures we were down 20% in NAV per share, only 15% at triple net asset value per share.



Gross rents 0.4% higher despite £2bn net disinvestment over last 12 mths

5.7% like for like rental income growth:– Retail uplift of 7.1%, driven by rent

reviews and new lettings

– Offices up 3.8% due to lettings and rent reviews

Market (IPD) income growth of 2.5%5

Like for like ERV growth 6.2% ahead of IPD (4.0%)

- Driving future rental income growth- Q4 ERV growth 1.1% vs IPD 0.6%

9090Fixed and minimum uplifts2

421Developments

13060Disposals

+ 0.4%

+ 5.7%

- 12.0%

+ 3.8%

+ 7.1%

431455

32Other

166172Offices

Properties owned throughout1

262281Retail

152Other3

7067094Total

36

2007 £m

81Acquisitions

2008 £m

Gross rental income

1 Investment properties subject to open market reviews and owned throughout the current and prior year (proportional consolidation of Funds & JVs)2 Rental income from fixed and minimum guaranteed rent reviews is recognised on a straight line basis3 Includes surrender premiums, asset management determinations, back rents and other accounting adjustments4 Annualised accounting gross rental income at March 2008 is £657m (see page 40)5 IPD Quarterly Index like for like Income Growth for March 2008 (annualised) compared to March 2007 (annualised)

4

Rental Growth

Just going into a bit more detail about the rental growth over the year, the gross rental income line broadly flat over the year at £700million. But clearly that masks the amount of activity of acquisitions, sales and developments, which you see on the right-hand side.

If you strip those out, as well as the fixed and minimum uplifts, the like for like portfolio grew by 5.7% in rental income growth ahead of the market (7.1% in retail, 3.8% in offices).

Then like for like ERV growth at 6.2% was also ahead of IPD at 4%. And in that Q4 was encouraging with ERV growth of 1.1% for that period. But clearly one quarter is hard to extrapolate from and Tim and Andrew will come back and talk about the market later.


Underlying Profit before Tax up by 11%

706709Gross rental income

(45)(42)Direct property costs

43p53pUnderlying EPS - diluted

1,270(1,611)IFRS (loss)/profit before tax

257

(370)

(85)

51

661

2007£m1

284

(350)

(73)

40

667

2008£m1

Administrative expenses

Fees and other income3

Net interest costs4

Underlying profit before tax

Net rental income

1 With proportional consolidation of Funds and Joint Ventures2 Net of lease determinations/expiries of £5m3 Includes Songbird dividend of £16m (2007: £18m) and Fund management and performance fees of £21m (2007: £30m)4 Interest capitalised on developments £43m (2007: £37m)


12Admin cost savings

(10)Interest cost on REIT conversion charge

(9)Fund performance fees

(6)Other

£mMovement in Underlying Profit

27Increase

12Effect of property purchases and sales

8Interest saving due to refinancings

20Rent reviews and new lettings (net)2

5

How that translates into underlying profit before tax. Well there was good success in lettings during the year 2.4million square feet and 210 rent reviews. All of which contributed for the period of adding £20million more to the Underlying Profits.

Then with our net disinvestment at yields below the marginal cost of borrowing that added a further £12million. As we indicated last year, we've re-organised internally and administration cost savings were £12million for the year. So a significant boost to underlying profits from that, which goes to counter the effects of a higher interest cost on the REIT conversion charge (£10million).

Fund performance fees are coming down as a result of the exceptional levels that they were for the last two periods, which were boosted by the yield shift.



1 EPRA (European Public Real Estate Association) basis

£18.4bn

£14.6bn

£7.2bn

1437p

1401p

Dec2007

£17.9bn

£13.5bn

£6.9bn

1438p

1344p

March 2008

£20.4bn

£16.3bn

£9.1bn

1801p

1730p

June2007

£21.3bn

£16.9bn

£8.9bn

1683p

1682p

March2007

£20.0bn

£15.9bn

£8.7bn

1745p

1682p

Sept2007

NNNAV per share

Total properties

Total properties under management

Net assets1

NAV per share1

6

Net Asset Value 1344p – NNNAV 1438p

(8)Investment in Songbird

(32)Dividend paid

53Underlying profit after tax

7Other

(358)Property revaluations and asset disposals

1344NAV at 31 March 2008

PenceMovement in NAV per share1

1682NAV at 31 March 2007

Then a reconciliation of net asset values.

This shows you the movement from last year's 1682pence down to 1344pence with clearly the main contributor being the revaluation differences.

I've shown here the relevant quarters as we move across from March. I think the interesting thing to look at perhaps is that at this time last year the triple net asset value per share was only 1pence different from the NAV. Today it stands at a 94pence premium to the NAV reflecting the value of the debt book.

Total net assets £6.9billion, total properties £13.5billion, and under management £17.9billion.


Cash Flow - Resilience and Upside

5.65.7

2315

Rent reviews and lease renewals- Retail- Offices & other

108Portfolio Reversion

5.9711Total

Valuation Yield%3

Rent£m pa

5.85.9

165

Letting of vacant space- Retail- Offices & other

5.449Contracted from fixed uplifts and expiry of rent frees

5.0603Annualised net rents

Secure rental income– Average lease 14.7 years to first break

– High occupancy rates of 97.5% in Retail and 98.7%

Offices (over 99% underlying1)

Cash reversion – 18% potential rental uplift– Improves portfolio yield by 0.9%

– Of which £49m pa (45%) contracted

– Non-contracted £59m pa - 66% retail vs 32% offices

Affordable average rents– Retail £19 psf passing vs ERV £22 psf

– Offices £45 psf passing vs ERV £51 psf

Plus development potential– £149m pa potential rents, of which £29m pre-let2

Cash Flow

7

1 Underlying occupancy rate including accommodation subject to asset management and under offer2 Based on completed/committed projects only3 Gross yields to British Land (without notional purchaser’s costs)

Now I'd like to speak a little bit about the cash flow, and the resilience in the portfolio, starting off with a very secure cash flow position, often under-appreciated but in difficult markets incredibly important.

We have an average lease length of 14.7 years to first break. High occupancy levels of 99% on an underlying basis. And there is a cash reversion of 18% which can lift annualised net rents from £600million to over £700million.

Of that £49million is already contracted, so there is only £59million which is un-contracted in the total reversion. I've given you here the split between rent reviews and lease renewals and letting of vacant space, and between retail and offices. This is all off affordable average rents - retail rents at £19 per square foot, and offices at £45 per square foot.

Now this obviously excludes development potential, which we will come on to later, which could add a further £149million to rents.


£174m£585mPositive mark to market on debt & derivatives

(£7,741m)(£6,413m)Net Debt – book value

43%241%LTV – Group

Key Financial Ratios1

£2,433m

12.9 yrs

5.29%

1.8x

47%

2008

£1,657m

12.7 yrs

5.36%

1.7x

47%2

2007

Weighted average debt maturity

Average interest rate

Committed undrawn facilities - Group

Interest cover3

LTV – inc. share of Funds & JVs

1 With proportional consolidation of Funds and Joint Ventures (unless stated as Group)2 Proforma for payment of REIT conversion charge in July 20073 Underlying profit before interest and tax (UPBIT) / net interest excluding refinancing charges

Finance and Capital Structure

8

Financial Strength

Gearing down to 41% LTV (47% inc. Funds & JVs)

- Valuation decline offset by disposals

Interest cover increased to 1.8x and debt

100% fixed at 5.29% with 12.9 yrs average

maturity

Committed undrawn facilities of £2.4bn

providing liquidity and firepower should

future opportunities arise

Finally to come back to the liability side of the balance sheet, very strong there too as you will appreciate. Despite taking a 20% reduction in net asset value, because of the valuation decline, our gearing is 41% at the Group level, down from last year. This is clearly through the disposals we've made during the year. And on a proportional consolidated basis we are at the same level of 47%.

The financing statistics are clearly strong, interest cover 1.8 times. The debt is 100% fixed at 5.29%. And we have an average maturity of 12.9 years.

And finally we have a substantial amount of liquidity. Very important obviously in these markets to have always had the disciplines in place to manage liquidity. We did our last syndication in August last year, which means that of the £3billion of bank facilities that we have, less than £200million will expire in the next two years. And, in fact, more than £1.8billion expire after five years.

So we are in good shape financially to weather the current difficult markets.

On that note I'll hand back to Stephen.


Strategy & Operational ReviewStephen Hester

Chief Executive

Thank you Graham.


Activist Strategy, Focused on Customer Needs

Strategy & Positioning

9

Building the business around customer needs and so aim to capture superior, cash flow driven “total return” arising from high occupancy and rental growth

Seeking to “add value” at each level of the business from an activist approach to:

- Sector and market selection- Asset selection and creation- Intense asset management - Balance sheet management- Partnership and deal structuring

Concentrating on markets where we have or can build competitive advantage

Targeting Outperformance

Well this slide will be familiar to you. I've put it up every year for the last three years, and it's our strategy which remains in place. The execution, of course, changes every year, but the strategy and the principals on which it's based do not.

And they are not just words, but they are important in numerating the levers that we try to pull to secure current and future performance.

What I'll now do is try and tie in that strategy to our actions in the year, and show you how the two fit and what the result was.


-4

-3

-2

-1

0

1

2

3

2006 2007 2008-4

-3

-2

-1

0

1

2

3

2006 2007 2008

Sector and Asset Selection Goals

Optimise risk-adjusted growth prospects– Focus on income risk (void/lease risk, relative yield

risk, capex risk)– Target rental growth, driven by customer demand

(asset management – lettings, rent reviews)– Manage gearing as both risk & opportunity

Capture value from capital recycling

Activity – last 3 yearsSell:

– High Street Retail, Provincial Offices, Residential and Industrial

– Bulky Goods Retail, weaker European assets– High rented/mature City Offices & Open A1 Retail– Completed, stabilised Office development

Buy:– UK Open A1 Out of Town Retail– European Out of Town Retail


10

£12bn (gross) Asset Turnover in last 3 years

Net

& G

ross

Ass

et T

urno

ver (

£bn)

(£2.7bn)

(£1.5bn)

(£3.2bn)

£2.1bn £1.9bn

£0.5bn

21% of portfolio

16% of portfolio

26% of portfolio

(£2.2bn)

(£1.1bn)

(£2.6bn)

£2.0bn £1.6bn

£0.2bn

Purchases (net)Purchases (gross)

Sales (net)Sales (gross)

So the first lever of value creation that we try to pull for present and future is to decide what are the best sectors to be in. That changes over time, and what are the best assets within those sectors and vice versa. And you can see we take very seriously this freedom. We are not eggs in one basket merchants.

Over the last three years we have turned over some £12billion in the search for every more secure and better growth from our properties. And if we enumerate both the buy and the sell side, you can see on average we were dis-investors as the market became more expensive.


Like for like rental value (ERV) growth 5.6% pa ahead of Market (IPD) 3.7% pa over last 3 years– Lead by London Offices (10.0% pa) and Retail Parks (5.1% pa)

Over £69m1 of new rent added at 5.7% above ERV in the year– 2.4m sq ft1 of new lettings/renewals improving tenant mix and reducing void exposure– 210 rent reviews capturing reversion

Q4 ERV growth 1.1% (IPD 0.6%) – Office 1.5% and Retail 0.9%. 320,000 sq ft1 of lettings/renewals and 67 rent reviews concluded at 6% above ERV

Regent’s Place ERV growth of 28% to £44 psf2 – new letting at high of £61 psf

New high rents agreed at Broadgate –average ERV up 8% in last 12 mths

Retail Park ERV growth of 3.6% (Open A1 3.8%), ahead of IPD (1.5%)

11

Extra Performance from Intense Asset Management

1 Including development pre-lets2 Average headline ERV (range £35 - £61 psf)


Whilst the assets are under our management we then have a duty to get the most out of them. And I believe that we have assembled a very strong property management team that is doing an excellent job in sweating our assets.

There are many individually un-newsworthy actions that go into this. But the proof of the pudding comes out in terms of rental growth both historic and prospective through ERV that beats the market in both of our major segments.

As I mentioned earlier on, even when we just look at the snapshot of the last quarter, rental growth above the market, and rent reviews 6% above where the valuers were expecting them to go.


Development – Source of Added Value & RiskTrack record of delivering and letting developments profitably and recycling capital

– Developments contributed 0.7% pa to our capital growth over the last 3 years

-Q2 2008

--

Q1 2008Q1 2006

Sale

61315626

347

Profit on Cost1

%

69127Q4 2007Ludgate West, EC4419

137491160550

Sq ft‘000

75Q2 2008201 Bishopsgate, EC2

100Q1 2007York House, W1100

88100

% Let

Q1 2007Q3 2004Q2 2004

PC

The Willis Building, EC3Plantation Place South, EC3Plantation Place, EC3

Completed Major Office Projects:

Values will suffer short term but BL has strength to hold through cycleMaximum unlet space to be delivered in any two-year period equivalent to 3.5% of BL total portfolio3


12

1 Development profit on cost to practical completion or point of sale if sold2 Development yield on current valuation plus costs to complete, notional interest to PC and tenant incentives3 As a % of total portfolio sq ft

612490586400

Sq ft‘000

6.8-Q3 2009Osnaburgh Street, NW17.0-Q3 2009Ropemaker, EC2

-

39

% Let

Q3 2011

Q3 2008

PC

6.8The Leadenhall Building, EC3

6.2The Broadgate Tower, EC2

Yield %2

Ongoing Office Projects:

Development is a topic much talked about. Having been something that everyone was very excited about to now being something that is terrible and one should never contemplate, or the worse thing that a company could every talk to you about. And, of course, the truth lies in between both of those two.

To give perspective, we've set out on this slide not only the fact that over the last three years development has added to our performance, but that we do add value through development. And development is something that you do have to look across cycles to do successfully.

And just in the last couple of years you can see six significant London office buildings listed in this table, which we built, which we completed, which we let up, and in a number of cases, which we sold. And you can see very substantial profits through that process accruing to our shareholders. And substantial numbers of these offices buildings were built when everyone was gloomy about offices and rents were down and declining.

We have four significant office projects currently being built, one about to be finished, which is 40% let just north of here, two more in the City and one in the West End. You can see here the yield basis and Tim will talk more about these. But it would be my submission to you that number one we have a decent record in this area.

You do have to look through cycles. There will be some short term pain in valuation terms. But we remain hopeful that this development activity will be an added value activity as we look through the cycle for these buildings.


20

30

40

50

60

1998/9 2001/2 2004/5 2007/81.0

1.2

1.4

1.6

1.8

2.0

LTV (LHS) Interest cover (RHS)

23

45

67

8

1998/9 2001/2 2004/5 2007/80.00.5

1.01.5

2.02.5

3.0

Cash & undrawn facilities (RHS) Average interest rate (LHS)

Balance Sheet & Risk Management

Leverage & Interest Cover

More Income Growth with Greater Certainty than IPD3

High Occupancy & Long Leases

Average Interest Rate & Undrawn Facilities

Lease Length (yrs)2Occupancy (%)1

92.7

91.9

90.2

92.7

96.4

IPD

9.813.499.5City Offices

8.714.096.4West End Offices

12.914.596.9Retail Warehouses

10.613.296.4Shopping Centres

97.9

BL

11.016.0All Property

IPDBL

Inte

rest

cov

er (x

)

LTV

(%)

Ava

ilabl

e fa

cilit

ies

(£bn

)

Inte

rest

rate

(%)

1 Overall vacancy rate (as a % of ERV) excluding accommodation subject to asset management and under offer (comparable to IPD)2 To expiry (comparable to IPD)3 Income analysis (based on contracted rent) for British Land vs IPD showing security of income and growth potential - contracted increases from

expiry of rent frees, rent reviews, ERV on vacant space less over-renting4 IPD include signed agreements for lease in vacancies

-5% 0% 5% 10% 15% 20% 25%

IPD

British Land

Over-renting Rent frees Rent reviews Vacancies


13

4

‘Target’ LTV Range (45-55%)

-2% 4%48% 14%

-3% 9%3% 10%

LiabilitiesAssets

Let's turn to what these activities have done to the profile of our business. We have, I think the highest occupancy and the longest leases in our sector. That is to say that our customers like our buildings and want to be there for a long time, which is, I think, good for both the defensive characteristics of our business and for growth prospects.

Below that, on the bottom left of the chart, we show the breakdown of our reversions or, if you like, the baked-in potential rental growth compared to IPD. Again I think that speaks volumes for our business and our assets. Not only do we have greater reversion than the market as a whole, but much higher quality. More that is certain, in other words more that is contractual and less that relies on leasing up empty space in difficult market conditions. We are less than half as exposed to filling voids as the market as a whole. So again, we believe that you can have good upside whilst protecting the downside.

And the same, of course, then goes on the right-hand side of this slide to the other side of our balance sheet. While we can talk about gearing we did bring gearing to its lowest level in 12 years, ahead of the market decline, and we've managed to keep it there.

It would, of course, been nice to have been lower, but at least the direction was right. Our interest cover is the highest ever. Our interest rates are the lowest ever. And our war chest, should we find things cheap enough to add growth, is also the highest it has been. And so I think we feel that that is a reasonable score card at this snapshot in time at the end of our financial year.

Year ended 31 March 2008 1 PMA Spring 2008 forecasts (from end 2007)2 Includes rent reviews and lease break/expiry and letting of vacant space at current ERV (as determined by external valuers) within 5 years,

plus expiry of rent free periods3 201 Bishopsgate reclassified within City investments as completed in April 2008 14

Plus ‘Mark to market’ rental growth potential (“reversion”) of £108m2

41% Offices 98% London

57% Retail 80% Out of Town

-2 -1 0 1 2 3 4

Next 10 years Next 5 years

PMA Forecast Market ERV Growth % pa1

Retail Warehouses

Shopping Centres

High Street

London Offices

Provincial Offices

Industrial

All Property

Portfolio Positioning

Superstores

Portfolio Composition

Retail Warehouses

(24%)

Superstores (9%)

Meadowhall (11%)

In Town Shopping Centres

(4%)

Department Stores

(6%)

High Street (1%)

City (26%)3

Other (2%)Europe (2%)

Development (8%)3

West End (7%)

The next slide simply highlights for you where our portfolio is at this moment in time, and also the fundamentals that drive our thoughts on the portfolio, which is customer health, future rental growth.

You can see over the long term the areas where most commentators expect the best rental growth, are indeed where we have portfolio concentrations, albeit in the short term most notably in the City, but probably throughout there is likely to be some softness.


10.0% Valuation Mark-down (Q4 down 2.2%)

Valuation

Portfolio yields now 5.6% net equivalent3 (like for like outward yield shift of 92bp, (20%),5.0% gross initial yield4 (5.4% Topped-Up4,5) and 5.9% gross reversionary yield4

15

1 Includes valuation movements in developments, purchases and sales, net of capital expenditure

2 Developments £1.3bn, -4.2% (City -3.8%, West End -5.2%, Provincial -10.1%)

3 After purchaser’s costs4 Gross yields to British Land (without notional purchaser’s costs)

5 Adding back rent frees and contracted rental uplifts6 Source: IPD – British Land vs IPD for the 12 months to 31 March 2008.

Calculated by IPD for our UK assets on average capital employed and excluding capitalised interest

7 Based on Standing Investments Capital Return8 Other reflects impact of lease structures

+ 2.14.06.2Rental Growth

+ 0.72.12.9- Retail

-17.2

7.9

-13.2

-11.0

-15.5

IPD %

12 months to 31 March 2008

+ 3.411.6- Offices

+ 1.9-11.5Total Portfolio

Of which like for like investment portfolio7

- 0.2-17.7Yield Impact & Other8

All Offices

All Retail

Capital Return (ungeared)6

Relative %

British Land %

+ 1.2 -14.4

+ 4.5-7.0

12 months to 31 March 20081

-1.7%All Retail

-3.1%Retail Warehouses

-0.5%Superstores

-0.8%Shopping Centres

-1.0%Department Stores

-3.8%High Street

-2.6%All Offices2

-3.2%City Offices2

-8.5%Provincial Offices2

+0.3%West End Offices2

Q41

-12.1%

-13.9%

-10.7%

-13.6%

-10.3%

-9.9%

-6.4%

-8.2%

+0.8%

-4.0%

Moving through to the valuations and it happens to be, as you know, that these valuations have come in ahead of most market forecasts. But I don't want to crow too much about that. Every quarter we will have values, some will be up, some will be down. It's just a snapshot in a difficult moment.

You can see in the year, as a whole, retail was marked down more than offices. But that's because we had six months of great rental growth in offices. So the yield shift was actually not dissimilar in the two segments.

You can see that in both retail and offices we have outperformed IPD by 2% in aggregate. And that was driven by rental growth where, again, in both segments we outperformed IPD.

In terms of the quality of this portfolio we have an initial yield on a topped up basis of 5.4%, 5.9% reversionary yield. I think representing very clear value for the security that you buy with these assets.


Improved Performance & Potential Reduced Gearing

Strengthened Balance Sheet Doubled Earnings/Dividend Support

Portfolio turnover of over 60%1 2005-8 improving risk-adjusted performance potentialLowered Office weighting from 50% in 2002 (end of last up-cycle) to 41%Capital growth of 3.9% pa over last 3 years outperforming IPD by 0.5% pa – driven by rental growth of 5.6% pa, also outperforming IPD by 1.8% pa

BL Prepared for a More Testing Environment

Strategic Actions ahead of Market Decline

EPS doubled 2005-8 to 53p (CAGR2 25% pa), improving

earnings yield without risk sacrifice

Over same period dividends increased 123% to 35p

(CAGR2 31% pa)

£7.4bn (gross) of asset sales 2005-8 (£5.9bn net),

reducing gearing from a peak of 59% LTV to 41% in

June 2007 before market decline (lowest level since

1995)

£4.9bn of refinancings 2005-8 reducing average interest

rate to 5.29% and improving interest cover to 1.8x

16

1 Sales & Purchases as a % of total portfolio at each year end2 Cumulative Average Growth Rate (CAGR)

Let's just delve back a couple of years to look at the actions that we took in anticipation of a market that was becoming steadily more expensive. And, in fact as those of you have been to prior presentations know, we talked about this a year ago and 18 months ago.

I guess we would put them into four boxes. The first, which we will do in all markets, is to work hard to have the best risk adjusted prospects in our properties. We've talked about £12billion of asset turnover. Strategically we've lowered our office weighting from its traditional position of over 50% to around 40%, in the City around 30%. And we have been outperforming IPD as a result of those efforts.

We also in the last three years have doubled the earnings support for our business, earnings per share have doubled and dividends have more than doubled. And again in difficult time's hard cash, hard earnings and the support and value they produce are invaluable. And that's a long term philosophy that British Land has had, which we've been able to take forward again in the last three years.

On the balance sheet side, I've already mentioned we took gearing to its lowest level in 12 years, having been at its highest level for the same period of time, at the peak of the market rise. We've strengthened the balance sheet qualitatively through refinancing everything. You saw that in the triple net asset value statistics - £500million in a sense of value added through our refinancing activities relative to where the market is today, with all the security and downside protection as well as opportunistic ability to exploit others weakness that that brings.


3.5

4.0

4.5

5.0

5.5

6.0

Apr-06 Oct-06 Apr-07 Oct-07 Apr-083.5

4.0

4.5

5.0

5.5

6.0

Apr-06 Oct-06 Apr-07 Oct-07 Apr-08Y

ield

(%)

5 year gilt 10 year gilt IPD Initial Yield

Global Investment Markets and Underlying Economic DriversGlobal market turmoil reduced asset prices due to

– Re-pricing of risk premia– Liquidity fears & deleveraging– Broader economic pressures

UK real estate prices have adjusted fastest as moretransparent and open; quicker to offer ‘value’ again

– Pricing now generally much more supportable– UK property underpinned by lease structure; asset life,

cash flow security and relative scarcity – Rational limits to re-pricing of cap rates apparent, however

markets have been known to overshoot in both directions1

– Increased signs of investor interest at these levels. Sentiment remains volatile

Timing and extent of price falls uncertain until broader picture clears, however:

– Gilt yields and swap rates down– Tentative signs from stock and bond markets of ‘worst

behind us’– But impact of economic slowdown and inflation

pressures still to be determined

Market Fundamentals

1 For instance, property derivatives market pricing in year-end total returns of -11.5% for calendar 2008 (capital growth -16.2%)2 DataStream, IPD

17

2 22

A couple of words on markets, but I'm afraid probably nothing new to say to you. We know that the investment market conditions have been difficult. There are tentative signs that things are improving on that front. There is more investor interest. We sold nearly £1billion in our fourth quarter alone at values that, on average, were equivalent to the December values. There are tentative signs in global financial markets of recovery setting in, not only financial institutions recapitalising themselves, but certain spreads coming down and the stock markets showing resilience.

But equally we are probably coming into the second phase of the downturn, of a spotlight on the real economy, a spotlight on the extent to which financial turmoil impacts a real economy and impacts our customers. And so while there are some encouraging signs it is also clear that the investment markets will give us bit more decline yet.


Occupier Markets – Rental GrowthLikelihood of near term rental growth slowdown (and negative in patches) as economy slowsIn turn, more void risk in secondary property and slower leasing of prime

… ButCorporate UK financially strong (margins & balance sheets) in aggregate Employment picture and growth prospects better than past downturnsUK a crowded island and ‘replacement cost’ of property rising fastPrime property significantly better positioned to capture customer demand

Therefore, rental growth slowdown a cyclical not a secular pricing event

Market Fundamentals

Long-term ERV Growth vs Inflation, Retail Sales & GDP1

18

2.5%2.9%3.6%2.9%20 yr average pa

GDPHouseholdSpending

RPIERV

-15

-10

-5

0

5

10

15

20

25

1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

Gro

wth

(% p

a)

All Property ERV Growth RPIHousehold Spending GDP

1 IPD, PMA

In terms of occupier markets, again, as I said the spotlight is on these, and the jury remains out as to the extent of the impact. Of course, huge stories of doom and gloom in the City, I am very, very pleased to see all of you gainfully employed here today. And that's encouraging, and nice that you are occupying our buildings as well as those of others. And long may that continue.

It's also though, important to note, in terms of people focusing on the City, that if you want to be a doom merchant you pick me a sector that you can be optimistic about. Of course, you can be negative about all sorts of things. Is consumer spending going to be great? Is the residential market going to be great? Is industrial going to be great?

One shouldn't over emphasise, I think, any one sector, because all sectors are impacted by the economy. And it's for that reason that we don't put all our eggs in any one single basket.

But it's equally important to note that corporate UK is strong, it's not leveraged. The employment picture is quite different than in previous downturns. The replacement cost of property is rising very fast in terms of construction cost. And it is, therefore, my contention to you that what we are seeing is a cyclical slowdown of rental growth, not some secular move. And, therefore, to the extent that that slowdown is properly reflected in property prices it should be reflected for the few years in which it takes place, rather than the whole length of a discounted cash flow.


19

Fair value becoming apparent

+ ++ gearing, development & asset management

-- expenses & depreciation

?

8.7%Asset Total

Company Total (i.e. Equity)

2.5%Market Rental Growth5

6.2%Market Equivalent Yield4

Return Prospects – Property (at NAV)1 Return Prospects - UK Equities1

9.9%Total

6.0%Dividend Growth7

3.9%Dividend Yield6

Return Prospects – Indexed Gilts1

4.6%Total

3.6%Growth Prospects3

1.0%Yield2

1 This is not a forecast and is for illustrative purposes only, with no change in required returns assumed (no yield shift)

2 20 year Indexed Gilt3 As implied from 20 year Inflation Swap Rate4 IPD Quarterly Index to March 2008 All Property Net Nominal

Equivalent Yield

5 PMA Spring 2008 forecast average ERV growth pa (next 10 years)6 FTSE 100 Dividend Yield7 Morgan Stanley long-term dividend growth forecast

Market Fundamentals

Fundamentals Count Eventually

And I think there is a very, very big difference between those two approaches. Economic slowdowns do not last forever. And the fundamentals count. Eventually they may not count in terms of short term sentiment swings.

But if you get less than 5% earning Government Bonds, if you have all the uncertainty of the equity markets giving you dividend yields of under 4%, and maybe returns of under 10%. To have an IPD index yielding over 6%, the prospect of rental growth, even if its below inflation over a number of years, averaging 2.5% as would be an average of long term forecast. Property returns, before you get to any out-performance, before you get to the impact of gearing, look like they provide fundamentals that when the world is ready again to look at fundamentals will put us in good stead.

So let me now pass to Andrew then Tim and I'll come back at the end, thank you.


RetailAndrew Jones

Head of Retail

Good morning.


Assets positioned to reflect customer demand

– 80% located Out of Town- 90% with Open A1 use2

Value added strengths– Favourable rental outlook for

chosen sub-sectors– Out of Town rent £20 psf3

- ERV £23 psf3– Active asset management

focused on customer demand

Defensive prime portfolio– High occupancy of 99.1%4

– Average lease 16 years– Gross initial yield 5.2%5;

5.4% net equivalent yield– 14% reversionary– 14% subject to fixed uplifts

1 Properties owned and managed2 Including Open Restricted3 Average of retail warehouses and superstores4 Underlying retail occupancy rate including accommodation subject to asset management and under offer5 Gross yield (adding back rent frees and contracted rental uplifts)

20

57% Retail – 80% Out of Town

£11.5bn1 – Leadership in Retail (BL Share £7.7bn)

2005 2008In Town Retail (£1.6bn)Meadowhall (£1.5bn) Superstores (£1.3bn) Retail Warehouses – Bulky (£0.6bn)Retail Warehouses – Open A1 (£2.7bn)

British Land Retail Assets

17%

23%

21%

32%

36%

17%

19%

20%

8%

7%

As Stephen says I will take you through now the retail portfolio within British Land. And despite some material disposals over the period we've maintained a leadership position within the retail property market, with representation across all the main retail subsectors.

We still believe that the demand and supply dynamics favour the Open A1 Out of Town retail parks and superstore subsectors. And as a result, and as you can see before you, these now account for a higher proportion of our retail portfolio.

Following some material sales we've reduced our In Town portfolio, including our shopping centres to only 20% of the portfolio. However, property specifics will have resulted in sales from all sectors as the portfolio repositioning continues.

As well as offering attractive asset management and good reversionary potential, the portfolio has retained its defensive quality. High occupancy, long average leases, attractive fixed uplifts. And this is in stark contrast to many others in the property index.


Retail Strategy & ActivityContinued to reposition portfolio with £2.2bn (19% of portfolio) of sales of assets with weaker asset management and rental growth prospects (£752m in Q4)

– £682m ‘top slicing’ superstores (Sainsbury’s JV and 3 further sales)

– £538m further In Town sales (East Kilbride Shopping Centre & 16 shops)

– £449m reducing exposure to highly rented parks (Fort Kinnaird, Speke)

– £307m non core disposals (17 primarily bulky & solus retail warehouses)

– £237m disposals of European retail parks (41% share of Murcia and 7 retail parks)

Actively managing assets to enhance retailer mix, driving rental growth– 1.1m sq ft of retail park lettings at 10% above ERV, plus further 400,000 sq ft under offer

– 450,000 sq ft of lettings at shopping centres – over 240,000 sq ft at Meadowhall including

new flagship Topshop, New Look & Sportsworld

– 171 rent reviews agreed at a 24% uplift on previous passing rent and 4.6% above ERV

– 7.1% like for like income growth (IPD 3.5%), led by retail warehouses 11.0%

– 2.9% ERV growth compared to IPD 2.1% (Q4 0.9% vs IPD 0.5%) led by Open A1 retail parks (3.8%)

Retail Asset Management

21

Strategy based on 4 themes

Concentration on supply/demand imbalances

– Bias to ‘Open A1’Out of Town Retail

Customer led strategy –increasing focus on unit size & flexibility

Active asset management to enhance retailer mix and drive rental growth

Active recycling of capital toward growth assets

Moving on to our strategy, and as you've already seen from Stephen and Graham, we've continued to reposition the portfolio. Over the period we have sold £2.2billion of assets out of the retail portfolio. This is by and large being those properties where we believe the prospects for rental growth are weakest. And as you can see they have covered all the main subsectors of the retail market.

We've reduced our superstore portfolio with the joint venture tie up with Sainsbury's. We've made further disposals within the In Town portfolio, as well as reducing our exposure to some of the highly rented shopping parks.

These sales represent a significant achievement within what has been a thinning market, and the figures that we've achieved over this period would be a real challenge to obtain again today.

The repositioning is ongoing, and despite a very difficult market we are already pregnant with further sales, which we obviously hope to conclude over the coming few months.

Turning now to our asset management activity, our occupier led strategy continues to dictate the buy, hold and sell policy. ERV growth and strong income stream are the pertinent issue in setting capital values in this market. Our activist approach has continued to yield benefits.

Over the period we've let over 1million square feet of space within our retail park portfolio, and nearly 450,000 square feet within the shopping centres, nearly 250,000 square feet at Meadowhall, including new flagship stores at Topshop, New Look and Sportsworld. This has increased the rental income at Meadowhall by nearly 6%, and the ERVs by nearly 3%.

And as you can see we have successfully captured the reversions by settling over 170 rent reviews across the portfolio. All of this activity has helped us deliver like for like income increases of over 7% and over 11% within the retail warehouse portfolio.


Capital Return -14.4%, ERV Growth 2.9%

4.9 (+71bp)5.2 (+95bp)2.33.8-17.3-15.9- Open A1/Fashion Park

5.7 (+113bp)5.9 (+124bp)1.12.9-19.4-19.5- Bulky/Non-fashion Park

5.7 (+105bp)5.7 (+128bp)1.42.2-18.2-19.9- Solus/Other

5.8 (+107bp)

5.7 (+95bp)3

6.3 (+104bp)

N/A3

5.6 (+106bp)

IPD%

2.9

0.0

3.6

2.7

3.6

British Land %

ERV Growth2

2.1

2.13

2.9

N/A3

1.5

IPD %

5.4 (+88bp)

5.9 (+90bp)

5.4 (+70bp)

5.2 (+87bp)

5.3 (+100bp)

British Land %

Equivalent Yield (bp movement2)

-18.9-16.6Retail Warehouses

Capital Return1

IPD %

British Land %

-15.5

-13.83

-12.1

N/A3

-14.4

-14.1

-11.4

-13.9Superstores

High Street

All Retail

Shopping Centres

Retail Performance

22

1 IPD Capital Return differs from BL Valuation Uplift as based on average capital employed and excludes capitalised interest and Europe2 Standing investments like for like, IPD basis (excluding Europe) 3 IPD includes Superstores in High Street as there is no separate benchmark for SuperstoresSource: IPD - British Land vs IPD for 12 months to 31 March 2008

Turning now to the capital return and the ERV numbers, we've seen a fall in value of the portfolio of nearly 14.5% despite ERV growth of nearly 3%. At an absolute level these are obviously disappointing numbers. However, relatively they are ahead of our benchmark, particularly at the ERV level.

Again, this was driven by our retail warehouse portfolio, delivering rental growth of over 3.5%, and goes to prove that not all retail warehouses are the same. The weaker fundamentals of the bulky goods market have little relevance to the Open A1 shopping parks that we hold.

Obviously the main contributor of the negative capital return has been the outward movement in the capitalisation rates, where retail warehousing has seen the greatest outward yield movement both in absolute and in percentage terms.

We've also witnessed material outward yield movement across the other retail sectors of between 45 and 180 basis points, including 65 basis points at Meadowhall, which now has an equivalent yield of just over 5.25%.

As I said in November we are keen to ensure that our valuations are mark to market as far as possible. As Stephen has said we've already tested these numbers with our sales activity in the investment market. And have proved that we are closer to the trading zone than many, particularly given the level of our activity in the most recent quarters.


Outlook – Investment Market Outward yield shift continues, albeit with increased activity

– Uncertainty still high. Debt availability a key issue

– Transactions driven by high net worth & special purchasers, some evidence of Funds returning to the market

Initial yields more pertinent as investors focus on income certainty

Retail warehouse yields ‘hit hard’, even ‘Open A1’ despite better rental growth prospects

Adequate risk premium not yet re-established for secondary, however expect market to eventually price relative prospects anddownside risk (e.g. impending expiries and tenant defaults)

– Some evidence emerging of secondary yields moving out further (6½ - 6¾% vs Prime 5¼ - 5½%)

Prime not immune, just better placed

– Stronger occupational demand, better trading, stronger covenants, higher occupancy and longer leases

Market re-pricing may provide some profitable opportunities – but most asset specific rather than sector specific

Retail Market Outlook

23

96.4%

13.2 yrs

British Land

Shopping CentresRetail Warehouses

92.7%96.4%96.9%Occupancy rate3

10.6 yrs12.9 yrs14.5 yrsAverage lease length2

IPDIPD British Land

British Land: Higher Occupancy and Longer Leases

1 PMA Spring 2008 (from end 2007)2 To expiry (comparable to IPD)3 Overall excluding accommodation subject to asset management and under offer (comparable to IPD)

0

1

2

3

4

Retail Parks Superstores Solus Units ShoppingCentres

High StreetShopsER

V G

row

th %

pa

(nex

t 5 y

rs) Rental Growth continues to favour Out of Town1

Average

Looking now at the outlook for the investment market, the uncertainty in the financial market is continuing to impact property market pricing, and fuelling continued outward yield shift. But whilst we have moved slightly away from the buyers strike environment of late last year, our activity levels are slowly increasing. Uncertainty is still very high not only as equity but also debt availability become key issues.

The market activity is still very much focused around high net worth individuals, special purchases with some limited activity from opportunity funds. Initial yields remain the key factor in asset pricing, and as a result there seems little discrimination between prime and secondary pricing, although more evidence is emerging of further outward shift in secondary yields.

Therefore, whilst prime is not proving to be immune to property re-pricing, it still feels like a better place to be, particularly when the property fundamentals of secondary property become fully reflected in the capitalization rates. This may lead, as Stephen has already alluded, to some profitable opportunities. But these I suspect will be asset specific rather than sector specific.


-2-101234567

Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08month on month % change year on year % change

Outlook – Occupier Market

Retail Market Outlook

1 CEBR2 IPD, CCRE and Verdict

24

In Town at greater risk to competition from new supply2

Retail Sales Positive but Under Pressure1Retail sales likely to come under pressure over the near-term– Competitive trading environment with retailer performance

mixed (e.g. + Food & Entertainment, - DIY, Furniture & Electricals)

Open A1 Out of Town not immune to more challengingconditions but expected to outperform after difficult 2008,reflecting relative supply/demand fundamentals:

– Continued diversion of sales from High Street and ‘new concepts’

– Lower occupational costs and better floor plates– Greater asset management opportunities– But increasing polarisation of rental growth prospects

between prime Open A1 and bulky/solus sub-sectorsBulky/solus retail warehousing experiencing weaker demand –operators ‘right-sizing’ and some failures Demand thinner ‘in town’ coupled with larger incentives, lease expiries, increasing new space, weaker covenants, higher voidsGoing forward, outperformance requires asset specificpositioning to reflect customer demand and assetmanagement potential for delivering ERV growth

Gro

wth

(%)

2.4

1.6

0.6

8.4

2.2

5.9

2012

4.30.70.60.70.7Lease expiries (m sq ft)

10.32.51.51.52.6Lease expiries (m sq ft)

Retail Warehouses

Shopping Centres22.34.04.16.51.8Lease expiries (% of rent)

44.313.010.64.28.1Development (m sq ft)

2.6

0.7

2010

1.3

0.7

2011

9.91.42.2Development (m sq ft)

3.10.80.3Lease expiries (% of rent)

Total20092008UK Market

Turning now to the occupier market, retail sales are still positive. But they are showing a downward trend as higher mortgage rates and reduced equity withdrawal take hold. Therefore, not surprisingly we are seeing some winners and some losers. The winners in food, entertainment and some fashion retailers, with the losers in the DIY, furniture and electrical sectors.

Over the period we have let over 1.5million square feet of space, covering 143 new lettings with key deals to Marks & Spencer's, New Look, Asda and Arcadia.

On the Open A1 Out of Town portfolio we are still seeing good demand, as migration continues. And whilst headline rents are rising there is some evidence emerging that incentives are also on the increase.

However, surrender premiums remain high, which on one hand makes asset management initiatives less profitable. But on the other hand indicates the underlying profitability of stores within our portfolio.

The bulky goods subsector is characterised by much weaker demand, rising supply as retailers continue to downsize. And the market experiences some tenant failures with few new entrants. Rent's, therefore, are at best flat.

Shopping centre demand for large floor plates remains good. But depth of demand for standard shop units is thinning. And this is the area, as you can see from the chart on your bottom right, is that most exposed to impending lease expiries over the next few years. As you can see, 22% of shopping centre rents are due to expire over the next five years. As a result many developments will find it very challenging to open at more than 80% let. And the last 10% to 20% of new development space could prove to be expensive to get away.


Summary

Materially reduced our exposure to weaker income growth sectors& assets (In Town retail & Out of Town bulky goods) through sales

Consciously stayed away from long cycle shopping centre developmentgiven concerns over space supply and financial risk/reward ratio

Believe that relative income growth & security not yet properly pricedby investment market

Looking forward will continue to implement occupier led strategy andaim to improve capital values by strengthening income streams andincreasing ERVs through active asset management and short cycledevelopments

Whilst in the short term, this is unlikely to off-set continued outward yield shift, it will help mitigate its impact and leave us better positioned for positive performance, once the yield shifthas subsided

Retail Portfolio & Market Outlook

25

So in summary we've made some very material disposals to reduce and reposition the retail portfolio, and as a result have materially reduced our exposure to In Town retail and bulky goods occupiers. We've consciously stayed away from long cycle shopping centre development, where we have concerns over excessive supply with not enough retailers to go around.

Looking forward we will continue to implement the occupier led strategy to try and strengthen our income stream and grow our rents. Whilst in the short term, on an absolute level, this is unlikely to offset the outward yield shift. However, it will mitigate it, and certainly position us for a better position once the yield shift has subsided.

And on that note I'll hand over to Tim.


OfficesTim RobertsHead of Offices

Good morning everybody.


Managing office cycles– £2.7bn of disposals (gross)

– 83% City– £1.2bn net divestment 2005-81

– City reduced to 77% – West End increased to 21%

Defensive prime portfolio– High occupancy of 99.7%2

– Average lease over 11 years – Gross initial yield 5.6%3;

5.8% net equivalent yield– 9% reversionary4

Value added strengths– £45 psf average London rent5

- Headline ERV now £51 psf– Customer focused development

programme– Continuing intensification of

asset management and focus on customer demand

1 BL Sales (net) £2.2bn, Purchases (net) £0.3bn and development expenditure (net) £0.7bn 2 Underlying office occupancy rate including accommodation subject to asset management and under offer3 Gross yield (adding back rent frees and contracted rental uplifts)4 Excluding rent free periods5 Average contracted passing rent (post expiry of rent free periods) 6 Developments classified by end use

26

41% Offices – 98% London

£5.5bn – Leadership in London Offices

-1.8-1.5-1.2-0.9-0.6-0.30.00.30.6

2006 2007 2008

Asse

t Tur

nove

r (£b

n)

City West End Provincial

£3bn Asset Turnover (gross) since 2005

British Land Office Portfolio6

West End

City 77%

21%

So I am going to talk you through the office portfolio. We've managed our investment during the office cycle by carrying out £2.7billion of sales over the last three years - 83% of those sales have been in the City.

If you take into account the effect of purchases and also development expenditure, that means that we have made a net disinvestment of £1.2billion.

The pie chart shows the office portfolio split by subsector, including development classified by end use. The sales have enabled us to reduce our City holdings, and also increase our holdings in the West End. The reshaping of the portfolio leaves us relatively well placed.

We have high occupancy rates, and a weighted average lease length of over 11 years. The portfolio is valued off sensible initial yields that are not dependant on a large reversion. In the medium term, I believe, that we will get rental growth off the average rent passing of £45 per square foot, and the average headline ERV of £51 per square foot.


Net seller with £828m disposals at average NEY1 of 5.0% (NIY1 3.1%) – 3.9% above March 2007 valuation

– Includes sales of One Exchange Square (EBRD), Ludgate West and Plantation Place South– Reduced City office weighting in portfolio to 32% currently from 40% in 2002 (end of last

up-cycle), achieved through £2.7bn of sales 2005-8

Record rents achieved at Broadgate, Regent’s Place and York House

1.1m sq ft of lettings/lease regears2 proving rental growth– 36,000 sq ft under offer at 201 Bishopsgate– Reed Smith taking additional 13,000 sq ft of option space at Broadgate Tower –

now 39% pre-let– 38,000 sq ft at 155 Bishopsgate let at new high of £57.50 psf on existing Estate.

£62.50 psf achieved on higher levels of Broadgate Tower– York House now fully let with last space agreed at £79 psf– 7,000 sq ft let at 338 Euston Road at £61 psf following refurbishment (22% increase on

previous high rent at Regent’s Place)– 340,000 sq ft lease re-gear at Euston Tower with Government extending lease term to

Dec 2022 and increasing rent by 43% to £32.50 psf with fixed 5 yearly uplifts

Over 1m sq ft of rent reviews agreed at 11% increase to rent – 1,2,3 Finsbury Avenue (450,000 sq ft) rent review and lease restructuring agreed post year

end to show £1.8m pa uplift (equivalent to £4 psf)– Over 320,000 sq ft of rent reviews agreed at Regent’s Place at average rent of c.£47 psf,

16% above ERV

Office Asset Management

27

Strategy based on 5 themes

Concentration on supply/demand imbalances

– Focus on London offices

Customer focus – providing space to meet service industry growth

Pro-active management to tailor assets to occupier needs

Active recycling of capital

Leverage demand via development, carefully assessing business cycle

Office Strategy & Activity

1 Net Equivalent Yield (NEY), Net Initial Yield (NIY)2 Including development pre-lets

So let's have a look at what we've been doing over the year in terms of trying to create activity and performance. First of all we've been a net seller with around £830million of disposals on average 3.9% above the March valuation. In terms of pricing, volume and timing this is no mean achievement, and in a market where on average property prices have been falling by, let's say, up to 15%, it's actually added to our performance.

We've carried out 1.1million square feet of lettings and lease re-gears, in particular filling up the near term development programme. I am pleased to say that the 36,000 square feet at 201 Bishopsgate, we actually exchanged contracts last night. So that's a deal done and 201 is now 84% let.

On The Broadgate Tower, Reed Smith have taken up their option for an additional floor. And again last night we've put yet another floor under offer to them. So essentially Broadgate Tower will be over 40% pre-let.

On 338 Euston Road, we've let a floor there of 7,000 square feet. But importantly it's at £61 per square foot - 22% higher than the previous high achieved at Regent's Place.

At Regent's Place also we've profitably re-geared the lease on Euston Tower with the Government. We've got a marginally longer lease, but crucially we've got now fixed five yearly uplifts on a building that previously had a very awkward rent review clause based on a 1970's building specification. And in essence what we've done is we've swapped a serial underperformer with a property that is going to have a strong and increasing cash flow.

Finally we've agreed 1million square feet of rent reviews, showing an 11% increase on the rent passing. And this total includes a package deal on rent reviews that was agreed post year-end with UBS.


Development Programme De-risking and realising profit from development

745,000 sq ft completed generating £145m profit on cost550,000 sq ft of pre-lettings – 70% of projects withcompletions in 2007/8 pre-let or sold62% of future construction contracts already placed

Continued progress in yearIncluding Broadgate Tower (to complete Q3 2008), 300,000 sq ft4 available to let in City – 5% of officeportfolioRopemaker & Osnaburgh Street on schedule for completion in mid 2009Resolution to grant planning obtained for 501,000 sq ft of offices/residential at NE Quadrant, Regent’s Place

Office developments valuationBase case unbooked profit of £470m remaining at anaverage exit yield of 5.44%6.7% average development yield£49 psf average headline break-even rent for 2008/9deliveries

London Office Development

28

6.7

6.8

6.8

7.0

6.2

DevelopmentYield1

%

32 mths

32 mths

24 mths

39 mths

31 mths

Assumed Income

Void2

62%

26%3

70%

89%

100%

% ofCosts

Placed

Q3 2011

Q3 2009

Q3 2009

Q3 2008

PC

612The LeadenhallBuilding

490Osnaburgh Street

2,088Total

586

400

‘000

sq ft

The Broadgate Tower

Ropemaker

1 Yield on current valuation plus costs to complete, notional interest to PC and assumed tenant incentives2 Valuers ’assumed combined letting void and tenant incentive package3 Contracts agreed but not yet signed take % of costs placed/tendered to 78% 4 Excluding 36,000 sq ft under offer at 201 Bishopsgate and 13,000 sq ft under offer at Broadgate Tower

To the development program first. We've completed 745,000 square feet of developments this year, generating a profit of £145million on cost. Crucially 70% of the projects completed towards the end of 2007 and so far in 2008 are pre-let or pre-sold.

The next project due to be completed is in the summer and that's Broadgate Tower, which will provide 33 stories of absolutely stunning accommodation. Despite the slowdown in the occupier market I remain relatively upbeat about the letting prospects for this building. Our marketing strategy, having anchored the Tower with Reed Smith, will be to let the floors on a floor by floor basis. And the floors are 13,000 square feet in size.

On Ropemaker & Osnaburgh Street they are due to complete next year, offering good quality buildings split equally between the City and the West End. In the City where we anticipate that it will be tight competition to attract occupiers, you can see that our valuers have assumed that Ropemaker will not be income producing for 39 months. After taking this into account and the income void it will show a return on book value plus cost to completion of 7%.

I am also pleased to say that we've got planning on NEQ, and that's going to help us going forward in terms of having a more balanced portfolio between the West End and the City.

Our committed and prospective office developments still show an unbooked profit of £470million, assuming an average exit yield of nearly 5.5%. And looking at it more defensively we have to achieve an average headline rent of GBP49 per square foot for our 2008 and 2009 deliveries to break even. And that includes a 31 month income void.


Office Performance

29

1 IPD Capital Return differs from BL Valuation Uplift as based on average capital employed and excludes capitalised interest 2 Standing investments like for like, IPD basisSource: IPD - British Land vs IPD for 12 months to 31 March 2008

Capital Return -7.0%, ERV Growth 11.6%

11.6

-0.3

25.8

8.2

British Land %

ERV Growth2

7.9

3.1

15.7

9.4

IPD%

6.4 (+117bp)

6.9 (+116bp)

6.0 (+129bp)

6.1 (+117bp)

IPD%

5.8 (+95bp)

6.3 (+111bp)

5.7 (+82bp)

5.8 (+99bp)

British Land %

Equivalent Yield (bp movement)2Capital Return1

IPD%

British Land %

-11.0

-10.0

-7.1

-11.1

-7.0

-11.2

1.7

-8.7City

Provincial Offices

All Offices

West End

So, what does all that activity mean in terms of the performance? On a capital return basis we've outperformed in all the main subsectors and at an all office level by 400 basis points. Now under normal circumstances I'd be absolutely thrilled with that level of our performance. But clearly the absolute returns are poor.

Our weighting in London has helped us, especially with the ERV growth. And there we've outperformed the all offices by 370 basis points. Whilst in the medium term I believe that London is the place to be. In the short term our London weighting is unlikely to be so helpful with us for -- on our performance and our ERV growth.

The bright spot on this slide is the West End, which is the only subsector in the whole portfolio to have actually shown a positive capital return over 12 months. And the key driver was the performance of Regent's Place and the rental growth. If you look at the rental growth we've beaten IPD by nearly 10%, 25% rental growth over the year. A good proportion of the ERV growth has been locked in. We've settled some good rent reviews, about 320,000 square feet of good rent reviews at Regent's Place, and, also, we've re-geared the Euston Tower lease.

You can see that the yields have moved out by 1%, and that leads me to look at the investment market.


Outlook – Investment Market

London Office Market Outlook

1 Jones Lang LaSalle2 CEBR April 2008 (City & Business Services jobs)3 PMA (Spring 2008)4 To expiry (comparable to IPD)5 Overall excluding accommodation subject to asset management and under offer (comparable to IPD) 6 Gross yield (adding back rent frees and contracted rental uplifts)

30

Prime yields moved out c.100 bps, reflecting increased riskpremia across most assets

Level of yields now depends primarily on outlook foroccupier markets and state of credit markets

– Secondary assets most at risk

Investment activity improved in Q1 2008 following poorQ4 2007 - prime yields currently at 5.5%1 City and 5%1

West End

Significant amounts of capital still looking to invest

Medium term demand drivers remain positive due to London’s competitive advantages as a globalfinancial and services centre

– F&BS output likely to outstrip GDP– F&BS employment expected to fall by c.26,000 (2%)

in 2008/9 and then grow by c.3% pa 2009 to 20122

BL Offices offer relatively strong income securitywith top-up initial yield6 City 5.8%; West End 5.2%

96.4%

14.0 yrs

British Land

West EndCity

91.9%90.2%99.5%Occupancy rate5

8.7 yrs9.8 yrs13.4 yrsAverage lease length4

IPDIPD British Land

British Land: Higher Occupancy and Longer Leases

0

1

2

3

4

5

6

2001 2003 2005 2007 2009 2011

Gro

wth

(% p

a)

F&BS Output UK GDP

F&BS Output expected to outperform UK GDP3

The main determinant on yields going forward is likely to be the state of the occupier and credit markets. Although we have seen significant yield correction, yields still remain vulnerable. Secondary assets that have got no occupier appeal or don't offer great security of income are most at risk.

On a more positive note, the investment activity in quarter one has picked up, plus there are significant pools of capital considering investing in London. I've travelled to Canada and Germany recently to see investors, I've also seen American and Middle Eastern investors, and many of them are looking at investing in London. Many see the sharp increases in yields as a sign to start looking for opportunities in London again. And, basically, they share my belief that in the medium-term financial and business service output will outperform. And because of London's competitive advantage, over the next year or two, employment will, again, be set to grow and that'll fuel demand.

In the meantime, through this period, our office portfolio offers relatively strong security of income. You can see on the table, if you look at it both from an occupational perspective, we're pretty fully occupied, and also, in terms of weighted average lease length, we compare very favourably in the City and the West End in relation to IPD.


London Office Market Outlook

31

Outlook – Occupier MarketVacancy rates set to increase, but from a very low level

– City 4.3% (Grade A 2.6%) vs 10 yr average 7.5%1

– West End 3.5% (Grade A 2.6%) vs 10 yr average 5.2%1

Will increase due to development completions, but different from 2002/3 as majority of customers at full occupancy and therefore limited tenant releases anticipated

City take up resilient in Q1 2008 (1.3m sq ft)1 and although demand weakened, still reasonable level of enquiries

Outlook for 2010 onwards more encouraging– Forecast pick up in City type jobs– Development pipeline likely to significantly reduce

West End supply more limited, however affordability will become an issue for some occupiers

– Core West End rents now at high of 2.0 times fringe West End and 1.7 times City rents

BL existing portfolio well let with high occupancy. 2008 developments 57% let and 2009 deliveries split between City and West End

1 Jones Lang LaSalle2 CEBR 3 CBRE4 Average gross take up (last 10 years)

0

1

2

3

4

5

6

2007 2008 2009 2010 2011 2012

mill

ion

sq ft

Q2 2007 Q3 2007 Q1 2008

City Development Pipeline further reduced (Pre-let & Spec)3

London employment growth expected to resume in 20102

AverageTake Up4

Average Grade A Take Up4

275

300

325

350

375

01 03 05 07 09 11

Num

ber (

'000

)

700

800

900

1,000

1,100

1,200

01 03 05 07 09 11

Financial Business Services

+23

-19

+134

-7

Now, I'm going to finish off with a look at the occupier market. Vacancy rates will rise, but the good news is that across London they're starting from pretty low points. You can see that they're well below the 10 year average. But rise they will at a time of slowing demand and completed developments, especially in the City, will add to supply over the next year or two.

But in contrast to 2002/3, occupiers have not taken excess accommodation in response to ambitious growth plans. The majority of our customers, when I speak to them, are fully occupied in their space, and I believe that this is pretty reflective of the market as a whole. So, therefore, the threat of surplus supply being released by tenants, to the same extent as it was in 2002/3, is very low.

Also, take-up at 1.3million square feet in the first quarter was pretty resilient, and although occupiers are definitely taking a lot longer to make decisions, there's still a reasonable amount of demand and levels of enquiries out there. It's not all doom and gloom. But we're still seeing letting incentives increase throughout the capital, and there are the first signs in the City of headline rents also softening.

From 2010 the outlook for the City is more encouraging. I showed you all a graph last September of the development pipeline, and in quarter three the amount of accommodation that was forecast to complete in the back end of this decade and the first part of the next decade is predicted to drop by 33%. Now, I've updated that graph, and because of strong building costs inflation, because of the weak level of availability of finance, the cost of finance, also because of weakening investment markets, and weakening occupier markets, even more schemes are being postponed or reconsidered as simply they're not close to being viable. The lower dotted line on the graph shows the long-term average Grade A take-up, and it averages just over 2 million square feet. And you can see in the new quarter one 2008 forecasts that in 2010, 11, and 12 the forecast supply is below that dotted line. My view is that we will have a difficult 18 months or so in the City, and thereafter the market will become more balanced.

As far as the West End is concerned, new speculative development has picked up. It's running at about 3 million square feet at the moment, and affordability of rent, at £100 per square foot plus for Core West End, may reduce demand with some occupiers looking to relocate. There are already signs of increasing incentives marginally, and we are likely to see a pause in the inexorable rise that we've seen in headline rental growth in the West End. And I also think that on some of the buildings that are being marketed at the moment, where probably people have been asking overly ambitious asking terms, you will also see some of those asking levels come down.


Summary

Short term, market conditions will be challenging

Securely positioned to ride out cycle– Well let, prime portfolio

– Anticipated cycle with significant sales, boosting performance

– Long leases and strong occupancy levels

– Development programme in near term substantially let and high

visibility of construction costs

– Remaining developments highly specified and flexible buildings,

with valuers’ assumed income void averaging 32 months

Over medium term, we remain positive due to London’s competitive advantages as a global financial and services centre

London Office Portfolio & Market Outlook

32

So to summarise, whilst I am cautious about the short-term outlook, we have a well let prime portfolio. We have, in parts, anticipated this cycle and we've carried out sales that have boosted our performance. Our development program, in the near term, is substantially let, and there's good visibility on cost completion. And the quality of our remaining developments, plus the income voids that have been lagged, give us the product and time to attract occupiers. I, therefore, remain convinced that despite the downturn at the moment we are sowing the seeds for a more balanced London office market in the future.

And on that note, I'll pass you back to Stephen.


SummaryStephen Hester

Chief Executive

Thank you Tim.


Declines driven by broader global market and economic issues

– Need these to work through

UK pricing much more supportable than before. Investor interest increasing

Some further decline likely in current year – Availability of finance and occupier

resilience in the spotlight

“Tin hats on”, well prepared to ride out the cycle

Actively continue to capture asset specific performance and adjust mix

Careful focus on preserving and enhancing future upside

Capacity to make opportunistic additions if cheap enough

Long-term activist strategy remains in place

Markets British Land

Summary

33

So Where Are We …

Let me just finish with two quick slides, trying to, in a sense, sum up our view of where we are.

Obviously, the decline in commercial property values has been driven by broader global market and economic declines, and for that reason we have to have greater clarity in where those broader issues are being resolved. And that needs to be worked through before one can call the end in terms of the decline in commercial property markets. Nevertheless, U.K. pricing is much more supportable than before already, and investor interest is increasing.

We do believe that there will be some further decline in the current year, and you've seen that in IPD in April as well, and, clearly, the two things in the spotlight in that regard are the availability of finance for those who need it on the investment side, and the level of occupier resilience across the different segments.

With respect to British Land, again, as I said at the opening, in a sense we're facing two waves. We've got our tin hats on, and I have to give thanks and name check, I think, to our friends at HSBC for that phrase, although I suspect it was invented rather earlier than that during the Second World War, if not before. We are well prepared to ride out this cycle, and we are very busy to actively continue to manipulate and work our portfolio to capture asset specific performance, and to adjust our mix into changing market conditions.


Exceptional cash flow resilience– Average lease length 15 years– Occupancy rate 99%1

– Prime property in prime locations

Balance sheet strong– Interest cost 100% fixed rate– Lowest cost of debt (5.29%)– £2.4bn committed undrawn facilities– Gearing reduced from 59% to 41% LTV

before market decline

Customer driven potential– Outperformance on rental growth– Overweight strong customer markets– Sector balancing to optimise cross-cycle

performance

Development

Active asset management

£7.4bn asset sales since March 2005 to weed out underperformers

Deal-doing capacity when merited

‘Defensive’ Strengths ‘Value Added’ Strengths

Summary

34

1 Underlying occupancy rate including accommodation subject to asset management and under offer

With Good Upside Potential

British Land – Prime Property, Strong Customers, Long Leases, High Occupancy and Strong Balance Sheet

We, at the same time as trying to protect today, have a very careful focus on preserving and enhancing future upside, both within our business as it stands today and with the capacity to make opportunistic additions if they are cheap enough. Our strategy remains in place. And the essence of British Land, we hope and believe, is, indeed, prime property, strong customers, long leases, high occupancy, a strong balance sheet, with good upside potential.

So thank you for listening. We are very happy to now take questions.

QUESTIONS AND ANSWERS

Martin Allen, Morgan StanleyCould you tell us what the average ERV, your valuers assume for Ropemaker Place and the Leadenhall building?

Tim Roberts, British Land - Head of OfficesThe average for Ropemaker Place is in the mid 50s [£ per square foot], and the average for Leadenhall is in the 60s.

Harm Meijer, JP Morgan Good morning. I thought the Chairman's statement was actually quite interesting, some punchy statements in there as well. Reading through the lines, I think, first of all, share price over sold. Number two, private markets may correct the situation in the public market at one stage. What do you think in general about the share price, and is something happening in general, the private markets to public markets, what we actually all should know at this stage?

Stephen Hester, British Land – Chief ExecutiveI think with respect to the comments on the share price, it is our view that the share price discounts a property outcome worse than is likely, but there's no point losing sleep over that. No one can prove that one way or the other, and we can't prove it. It's to do with crystal ball gazing as to where the world economy goes, and so all we can is get on with life, produce the best performance we can. And if we're right, at some point there'll be a very sharp correction of that, and, indeed, other share prices in the sector, and so I think that would be our position on it. We're not complaining, we're not moaning, we understand why investors are uncertain, and we can see those uncertainties ourselves, so we're getting on with the business.

With respect to the common and private market, I think that what we try to do, and what the Chairman is particularly engaged in, is being thoughtful about our industry and the position of different players, and whether the REITs model is working, the public market is working, and what's been causing the broader economic declines. And that letter contains a number of, if you like, issues and thought pieces of which you've just picked out one. And I believe it is actually emetic that if public, and we've seen many times over past years, that if public market get things wrong for long enough there's a corrective which finance is given to us. That said, the paragraph that you're quoting from also goes on to say that, interestingly, one of the things that is most in question at the moment is not the public market model of ownership, its the private market model of ownership, the lack of transparency and the lack of liquidity. Whether you apply that to CDOs, CDOsmade up of sub-prime mortgages, which, of course, is where the whole thing started, or whether you apply that to property funds that have gone no bid and no exit.

And so it is actually in contrast to, I think, the inference you were trying to read. It's actually our conclusion that the public market of real estate ownership, the public model, with the transparency, with the management discipline, with the liquidity that offers, is a model that will endure and flourish in the future. And when people look back at, if you like, the implications, I think you will see that reinforced. And in another way, you can see that in our share register, which is more than 50% international, as many people around the world in wanting to play UK property, are choosing to do it through our shares.

Harm Meijer, JP Morgan Thank you very much, Stephen. Are there any big properties currently being offered to the market? There was a rumour about Willis Building. Is there any comment on that possible?

Tim Roberts, British Land – Head of OfficesWell, I haven't got anything to announce on the Willis Building. I think the Willis Building is a good example of British Land's ability to develop buildings across the cycle. We started at a time when the cycle was there. And it was fully let. It's an absolutely first-class building, it's let for 25 years, so it's a great investment. And, as Stephen's already alluded to on the slide that looked at development, we're always open minded about selling these properties. None of them are held for emotional reasons. They are carried out to add to shareholders' value, and at the appropriate time we look to sell.

Harm Meijer, JP Morgan Are there any others you're also actively working on at this stage?

Stephen Hester, British Land – Chief ExecutiveWell, perhaps I can answer that more broadly, unhelpfully, but truthfully. There is not an asset we own that we wouldn't sell at the right price. We have the strength of business model, and I believe strength of character, to not have to panic, to not have to sell anything at the wrong price, and to be able to take balanced and cool judgments. And so you will continue to see us both sell and buy, and they will be, if you like, individual and specific judgments that we reach on those assets, and that's the nature of the thing.

I think if you were a betting person, you would bet that we were likely to sell less in the current year than we sold last year, because it's less likely that we'll see the value proposition working, but you can never tell in life.

Harm Meijer, JP Morgan Graham, I think it is your subject, dividend for next year, you were targeting 37.5pence. Where does that base from and what do you take into account to get to that number?

Graham Roberts, British Land – Finance DirectorWe've clearly previously stated that we would like to have a progressive dividend policy, and we were looking through the long-term cash flow growth of the business. And taking into account that we have a substantial amount of contracted cash flow growth, which I alluded to earlier, the £49million contractive uplift in the reversion, which gives you the ability to pay out but whilst still remaining in a position over a period of time not to distributing out that level of profits which are there for accounting reasons but actually not there in cash, so this is reflecting the underlying growth rate.

Stephen Hester, British Land – Chief ExecutiveIt's worth highlighting, and I did earlier on, we have doubled our earnings per share in three years, and we've been able to more than double the dividend off the back of that. And we can have endless debates about property valuations, which are in any one quarter un-provable, but what is clear is cash. And, of course, our confidence in the quality of our cash flows, in the fact that our payout ratios are low by relation to the sector, allows us to continue to be more confident than some at it relates to dividend.

Harm Meijer, JP Morgan How sure are you, going forward, you are going to capture that reversionary potential in the growth rates you're targeting?

Graham Roberts, British Land – Finance DirectorWell, we settled 171 rent reviews over the period. I have to say, I suspect that no more than two or three went to third party. We think that our retailers, by and large, trade profitability from our locations, and getting rental increases out of retailers when they're trading profitability is, I can assure you, an awful lot easier than getting rental increases when they're not trading profitability.

So I think that our execution of rent reviews is certainly well above the market both in terms of our competitors, but also in terms of how the investment market is pricing some propositions. It is an initial yield market today, and that discounts, by and large, your ability to capture reversions. We've been very successful, but I have to say that I have no evidence to suggest that, over the coming period, we won't be as equally successful in capturing those.

John Perry, Deutsche BankCould you elaborate, Tim, on the evidence you're seeing for headline rents in the City softening? Secondly, in terms of the rent at the Broadgate Tower that you signed last night, could you disclose that, please? And, finally, in terms of the Q4 valuation, with specifically looking at the developments, could you say how those developments performed versus the 3.2% overall for the City portfolio?

Tim Roberts, British Land – Head of OfficesFirst of all, what we signed last night was a letting on 201, and that was 36,000 square feet to LBBW, and the rent was £56 a square foot, 10 year lease, 22 months rent free.

If you look at the market generally, we are talking to occupiers and putting proposals out on, primarily, our development program because we've hardly got any voids in the existing estate. And what we're finding is that, to get occupiers interested, we cannot be as ambitious on our asking terms as we were. So I think, first of all, that's a sign that the markets are softening.

Also, the first signs of buildings that have been completed where there is vacant accommodation by competitors, they are reducing asking terms. So it's early signs, John, because, actually, a lot of the turnover in the first quarter was agreed pre-Christmas so we've not had that much evidence, so far this year, of a softening market. So it could be easy, at first sight, just to think that the headline rents are holding pretty true, but my view, because of what I've said, is that they are beginning to soften, and we will see over this next quarter, when lettings actually happen, whether that's the case.

Also, on Broadgate Tower, the option that Reed Smith took up, that happened last week, and we put another floor under offer to them last night. The headline rent is very marginally lower, very marginally, and the letting incentives have moved out by a margin. Now, if you look at the market, I would suspect that most people would say that letting incentives have increased by three months for a 10 year term, and that's a trend, so, probably, they've increased by more than that but that hasn't been proven yet by more than one or two transactions.

Tim Roberts, British Land – Head of OfficesDevelopments over the year were down 4.2% and by the same amount for the quarter.

John Perry, Deutsche BankSo those yields have moved out in line with the City portfolio on the developments?

Tim Roberts, British Land – Head of OfficesGenerally, they have, yes.

John Perry, Deutsche BankThanks. A final question for Andrew, regarding the open A1 retail portfolio. Could you just set out where you think demand is from tenants, of occupiers, seeking to migrate from the town centre? And previously you've discussed the occupiers' costs versus sales ratios being substantially lower on the retail parks, and perhaps you could give an update as to where you think that relationship is.

Andrew Jones, British Land – Head of RetailOccupational demand on the open A1, by and large, is coming from two sources. One is the ongoing migration, and that's been helped by our ability to offer ever more flexible accommodation. We spend an awful lot of time subdividing 15,000 square foot units, 10,000 units into 7,500 or into 5,000 square foot units. What that’s doing is then, basically, broadening the appeal of the out of town accommodation to a greater selection of your high street occupiers. For example, it's not only New Look, Marks & Spencer, Next, Boots, but also River Island, WH Smith, JD Sports, Clinton Cards, Monsoon, and that's broadening the appeal, and that is, basically, meaning that, or resulting, in ongoing migration.

The other sort of demand is the new concept, and that also comes from the likes of Marks & Spencer who, as most of you know, were relatively late entrants into this market. It also comes from people like Asda Living. We've also just attracted Irish toy retailers over to take a couple of our stores. So we're benefiting from that. That is actually, by and large, for slightly bigger floor space, so that's actually helping balance the demand. So whether or not its 15,000, 20,000, 25,000 square feet. So comparing that then, obviously, to our bulky market, which is, as you heard me say, is characterized by a lot of retailers looking to shed space, some defaults, and very, very few new entrants.

Looking at the cost analysis between the high street, I think every location is different. I think what you've also got to just remember is the introduction of mezzanines. More and more of these retailers are sweating the box harder, so we are downsizing from 10 to five with full cover, and let's remember that mezzanine space is free. So, again, the analysis that I might do for Next will be different for the one I do for Boots. But my feeling is that we're still in that give or take 60% to 70% range, but it will change.

Carl Gough, CazenoveMy question, and forgive me if it's been partly answered, but just to tighten up on this debate about yields and where we're all going. I think it's fair to say that managements, analysts, investors all singularly failed to read the yield compression in the two years' prior to the top of the cycle of last June.I'm also surprised that several commentators, including, I detect from listening in and reading between the lines, that yourselves think that this early into the down cycle fair value might be being reached. And I was just wondering, just to tighten up on this, where exactly to BL sit on the re-pricing debate? What are the key upside and downside risks to that?And why, just divorcing your views from the market, why do you think that the market this time might get it more right going forward having failed to spot the yield shift in the positive period, and especially at a time when we've got so much economic and credit market uncertainty.

Stephen Hester, British Land – Chief ExecutiveLook, there are, as I mentioned earlier on, many tens of thousands of people around the world who make their living trying to predict economic and market cycles. And I think, as we all know, more often those predictions are wrong than right, and that's not because they're not talented people. It's just because, inherently, you're predicting things that are enormously complex and that by and large you will get more wrong than right.

Nevertheless -- and it's for that reason that, if you like, any business like ours has got to create a business model that can withstand conditions that stray from the probable to the possible in either direction and come out relatively un-blooded and that's really what we try and do. We try and manage our downside whilst capturing the upside, understand that we, along with everyone else, will get the fine judgments wrong. But we also are not entirely let off the hook by knowing we're going to get it wrong. We have to try and reach our best judgment whilst guarding against those judgments, having a margin for error.

I think you're a little bit cruel on the market generally, and certainly on us, in suggesting that people didn't see the market becoming expensive. I think that you will not find a single quarterly statement of British Land's over the 18 months prior to the downturn that didn't make that observation, and that didn't make the observation about risk premiabeing unusually compressed. And if you didn't understand our words, you could see that we were net sellers at the same time. However, did we know what the catalyst for change would be? Did we know how severe the change, of course not. Un-guessable, I would submit to you, just as the future will be.

So, looking forward, I think all we're really saying is, look, there is a range of outcomes. We believe that the worst is likely to be behind us in terms of the financial market turmoil and we're, therefore, entering the second phase of assessing the impact on the real economy and on occupiers and on rents. But our business is built to withstand a worse outcome than we believe is most probable, as well as to capture a better outcome if that arises for us. And so I think that it's futile to search for perfections in these judgments. You have to have a combination of business models that can withstand a range of outcomes. And, if you like, the confidence to look across cycles and, just as you shouldn't believe things are as rosy as they seem at the top, neither, history tells us, should you believe things are as gloomy as they can appear at times like now.

So I'm sorry I can't give you a more precise answer because I think, Carl, the question you're asking is unanswerable, but that's the best I can do.

Sarah Cooper, Merrill LynchI've got about four questions, if that's okay. First of all, I would always like to focus on the net effect difference rather than headline and Tim touched incentives earlier, but I wonder if you could spell out what incentives are actually are now, and then maybe if Andrew could do the same?

Tim Roberts, British Land – Head of OfficesOkay. Well, as I said to, John, the incentives have grown and, typically, for a 10 year term you'd expect incentives to be between 18 and 21 months. And if you picked, say, the mid-point between that, I would suggest that that means that net effective rents have reduced by, say, 5% over the last four to five months.

Stephen Hester, British Land – Chief ExecutiveI think it's important to note, Sarah, though that you have widely differing packages across the different amounts of size and different types of accommodation. And, obviously, what you might do on a 400,000 foot three year ahead of time development pre-let might be very different than a 7,000 square foot floor of a building that's already full. So all of these simplifications can be quite dangerous to actually apply.

Sarah Cooper, Merrill LynchWhen you look at the enquiries you are getting, and I'm sure there's not a whole lot at the moment, is there much distinction between sizes? Is there anything out there at the moment that's 400,000 square foot of enquiry?

Tim Roberts, British Land – Head of OfficesI think, if I got the question, first of all, on the level of enquiries. Actually, the level of enquiries, as I said during the presentation, is reasonable. Secondly, in terms of big enquiries in the market, there are more than a handful, and there are some that are publicly known and are pretty active. So the ones that are publicly known are the Bank of Tokyo and Mitsubishi, they want up to 300,000 square feet. They are actually tenants of ours on Broadgate so I've seen them recently, and I think that their requirement is serious. There's also Bloomberg, who could want between 300,000 and 400,000 square feet, and I know that they have buildings, including some of our buildings, that they are spending a lot of time on looking at to see if it meets their requirements. And then there are other requirements like News International, which, again, is well known. They've got a requirement up to 400,000 square feet, and they have short listed buildings.So, actually, Sarah, and I kind of alluded to this last time in September when somebody asked me how I felt about the letting market, I said that I was heartened by the fact that there are reasonable enquiries, and there still are. I think the thing at the moment is that there's nervousness and there is delay in people making decisions.

Andrew Jones, British Land – Head of RetailOn retail it depends on asset-specific and unit-specific. But if you ask me for a trend, we're probably drifting out by circa three months. There is a desire from a number of retailers to have greater incentives but, at the same time, they are happy to pay higher headline rents. Obviously, everything over three months [could be] valued over 10 years so, effectively, the higher headline doesn't affect our ERVs which, obviously, support the valuations. But by and large, as a test, it's probably drifted by three months. I can give you some examples where it hasn't done, but I can similarly give you some examples of where it has gone for more.

Sarah Cooper, Merrill LynchSecond question, can you explain to us the contracts that are in place on Leadenhall?

Stephen Hester, British Land – Chief ExecutiveThe contracts that are in place on Leadenhall, well, if you like, it's like every development building. The current phase is the completion of demolition of the old building, and the completion of the foundations, the piling, and then the building of the foundations. We're currently three storeys underground building those foundations and it won't be until about the first quarter of next year that we actually start on the superstructure because, obviously, for a building of that height and scale, there's an awful lot of time, effort, and money that goes into the foundations. So that's the phase of construction that we're at, and I think that was your question, was it?

Sarah Cooper, Merrill LynchSo the contracts then to bring it up to grade are in place, or to finish the demolition are in place, what about the rest? Are they in place now or do you not have to make a -- or commit to a timeframe on those just yet?

Stephen Hester, British Land – Chief ExecutiveThe contract for the majority of the superstructure are agreed, but in most cases imminently to be signed as opposed to actually signed, but we have the pricing agreed.

Sarah Cooper, Merrill LynchSo if the world was to come to an end, and I know that you're managing through the cycle and none of us know what's going to happen in a few years time, but you're not yet 100%

Stephen Hester, British Land – Chief ExecutiveWe can stop the building half way up if we want to, and in Leadenhall we could stop it easier than that because it isn't out of the ground yet. And, of course, we make risk judgments every day, every week, and every month, and I hope we will never get tied up in some false sense of pride and be unable to change our mind if the data changes.

That said, what we've tried to do is to illustrate, by looking back at some of our developments, like Lime Street or Plantation Place that we started when people were really gloomy, to show that the office cycle is such that if you only build when people are happy you can be sure you'll have product when people are unhappy, and what we try and do is the other way around.

So it's our judgment today that 2011, when we have Leadenhall, is more likely to be an upswing market than down and we would like to have the best space available in an upmarket, and it's our judgment today that that will produce a better economic outlook for, in risk terms, we're talking about an incremental £300million CapEx in a £13.5billion balance sheet. So that's our judgment. We'll keep looking at that judgment, but that's our judgment as of today.

Sarah Cooper, Merrill LynchI'm sure we've all seen in other parts of the world the same thing happen, so I'm sure that'll work out. Two more really quick questions. First of all, Andrew, are there occupancy clauses on your retail leases? Can a tenant turn off the light or do they have to stay there?

Andrew Jones, British Land – Head of RetailWe have, in retail parks, less so. In shopping centres you have to keep open clauses, but, to be honest with you, the enforceability of those are questionable because you have to prove that the closure of one particular shop in, let's say, Meadowhall had an adverse impact on your investment value and that you suffered real loss. Does that answer your question?

Sarah Cooper, Merrill LynchYes. Thank you. And then, this is very cheeky I explained within my email this morning but, Stephen, can you just let us know how much time you're spending at Northern Rock?

Stephen Hester, British Land – Chief ExecutiveWell, I have a terrible confession to make to you, Sarah. In the last week I spent more time at the Chelsea Flower Show than I did at Northern Rock, which I'm sure is equally squandering shareholders' money in terms of my time. And the answer is maybe a day per month, and I'm absolutely clear about what my day job is, and anyone who thinks that I don't have the capacity to do it, is wrong.

Bernd Stahli, Merrill LynchAfter the third quarter results you stopped the buyback program. Can you remind us why and what your position on that is?

Stephen Hester, British Land – Chief ExecutiveWell, I think that's a good point. We want to be clear with our investors that when we make investment decisions we understand that one of the things we have to compare in terms of return to shareholders is in investing in our own shares. And we want to be very clear that that's a discipline that we take seriously and that we are prepared to execute upon.

Equally, we try to be thoughtful about the market environment that we're in, both in terms of the opportunity for our business and in terms of our shareholders' mindset. And what became clearer, initially we had, in a sense, a property market-driven softness that was softening share prices, that changed into the broader, if you like, market panic associated with the credit crunch that affected all asset classes. And our investors, in our judgment, started to be worried about quite different things. They weren't worried about the relative value of the shares, they were worried about where the market was going, and they were worried about solvency and refinancing risk and gearing and all those sorts of things. And so it became apparent to us, on the one hand, that buying back our shares ironically could be having the opposite impact on investors to the one we were intending by increasing our gearing and not being able to answer what they were actually worried about, which was nothing to do with whether they were buying our shares but to do with where the markets going, which we don't know the answer to for certain. So that was one component.

Stephen Hester, British Land – Chief ExecutiveSecondly, as the market has fallen, our ability to think about making investments that will have good returns relative to buying back our shares in the next phase, if distress comes about, it comes more to the fore. So from a market being expensive where we weren't expecting to buy much to becoming much cheaper with the prospects of more cheap, that becomes more sensible. And so, for those two reasons, I won't say we've stopped it but we haven't in the last three months bought back any more shares, and we'll keep looking at it.

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The information contained in this presentation has been extracted largely from the Preliminary Results Announcement for the year ended 31 March 2008. General property market data has been extracted from Jones Lang LaSalle, CCRE, PMA, CBRE, Verdict and other agents’ reports (please note that their definitions may differ slightly).

This presentation may contain certain “forward-looking” statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and results may differ materially from any outcomes or results expressed or implied by such forward-looking statements. Any forward-looking statements made by or on behalf of British Land speak only as of the date they are made and no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. British Land does not undertake to update forward-looking statements to reflect any changes in British Land’s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

This presentation is made only to investment professionals as defined in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 ('the FP Order'). The content of this presentation has not been approved by a person authorised under the Financial Services and Markets Act 2000 (“FSMA”). Accordingly, this presentation may only be communicated in the UK with the benefit of an exemption set out in the FP Order. An investment professional includes:(i) a person who is authorised or exempt under FSMA; and(ii) a person who invests, or can reasonably be expected to invest, on a professional basis for the purposes of a business carried on by him; and(iii) a government, local authority (whether in the United Kingdom or elsewhere) or an international organisation; and(iv) any director, officer, executive or employee of any such person when acting in that capacity.

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