ANNUAL REPORT AND ACCOUNTS 2019 A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 9 B R I T I S H L A N D e l p o e P s e c a l P r e f e r P Contents STRATEGIC REPORT Inside front cover 1 2 3 4 6 7 8 British Land at a glance Our investment case Letter from the Chairman Our purpose Chief Executive’s review In conversation with Chris Grigg Reshaping our portfolio Our portfolio Our operational expertise and 10 customer insight 12 London campuses 14 Canada Water 16 Retail 18 Our business model and strategy 21 Our key performance indicators 22 Our development pipeline 24 Understanding our markets 26 Stakeholder engagement 28 Our 2020 sustainability strategy 30 Expert people 32 Performance review 46 Financial review 51 Financial policies and principles 54 Managing risk in delivering our strategy Principal risks 58 Task Force on Climate-Related Financial 62 Disclosures (TCFD) Viability statement 65 CORPORATE GOVERNANCE REPORT Board of Directors Chairman’s introduction Corporate governance review Report of the Audit Committee Report of the Nomination Committee Directors’ Remuneration Report Directors’ Report and additional disclosures Directors’ responsibility statement FINANCIAL STATEMENTS Report of the auditors Primary statements and notes Company balance sheet Supplementary disclosures OTHER INFORMATION Other information (unaudited) Sustainability performance measures Ten year record Shareholder information 68 72 75 80 86 88 110 113 116 123 167 179 186 195 198 199 Highlights Underlying EPS 34.9p 2018: 37.4p Underlying Profit £340m 2018: £380m IFRS EPS IFRS profit/(loss) before tax (30.0)p £(319)m 2018: 48.7p 2018: £501m Total accounting return Dividend per share (3.3)% 31.00p 2018: 8.9% 2018: 30.08p EPRA NAV per share IFRS net assets 905p 2018: 967p £8,689m 2018: £9,506m Senior unsecured credit rating Carbon intensity reduction versus 2009 A 2018: A 64% 2018: 54% Customer satisfaction 8.2/10 2018: 8.1/10 Bright Lights skills and employment programme 393 people supported with work 2018: 288 Presentation of financial information The Group financial statements are prepared under IFRS where the Group’s interests in joint ventures and funds are shown as a single line item on the income statement and balance sheet and all subsidiaries are consolidated at 100%. on a line-by-line basis and excludes non-controlling interests in the Group’s subsidiaries. The financial key performance indicators are also presented on this basis. Refer to the Financial review for a discussion of the IFRS results. Management considers the business principally on a proportionally consolidated basis when setting the strategy, determining annual priorities, making investment and financing decisions and reviewing performance. This includes the Group’s share of joint ventures and funds We supplement our IFRS figures with non-GAAP measures, which management uses internally. IFRS measures are labelled as such. See our supplementary disclosures which start on page 179 for reconciliations, and the glossary found at britishland.com/glossary. Integrated reporting We integrate social and environmental information throughout this Report in line with the International Integrated Reporting Framework. This reflects how sustainability is integrated into our placemaking strategy, governance and business operations. Our industry-leading sustainability strategy is a powerful tool to deliver lasting value for all our stakeholders. OUR INVESTMENT CASE Four compelling reasons to invest in British Land 1 The scale and quality of our portfolio Our 23m sq ft portfolio of high quality assets is underpinned by our resilient balance sheet and financial strength – £16bn of assets under management (£12.3bn owned) 2 Our operational expertise and customer insight Our deep expertise of managing and leasing our assets, based on our understanding of the customer, drives incremental value for British Land and our stakeholders – Increasingly mixed use at our London campuses and – Investing in our places to deliver more attractive high quality retail nationwide and engaging environments – Loan to value (LTV) is appropriate at 28.1% and cost – Targeting the right mix of occupiers to make of finance is low at 2.9% British Land owned assets £12.3bn Learn more on pages 8 to 9 our places successful – Understanding the needs of our customers as they evolve Visitor surveys completed in the last year c.26,500 Learn more on pages 10 to 11 3 Our distinctive business model and clear strategy We are increasing our focus on mixed use places and on a five-year view will be growing our London campuses and building a residential business while refining our Retail business – Enhancing our campuses through development 4 A well-positioned development pipeline Our development pipeline is aligned to our strategy and provides visibility on future earnings – 1.6m sq ft of high quality, design-led buildings focused on our campuses – Developments delivering £63m of future rents – Masterplanning a 53 acre development opportunity adding 4.5p to EPS at Canada Water – De-risked by pre-letting space to lock in – Delivering a smaller, more focused Retail business future income through asset sales Residential homes envisaged in our Canada Water masterplan Committed and recently completed developments pre-let or under offer 3,000 76% Learn more on pages 18 and 19 Learn more on pages 22 to 23 British Land | Annual Report and Accounts 2019 1 BRITISH LAND AT A GLANCE Who we are We are a leading UK property company. We create and manage places that reflect the changing needs of the people who work, visit or live in and around them. Visit britishland.com to learn more about our business Our business Our portfolio is increasingly focused on mixed use places. Our campus-focused Offices portfolio and Canada Water are located in central London and our Retail assets are around the country. Campus-focused London Offices Canada Water Paddington 11 acre office-led campus close to Paddington Station We are delivering a wide and varied dining offer with new signings including Lords of Poké whose story we tell on page 12 At Canada Water our masterplan includes office, retail, residential, leisure and public spaces to create an exciting new urban centre for London. Our three office-led campuses are located in central London. They are well-connected and engaging places to work and spend time, with the right mix of world class offices, retail, leisure and dining, helping our occupiers attract the best talent for their business. Offices comprise 51% of the portfolio 53 acres Learn more about our London portfolio on pages 12 to 13 and 37 to 38 Learn more about the Canada Water development on pages 14 to 15 and 43 Regent’s Place 13 acre office-led campus in the West End, close to Euston, Great Portland Street and Warren Street stations Its proximity to the Knowledge Quarter of academic institutions is increasing the profile of the area. Read more about our occupier, Dentsu Aegis Network, on page 13 Our five-year vision We have set out a clear strategic plan to build an increasingly mixed use business. It will comprise three core elements; our London campuses, a smaller Retail portfolio and a residential business. Learn more about our long term strategy on page 7 Broadgate 32 acre office-led campus adjacent to Liverpool Street station Teesside Leading regional retail centre in the North East Meadowhall 1.5m sq ft superregional retail centre with 280 units On site with three major developments with pre-lettings to global advertising group McCann, technology company Mimecast and Italian marketplace Eataly. Read more about this on page 12, 38 and 41 Hotel Chocolat have opened their second store with British Land at Teesside, with a third planned at Fort Kinnaird, Edinburgh. Read more about this on page 16 Rock Up and Joe Browns were amongst the businesses that took space at Meadowhall following our £60m refurbishment. Read more about them on pages 16 and 17 Retail Our retail places are around the country and reflect the changing way people shop. Increasingly we are focused on multi-let locations within or close to urban areas which best complement an omni-channel retail strategy. Canada Water 53 acre development opportunity in zone 2 Connecting with local education and families through the Paper Garden and supporting London’s poets through the Poetry School whose story we tell on page 14 45% of the portfolio Portfolio breakdown includes: Canada Water 3% Residential 1% Learn more about our Retail portfolio on pages 39 to 40 LETTER FROM THE CHAIRMAN Another year of good progress In my final year as Chairman I leave the business well positioned for the future. Our business has continued to make good progress this year against an uncertain economic and political backdrop. We saw the effect of the particularly challenging retail environment in valuation declines but delivered a robust earnings performance with good progress on our strategy. Our Office leasing performance has once again been excellent. Across our London office business, we have leased over 1m sq ft of space, to world class businesses including McCann, Facebook and Milbank. The quality of the buildings we are delivering and our campus approach are really paying off. A broader range of businesses than ever before are taking space at our campuses, at attractive rental levels, and our recently completed and committed pipeline of new buildings is now 76% pre-let or under offer, locking in significant future income for our business. This is a resounding endorsement of our campus strategy and our decision to commit to development over recent years. Our three London campuses at Broadgate, Paddington Central and Regent’s Place represent British Land at its best. Having recently visited Broadgate with the Board in March, it is no exaggeration to say that the neighbourhood has been transformed. We are delivering world class, modern office space alongside some of the best retail, leisure and restaurants in London, all integrated within central London’s largest pedestrianised environment. And there’s more to come; during the year we were delighted to receive planning permission for 1-2 Broadgate, which will represent the cornerstone of the next phase of Broadgate’s transformation. British Land is taking the right steps to position its portfolio for the long term Dividend per share Storey, our flexible office business, is now operational across all of our campuses. It is additive to our overall offer and we’ve been pleased with our leasing progress. We’ve signed new types of businesses as well as existing occupiers looking for space in which to expand, project space or space on more flexible terms as their needs change. There is no question that demand for increased flexibility is a theme that’s here to stay in the office market. We recognised this early and responded appropriately, meaning that our offices offer remains relevant to as many potential occupiers as possible. 31.00p 2018: 30.08p Last year I wrote that the retail sector was experiencing a period of challenge and rapid change. If anything these challenges have become more pronounced this year. Fundamental structural changes driven primarily by the internet have been compounded by short term headwinds including subdued consumer confidence, cost pressures and changes to business rates. In this context, we remain focused on providing the kind of space modern retailers need to succeed. We know that long term, only the best quality, best located and most accessible retail space will continue to thrive. To maximise occupancy and support rents, we also know our retail places need to be located in areas with strong demographics, affordable to retailers and the right size to underpin good demand tension for the space. Again, this is something we have been focused on for some time and we have a clear view of the long term role retail will play within British Land as a smaller, more focused part of our portfolio. This year we made further good progress towards that, disposing of £646m of retail assets, meaning we have now sold nearly £3bn in the last five years. John Gildersleeve, Non-Executive Chairman 2 British Land | Annual Report and Accounts 2019 At the same time, the team have remained focused on the operational performance of our Retail business. We have leased 1.6m sq ft of retail space this year, and dealt well with the impact of company voluntary arrangements (CVA) and administrations. There is no doubt that the retail market will continue to evolve in the future and not all of that change will be easy. I am confident however that building on the significant progress we’ve already made, British Land is taking the right steps to position its portfolio to succeed over the long term. The NAV discount in our share price, which increased after the EU referendum, persisted across the year. This was one of the factors we took into account when deciding to extend the share buyback by £200m following the sale of 5 Broadgate in June. We have now bought back £500m of shares over the last two years, all linked to significant disposals. Given our confidence in the quality of our assets, we believe the ability to reinvest sales proceeds into that portfolio at a significant discount, through buying our own shares, represents an effective use of capital. The robust financial performance we have delivered in the year, the strength of our balance sheet and the future income we have secured through pre-letting developments mean that the Board believes it is appropriate to recommend a 3% increase in the dividend for 2020. Everything we do at British Land is with a view to the long term. We want to create enduring value in a sustainable way. Through our responsible approach to development, we reuse existing building materials where possible, significantly reducing carbon emissions associated with construction. We also incorporate efficiency innovations and wellbeing improvements that cut occupiers’ energy consumption and support the health and productivity of their teams for years to come. We have a strong track record of connecting with our local communities from an early stage and minimising any impacts of construction on our customers and on people who work or live locally. Nowhere is this more evident than at Canada Water. Find out more about what we are doing on pages 67, 115 and 185. In March we announced that I will step down after the AGM in July, having served over 10 years on the Board, including the last six as Chairman. When I look back at what our business has achieved over this time, I do so with a great deal of pride. There is no doubt we’ve faced challenges, and our operating environment and the way we do business have changed substantially in a range of different ways. But I am confident that I leave with British Land well positioned, with the right strategy and team to succeed long term. I am delighted that Tim Score will be succeeding me as Chairman. Having served on the Board for five years Tim has got to know our business well, especially during his time as Chair of Creating Places People Prefer At British Land, our purpose is to manage outstanding places to deliver positive outcomes for all our stakeholders on a sustainable basis. We do this by understanding the evolving needs of the people and organisations who use our places every day and the communities who live in and around them. The changing way people choose to work, shop and live is what shapes our strategy, enabling us to drive enduring demand for our space and value over the long term. the Audit Committee, and is the ideal candidate to take our business forward. He will lead a Board which has the right mix of talent, experience and expertise to deal with the fast changing and complex world in which British Land, like all businesses, must operate. Finally, I would like to place on record my thanks to the British Land team. Everyone in our business from Chris, Simon, the Executive Committee and throughout plays a critical role every day in delivering the exceptional places and results that drive sustainable, long term benefit for our customers, shareholders and all stakeholders. They have been a pleasure to work alongside and I wish them all well for the future. John Gildersleeve Non-executive Chairman For the Chairman’s governance review, see page 72 British Land | Annual Report and Accounts 2019 3 CHIEF EXECUTIVE’S REVIEW Delivering against a clear plan Chris Grigg Chief Executive 4 British Land | Annual Report and Accounts 2019 Introduction and strategy: building the specialist in mixed use This has been another year of good strategic and operational progress in an uneven market as retail remained challenging, but the London offices market continued to be healthy. We have leased 2.7m sq ft across our business – more than any of the last five years, continued to invest into our campuses, progressed developments on a carefully risk managed basis and further reshaped our Retail portfolio. This operational outperformance and our robust financial results are due to the fact that we are delivering high quality places that reflect the evolving needs of our customers. Our long term strategy is clear: to build an increasingly mixed use business comprising three core elements – our London campuses, a smaller Retail portfolio and residential. By providing the right mix of uses at each of our places, we drive enduring demand for our space, support rental growth and create long term sustainable value. Leasing and operational performance Our leasing performance was again excellent. Across our London business our leasing activity covered 1.1m sq ft of space, further de-risking our developments – which are now 76% pre-let or under offer – and securing £48m pa future rental income. We again let space to a broad range of occupiers, reflecting the modern London economy and improving the diversity and quality of our rental income. Key lettings this year included global advertising agency McCann, Peel Hunt, Facebook and law firm Milbank and momentum remains good, we are currently in negotiations on a further 479,000 sq ft. The retail market remained challenging, but we continue to outperform footfall and sales benchmarks and our leasing performance was strong, at 1.6m sq ft. Retailers continue to face the challenge of fundamental structural change, compounded this year by short term operational headwinds. As a result, we have seen further CVAs and administrations from troubled operators and, although faring better than the market overall, we have not been immune; the annualised rental impact from CVAs and administrations that have occurred over the last two years was £16.9m, including £0.9m at properties which have subsequently been sold. We have been focused on mitigating this for some time. Of the £10.9m rent on stores subject to closure, £6.5m has already been let or is in negotiation. This year, we combined our Offices and Retail businesses into one real estate team under single leadership, to better align our operations to our strategy and further enhance our customer service. Operational progress this year included the further rollout of our flexible workspace business, Storey, at all three campuses and the launch of Storey Club at Paddington, providing high quality meeting and events space to our occupiers. We established a Smart Places team, to work alongside our Data and Insights function and Commercialisation teams as we think more broadly about the ways in which we can continue to support our occupiers and understand and respond to their changing needs. We submitted our planning application for the Canada Water masterplan including a detailed application for the first three buildings and, together with our partners at Southwark, are targeting a July planning meeting. Our plans envisage the development of a new urban centre for London, including commercial, office and community space as well as around 3,000 new homes, so will represent a core part of our plan to grow scale in residential. Capital allocation and investments We have continued to allocate capital thoughtfully. We sold 5 Broadgate for £500m (our share) in June and £646m of Retail assets since April 2018 – overall ahead of book value. This continues our strong sales track record: standalone superstore exposure is down from 11% in 2014 to 1% today and overall Retail is now under half of the business, down from 66% in 2010. Looking ahead, we expect Retail to comprise around 30-35% of assets in five years, so we will continue to sell assets. However, we are patient and opportunistic in our approach and have a clear view of the value of our assets so will continue to only make sales which deliver value and progress our long term strategy. We have used sales proceeds to progress developments and reinvest in our own portfolio through a £200m share buyback, meaning we have bought back £500m of shares in two years. Given the discount implied by the current share price, we continue to believe that reinvesting sales proceeds into our portfolio through buying our shares represents an efficient use of capital, so we are extending the buyback by up to £125m. Outlook Looking ahead, retail is likely to remain challenging as structural change continues, but there are early signs on parts of our portfolio, that some of the short term operational headwinds impacting retailers are easing. We expect the London market to remain active, as occupier demand for the highest quality space continues to be firm and supply is relatively constrained. We are mindful of the ongoing Brexit uncertainty, but our business is well positioned and financially strong. We remain focused on delivering operationally and being thoughtful and commercial in what we do every day while at the same time progressing our long term strategic goals. Chris Grigg Chief Executive To read more from Chris, visit britishland.com/CEOblog British Land | Annual Report and Accounts 2019 5 IN CONVERSATION WITH CHRIS GRIGG Facing the future The questions our stakeholders are asking... Why are you changing the shape of your business? We have outlined a clear long term plan to ensure our business best reflects the changing way people use space. Increasingly people want to be able to combine their work and leisure time in a single place and that’s why we’re specialising in mixed use. Our London campuses are the obvious place to start. Here we are increasing the mix of uses with a broader retail, leisure and dining offer alongside world class offices, including Storey, our flexible offer. At Broadgate, we are well advanced; our newest developments include more shops, restaurants and a cinema, and our long term plans will create a 350,000 sq ft cultural hub, driving footfall from a wider area, and providing places for people to socialise outside the office. Residential is an important and complementary part of our approach, as well as being a fast growing market in its own right. With scope for over 3,000 homes across our portfolio, this represents a real opportunity for us, particularly at Canada Water, where we can develop at scale and curate the environment to deliver attractive returns over the long term. At the same time, we think the total amount of physical space retailers require will be less so we’re reducing our overall exposure to retail, although it will remain core to our mixed use proposition. Why have you combined your Retail and Offices businesses under a single leadership? We announced in January that we would be combining our Retail and Offices businesses under the single leadership of Darren Richards. These businesses have always been highly complementary, particularly as we have sought to increase the mix of uses on our campuses. For example the knowledge and experience we have on the retail side of the business was one reason we’ve been able to expand the mix of uses on the offices side. We’ve added high quality retail and leisure, enhancing the appeal of our campuses and helping us to sign a much broader range of occupiers than ever before. As we progress our strategy to build an increasingly mixed use business, there are important benefits to be achieved in combining the two teams under a single leadership. We can more efficiently transfer learnings from one side of the business to the other – for example our use of data and insights, which is relatively more advanced in retail than in our campus business – and there are functions that are common to both where we can generate scale efficiencies. Darren, who has a broad spread of experience across our business, brings a fresh perspective that will help align our approach and accelerate our focus on mixed use. 6 British Land | Annual Report and Accounts 2019 How do you explain your gender pay gap? Our gender pay gap isn’t what we’d like it to be and it’s a complex issue. We are taking steps to reduce the gap but this will take time. Our 5 April 2019 snapshot shows that we are moving in the right direction, with a further reduction of 5.7% in our median pay gap. Women are of course paid the same as their male colleagues for the same job however there are more men in senior roles and more women in lower paid roles. We need to address both of these structural issues. As in many sectors, it is largely a legacy issue and change will take time. Real estate has historically been male dominated and, as an industry, we have not done enough to encourage women to be part of it. But that’s changing, and I’m pleased that British Land are taking the lead in that. We have a very active and successful Women’s Committee, which has pioneered changes in the way we work. Today we encourage people to work flexibly in terms of their hours and their location; we introduced shared parental leave in 2017; and we provide mentors and coaching for women returning to work after having children. I’m pleased we have a number of very senior women in our organisation, and now 33% of the Executive Committee are women. We also recognise that change must happen outside British Land as well and that gender balance is only part of the issue we need to address. I am personally very focused on building a more diverse and inclusive culture at British Land and we have set out some of the things we’re doing more widely on our website and on pages 30 to 31. Read more at britishland.com/ gender-pay-gap and our employee gender split can be seen on page 112 RESHAPING OUR PORTFOLIO Building an increasingly mixed use business How our business has changed Since 2010 we have shifted the balance of our portfolio towards our campus-focused London offices business, which now accounts for 51% of our assets. We have invested significantly in this business through acquisition and development. Over recent years, this has included the redevelopments of 199 Bishopsgate and 1 Finsbury Avenue at Broadgate and 10-30 Brock Street at Regent’s Place; as well as the acquisition of Paddington Central, our third London campus in 2013, where we recently redeveloped 4 Kingdom Street. Our five-year vision Looking forward, we are working to build an increasingly mixed use business. This reflects the changing way people use real estate, with the boundaries between work and leisure increasingly blurred. We currently have a recently completed and committed development pipeline of 1.6m sq ft across our campuses, which we continue to enhance with the right mix of uses including retail, leisure and dining. We will also further expand Storey, which could become up to 10% of our Offices portfolio. Through a series of acquisitions we have also assembled a unique development opportunity at Canada Water covering 53 acres. Here our masterplan envisages a development of our fourth mixed use campus. At the same time we have also been proactively reshaping our Retail portfolio so that it reflects retailers’ focus on the highest quality and the best located space. Over the last five years we have sold £2.9bn of retail assets, improving the overall quality of our portfolio which is now focused on multi-let space. At Canada Water we have plans to develop a mixed use urban centre with a compelling commercial and retail offer alongside a range of public and leisure spaces and up to 3,000 homes. We have opportunities across our portfolio to develop a significant number of future homes, so residential will play an increasingly important role in the business, potentially comprising up to 10% of our portfolio on a five-year view. We will continue to refine our Retail portfolio to deliver a smaller, more focused business, primarily comprising high quality, well located multi-let assets with mixed use potential. Portfolio split by asset type 33% 66% 10% 2010 1% 3% 5% 30-35% Indicative Future British Land* 5+ years Today 45% 50-55% 51% Retail Campus-focused London offices Canada Water Storey Residential * Includes Canada Water across the relevant parts of the business. British Land | Annual Report and Accounts 2019 7 OUR INVESTMENT CASE IN ACTION 1 The scale and quality of our portfolio Over 80% of our assets are located within our campuses or multi-let retail environments, which cater for a broader mix of uses reflecting the evolving needs of our occupiers and their customers. London campuses 41% Standalone offices 10% Canada Water 3% Residential 1% Multi-let retail 9% Solus retail 4% Multi-let retail 29% Solus retail 3% 68% London and South East Campus-focused London offices Our three office-led London campuses are located in central London. They are well-connected and engaging places to work and spend time, with the right mix of world class offices, retail, leisure and dining, helping our occupiers attract the best talent for their business. £8.3bn assets under management 32% Rest of UK 46,000 people work across our campuses 85% 15% 60% 40% £5.6bn £5.4bn Multi-let Other retail 64% 36% £6.3bn 35% 64% 1% £2.7bn West End City Non London Becoming the specialist in mixed use Why mixed use? We recognise that the way people use real estate is changing and that the most effective way to drive enduring demand for our space is to evolve our offer in line with those trends. Central to this is the blurring of boundaries between work and leisure time. Increasingly people expect to be able to socialise, exercise or be entertained conveniently to the office. They want to work in places which are pleasant, safe and easily accessible from where they live. These factors underpin people’s decisions around which companies they work for, the places they shop and spend time. It helps businesses attract and retain talent and supports their productivity and effectiveness. O f f i c e s R e t a i l Retail 2019 2010 Offices 2019 2010 8 British Land | Annual Report and Accounts 2019 Canada Water At Canada Water our masterplan envisages office, retail, residential, leisure and public spaces to create an exciting new urban centre for London. Retail Our retail centres are around the country and reflect the changing way people shop. Increasingly we are focused on multi-let locations within or close to urban areas which best complement an omni-channel retail strategy. 53 acre £7.5bn development opportunity assets under management 3,000 new homes, including affordable housing 61% of the population falls within the catchment of our portfolio How are we delivering it? A year ago, we outlined the future shape of British Land, comprising three core, complementary elements as part of an increasingly mixed use business: – Campus-focused London offices: with a blend of core and flexible space, including the further build out of Storey, integrated alongside a world class retail and leisure offering – A smaller, more focused Retail portfolio: high quality, well located assets focused on a smaller number of on average larger, multi-let places, especially those with mixed use potential – Residential, principally Build to Rent: 3,000 homes at Canada Water with further opportunities within our portfolio How does it deliver value? A successful mixed use strategy delivers long term sustainable value by driving rental growth, maintaining occupancy and increasing the value of our assets. By aligning our business to the evolving needs of our customers, and the people who use our places, we drive enduring demand for our space, enabling us to grow rents and add resilience to our future income streams. The nature of our campuses and multi-let spaces means that we control not just the buildings, but the spaces between them. As such, investment we make into the broader environment has a positive impact on the value of our assets for the long term. We also have more flexibility to re-allocate uses within our places over time to better reflect the needs of our customers as they change, and therefore to ensure that we make the best use of our buildings over the long term. British Land | Annual Report and Accounts 2019 9 OUR INVESTMENT CASE IN ACTION 2 Our operational expertise and customer insight Our expertise in managing and leasing our assets, based on our understanding of the customer, drives incremental value for British Land and our stakeholders. Asset management As our business becomes more operational, managing our space well is a key advantage. We have the benefit of our in-house property management team who focus exclusively on British Land properties. This year we moved the team into our head office, to foster cross-team collaboration and deliver efficiencies. Based on our understanding of the customer, we are investing in our assets to deliver more attractive and engaging places. This includes a high quality public realm, a wide-ranging programme of events and activities and best in class customer services. This year, we established a Smart Places team, to deliver placemaking at a digital level. We are equipping our buildings with the functionality to measure how space is used to enhance efficiency and are developing the capabilities to automatically personalise the working environment. Leasing Delivering the right mix of occupiers at our London campuses and at our multi-let retail spaces is an important part of making our places successful. Our leasing teams are specialists in their fields but draw upon expertise across the business. Our network of contacts on the retail side is helping us build a diverse retail and dining offer at our campuses, and we have significantly strengthened our marketing expertise, better enabling us to showcase space, particularly when in development. Storey, our flexible workspace business, is enabling us to serve new customer segments. This includes providing project space to our existing customers as well as smaller scale businesses. The shorter nature of Storey leases means we benefit more quickly from rental growth than we otherwise would. Insight We engage with businesses and people who visit and work in and around our places to understand what they want from real estate. We use research and data to understand when and how our occupiers and customers use our spaces. This helps us allocate the right mix of space and ensures our occupiers utilise their space more efficiently. We collect data on which brands and services people engage with and which they would like to see more of. This research and data generates insights which support our asset management and leasing decisions, for example, shaping the way we allocate space between a range of uses as well as the occupiers we target. Over the longer term view, this understanding provides valuable insight into which of our assets are performing well, so we can make more informed investment and divestment decisions to allocate capital efficiently as we align our portfolio to benefit from long term trends to drive value for our stakeholders. 10 British Land | Annual Report and Accounts 2019 At Paddington Central we have invested nearly £100m into the transformation of the campus, including the development of 4 Kingdom Street and a significant upgrade to the public realm. We have successfully launched Storey at 4 Kingdom Street, including Storey Club which provides the highest quality meeting and events space for campus occupiers. We have added 10 new retailers, significantly changing the look and feel of the campus. These range from Flykick, a kick-boxing inspired exercise studio, to Vagabond Wines, a wine bar, and the Grand Duchess, our second floating restaurant. This year we have leased more than 1m sq ft in offices, including good progress on our campus developments which are now 76% let or under offer. At Broadgate we let 739,000 sq ft of space in the year to a range of occupiers, including global advertising agency McCann, law firm Milbank and Product Madness, an online gaming platform. This was in addition to financial occupiers such as TP ICAP and Peel Hunt, who have made long term commitments with us. At Canada Water, we have been engaging with the local community for many years through a range of initiatives, building up a clear picture of local needs. In addition, we have undertaken a detailed modelling exercise to project the likely needs of the community as our developments progress and this is helping to shape our offer in terms of the amount of retail, leisure and community space required and how we position and market this space to the right markets and customers. This model builds on the expertise we have developed across our campuses and retail centres, leveraging our knowledge of the individual sectors but also developing our understanding of the interdependencies and benefits of a mix of uses. British Land | Annual Report and Accounts 2019 11 London campuses A wider mix of uses, to reflect changing London lifestyles Our three office-led mixed use campuses are located in some of London’s best connected and most vibrant neighbourhoods. Across Broadgate, Paddington Central and Regent’s Place we manage more than 50 acres of central London, providing vibrant and diverse places with excellent connectivity and world class public space. Our campuses are a unique competitive advantage for us; here we control not just the buildings but the spaces between them, allowing us to deliver environments that reflect the evolving needs of modern, London lifestyles. Today’s businesses are focused on operating in buildings and locations which enable them to attract and retain the best talent. Environments and connectivity are key benefits our campuses deliver, each providing access to at least four underground lines and Broadgate and Paddington Central have Crossrail stations immediately adjacent. Increasingly our customers are focused on flexibility. Within our buildings and across our campuses we offer a broad range of space in terms of size, type and level of service. In June 2017 we launched Storey, our flexible office brand, catering to smaller ‘scale up’ businesses of around 45 people and providing additional space to existing occupiers on more flexible terms to facilitate expansion or house project teams. Storey has quickly become an important part of our campus offer, enabling us to attract a broader range of businesses to our places. Reflecting growing demand for buildings which promote health and productivity, our developments and refurbishments incorporate wellbeing principles by design. These include a focus on active design, air quality and spaces where people can socialise and enjoy time outside the office. We recognise that businesses need to use space efficiently, combining personal and collaborative workspace, so our designs thoughtfully balance this mix of demands. We also look beyond our campuses; we invest in local communities and our events and activities bring people together and enliven our space for everyone who uses it. 12 British Land | Annual Report and Accounts 2019 “ Opening a place in London where people can buy, eat and learn is a very important and exciting milestone for us. Being able to bring our model into a place that is so significant stimulates us to create in London a wonderful multi-functional experience.” Luca Baffigo, CEO, Eataly “Paddington has been a great place to grow our business! From a food truck, we upgraded to a small kiosk and now we have opened our flagship store here, all within two years. Footfall is high and we think the area has great potential – that long term vision is incredibly important to us. It’s been a steep learning curve, but we’ve felt very supported by British Land and the Paddington team and we’re really excited that they’re part of our journey.” Marty Sykes and Tom Greenhill, Co-Founders of Lords of Poké “It was important for us to find a workplace partner that can help our organisation to scale, rather than just another office provider, who would work with us to bring our vision to life. The Storey team continue to play an important part in helping our organisation be successful.” Billy D’Arcy, CEO, BAI Communications British Land has really transformed Regent’s Place in the eight years that we’ve been there Similarly, our business has evolved significantly in that time, and will continue to do so. As such, it’s great to work with a partner that understands our needs and is developing a collaborative space for our people and clients that will also help us work more efficiently in a thriving London location. Richard Sexton, Director of Change Management Office, Dentsu Aegis Network British Land | Annual Report and Accounts 2019 13 Canada Water A new urban centre for London At Canada Water we are masterplanning a 5m sq ft mixed use scheme across 53 acres of central London. The site is located between London Bridge and Canary Wharf on the Jubilee line and has access to the London Overground making it is easily accessible to Canary Wharf, the West End, Shoreditch and South West London. It will also benefit significantly from the opening of Crossrail, which will reduce pressure on the Jubilee line between Canary Wharf and Bond Street. Here, our ambition is to create a sustainable, new urban centre for London, that supports the existing community and attracts new people to the area to deliver a real sense of neighbourhood. We have consulted extensively with local people and community groups and their views have helped to shape our plans. Our partner, the London Borough of Southwark, has the opportunity to co-invest in each phase on an individual basis, closely aligning our interests. Wellness and sustainability are at the centre of our plans. Smartly designed buildings will be set around water and green public spaces, together creating a vibrant destination where people can live, work and be entertained throughout the day and into the evening. Our design draws on the heritage of the local area to provide a mix of space including retail, office and leisure with capacity for c.3,000 homes across a range of tenures and affordability. Residential will play a key role in the regeneration of Canada Water and will be an increasingly important part of our business as we seek to focus on mixed use places. Owning and managing people’s homes comes with a real responsibility which will be at the forefront of our approach as we build this business. @CanadaWaterMasterplan canadawatermasterplan.com 14 British Land | Annual Report and Accounts 2019 “We appreciate the interest and respect British Land have for what we do. They have a long term vision and we’re part of that, it’s like we’ve been brought into the subsoil and it’s wonderful to be part of the conversation around how this place comes together.” Jane Riddiford, Co-Founder, Global Generation “Canada Water is a great place for us to work – the location is perfect for our students and tutors who are delighted with our new home. We’ve found this incredible space, and have really benefitted from British Land’s knowledge of the area and interaction with the local community. We have lots of exciting plans and look forward to growing with the development and reaching more people who live here.” Sally Carruthers, Executive Director, The Poetry School “Delivering our masterplan is a hugely complicated and long term project. It will absolutely transform the local area, so we have a real responsibility to engage closely with local residents. We’ve done that at every stage and we’re thrilled with the level of local support our plans are generating.” Emma Cariaga, Head of Operations at Canada Water, British Land The area is changing and the masterplan builds on that momentum… What we look for is great space, high footfall and a catchment we think would engage with Pizza 1889. British Land immediately understood what we were trying to achieve here and have a really strong understanding of how retail is evolving and the role we can play within that. The area has seen so many changes in terms of the environment and the demographics and the masterplan really reflects where it’s heading. Dan Southwell, Founder and CEO, Pizza 1889 British Land | Annual Report and Accounts 2019 15 Retail Convenient and engaging places supporting a modern approach to retail In a rapidly-changing market, only the best quality space in the right locations will succeed. Our Retail portfolio is focused on places which support modern retailers with an omni-channel strategy to drive demand for our space. In an evolving market, physical store networks remain important to successful retailers, but their role is changing. Increasingly, the true value of physical stores is as a showroom or logistics network to support fulfilment of an online sale. Larger, regional centres best support the showrooming function. They tend to offer a broad range of leisure and entertainment activities, attracting customers from a wide catchment for a whole day, and generating high footfall. This enables people to touch and try things on, boosting sales even if they subsequently make the purchase online. A physical network can support fulfilment in several ways. Well-connected stores, or those with the capacity to hold stock, can support a ‘ship from store’ approach, minimising delivery times for consumers who increasingly expect purchases to arrive immediately. Centres with parking widely available, or which are located near transport interchanges, are also ideal for click and collect. Our data shows that click and collect customers are highly valuable, spending on average nearly twice as much as a non-click and collect customer. Looking forward, we are focusing our portfolio on assets which benefit from these characteristics, but we recognise that the overall quantity of space that retailers require will reduce, with only the best quality space in the right locations being viable long term. Therefore on a five-year view, we will be reducing our exposure to retail such that it comprises c.30-35% of our total portfolio, down from 45% today. We have already made substantial progress, with £2.9bn of asset sales over the last five years. However, our focus on mixed use places means that retail will remain an integral part of our offer. Our campus developments and our plans at Canada Water incorporate a significant retail allocation as we seek to create places that reflect today’s lifestyles. 16 British Land | Annual Report and Accounts 2019 “We opened our first centre at one of British Land’s shopping centres in 2014, when there was a much more limited leisure offering in shopping centres. But British Land were very forward thinking, they saw the way retail was evolving and it was a great success for both of us. We’ve since opened two more with British Land. Meadowhall has high footfall, a strong catchment, an excellent occupier line up and a wide range of facilities, so it was an ideal destination for us, and the support we received from British Land both pre and post opening has been fantastic.” Heidi Duckworth, Executive Chairman, Rock Up “To soar in today’s crowded market, your brand must stand out, connecting emotionally with consumers and offering them something special. It can be challenging to do that if you’re an online-only business. Opening stores was a step-change for Hotel Chocolat, enabling us to not only diversify into things we couldn’t have done before but also to create a real sense of chocolate theatre, adding an immersive experience that allowed us to interact with guests.” Peter Harris, Co-Founder and Development Director, Hotel Chocolat which has a store at Meadowhall and Teesside, and coming soon to Fort Kinnard, Edinburgh “We work with a lot of landlords, but two things set British Land apart. First, they really understand the customer. They know who and how people shop across the estate and that’s a real advantage. Second, they understand that creating a great environment and getting the service right is absolutely key. We’re really excited about opening at Meadowhall. It will bring us closer to our customers and their feedback is what really helps develop the brand.” Mike Rich, Head of Retail, Skopes We opened a physical store because that’s what our customers wanted One of the main reasons we opened a physical store was that our customers started asking for it. Meadowhall could guarantee high footfall, so it ticked a lot of boxes for us. British Land are a forward thinking landlord who understood our passion for creating something different. The wider business is flourishing – sales are up 20%, that’s not all down to Meadowhall, but the store has given us extra credibility and really raised our profile in the press and social media, so we’ll definitely be opening more. Darren Abbott Director, Joe Browns British Land | Annual Report and Accounts 2019 17 OUR INVESTMENT CASE IN ACTION 3 Our distinctive business model Our business model is designed to deliver positive long term outcomes for all our stakeholders. Our inputs: what makes our model work Relationships Our customers and partners Operational expertise Our expert people The communities who live and work in and around our assets Culture of collaboration enabling effective working across teams Our suppliers and contractors Data and analysis tools providing insight into customer needs Activities: what we do Our finance Appropriate leverage for current and future plans Diverse, efficient and flexible finances from a range of sources Partnerships which mitigate risks, add expertise and help finance projects Investing and developing Creating development opportunities in our portfolio Identifying new opportunities Allocating capital to deliver growth and returns Places People Prefer Placemaking Connecting to local communities Design-led places in tune with modern lifestyles Enhancing and enlivening our space to create a positive experience Managing our space Enhancing the mix of uses and occupiers at our places to create diverse neighbourhoods World class property management Smart and sustainable buildings reflecting what matters to our occupiers and the people who use our places Our outputs: what we deliver Customers High quality environments which help our customers succeed Communities Inclusive places which create opportunities and make a positive local contribution Employees Supportive and inclusive culture where people can feel supported and empowered to develop their skills and experience Partners Participation in high quality projects, benefitting from our scale and expertise Shareholders Sustainable and responsible long term income and value creation 18 British Land | Annual Report and Accounts 2019 …and clear focus We invest in long term themes to create vibrant mixed use places for our stakeholders. Customer Orientation – Responding to changing lifestyles Our business is focused on our customers who are the organisations which have taken space at our assets. We also consider carefully the needs of the people who work, shop at or visit our places and the communities who live in the surrounding neighbourhoods. We have developed a deep understanding of how people use our space which informs our approach to managing our assets and guides our investment activity. This means we are always focused on the customer and deliver places that are successful and sustainable long term. Aligned to our sustainability pillar: Wellbeing — Create places that promote health, improve productivity and increase enjoyment Right Places – Creating great environments Our insight into the customer helps us identify places which can succeed long term. This underpins our focus on our London campuses, where we can manage the environment to deliver a broader mix of uses enabling people to combine their work and leisure time, reflecting modern London lifestyles. We apply the same principles to our retail spaces, which are around the country in places that are easily accessible from strong catchment areas. Our 53 acre scheme at Canada Water, which will be mixed use from the start, is the best illustration of this approach. Aligned to our sustainability pillar: Community — Make a positive contribution locally and behave so our places are considered part of their local community Capital Efficiency – Thoughtful use of capital We are thoughtful in our approach to capital allocation and carefully evaluate investment opportunities to support income and returns for our shareholders. We have created opportunities for development within our portfolio, which typically deliver stronger returns, although with inherently higher risk. We balance this against acquisition opportunities we see in the market and investing in our own portfolio by buying back shares. At the same time, we monitor our leverage in the context of wider decisions made by the business. Aligned to our sustainability pillar: Futureproofing — Protect and enhance asset value through environmental stewardship, including energy generation and efficiency, materials innovation and flood risk reduction Expert People – Changing the way we work Our people strategy focuses on creating a team which can deliver Places People Prefer. We do this by attracting and retaining people with a broad range of skills and experience and a diversity of backgrounds. We recognise that to keep people engaged in our business, we must invest in their development and in creating a working environment that supports wellbeing and inclusion. We also recognise the importance of investing in tomorrow’s workforce for our customers, suppliers and local partners. We take action on this through Bright Lights, our skills and employment programme. Aligned to our sustainability pillar: Skills and opportunity — Develop skills and opportunities to help local people and businesses grow Detail on our achievements and progress can be found within the KPI review on pages 20 to 21 British Land | Annual Report and Accounts 2019 19 OUR STRATEGY Delivering on our strategy Focus area Achievements Priorities for the year ahead Customer Orientation Continued investment in technology driven innovations and insights – Smart Places team established and strategic vision to deliver digital placemaking set out – Digital platform capturing sales data rolled out to c.1,000 retail occupiers providing further insight into the customer and the performance of our assets Strengthened our operational expertise – Storey now operational across 141,000 sq ft, providing flexible space for existing occupiers and attracting new occupiers to our campuses Right Places Refine and refocus our Retail business – £646m sales of non-core or solus assets Progress developments, focusing on London campuses – 1 Finsbury Avenue completed and continued good leasing progress across development pipeline, now 76% pre-let or under offer – Achieved planning on 1-2 Broadgate Progress residential business – Planning application submitted at Canada Water with potential for 3,000 homes in our masterplan – Develop our Smart Places product and roll out across the Offices portfolio – Launch Storey Club and standalone Storey offer – Continue to manage the integration of British Land Property Management with British Land – Leverage our data and insights to develop our office offer – Continued Retail sales, progressing our strategic plan to deliver a smaller, more focused Retail business – Continued investment in campus development – Achieve planning at Canada Water and commence development – Progress opportunity at Norton Folgate – Commence refurbishment of Royal Victoria Place, Tunbridge Wells Capital Efficiency Recycle capital to improve returns – £500m sale (our share) of 5 Broadgate – Continue to take capital allocation decisions based on relative value Loan to value (LTV) – proportionally consolidated Weighted average interest rate – proportionally consolidated – £359m residential sales and £646m retail sales – Maintain appropriate leverage Expert People – £200m extension to share buyback completed – £125m further extension to buyback announced – Repayment of £223m of debt in the Broadgate JV releasing buildings for potential development Maintain appropriate leverage – LTV remains low at 28.1% – Flexible finance: £1.4bn new debt finance arranged Encourage cross-team collaboration and shared learnings – Office and Retail asset management and leasing restructured under single leadership Enhance diversity across the business – Top 10 performer in Hampton Alexander Review – Successful year across our networks Embed new corporate values – Value-focused events and activities through the year – Integrate our asset management and leasing teams to act as a single business across Retail and Offices – Reduce our gender pay gap – Launch of EnaBLe, our disability network Employee engagement score 75% employee engagement score, 5% higher During the year we formally combined our British – Unplanned executive than the United Kingdom benchmark.* Land and British Land Property Management departures businesses into our York House head office so the 2019 employee engagement score relates to the combined business, while historic figures relate to British Land only. For 2019, employee engagement at British Land was 78%. Total accounting return (TAR) Delivering sustainable long term value Total accounting return is our overall measure of performance. It is the dividend paid plus the change in EPRA NAV per share. This year our TAR was (3.3)% comprising a dividend increase of 3.0% to 31 pence per share offset by a fall in EPRA NAV of 6.4% to 905 pence per share. 20 British Land | Annual Report and Accounts 2019 Performance Customer satisfaction We extensively survey our customers and other users of our places to assess our performance and identify opportunities for improvement. Total property returns Speculative development commitment We have underperformed the IPD benchmark Development supports value and future income growth, – Property capital return this year by 550bps, reflecting the continued strength but adds risk. We keep our committed development and ERV growth forecasts of industrials where we have no exposure. exposure at less than 15% of our investment portfolio, with a maximum of 8% developed speculatively. We manage our LTV through the property cycle Our low cost of finance at 2.9% has contributed – Financial covenant such that our financial position would remain robust to reducing our interest cost, supporting our headroom in the event of a significant fall in property values. financial performance. Risk indicators – Consumer confidence – Employment forecasts for relevant sectors – Market letting risk (vacancies, expiries, speculative development) – Total development exposure – Progress of developments – Speculative development against plan exposure – Period until refinancing is required – Percentage of debt with interest rate hedging – Execution of debt financings – Forecast GDP – The margin between property yields and long term borrowing costs – Property capital growth and ERV growth forecasts KEY PERFORMANCE INDICATORS Focus area Achievements Priorities for the year ahead Performance Customer Orientation Continued investment in technology driven – Develop our Smart Places product and roll out innovations and insights across the Offices portfolio – Smart Places team established and strategic vision – Launch Storey Club and standalone Storey offer Customer satisfaction We extensively survey our customers and other users of our places to assess our performance and identify opportunities for improvement. to deliver digital placemaking set out – Digital platform capturing sales data rolled out to c.1,000 retail occupiers providing further insight into the customer and the performance of our assets Strengthened our operational expertise – Storey now operational across 141,000 sq ft, providing flexible space for existing occupiers and attracting new occupiers to our campuses – Continue to manage the integration of British Land Property Management with British Land – Leverage our data and insights to develop our office offer Out of 10 2019 2018 2017 8.2 8.1 8.1 LTIP AI 2019 2018 2017 (0.9)% 3.1% Total property returns We have underperformed the IPD benchmark this year by 550bps, reflecting the continued strength of industrials where we have no exposure. Speculative development commitment Development supports value and future income growth, but adds risk. We keep our committed development exposure at less than 15% of our investment portfolio, with a maximum of 8% developed speculatively. % of standing investments Right Places Refine and refocus our Retail business – £646m sales of non-core or solus assets Progress developments, focusing on London campuses – Continued Retail sales, progressing our strategic plan to deliver a smaller, more focused Retail business – Continued investment in campus development – 1 Finsbury Avenue completed and continued good – Achieve planning at Canada Water and leasing progress across development pipeline, now commence development 76% pre-let or under offer – Achieved planning on 1-2 Broadgate Progress residential business – Planning application submitted at Canada Water with potential for 3,000 homes in our masterplan – Progress opportunity at Norton Folgate – Commence refurbishment of Royal Victoria Place, Tunbridge Wells Capital Efficiency Recycle capital to improve returns – £500m sale (our share) of 5 Broadgate – Continue to take capital allocation decisions based on relative value – £359m residential sales and £646m retail sales – Maintain appropriate leverage – £200m extension to share buyback completed – £125m further extension to buyback announced – Repayment of £223m of debt in the Broadgate JV releasing buildings for potential development Maintain appropriate leverage – LTV remains low at 28.1% – Flexible finance: £1.4bn new debt finance arranged restructured under single leadership Enhance diversity across the business – Top 10 performer in Hampton Alexander Review – Successful year across our networks Embed new corporate values – Value-focused events and activities through the year Loan to value (LTV) – proportionally consolidated We manage our LTV through the property cycle such that our financial position would remain robust in the event of a significant fall in property values. Weighted average interest rate – proportionally consolidated Our low cost of finance at 2.9% has contributed to reducing our interest cost, supporting our financial performance. 2019 2018 2017 28.1% 28.4% 29.9% 2019 2018 2017 2.9% 2.8% 3.1% Expert People Encourage cross-team collaboration and shared learnings – Integrate our asset management and leasing teams to act as a single business across Retail and Offices – Office and Retail asset management and leasing – Reduce our gender pay gap Employee engagement score 75% employee engagement score, 5% higher than the United Kingdom benchmark.* – Launch of EnaBLe, our disability network 2019 2018 2017 * Culture AMP 2018 75% 78% 72% During the year we formally combined our British Land and British Land Property Management businesses into our York House head office so the 2019 employee engagement score relates to the combined business, while historic figures relate to British Land only. For 2019, employee engagement at British Land was 78%. 7.0% 2019 2018 2017 2.3% £0.3bn 4.5% £0.6bn 3.7% £0.5bn Risk indicators – Consumer confidence – Employment forecasts for relevant sectors – Market letting risk (vacancies, expiries, speculative development) – Property capital return and ERV growth forecasts – Total development exposure – Progress of developments against plan – Speculative development exposure – Financial covenant headroom – Period until refinancing is required – Percentage of debt with interest rate hedging – Execution of debt financings – Unplanned executive departures Total accounting return (TAR) Delivering sustainable long term value in EPRA NAV per share. Total accounting return is our overall measure of performance. It is the dividend paid plus the change This year our TAR was (3.3)% comprising a dividend increase of 3.0% to 31 pence per share offset by a fall in EPRA NAV of 6.4% to 905 pence per share. LTIP 2019 (3.3)% 2018 2017 8.9% 2.7% – Forecast GDP – The margin between property yields and long term borrowing costs – Property capital growth and ERV growth forecasts Links to remuneration: LTIP Long-Term Incentive Plan AI Annual Incentive Award Read more on pages 100 to 103 British Land | Annual Report and Accounts 2019 21 OUR INVESTMENT CASE IN ACTION 4 A well positioned development pipeline Our significant development pipeline positions us well to capitalise on future market opportunities in a thoughtful and risk managed way. 1.6m sq ft Committed and recently completed developments Delivering £63m Future rent 76% Pre-let or under offer Committed 1 Triton Square Office led development at Regent’s Place, fully pre-let to Dentsu Aegis Network, an existing occupier on the campus. At 310,000 sq ft this was the largest West End pre-let in more than 20 years. 366,000 sq ft PC Q4 2020 Completed 2020 1 Finsbury Avenue Office-led refurbishment at our Broadgate campus providing a mix of space including a cinema, cafés and flexible workspace alongside conventional office space. The building is 58% let or under offer with technology companies Mimecast and Product Madness among those taking space. 135 Bishopsgate Office-led development at our Broadgate campus. The building is 90% pre-let or under offer with future occupiers including Italian marketplace Eataly, global advertising agency McCann and interdealer broker TP ICAP. 100 Liverpool St Office-led development adjacent to Liverpool Street station with 90,000 sq ft of retail and leisure space. 56% pre-let or under offer to occupiers including financial services firms SMBC Europe and Peel Hunt and law firm Milbank. 287,000 sq ft PC Q1 2019 335,000 sq ft PC Q3 2019 521,000 sq ft PC Q1 2020 22 British Land | Annual Report and Accounts 2019 Near term pipeline Medium term pipeline 1-2 Broadgate Office-led development on our Broadgate campus which includes 153,000 sq ft of retail connecting Finsbury Avenue Square with retail at 100 Liverpool Street and the Broadgate Circle to create a 350,000 sq ft retail, leisure and dining hub. 531,000 sq ft 2021 Norton Folgate Office-led redevelopment in Shoreditch, integrating 258,000 sq ft of office space alongside retail and residential to create a mixed use space that draws on the historic fabric of the area. 5 Kingdom Street Office-led development at the western end of Paddington Central, with 80,000 sq ft of space available for a broader mix of uses including retail, dining and events space. Canada Water, Phase 1a Three buildings delivering a mix of office, retail, leisure and residential with 265 homes planned across a range of tenures and affordability. 429,000 sq ft 576,000 sq ft 2024 Sustainable development We understand that, as a developer, we have a real responsibility to manage our environmental and social impacts. In many cases, our first decisions are around how much of the existing structure we can retain, which reduces our embodied carbon emissions. We always focus on minimising disruption for our customers and local community and we work with partners to create a lasting positive legacy, opening up opportunities for local schoolchildren, students, jobseekers and businesses. For more information on our approach see case studies on 1 Triton Square page 67, 100 Liverpool Street page 115 and 1 Finsbury Avenue page 185. 335,000 sq ft Queen’s Award for Enterprise This was our third year holding the Queen’s Award for Enterprise, the UK’s highest business accolade, recognising our economic, social and environmental achievements on our developments and across our managed portfolio. British Land | Annual Report and Accounts 2019 23 UNIQUE MARKET INSIGHTS Understanding our markets Our insight into our customers underpins our understanding of the key trends driving our markets. Economic uncertainty/ Brexit The UK economic environment has been uncertain since the EU referendum in 2016. When the terms of exit are agreed, we will enter a new chapter in our relationship with the EU and key trading partners to which it will take time to adapt. To date, the economy has proved more resilient than many expected, with unemployment remaining low, particularly in London. Businesses have continued to take space – an important sign of confidence, and overseas investors have continued to acquire London real estate. In financial services, the shift of personnel to Europe has been much less than expected and in London the technology sector is thriving with investment of £4.5bn,1 more than France and Germany combined. Cyclical and structural challenges in retail There have been profound structural changes in the way we shop, with the growth of online sales, which now represent nearly 20% of the total and we estimate that could grow to 40%. This challenge, coupled with cyclical pressures, including rising costs and an uncertain economic outlook, has put pressure on retailers to adjust their operating models. Many have not adapted quickly enough, resulting in a series of high profile failures. Some retailers are adapting successfully and many new, primarily- online operators also recognise the key role that physical can play in an omni-channel approach. However, the overall volume of retail space required will likely decrease, as retailers focus their physical networks on high quality, differentiated space that complements their customers’ broader needs. Leading global cities for office investment 2018 (£bn) Internet sales as a percentage of total retail sales (%) 20 18 16 14 12 10 8 6 4 2 0 2007 London New York Paris Hong Kong Island Seoul 15.7 14.1 11.9 8.3 8.0 7.3 Frankfurt Tokyo- 6.8 Five wards Boston 5.1 Los Angeles 4.4 4.3 Chicago Technology as a disruptor and enabler Technology is driving real change in the way we use real estate. Businesses can track the way workspace is used to make more informed decisions about their requirements. We have the ability to personalise light and temperature or to make it respond to the climate outside. People can work remotely, so they no longer need to be in the office, and prefer to work more collaboratively when they are there. Technology has already revolutionised the way we shop and profoundly changed the way retailers interact with their customers. Retailers increasingly monitor footfall, website clicks within a store catchment and social media to identify which sites work best as they refine their physical footprint. Technology presents a real opportunity across the sector for operators who can leverage its potential. Real estate tech global financing history $bn 14 12 10 8 6 4 2 0 2009 2012 2015 2018 2012 2013 2014 2015 2016 2017 Source: Knight Frank, The London Report 2018 Source: ONS, data covers Great Britain Source: CREtech 1. Tech Nation Report 2018 24 British Land | Annual Report and Accounts 2019 Growth of flexible workspace Demand for flexible and co-working space is increasing driven by the growth of small and medium sized businesses which now employ more than 50% of the workforce.2 Typically, these occupiers cannot make large or long term commitments, creating a clear market for smaller floor plates on more flexible terms, with the benefit of pooled facilities like meeting rooms, kitchens and gyms. Large occupiers also see a role for more flexible space to accommodate project teams or temporary overflow, with 41% of large occupiers also expected to use flexible office space within three years.3 Flexible office space represents just 4%3 of total rental stock, but is the fastest growing component of office take up. The war for talent in London London offers a unique cluster of skilled labour across technology, finance, media, creative industries and the law as well as access to capital and cross-sector regulation. This co-location of some of the most important inputs for new businesses has underpinned London’s success as a leading global city. Today it is the knowledge economy, specifically technology, which is driving that success, so access to talent is key. Businesses from banking to fashion are competing for people with the same skill sets. At the same time, employees increasingly value the opportunity to live, work and socialise in a way that suits them, so employers must do more to attract the best people. This means the quality of the environment, the vibrancy of the public realm and the mix of amenities are increasingly what set businesses apart as a place to work. Flexible office take up, Central London (% of total) UK Unemployment rates (aged 16 years and over) 20 18 16 14 12 10 8 6 4 2 0 2008 9 8 7 6 5 4 3 2010 2012 2014 2016 2018 2000 2003 2006 2009 2012 2015 2018 % of all economically active Source: CBRE Source: ONS 2. Business Statistics House of Commons Briefing Paper Dec 18 3. Barclays Research Dec 18 Focus on wellbeing and sustainability Increasingly, people are choosing to work, shop or spend time in places which have a positive impact on their wellbeing. People want space to work collaboratively, to socialise and to incorporate exercise into their day. This has implications for the sort of facilities employers need to provide and the sort of environments retailers need to offer to drive footfall; as a result, the ability to control the area around a building is a key advantage. Personalising the environment is one of the newest ways to differentiate space. Giving people more control over light and temperature and optimising air quality promotes wellbeing and enhances productivity. At the same time, employees want to work in buildings with strong environmental credentials, and to work for businesses that take their environmental responsibilities seriously. Top reasons for green building in the UK (%) 0 10 20 30 40 50 60 Client demands Environmental regulations Market demands Right thing to do Healthier buildings 60% 48% 30% 28% 23% Survey of UK builders, developers, architects Source: Dodge Data and Analytics Smart Report 2018. British Land | Annual Report and Accounts 2019 25 STAKEHOLDER ENGAGEMENT Shaping our thinking We engage with a wide range of stakeholders to inform our thinking. It takes a diversity of perspectives to deliver outstanding places and positive outcomes for all our stakeholders. Key issues Why we engage How we engage We respond to these stakeholder issues through our strategy Customers Communities The way people work, shop and live is changing and their expectations for places where they spend time and the standard of services they receive are increasing Understanding the businesses and the people who use our space helps us provide places which meet a wider range of needs, driving long term demand for our space Social challenges around equality, health, skills, in-work poverty, affordable housing and social cohesion, as well as environmental concerns and local issues We thrive when our communities prosper. Understanding our communities helps us create successful, inclusive places that contribute to the prosperity of the wider neighbourhood and are attractive to customers To understand how we can best provide a supportive workplace with career opportunities that enrich experience, develop skill sets and promote wellbeing Employees Attracting and retaining talent in a competitive market Partners Shareholders Promoting our ethical and corporate governance standards across joint venture partners and suppliers. Engaging with debt investors, enabling them to better understand our business To help us leverage the range of expertise across existing and potential suppliers, joint venture partners and debt providers to support us in delivering outstanding places Delivering income and capital growth over the long term in the context of broader market uncertainty We have a clear responsibility to engage with shareholders as the owners of our business and their views are an important driver of our strategy 26 British Land | Annual Report and Accounts 2019 We undertake c.26,500 visitor surveys each year. We have built a digital platform that enables data sharing with our retail occupiers and we leverage social media to keep our customers informed across the business Our Local Charter guides how we engage with local people and partners to make a positive difference. It is integrated into all our placemaking plans and activities, including community consultation and partnership projects We encourage open and constructive discussions throughout the business; employees can feed back in the annual company survey, at regular town hall meetings or through a range of employee networks As an expert partner, we believe that aligning interests creates greater mutual benefit. We have shared our strategy and expectations at supplier conferences and assign key contacts to build close working relationships We offer key shareholders the opportunity to meet with management on a one-to-one basis and engage more broadly through investor events. A range of information from financial performance to blogs from our CEO is also available on our website Key issues Why we engage How we engage We respond to these stakeholder issues through our strategy Through our strategy we also help address global challenges Customers Communities The way people work, shop Understanding the and live is changing and their businesses and the people expectations for places where who use our space helps us they spend time and the standard of services they receive are increasing provide places which meet a wider range of needs, driving long term demand for our space Social challenges around equality, health, skills, We thrive when our communities prosper. in-work poverty, affordable Understanding our housing and social cohesion, communities helps us as well as environmental concerns and local issues create successful, inclusive places that contribute to the prosperity of the wider neighbourhood and are attractive to customers can best provide a supportive workplace with career opportunities that enrich experience, develop skill sets and promote wellbeing We undertake c.26,500 visitor surveys each year. We have built a digital platform that enables data sharing with our retail occupiers and we leverage social media to keep our customers informed across the business Our Local Charter guides how we engage with local people and partners to make a positive difference. It is integrated into all our placemaking plans and activities, including community consultation and partnership projects We encourage open and constructive discussions throughout the business; employees can feed back in the annual company survey, at regular town hall meetings or through a range of employee networks Employees Attracting and retaining talent To understand how we in a competitive market Partners Promoting our ethical and To help us leverage the range As an expert partner, we corporate governance of expertise across existing believe that aligning interests standards across joint venture and potential suppliers, joint creates greater mutual partners and suppliers. venture partners and debt Engaging with debt investors, providers to support us in benefit. We have shared our strategy and expectations delivering outstanding places at supplier conferences and enabling them to better understand our business assign key contacts to build close working relationships Shareholders Delivering income and capital We have a clear responsibility We offer key shareholders growth over the long term in the context of broader market uncertainty to engage with shareholders the opportunity to meet as the owners of our business with management on a and their views are an important driver of our strategy one-to-one basis and engage more broadly through investor events. A range of information from financial performance to blogs from our CEO is also available on our website Customer Orientation Wellbeing Responding to changing lifestyles Create places that promote health, improve productivity and increase enjoyment Right Places Creating great environments Capital Efficiency Thoughtful use of capital Expert People Changing the way we work For more information on our corporate strategy see page 19 Community Make a positive contribution locally and behave so our places are considered part of their local community Futureproofing Protect and enhance asset value through environmental stewardship, including energy generation and efficiency, materials innovation and flood risk reduction Skills and opportunity Develop skills and opportunities to help local people and businesses grow For more information on our sustainability strategy see pages 28 to 29 Our sustainability focus areas support the UN’s Sustainable Development Goals (SDGs). Learn more on pages 28 to 29 We are committed to adopting the recommendations of the Task Force on Climate-related Financial Disclosures and have established a Steering Committee to progress towards TCFD alignment. Learn more on pages 62 to 64 Non-financial reporting statement Our non-financial reporting includes environmental matters, employees, human rights, social matters and anti-bribery and corruption. See our statement on page 44 British Land | Annual Report and Accounts 2019 27 OUR 2020 SUSTAINABILITY STRATEGY Our 2020 sustainability strategy Aligned to the corporate strategy, our sustainability strategy is built around four focus areas, which address major social, economic and environmental trends to create value for our stakeholders and the business. British Land has been a signatory to the UN Global Compact since 2009 and our sustainability focus areas support several of the UN Sustainable Development Goals (SDGs), as outlined here. Goal 17, on Partnerships, underpins all our activities. Next year will be the final reporting date for our 2020 targets. We have made excellent progress against many, while facing challenges with others. More information can be found in our Sustainability Accounts and on our website. We are currently engaging with people across our business, key stakeholders and external experts to develop our post 2020 sustainability strategy, which we will launch next year. Our performance on sustainability indices We use industry-recognised indices to track our sustainability performance. Global Real Estate Sustainability Benchmark 2018: Green Star CDP 2018: A- score MSCI ESG Leaders Index* 2018: AAA rating FTSE4Good Index 2018: Top 96th percentile DJSI World 2018 Top 92nd percentile * MSCI disclaimer available at britishland.com/sustainability/performance/benchmarks 28 British Land | Annual Report and Accounts 2019 Our focus areas Wellbeing Community Futureproofing Skills and opportunity Supporting UN Sustainable Development Goals 2019 progress on 2020 targets includes – Developed our air quality framework, engaged with stakeholders on pedestrianisation opportunities and partnered with City Air Tech to pilot an air purifying green wall (2020 target: pilot three interventions to improve air quality). – Published ‘Design for Life’ research on the potential economic benefits of placemaking for wellbeing, partnering with WPI Economics (2020 target: achieved early). – Submitted evidence for WELL certification at 100 Liverpool Street, where we are targeting Gold, working with our suppliers to design for wellbeing and productivity (2020 target: deliver WELL certified office). – 92% progress on our Local Charter at our places (2020 target: 100%), investing £1.8m to make a lasting positive difference to our local communities. – 17% employee skills-based volunteers,1 up from 16% in 2018 (2020 target: 20%),1 as we partner with CASS Business School to develop and support skilled volunteers, maximising societal impact. – 81% employee volunteering (2020 target: 90%).1 Although we continue to offer colleagues up to four days’ paid time off work for volunteering each year, we recognise that greater value is created through skills-based volunteering, so this is where we are increasingly focusing. 1. Volunteering figures currently exclude our property management team, formerly Broadgate Estates Ltd, which was brought in-house this year – 10% average reduction in – 393 people supported into jobs embodied carbon emissions versus concept design on our major developments (2020 target: 15% reduction). This builds on a decade of work on through Bright Lights, our skills and employment programme, bringing the total to 1,232 since 2016, working with suppliers, customers and local partners (2020 target: embodied carbon, commissioning 1,700). Building on the success and publishing studies and partnering with our supply chain to improve performance. – 44% reduction in landlord energy of Starting Out in Retail pre- employment course, we launched Starting Out in Building Services and piloted Retrain in Retail. intensity across our portfolio – Since the launch last year we versus our 2009 baseline, through have signed up 34/64 strategic our efficiency programme, working suppliers to our new Supplier Code with property teams and partners of Conduct (2020 target: 100%), and (2020 target: 55% reduction, overall 774 suppliers are signed up. index scored). – 2.4% of our prioritised suppliers’ – 96% of electricity purchased from UK workforce are apprentices renewable sources (2020 target: (2020 target: 3%). With 100%) and installation of the UK’s unemployment at a record low, largest shopping centre solar array changes to education funding and at Meadowhall. other external factors, our focus is increasingly on upskilling people and supporting people who face barriers to employment into work. Our focus areas Wellbeing Community Futureproofing Skills and opportunity For more sustainability performance data, including progress on our 2020 targets and EPRA indicators, see pages 195 to 197 of this Report For our full sustainability performance data, see our Sustainability Accounts 2019: britishland.com/data To find out where we report on the key areas of the Non-Financial Reporting Directive, see page 44 Partnerships for the goals Supporting UN Sustainable Development Goals 2019 progress on 2020 targets includes – Developed our air quality framework, engaged with – 92% progress on our Local Charter at our places (2020 stakeholders on pedestrianisation target: 100%), investing opportunities and partnered with City Air Tech to pilot an air purifying green wall (2020 target: pilot three interventions to improve air quality). – Published ‘Design for Life’ research on the potential economic benefits of placemaking for wellbeing, £1.8m to make a lasting positive difference to our local communities. – 17% employee skills-based volunteers,1 up from 16% in 2018 (2020 target: 20%),1 as we partner with CASS Business School to develop and support skilled volunteers, maximising partnering with WPI Economics societal impact. (2020 target: achieved early). – Submitted evidence for WELL certification at 100 Liverpool Street, where we are targeting Gold, working with our suppliers to design for wellbeing and productivity (2020 target: deliver WELL certified office). – 81% employee volunteering (2020 target: 90%).1 Although we continue to offer colleagues up to four days’ paid time off work for volunteering each year, we recognise that greater value is created through skills-based volunteering, so this is where we are increasingly focusing. – 10% average reduction in – 393 people supported into jobs embodied carbon emissions versus concept design on our major developments (2020 target: 15% reduction). This builds on a decade of work on embodied carbon, commissioning and publishing studies and partnering with our supply chain to improve performance. – 44% reduction in landlord energy intensity across our portfolio versus our 2009 baseline, through our efficiency programme, working with property teams and partners (2020 target: 55% reduction, index scored). – 96% of electricity purchased from renewable sources (2020 target: 100%) and installation of the UK’s largest shopping centre solar array at Meadowhall. through Bright Lights, our skills and employment programme, bringing the total to 1,232 since 2016, working with suppliers, customers and local partners (2020 target: 1,700). Building on the success of Starting Out in Retail pre- employment course, we launched Starting Out in Building Services and piloted Retrain in Retail. – Since the launch last year we have signed up 34/64 strategic suppliers to our new Supplier Code of Conduct (2020 target: 100%), and overall 774 suppliers are signed up. – 2.4% of our prioritised suppliers’ UK workforce are apprentices (2020 target: 3%). With unemployment at a record low, changes to education funding and other external factors, our focus is increasingly on upskilling people and supporting people who face barriers to employment into work. Through our award-winning partnership with the National Literacy Trust, we have hosted fun literacy events for over 40,000 children and given more than 120,000 free books since 2012, changing lives. Hear from some of our partners, as we work together to make a greater difference: “ Research shows that children who enjoy reading, read more and go on to have better opportunities in life. British Land takes us to the heart of many communities that we want to reach. Our collaboration is the largest and longest partnership between a business and charity to improve literacy in the UK. The results show how businesses can transform educational outcomes.” Jonathan Douglas of the National Literacy Trust “ The Recruitment & Skills Centre at Fort Kinnaird contributes to Edinburgh’s economic strategy, supporting jobseekers into jobs and reducing in-work poverty by helping people progress in their careers. When the public and private sectors share common goals and work together, we can achieve so much.” Rhona McLinden of Capital City Partnership, Edinburgh British Land | Annual Report and Accounts 2019 29 EXPERT PEOPLE Changing how we work to deliver our strategy Our culture is evolving in line with our increasing focus on mixed use. As we progress this strategy, we are focused on the needs of the businesses, people and communities who live, work and visit our places. Our workforce is made up of people who understand and represent customers’ needs and perspectives and reflect this in their daily work to create Places People Prefer. Our values (below) define our ways of working at British Land and connect us every day to our vision, purpose and strategy. We have identified four key themes of workplace culture which support our business strategy, to become more inclusive, more flexible, more creative and more responsible. Bring your whole self – Feel free to be ourselves and help others feel the same – Bring all our passion and energy to what we do – Be open and inclusive Bring your whole self Listen and understand – Take the time to listen and feed back – Listen with respect and without judgement – Base our actions on what we learn Be smarter together – Bring together the right team – Own our responsibilities – Support each other to succeed Build for the future – Anticipate needs and lead with courage – Grow our expertise and learn from our experience – Be accountable for the legacy we leave Be smarter together Build for the future Read more about our inclusive culture and diversity at britishland.com/inclusive-culture 30 British Land | Annual Report and Accounts 2019 Listen and understand We have well-established networks and forums which are led by employees both at work and outside the office. These have continued to thrive, hosting a total of 29 events this year. More inclusive At British Land we celebrate inclusivity as part of our corporate culture. Many initiatives are led by groups of employees. Above all our workplace is a place where employees can be themselves. Our CEO Chris Grigg is at the forefront of this change and for the fourth consecutive year was ranked in the top 30 of Ally Executives by OUTstanding and the Financial Times. He is supported by Darren Richards, our Head of Real Estate and Executive Committee member, who heads our Inclusive Culture Steering Committee. A Corporate Social Responsibility Committee of the Board which has recently been established, chaired by Non-Executive Director Alistair Hughes, also has oversight of the development of our culture. We recognise our role in supporting the wellbeing and mental health of our employees. Our Wellbeing Committee has trained 47 employees as Mental Health First Aiders. The team have created a Wellbeing Room to provide people with a calm retreat which can be used by employees during the working day. In February we hosted an event for our occupiers at 201 Bishopsgate alongside Lord Holmes to launch a Women’s network for the building. We remain in the top 10 best performers in the Hampton Alexander review with over 33% women (the recommended amount) in the combined Executive Committee and Direct Reports. We are in the Top 50 Social Mobility Employer index up from position 85 and are just outside the top 100 for the Stonewall UK Equality index. We continue to recognise that it will be a long and steady path to reduce our gender pay gap and we remain focused on this with our Executive team who have a joint management objective to reduce the gap progressively. Our gender pay gap is discussed in the conversation with Chris Grigg on page 6 and more information can be found at britishland.com/gender-pay-gap. Our gender split can be found on page 112. Building a more inclusive workforce for the future, our summer internship programme recruits from a variety of backgrounds, and for the sixth consecutive year, we have supported the Pathways to Property programme. Across our portfolio, over 36,000 people benefitted from our skills, employment and educational initiatives in the year. More flexible Like our customers, many of our employees wish to work more flexibly, to better balance their personal and professional lives. To accommodate this, we ensure that all employees have the technology to work flexibly and are pleased that 15% do so on a formal basis. To keep our people engaged in their work, we invest in training and development, enabling them to work across different projects, developing new skill sets and building their experience. This year we invested more than £600,000 to train and develop our people. We work with Cambridge University to run a Leadership in Real Estate programme. 75 of our staff have benefitted from this programme since it was launched in 2014. Aligned with cultural changes across the business, we have delivered the ‘Performance through People’ programme in partnership with Ashridge Executive Education to support British Land managers in their role and we offer a range of online resources to help employees develop their skills. Investing in tomorrow’s workforce is a key priority for British Land, our customers and partners, and this means we continuously need to evolve the way we work to accommodate the needs of people at different stages of their lives. This includes reviews of our policies and benefits, as well as the way we recruit, hire and train. More creative We recognise the importance of collaborative working practices to enhance creative ideas and thinking. Across our portfolio, we create places that encourage innovation through collaboration and connection and we take the same approach with our own workspace. The renovation of our head office in 2015 better integrated the different teams within our business and provided more collaborative space. This year, we went further, introducing agile working so people get to work with different teams on a regular basis and, in addition, can work in shared space at our assets, providing a real insight into the customer experience. We believe this environment encourages people to be more entrepreneurial in their thinking. More responsible We recognise that as an owner and manager of space we have a real responsibility to the people who occupy, visit or live in and around it. In May 2018 we sold the third party portfolio of Broadgate Estates, our property management business which now focuses exclusively on our own portfolio. This year, we integrated this business within British Land and it now sits within our head office. This reflects the important role that customer services plays in our business as we progress our strategic focus on mixed use places. We encourage all our people to support local communities through volunteering and are pleased that 81% of the British Land team was involved volunteering this year, including roles as charity trustees and school governors. Since 2017, 48 employees have signed up to the Step on Board programme, an external service that supports employees to volunteer as non-executive directors and trustees of charities and voluntary organisations. Our ‘Quarterly in Conversation’ (QIC) group of senior managers is a forum which facilitates discussion across teams, generating new ideas and enabling our teams to learn from each other’s experience. It meets quarterly with the CEO and /or a member of the Board, providing a two-way dialogue that keeps people at every level of the business better informed. British Land | Annual Report and Accounts 2019 31 PERFORMANCE REVIEW Focused on our strategy Pricing has continued to polarise, with well designed, new or refurbished space achieving a significant premium. This is evidenced by the fact that c.65% of all space under construction for delivery in 2019 is already pre-let. Supply has remained relatively constrained and some 30% of space previously expected to be delivered in 2020 is not yet under construction, suggesting development starts continue to be pushed back. Annual house price growth remained relatively subdued at 0.7% in March 2019 and was weakest in London and the South East, which reported declining prices. The market for prime and super prime continues to be challenging, with demand from overseas buyers reduced partly due to political uncertainty in the UK and globally, as well as changes to rules on capital gains tax on property disposals for overseas investors. Retail market Retail investment markets were weak reflecting continued negative sentiment around the long term role of physical retail. However, there is robust demand for well-let individual assets with strong occupational characteristics or alternative use potential. Investment volumes for multi-let assets have been low and those that have transacted have often been at significant discounts to book value. Towards the end of the financial year however, it became apparent that for certain types of multi-let assets, valuations reached a point where return profiles were attracting interest from a deeper pool of investors. The occupational market remained challenging as more retailers have entered CVA or administration, resulting in store closures. All retailers are working to optimise their store networks to have the right footprint to succeed in an omni-channel environment. They are focused on the optimal number of stores they need and how much they are willing to pay for them and key to this is the quality and connectivity of the locations. As a result, we have seen polarisation trends accelerate with the best quality, best located retail assets, in the strongest demographic locations which are right sized and affordable to retailers continuing to perform relatively well whereas secondary locations, or those which are too big to reflect local demand, have struggled. Despite these challenges, many retailers continue to perform well and successful new entrants continue to emerge – as has always been the case. However, whilst the key Christmas trading period was generally stronger than expected, the market is set to remain challenging overall. Since the end of our financial year we have seen a high profile CVA from Debenhams. Campus-focused London offices At our London campuses, we create and manage some of the best connected, most accessible space in London, all located in vibrant and exciting neighbourhoods. They provide world class, modern and sustainable offices alongside public spaces with all the mix of amenities people expect of a modern workplace. These unique campus benefits are the result of specific investment over many years and represent a clear attraction to businesses seeking to hire and retain the best people. £12.3bn Portfolio valuation 6.4 years Weighted average lease length to first break (0.9)% 97.2%1 Total property return Occupancy rate (1.6)% ERV movement (4.8)% Valuation movement 1. Where occupiers have entered CVA or administration but are still liable for rates, these are treated as occupied. If units expected to become vacant are treated as vacant, then the occupancy rate would reduce from 97.2% to 96.9% Market backdrop Macro-economic context The backdrop through the year was dominated by the ongoing Brexit process. The UK recorded only moderate GDP growth and the rate of growth slowed in the final quarter. Business confidence remained fragile and declined overall, with companies slowing investment decisions in the context of a possible ‘no deal’ scenario. Consumer sentiment remained subdued, albeit stable. A number of forecasters including the Bank of England have reduced their growth projections for the coming year with the outlook mixed. Unemployment remained low at under 4%, the lowest level since 1975 and real wage growth strengthened as levels of employment continued at record highs. London market The London investment market remained good, with £16bn of transactions in 2018, slightly down on 2017, but more than any other major city globally. Overseas buyers, who accounted for more than 80% of deals remained active, although the make up of buyers continued to evolve with demand from China and Hong Kong easing, but demand from South Korea, Australia and the Middle East growing. There was however a notable pause in the early part of 2019 as Brexit uncertainty increased and the theme of polarisation in investment demand continued as activity focused on high quality, well-let or trophy assets, with less prime properties pricing below expectations and at generally wider yields. The occupational market continued to show resilience with above average take up. Serviced offices were the largest single component of demand accounting for 17%, with banking and finance representing 16%. Vacancy is in line with the 10 year average and year-on-year, incentives were largely unchanged, with prime rents moderately up in both the West End and the City. 32 British Land | Annual Report and Accounts 2019 People and businesses are working more flexibly, and their needs change over time, driving demand for quality office space on more flexible terms. This is what Storey, our flexible workspace offer provides. It is operational across all three of our campuses and is an integral part of our offering. It is differentiated from other flexible office offerings in allowing occupiers to personalise high quality office space through their own branding whilst benefitting from shared amenities in the building and all the benefits our campuses offer. The average size of our Storey customers is 45 employees, and with an average lease length of around two years it complements our core office offer while attracting a new market segment to British Land: relatively new, fast-growing ‘scale up’ businesses, and specific standalone divisions of larger companies. Retail will continue to play an increasingly prominent role within our campuses, notably at Broadgate, where our development pipeline will deliver an additional 395,000 sq ft of non-office space, focused on retail, leisure and dining space. This will predominantly be at ground floor, so although the total allocation will be just 12%, it makes a highly visible contribution to the campus, and has been instrumental in helping us sign a more diverse range of occupier. A smaller, more focused Retail portfolio Structural change in retail is fundamental and ongoing. Recognising this, we have been refining our Retail portfolio for several years and have made good progress with £2.9bn of asset sales since 2014. We have a clear view of the role retail will play in our business long term. We will focus on assets which are best placed to support the changing role of physical retail and enable retailers to succeed in an increasingly omni-channel world. They will be high quality, well connected multi-let centres accessible to catchment areas with attractive demographics. They will have strong market positions, be affordable to retailers, appropriately sized to reflect their local market and have the potential to become increasingly mixed use over time. Looking forward, we aim to reduce our Retail business to 30-35% of the total, based on current valuations over the next five years. This implies further asset sales into a market which is currently more challenging and is likely to remain so in the short term. In this context, we will remain patient and opportunistic in our approach and only progress disposals at the right price, which deliver clear value and progress our long term strategy. Residential, principally Build to Rent Build to Rent residential is complementary to our existing expertise and additive to our mixed use strategy. The market is underpinned by sound fundamentals, with housing generally undersupplied relative to demand and ability to buy constrained, making renting an attractive option for a growing number of people. Added to this, ownership is relatively fragmented, creating an opportunity for professionally- managed, quality space especially in London and the South East. More details on the portfolio, property performance, individual developments and assets sold and acquired during the year can be found in the detailed supplementary tables on pages 186 to 194 Storey Storey, our flexible workspace offer, launched in June 2017. It is a deliberately differentiated concept, providing quality workspace on a short term basis. Occupiers have the ability to brand the space themselves whilst benefitting from the shared facilities in the buildings and the amenities across the wider campus. It has become integral to our campus offering, helping us attract new businesses, typically from the technology or creative sectors, as well as providing overflow or project space for occupiers on our core space. Two years in, it is operational across 141,000 sq ft and our plans will more than double this to include standalone buildings as well as space of our campuses. Indicative 5-year business mix Progress on our strategy Strategic priority Campus- focused London Offices Of which Storey c.5% 55-60% Progress – Progressing development on our campuses and de-risking through pre-lets with 76% of our recently completed and committed developments now let or under offer to a broad range of occupiers – Creating options with 2.7m sq ft of planning consents achieved – Storey operational across 141,000 sq ft on all three campuses with further 161,000 sq ft identified (incl. standalone locations) – Smart Places team established with a clear strategy to deliver digital placemaking across our places – £646m of assets sold since April 2018, marginally above book value including a mix of solus, leisure and multi-let assets – Further good progress at Clarges Mayfair, with 23 units completed in the year, bringing total completed units to 25, a further two exchanged and three under offer – Canada Water planning application submitted including 3,000 homes – Further opportunities across our portfolio Refocused Retail 30-35% c.10% Residential principally Build to Rent British Land | Annual Report and Accounts 2019 33 PERFORMANCE REVIEW CONTINUED Business review (1.6)% 2.7m sq ft £1.5bn ERV movement Lettings and renewals Disposals £239m +0.4% Acquisitions Lettings and renewals ahead of ERV Portfolio performance At 31 March 2019 Offices Retail Residential Canada Water Total Valuation £m 6,308 5,577 128 303 12,316 Valuation movement % ERV growth % 1.1 (11.1) (4.4) (0.8) (4.8) 1.4 (3.8) na na (1.6) Yield shift bps +2 +37 na na +19 Total property return % 4.9 (6.6) (1.6) 3.1 (0.9) The portfolio value was down 4.8% overall, with Retail valuations down 11.1%. Offices were 1.1% ahead, driven by developments which were up 11.3%. The Offices portfolio saw positive ERV growth, balanced across the City and West End with yields broadly flat. In Retail, investor sentiment remained negative with CVAs and administrations putting further pressure on rents, driving yield expansion and ERV decline. These difficulties were most pronounced in department stores and smaller multi-let centres in areas with weaker demographics. Offices performed in line with the London Office benchmark although underperformed All Offices by 100bps due to the strength of regional offices within the Index. Retail underperformed the Retail benchmark, which saw values down overall. Multi-let centres in weaker demographic locations which were disproportionately impacted by CVAs underperformed overall compared to the benchmark which includes long let assets which were typically less impacted. As a result and reflecting the continued strength of industrials where we have no exposure, the portfolio underperformed the IPD all property total return index by 550 bps over the period. Capital activity From 1 April 2018 Purchases Sales1 Development Spend Capital Spend Net Investment Gross Investment Offices £m 129 (500) 212 20 (139) 861 Retail £m Residential £m Canada Water £m 110 (646) 31 33 (472) 820 – (359) 11 – (348) 370 – – 21 – 21 21 Total £m 239 (1,505) 275 53 (938) 2,072 On a proportionally consolidated basis including the Group’s share of joint ventures and funds 1. Includes sale of Richmond which exchanged in FY18 and completed in the current year for £45m. Includes sale of 12 Sainsbury’s superstores which exchanged post year end for £194m. Includes Clarges residential sales of £359m, of which £253m exchanged prior to FY19 and completed in the year and £18m exchanged post year end We have completed or exchanged on £1.5bn of asset disposals since 1 April 2018, bringing the total gross value of our investment activity since 1 April 2018 to £2.1bn. In Retail, we made sales of £646m, comprising a mix of non-core multi-let centres and standalone retail or leisure assets. Overall, sales were marginally ahead of book value, with multi-let centres generally transacting at a discount, and solus assets, particularly those with good alternative use potential, generally achieving a premium to book value. We acquired Royal Victoria Place in Tunbridge Wells at the start of the year for £92m; the centre offers good mixed use potential and is well located in London’s commuter belt. We love being part of the Storey community. Before moving into our space in Appold Street we were part of a co-working office, but with our team growing, we were at the stage where we had to get something of our own. We needed something flexible, but representative, and we definitely found exactly the right fit. Storey has been absolutely brilliant not only in helping us find the ideal office, but also in making sure everything runs smoothly for our team every day. The Storey team are a delight to work with, and I’m excited to see how the community grows in the future. Chris McCullough, CEO & Co-Founder, Rotageek 34 British Land | Annual Report and Accounts 2019 In Offices, the most significant transaction in the period was the sale of 5 Broadgate for £1bn (our share £500m) in line with book value. Overall, this development generated a total property return of 18% per annum for British Land. At Clarges, our prime residential-led development in Mayfair, we completed on the sale of 23 units in the year for £335m, bringing total completed units to 25 with receipts totalling £359m. We have exchanged on two further units, bringing completed and exchanged sales to £383m with seven units remaining, of which three are under offer. Clarges has been a highly successful scheme for us, having delivered total profits of £200m to date with £34m sales to go, excluding those already under offer. Data and insights We are continuing to leverage our insight into our places, which is grounded in the data we collect across the portfolio on the people who work at, visit and live around our centres and campuses. This data shows how users interact with our spaces; for example how they choose to spend their time and money, which brands they engage with and what they think of our facilities and services. Our understanding is informing development strategy at our campuses and providing valuable evidence in leasing discussions in an environment where brands are very focused on taking the right physical space. This year, we rolled out a new data and analytics platform, whereby nearly 1,000 retailers, representing two-thirds of our portfolio contribute sales data in exchange for reports and benchmarking, providing our occupiers with a real insight into their customer base and helping us build a clear picture of which occupiers and centres are performing well. Over time, this information guides our asset management and our investment activity, helping us allocate capital efficiently. At Canada Water, we have used insight to project the likely needs of the community as the scheme progresses and this is shaping the amount of retail, leisure and community space in our plans. This modelling builds on the expertise we have developed across our campuses and retail centres by factoring in the benefits of a mix of uses for placemaking. Sustainability Sustainability is integral to how we manage our business. Our activities have a real impact on the environment, our customers and local communities and we recognise our responsibility to manage those impacts. This year we published ‘Design for Life’ research, quantifying the potential economic benefits and individual boost of putting wellbeing at the heart of urban design, which is core to creating Places People Prefer. Sustainability is integrated into the standard tools we use across our business, from our Sustainability Brief for Developments, now in its 15th year, to our Local Charter, which sets out five ways we make a lasting positive difference to our local communities. British Land | Annual Report and Accounts 2019 35 Our strong sustainability performance is reflected in our rankings on external ESG indices, including a green star rating for the ninth consecutive year in the Global Real Estate Sustainability Benchmark (GRESB), CDP A- score (2017: B) and inclusion in the FTSE4Good and Dow Jones Sustainability Indices 2018. This year, while we maintained our strong absolute performance in GRESB, our relative ranking reduced to 4-stars. We have established a Steering Committee to progress meeting the recommendations of the Taskforce on Climate-related Financial Disclosures and continue to reduce carbon and energy intensity across the portfolio, this year achieving 64% and 44% reductions, respectively, against our 2009 baseline. PERFORMANCE REVIEW CONTINUED At 100 Liverpool Street, our largest on-site development around half of the original structure and foundations were retained, saving 7,200 tonnes of embodied carbon, with a further 4,100 tonnes set to be saved through carbon-efficient design and the use of low-carbon materials. We have worked hard to minimise the impact of this development for customers, for example by using an off-site consolidation centre to combine deliveries, we achieved a 20% reduction in trucks coming to the site. We also worked closely with London transport partners to ensure that transport connections were unaffected and with local shops and businesses who lost no trading days. Across our Broadgate developments, we are working in partnership with our main contractor, Sir Robert McAlpine, to create a positive local legacy. Over 3,300 people have benefitted from our Broadgate construction team’s community activities over the last two years, including local schoolchildren, jobseekers and people affected by homelessness. Over 60 apprentices and trainees have developed their skills through our Broadgate construction activity over the same period. We are also ensuring that our projects directly benefit local businesses. For example, 58% of construction spend at 100 Liverpool Street so far (£59m) has been spent in the City and neighbouring boroughs. At our managed assets, we continue to support people into work through Bright Lights, our skills and employment programme. At Fort Kinnaird, Edinburgh, the Recruitment & Skills Centre celebrated its fifth anniversary this year. Winner of the Estates Gazette Collaborators Award 2018, our innovative collaboration involves councils in East Lothian, City of Edinburgh and Midlothian and partners such as the Capital City Partnership, Department of Work and Pensions and Skills Development Scotland. Since opening, the Centre has trained 2,663 people and helped 3,585 people into work, supporting around 160 employers each year, including our customers. This improves opportunities for people in surrounding neighbourhoods and creates the skilled workforce that our customers value. We just wanted to serve really good wine and fish – British Land gave us an opportunity to do something really special, and people seem to really enjoy that. We get a lot of positive feedback on the area, particularly from people who remember it decades ago and they’re amazed by how much it’s come together with the canal at its heart, and it’s getting better and better. Harry Lobek, Director, London Shell Co 36 British Land | Annual Report and Accounts 2019 Campus-focused London Offices Operational and financial highlights – Portfolio value up 1.1%, with the City up 1.9% – Under offer on a further 28,000 sq ft and in and West End up 0.7% negotiations on a further 479,000 sq ft – Yields flat in the City, with moderate expansion – Investment lettings and renewals signed 1.2% in the West End +3bps ahead of ERV adding £3m to future rents – ERV growth of 1.4% across the portfolio – 317,000 sq ft rent reviews agreed 7.1% ahead – Activity generating like-for-like income growth of passing rent adding £0.9m to rents of 4.9% – Leasing activity covering 1.1m sq ft, adding £21m to future rents – Occupancy increased slightly to 97.7%; Regent’s Place and Paddington Central virtually full – 5 Broadgate sold at book value (our share £500m) generating an 18% pa total property return Campus operational review 80% of our Offices are located on our three central London campuses, each benefitting from excellent transport connectivity and vibrant local neighbourhoods which are an important part of their appeal. Across these spaces we have made good progress on our strategy to expand the mix of uses, which in the context of our campuses means an enhanced leisure, dining and entertainment offering. Broadgate More than half our leasing activity this year has been at Broadgate, where we made 739,000 sq ft of lettings and renewals and agreed rent reviews on a further 152,000 sq ft of space, overall 6.5% ahead of ERV. The most significant included McCann, one of the world’s leading advertising agencies and TP ICAP, the global interdealer broker who signed for 127,000 sq ft and 123,000 sq ft respectively at 135 Bishopsgate, both for a 15 year term. At 100 Liverpool Street, Milbank, a leading international law firm, has committed to over 70,000 sq ft and despite the uncertain political backdrop, financial services firm Peel Hunt has signed for 40,000 sq ft. We have made good progress leasing on the retail side, with space let or under offer to Watches of Switzerland, Gant, Kiehls and Neom Organics alongside several high quality grab and go operators. These are typically smaller lettings, ranging from 300 to 6,000 sq ft, but are located on the station concourse or at lower ground floor level, where the rent achieved can be more than double that on the office space (on a per sq ft basis). At 1 Finsbury Avenue, which has reached practical completion, we are building a premium food offering, with space let or under offer to Bar Douro, a Portuguese restaurant specialising in small plates and independent, high quality grab and go brands Nyokee and Yolk. These join Everyman, the boutique cinema operator who signed for a three-screen cinema covering 11,000 sq ft earlier in the year. These lettings demonstrate significant progress to create a destination centre for food, retail and culture at Broadgate, enhancing the appeal of our campus to prospective occupiers, particularly those from non-traditional sectors including technology. The most recent example is Product Madness, an online gaming platform who are taking 31,000 sq ft at 1 Finsbury Avenue on a ten year term. Earlier in the year, technology company Mimecast committed to an additional 34,000 sq ft bringing their total occupation to 113,000 sq ft. Elsewhere on the campus, we let 37,000 sq ft to commodities broker Marex at 155 Bishopsgate and nearly 40,000 sq ft at Broadgate Tower, where both Liquidnet and TradeTech expanded their space. We also completed 25,100 sq ft of short term lettings to tech and professional service businesses at 2&3 Finsbury Avenue including CheckRecipient, Poq, and Tech Nation. This strong progress across the campus demonstrates London’s enduring appeal as a place to do business, despite Brexit. Overall, the campus saw a valuation uplift of 1.9% driven by gains on our development properties and benefitting from ERV growth of 1.2%. Paddington Central We have continued to make good progress evolving our retail and dining offer at Paddington Central. This year, we have let space to Vagabonds Wine and a second canal-boat restaurant, further enlivening the canal-side as well as Pure, and Department of Coffee and Social Affairs at 2 Kingdom Street and Pall Mall Barbers in Sheldon Square. Total lettings/renewals at the campus covered 41,000 sq ft, including 20,000 sq ft of lettings through Storey with rent reviews on 78,000 sq ft of space agreed more than 10% ahead of passing rent. Occupancy across the campus is 97.2%. There is real momentum building across the neighbourhood, with leasing interest from a range of sectors reflecting significant investment and regeneration ahead of Crossrail opening. The campus saw a valuation uplift of 1.9%, benefitting from yield tightening of 1 bp and ERV growth of 0.9%. Regent’s Place At Regent’s Place, where occupancy is 98.7% our leasing activity covered 250,000 sq ft. Our largest single letting was to Facebook who are taking 175,000 sq ft on 10 year lease at 10 Brock Street in the space to be vacated by Debenhams. This takes their occupancy at the building to 290,000 sq ft and is a strong endorsement of the campus. We have also let 12,600 sq ft to Hays at 20 Triton Street and agreed 34,000 sq ft of rent reviews, 9.1% ahead of passing rent. This activity supported ERV growth of 2.2% offsetting mild yield expansion of 3 bps to deliver an overall valuation uplift of 1.4%. British Land | Annual Report and Accounts 2019 37 Looking forward, the Storey pipeline is 161,000 sq ft which includes ‘Storey Club’ at 4 Kingdom Street, a new concept providing ad hoc workspace, additional meeting rooms, private dining venues and event and workshop spaces for Storey occupiers. We have earmarked more than 60,000 sq ft in standalone space at Wells St in Fitzrovia and Orsman Road in Haggerston (exchanged in the year). Smart Places This year, our Smart Places team have laid out a long term plan to deliver digital placemaking across our Office campuses. This is an example of how we are evolving our offer to enhance the experience for our occupiers, differentiating our space to drive long term demand and deliver rental growth. Our Smart strategy focuses on three core areas: – Tech hardware: ensuring we are putting in place the right materials and equipment in our buildings for the long term – efficient mechanical and electrical materials which are internet-connected, and can send and receive instructions according to an open-source British Land standard for data – Building a data environment: bringing together data from across our spaces and other sources to derive insight, improve usage of space and enable building control – User experience: developing platforms that allow users to engage seamlessly with their space, helping them to be healthier, productive and more engaged in their environment At our head office at York House we have successfully trialled hardware which measures space utilisation and are working with third parties to generate insights from the data we have collected. We have standardised a Smart Buildings design guide which we are using across all new developments and have started to engage with occupiers to support them in making the most of our advanced office developments, constantly improving our understanding of what our occupiers want and how we will achieve this. PERFORMANCE REVIEW CONTINUED We are planning a re-brand of the campus, which we expect to launch in the summer and are progressing plans for a programme of public realm improvements, which will enhance existing connections with Regent’s Park, the residential areas to the north and the Knowledge Quarter. These will introduce more green space and support a more diverse range of uses, experiences and activities throughout the year. Increasing the mix of uses Non-office leasing at our campuses totalled 68,000 sq ft in the year, primarily comprising retail, leisure and dining, with the largest single letting to Everyman cinema at 1 Finsbury Avenue. We have also focused on making smart use of public or shared spaces through events and activities which enliven our space as well as successful commercial events which generate income. This year, our campuses hosted 44 major marketing activities as well as a range of seasonal events to mark national occasions such as International Women’s Day, Mental Health Awareness Week and London Pride. We were recognised by REVO for brand experiences including Eon’s ‘Shot of Summer’ and a Bordeaux Butterfly Bar, both at Broadgate. Our Adidas experience held last summer at Norton Folgate comprising sport, music and “Instagramable” moments generated around £50,000 rent for a 10-day event. Storey: our flexible workspace brand We launched Storey nearly two years ago. It is a deliberately differentiated flexible workspace concept, providing occupiers with the opportunity to brand the space themselves whilst benefitting from shared facilities in the building and the advantages our campuses provide. This year, Storey opened at 2 and 4 Kingdom Street (Paddington Central), and 3 Finsbury Avenue (Broadgate) as well as at York House, W1 in our standalone portfolio. It is now operational across 141,000 sq ft and is 90% let or under offer. Part of the business rationale was the increasingly complementary nature of core and more flexible space, so we are pleased that 35% of Storey occupiers by rent are existing customers of British Land. It has also been instrumental in building our exposure to the growing technology and creative sectors, which account for c.40% of space let; recent examples include Tryzens a provider of e-commerce solutions and AppDynamics, an application performance analytics company, who both signed in the year. Storey continues to achieve attractive premiums to ERV of around 30% on total leased space with an average lease length of 23 months, and average occupier headcount of 45 people. We love the progressive approach to design, the open space and amenities, and crucially, access to future talent. We think we’ve found the perfect place for Mimecast to grow and continue to succeed in London. Neil Murray, Chief Technology Officer, Mimecast 38 British Land | Annual Report and Accounts 2019 Smaller, more focused Retail Retail operational and financial highlights – Total portfolio value down 11.1%, led by smaller – Annualised rental impact of CVAs and multi-let schemes which were disproportionately affected by CVAs and administrations – Yield expansion of 37 bps overall – ERVs down 3.8% – Robust leasing activity with lettings/renewals covering 1.6m sq ft, marginally ahead of ERV; strong retention rate on renewals of 78% – Further 1.8m sq ft of rent reviews agreed 2.3% ahead of passing rent – High occupancy maintained at 97% administrations over the last two years of £16.9m; £0.9m at assets subsequently sold, £5.1m at stores where rents have reduced and £10.9m is at stores subject to closure of which £6.5m has already been let or in negotiation – Like for like income growth excluding the impact of CVAs and administrations of 0.8% – Footfall down 0.9%, 230 bps ahead of benchmark; total sales down 0.5%, 160 bps ahead of benchmark – £646m non-core assets exchanged since April 2018 Performance review Leasing In a challenging operating environment, our focus this year has been on the day to day business of leasing and managing our space. Overall, leasing volumes have been ahead of historic levels at 1.6m sq ft, with the number of long term deals in line with average, but a higher number of short term or temporary lettings signed this year, demonstrating the way we are evolving our offer to meet the needs of our occupiers whilst retaining flexibility in our estate to respond to new retailers and concepts. We have had a successful year at Meadowhall, with 22 long term deals with new lettings to Skopes, Rock Up and Lacoste, and upsizings from North Face and Fat Face. Meadowhall has seen nine consecutive months of year on year footfall growth, demonstrating its strong and growing appeal, post our £60m refurbishment. Building on this, we are on site with a new children’s playground and have an upgrade to the Oasis dining quarter planned for the current year. We are piloting changes in the way we use retail space, including Meadowhall Sessions, a series of evening classes and a regular artisan market showcasing the best in Yorkshire produce which both launched in the year. Across the portfolio, we have continued to welcome new formats with Goldsmith’s the jewellers opening their first out of town store at Fort Kinnaird and Empire cinemas launching their first new café and cinema concept at SouthGate, Bath. We have re-geared leases with major tenants on a portfolio basis, including Boots at three schemes totalling 44,000 sq ft at 12.4% ahead of ERV and Argos at six schemes totalling 61,000 sq ft broadly in line with ERV. We also agreed a portfolio deal with New Look covering 11 leases. CVAs and administrations Across our portfolio, we are addressing the impact of CVAs and administrations. The annualised impact of CVAs and administrations over the last two years is £16.9m. £0.9m at assets subsequently sold, £5.1m at stores where rents have reduced and £10.9m is at stores subject to closure of which £6.5m has already been let or in negotiation. This has disproportionately impacted our smaller multi-let centres especially those in weaker demographic locations, and are generally assets that do not have a long term role within our portfolio. Post period end, Debenhams also applied for a CVA, prior to which we had re-let their head office space to Facebook, and had managed down our retail exposure with the sale of a standalone store in Clapham. Our exposure to Debenhams now comprises four standalone and five stores in multi-let centres. Broadgate gave us a chance. They trusted in a new business because they believed in us and the concept. We have a home now – a base so that we can serve our food and delicious coffee every day. It’s the kind of spot we were hoping for and dreaming of. Nick Philpot, Founder, Yolk British Land | Annual Report and Accounts 2019 39 PERFORMANCE REVIEW CONTINUED Operational performance Footfall was down 0.9% in the year, but we have continued to outperform the benchmark (230 bps ahead) demonstrating that despite changes in the way people shop, our centres are still relatively well placed. Total sales, which take into account our asset management initiatives, were down 0.5% outperforming the benchmark by 160 bps, although same store sales, which strips out these improvements showed decline of 1.5% but was 160 bps ahead of the benchmark. Both metrics showed an improvement over the year, and encouragingly, turned positive in the last quarter of the financial year. These figures only capture instore sales and exclude online sales where the physical store plays a key role, including shipping direct from store, an approach more retailers are adopting, as well as click and collect and online purchases first browsed in store. This year eight of our commercialisation events were recognised at the REVO awards with three winners including best Pop Up Shop for our Unicorn Meadow at Meadowhall, best Mall Transformation again at Meadowhall, recognising the change that our refurbishment has delivered and best Commercial Event for our Ultra-Violet Bar at SouthGate, Bath, marking our partnership with the Bath Gin Company. Capital activity We have a clear strategy to refine our Retail portfolio to deliver a smaller, more focused business, comprising assets that support the changing role of physical retail, are right sized for their local markets and have the potential to become increasingly mixed use. In line with that, we have made asset sales totalling £646m since 1 April 2018, comprising smaller, multi-let retail centres, non-core leisure assets and standalone retail assets. Overall sales were 2% ahead of book value, but multi-let retail has generally sold at or below book, while standalone retail and leisure has generally sold at or above book. The most significant transaction was the disposal of 12 of our Sainsbury’s superstores for £193.5m (our share), modestly ahead of book value, which exchanged post period end. This brings total retail disposals over the last five years to £2.9bn comprising the following core categories: Asset class Department stores Superstores (standalone) Leisure Non-core multi-let retail Total £m sold since April 2014 % total portfolio March 2014 5% 11% 3% £682m £1,203m £195m £790m £2,870m % total portfolio March 2019 1% 1%1 2% 1. Pro-forma for post year end exchanged sale of 12 Sainsbury’s superstores We have a clear view of the value of our assets, and have set out the indicative shape of our business in five years, when we expect retail will comprise 30-35% of the portfolio, based on current valuations. We have the financial capacity to progress our developments without necessitating asset sales, enabling us to be patient and opportunistic in our approach, so we benefit from pockets of demand for particular asset types as and when they arise. We will maintain this approach going forward and only make disposals which deliver value or significantly progress our long term strategy. We have a strong track record of delivering on our strategic goals having reduced our standalone superstore exposure from 11% in 2014 to 1% today with just six standalone stores remaining. Retail will remain an important part of our business long term, so we will continue to invest in those assets which support the changing role of physical retail and have the potential to become mixed use. We have a clear set of criteria in terms of size and location, the environment, mix of operators and services that we use to evaluate our assets and these factors underpinned our purchase of Royal Victoria Place in Tunbridge Wells for £91.8m at the start of the year. Here, we have committed to a refurbishment covering around two-thirds of the centre and have plans for a redevelopment of the remaining third of the space; longer term, we see potential to significantly expand the mix of uses. PureGym are delighted to have finally secured representation on Fort Kinnaird. It’s proved to be a great decision and was actually our strongest ever new site opening since the business began 10 years and 238 gyms ago! Duncan Costin, Property Director, PureGym 40 British Land | Annual Report and Accounts 2019 Development At 31 March 2019 Recently completed Committed Near term Medium term Canada Water Phase 11 Sq ft ‘000 Current Value £m Cost to complete £m 153 714 156 11 252 404 287 1,330 866 2,443 1,917 ERV let/under offer £m 4.7 43.2 – ERV £m 8.2 55.0 39.4 On a proportionally consolidated basis including the Group’s share of joint ventures and funds (except area which is shown at 100%) 1. Total site area is 5m sq ft. Phase 1 consists of Phase 1a, 1b, 1c. Detailed planning submitted for Phase 1a (576,000 sq ft), outline planning submitted for total Phase 1 Portfolio Developments are a key element of our investment case as a fundamental driver of sustainable value and growth for the long term. In the current market we see limited opportunities to make accretive acquisitions, so the capacity to develop is an important competitive advantage. Critical to our approach is the flexibility and optionality we have created, with the majority of space in our development pipeline either income producing or held at low cost, so we have attractive options we can progress as and when appropriate. We actively manage our development risk and pre-letting our space is an important part of that approach. Reflecting our continued successful leasing activity, 76% of our recently completed and committed developments are pre-let or under offer and speculative exposure remains low at 2.3% of portfolio gross asset value. Including our near term pipeline, this will be 7.4%, below our internal risk threshold for speculative development of 8%. Construction cost forecasts continue to suggest that the rate of growth has moderated from the level in recent years. However, there is a risk that the Brexit outcome increases materials costs and reduces labour supply in future years, potentially increasing cost inflation above the expected 2-4% per annum. To mitigate this risk, 93% of the costs on our committed development programme have been fixed. Campus developments: further enhancing the mix of uses Development has been an important driver of value over the year. Our successful leasing activity has supported the rental tone at our Broadgate campus while the benefit of our 4 Kingdom Street development (completed in 2018) continues to support rental growth at Paddington Central. Completed developments 1 Finsbury Avenue (287,000 sq ft) at Broadgate has reached practical completion, and we are 58% let or under offer by ERV following 168,000 sq ft of leasing activity. Signings included Mimecast, Everyman and Product Madness and with four F&B operators exchanged or under offer. In addition, we are allocating 72,000 sq ft to Storey, leaving just 46,000 sq ft available to let. Our employee base is approximately two thirds under 30. People looking for work will not only look for a job now – they will look at the environment they’re working in and the location of the building as part of their overall decision making process. They are less likely to choose an employer if they don’t like what they see. Stephen Guy, Chief Integration Officer and Chief of Staff, McCann Worldwide British Land | Annual Report and Accounts 2019 41 PERFORMANCE REVIEW CONTINUED Committed developments Our committed development pipeline covers 1.3m sq ft (excluding 1 Finsbury Avenue). At 1 Triton Square (Regent’s Place) which is our largest wholly-owned development covering 366,000 sq ft, the office space is fully pre-let to Dentsu Aegis Network on a 20-year lease. At Broadgate, we are on site with two developments together delivering 856,000 sq ft. 100 Liverpool Street (521,000 sq ft) topped out in the period, the façade has now been installed up to level 10 and fit out of the interiors started in April. It will be one of Europe’s smartest office buildings, with a single digital spine connecting systems within the building to personalise elements of the working environment including temperature and light as well as monitor the use of space. We are aiming for a WiredScore platinum rating for internet connectivity and infrastructure and a Well Gold certification for wellbeing. Sustainability has been integral to the design and delivery of this building; by retaining as much of the existing structure as possible we have saved 7,200 tonnes of embodied carbon and are on track to save a further 4,100 tonnes through carbon-efficient design and use of low-carbon materials. More than half of the construction spend has been invested in the City and neighbouring boroughs, ensuring local people benefit from our development. Following lettings to Peel Hunt and Milbank this year, who join Sumitomo Mitsui Banking Corporation Europe, the building is now 56% let or under offer by ERV. At 135 Bishopsgate (335,000 sq ft), we are 90% let or under offer, with signings to McCann and TP ICAP this year, in addition to Eataly, the Italian marketplace which is taking 44,000 sq ft on the ground floor. Across both buildings, we are seeing good interest in the remaining space. Near term pipeline We have increased our near term pipeline to 866,000 sq ft with the addition of 1-2 Broadgate where we achieved planning permission during the year. This 531,000 sq ft scheme includes 153,000 sq ft of retail, leisure and dining space, connecting Finsbury Avenue Square with retail at 100 Liverpool Street and the Broadgate Circle, creating a 350,000 sq ft retail, leisure and dining hub. At Norton Folgate (previously Blossom Street) we have consent for a 335,000 sq ft scheme comprising 257,000 sq ft of office space alongside retail and residential space, to create a mixed use development which is in keeping with the historic fabric of the area. Our plans envisage a mix of floorplates, to appeal to small and growing businesses as well as more established organisations, particularly in the technology and creative sectors and we are already seeing good interest in the space. 42 British Land | Annual Report and Accounts 2019 Medium term Pipeline Our medium term pipeline includes three office-led schemes covering more than 1m sq ft in total. These buildings progress our mixed use campus vision and support future income growth. The most significant scheme is 2-3 Finsbury Avenue at Broadgate. Covering 563,000 sq ft, the scheme adds 374,000 sq ft to the existing space which generates an income through short term, more flexible lettings, with 50,500 sq ft allocated to Storey. We have also launched a 1,700 sq ft events space at 3 Finsbury Avenue which regularly hosts thought-leadership events, as well as yoga, pilates and meditation sessions. At 5 Kingdom Street, Paddington Central, we have submitted a revised planning application which would increase our consented scheme from 240,000 sq ft to 429,000 sq ft. The scheme includes the opportunity to develop a former Crossrail works site which reverts to British Land on completion of Crossrail, providing 80,000 sq ft of community, retail, leisure and cultural facilities, reflecting feedback from focus groups and residents who we consulted on how this space could best be used. At the Gateway, we have consent for a 105,000 sq ft premium hotel. Retail development: enhancing and repositioning our portfolio for the future In line with our disciplined approach to capital allocation, we consistently review our capital spending plans. In the current environment we would expect the overall level of capital spend on our Retail portfolio to be lower than historically. However, we maintain a range of opportunities across our portfolio which preserve our optionality but would only commit where market conditions and long term prospects are supportive. Committed developments At Drake Circus, Plymouth, we are on site with a 108,000 sq ft leisure extension which will add a 12-screen cinema and 14 restaurants. The scheme is 67% let and under offer and we expect to reach practical completion in autumn 2019. Medium term pipeline Our medium term pipeline is focused on mixed use opportunities. At Ealing Broadway, which will benefit from Crossrail, we are working up plans for a 292,000 sq ft scheme, and at Eden Walk, Kingston (jointly owned with USS) our consented mixed use development plans include 380 new homes, alongside shops, restaurants and 35,000 sq ft of flexible office space. At Meadowhall, we have consent for a 333,000 sq ft leisure extension but are undertaking a review of our plans which is expected to conclude towards the end of the year. We have further opportunities at New George Street in Plymouth, adjacent to our Drake Circus regional retail centre which cover 43,000 sq ft. In each case, our focus will be on enhancing the mix of uses to best reflect the local market. Read more about our development pipeline on pages 22 and 23 Canada Water: 53 acre masterplan for a new urban centre in Central London Highlights – 5m sq ft mixed use development scheme – Master development agreement signed with Southwark Council in May 2018 – Planning application including detailed planning submission on the first three buildings and outline planning for the whole scheme submitted May 2018 – Net valuation movement down 0.8% to £303m; increase in gross valuation offset by costs incurred in connection with planning At Canada Water, we are working with the London Borough of Southwark to deliver a 5m sq ft mixed use scheme, including 3,000 new homes alongside a mix of commercial, retail and community space. The site is located between London Bridge and Canary Wharf on the Jubilee line with access to the London Overground, making it easily accessible from Canary Wharf, the West End, Shoreditch and South West London. It will also be an indirect beneficiary of Crossrail, which will significantly reduce pressure on the Jubilee line between Canary Wharf and Bond Street. It covers 53 acres including the dock area, providing 48 acres of developable land. We started engaging on our masterplan proposals in 2014 and since then have held over 120 public consultations and local outreach events. These have attracted over 5,000 individuals who have inputted at every stage and provided 12,000 comments on our plans, enabling us to shape a design that seeks to meet local needs and aspirations. Together with Southwark Council, we have also developed a Social Regeneration Charter which captures local residents’ priorities for the benefits of the development, and ideas for how these can be delivered. In May 2018 we signed the Master Development Agreement with Southwark Council. This set out the terms of a new headlease consolidating our holdings into a single 500-year headlease with Southwark Council as the Lessor. This structure effectively aligns the ownership of these assets, with British Land owning 80% and Southwark Council owning the remaining 20%. Southwark Council can participate in the development of the individual plots, up to a maximum of 20% and returns will be pro-rated accordingly. This headlease becomes effective on fulfilment of several conditions, most importantly achieving outline planning consent for the whole masterplan and detailed planning consent for the first three buildings which was also submitted in May 2018. Since submission of our application, we have worked constructively with Southwark Council through the complexities of the planning process and we are targeting a July planning meeting. The first three buildings total c. 576,000 sq ft and will provide 265 homes of which around 35% will be affordable. Building A1 will provide both residential and workspace and building A2 will be focused on workspace and a new leisure centre, with both providing a small amount of retail at ground floor. K1, the third building will be wholly residential. Potential funding structures will be explored when we have greater visibility on timing, ahead of which we are already seeing interest in the space from a range of sectors and discussions are underway on several buildings. In the meantime, the Printworks has become an established live music venue, frequently hosting crowds of up to 5,000. Ticket sales and visitors are now over 80,000 from 23 shows through the winter/spring season. The net valuation movement for Canada Water over the year showed a marginal decrease, reflecting an increase in gross value to £303m attributable to progress on planning and design offset by costs incurred in masterplanning the scheme. Coming to the Paper Garden means to me… community. A nice way to come together with others who have a similar mindset. A great collaboration of me, others, and nature. I get to try out new things, like free writing and cooking. It is part of myself, to come closer to our planet and unleash my inner self. Coming to the Paper Garden means everything to me, everything I do. Andras, friend of the Paper Garden British Land | Annual Report and Accounts 2019 43 Non-financial reporting disclosure Reporting requirement Environmental matters Key policies include – Sustainability Policy1 – Sustainability Brief for Developments1 Employees Human rights Social matters Anti-bribery and corruption Business model Non-financial KPIs – Code of Conduct2 – Health and Safety Policy2 – Code of Conduct2 – Modern Slavery Act Statement1 – Sustainability Policy1 – Code of Conduct2 – Local Charter1 – Sustainability Brief for Developments1 – Health and Safety Policy2 – Anti-Fraud Policy2 – Anti-Bribery and Corruption Policy2 – Whistleblowing1 Where information can be found in this report on our impact and risks Page – Shaping our thinking – Our 2020 sustainability strategy – Greenhouse gas reporting – Managing risk in delivering our strategy – Task force on climate-related financial disclosures – Sustainability performance measures – Changing how we work to deliver our strategy – Managing risk in delivering our strategy – Managing risk in delivering our strategy – Our 2020 sustainability strategy – Managing risk in delivering our strategy – Our distinct business model – Delivering on our strategy – Our 2020 sustainability strategy 26 28 45 54 62 195 30 54 54 28 54 18 20 28 1. Available on britishland.com/policies 2. Employee version available through our internal Employee Handbook. Supplier version available on britishland.com/policies Supply chain We ask suppliers to work in a way we believe is best practice to achieve our social, environmental and ethical standards. The effectiveness of our policies in this area can be seen in our sustainability performance measures on pages 195 to 197. We set out our supplier obligations in areas such as health and safety, human rights, fair working conditions, anti-bribery and corruption, community engagement, apprenticeships and environmental management in our Supplier Code of Conduct. Human rights Our respect for human rights is embedded in how we do business. We are a signatory to the UN Global Compact which supports a core set of values, including human rights, and have made appropriate disclosures in respect of the Modern Slavery Act. We are also a member of APRES, an action programme on responsible and ethical sourcing across the construction industry. For our performance on aspects including fair wages and diversity, see pages 196 and 197. Anti-bribery and corruption We are committed to the highest legal and ethical standards in every aspect of our business. It is our policy to conduct business in a fair, honest and open way, without the use of bribery or corrupt practices to obtain an unfair advantage. We provide clear guidance for suppliers and employees, including policies on anti-bribery and corruption, anti-fraud and our code of conduct. All employees receive training on these issues appropriate to their roles and responsibilities. 44 British Land | Annual Report and Accounts 2019 Greenhouse gas reporting Emissions intensity Carbon intensity across our portfolio has reduced by 64% versus our 2009 baseline, achieving our 2020 reduction target early, through the National Grid decarbonisation and our own efficiency improvements. We also continue to work towards 100% of electricity from renewable sources as an RE100 partner. Despite changes to our Retail and Offices portfolios and increased reporting across our Residential portfolio, 96% of our power was procured from certified renewable sources. In 2019, we undertook energy efficiency projects including optimising building management systems, replacing light fittings with LEDs and installing lighting sensors. These are expected to result in annual energy use savings of £1.2m. Absolute emissions As shown in the Absolute Scope 1 and 2 emissions table below, total Scope 1 emissions increased by a net 29% reflecting the inclusion of gas combustion across our residential portfolio for the first time. However, our Retail and Offices portfolios reduced combustion of fuel by 13% this year, largely due to changes in our portfolio. Scope 2 location based emissions decreased by 26%, largely due to National Grid decarbonisation and changes in our portfolio. Scope 2 market based emissions decreased by 22%, largely due to reduced electricity use and our commitment to renewables, including the installation of solar PV at Meadowhall. Absolute emissions Scope 1 and 2: 2019 2018 2017 2016 2015 29,144 34,269 10,414 8,842 14,239 41,758 46,637 44,661 50,022 50,022 Location based methodology Market based methodology Scope 1 and 2 emissions intensity1 (Tonnes CO2e) Year ended 31 March Offices: per m2 net lettable area Retail – enclosed: per m2 Retail – open air: per parking space Total managed portfolio: per £m gross rental and related income2 Absolute Scope 1 and 2 emissions and associated energy use Year ended 31 March Scope 1 Combustion of fuel: Managed portfolio gas use and fuel use in British Land owned vehicles Scope 1 Operation of facilities: Managed portfolio refrigerant loss from air conditioning Scope 2 Purchase of electricity, heat, steam and cooling for our own use: Managed portfolio electricity use for common parts and shared services Total Scope 1 and 2 emissions (location-based) and associated energy use Proportion that is UK-based Location-based Market-based 2019 0.044 0.043 0.049 50.22 2018 0.055 0.056 0.062 58.03 2009 0.118 0.174 0.106 – Tonnes CO2e MWh 2019 2018 2009 2019 2018 8,833 6,901 5,156 42,946 32,813 123 66 – – – 20,188 27,301 41,186 74,550 80,868 1,457 1,875 – – – 29,144 100% 34,268 100% 46,342 – 117,497 100% 113,681 100% Absolute Scope 3 emissions – managed portfolio (Tonnes CO2e) Year ended 31 March Landlord purchased energy: occupier gas and electricity consumption, upstream impacts of all purchased energy (including the fuels of on-site vehicles) Landlord purchased water: upstream impacts Waste management: downstream impacts 2019 2018 35,999 225 409 46,888 219 437 1. We have reported on all emission sources required under the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013 and the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 (‘the 2018 Regulations’). These sources fall within our consolidated financial statements and relate to head office activities and controlled emissions from our managed portfolio. Scope 1 and 2 emissions cover 73% of our multi-let managed portfolio by value. We have used purchased energy consumption data, the GHG Protocol Corporate Accounting and Reporting Standard (revised edition) and emission factors from the UK Government’s GHG Conversion Factors for Company Reporting 2018 2. Gross Rental Income (GRI) from the managed portfolio comprises Group GRI of £482m (2018: £441m), plus 100% of the GRI generated by joint ventures and funds of £271m (2018: £358m), less GRI generated assets outside the managed portfolio of £173m (2018: £235m) British Land | Annual Report and Accounts 2019 45 FINANCIAL REVIEW Financial performance for the year was robust Simon Carter, Chief Financial Officer 46 British Land | Annual Report and Accounts 2019 Year ended 31 March Underlying earnings per share1 Underlying Profit1,2 IFRS profit (loss) before tax Dividend per share Total accounting return1,3 EPRA net asset value per share1,2 IFRS net assets LTV1,4,5 Weighted average interest rate5 2018 2019 34.9p 37.4p £340m £380m £501m £(319)m 31.00p 30.08p (3.3)% +8.9% 905p 967p £9,506m £8,689m 28.1% 2.9% 28.4% 2.8% 1. See Glossary on website for definitions 2. See Table B within supplementary disclosure for reconciliations to IFRS metrics 3. See Note 2 within financial statements for calculation. 4. See Note 17 within financial statements for calculation and reconciliation to IFRS metrics 5. On a proportionally consolidated basis including the Group’s share of joint ventures and funds Overview Financial performance for the year has been robust in the context of significant sales over the last 2 years, an especially challenging retail environment and an unpredictable UK macroeconomic backdrop. Underlying earnings per share (EPS) are down 6.7% at 34.9p, while Underlying Profit is down 10.5% at £340m, primarily reflecting one off surrender premia of £20m received in the prior year. Setting aside the one-off surrender premia, Underlying EPS is marginally down 1% with strong like-for-like rental growth in Offices and the benefits of share buyback mostly offsetting the impact of sales and CVAs and administrations amongst retailers. Net sales activity to date is expected to reduce EPS next year by 2.4p with proceeds to be deployed into our development programme. The existing committed programme is expected to deliver 4.5p EPS accretion once fully let and is already 76% pre-let or under offer – equivalent to £48m pa of future rental income secured. Valuations have reduced by 4.8% on a proportionally consolidated basis although this was partially offset by the impact of the £200m shares bought back in the period resulting in an overall EPRA net asset value (NAV) per share decline of 6.4%. Since April 2018, we have completed £2.1bn of gross capital activity. This includes £1.1bn sales of income producing assets, primarily our 50% interest in 5 Broadgate for £0.5bn, which sold at book value, representing a net initial yield of 4%. In addition, we made Retail sales totalling £0.6bn, 2% ahead of book value, at an average yield of 5.7%. We exchanged or completed on £359m of residential sales, £253m which exchanged prior to this financial year and £18m exchanged post year end. We remain thoughtful about the use of proceeds from disposals. As well as continuing to invest into our development pipeline, we extended the share buyback programme by £200m following the sale of 5 Broadgate, which was completed in the year, at an average price of 594p per share adding 10p to NAV. Given the current share price discount, we continue to believe that reinvesting in our portfolio through our own shares represents an effective use of capital so, following further recent retail sales, we are extending the buyback by up to a further £125m. Our financial position remains strong. LTV has decreased by a further 30bps during the period to 28.1% despite the valuation fall. The reduction was driven by net sales reducing LTV by 330bps, partially offset by the share buyback and investment into the development programme. Our weighted average interest rate remains low at 2.9%. We have been active in debt markets, with £1.4bn of new financing arranged. Presentation of financial information The Group financial statements are prepared under IFRS where the Group’s interests in joint ventures and funds are shown as a single line item on the income statement and balance sheet and all subsidiaries are consolidated at 100%. Management considers the business principally on a proportionally consolidated basis when setting the strategy, determining annual priorities, making investment and financing decisions and reviewing performance. This includes the Group’s share of joint ventures and funds on a line-by-line basis and excludes non-controlling interests in the Group’s subsidiaries. The financial key performance indicators are also presented on this basis. A summary income statement and summary balance sheet which reconcile the Group income statement to British Land’s interests on a proportionally consolidated basis are included in Table A within the supplementary disclosures. Management monitors Underlying Profit as this more accurately reflects the underlying recurring performance of our core property rental activity, as opposed to IFRS metrics which include the non-cash valuation movement on the property portfolio. It is based on the Best Practices Recommendations of the European Public Real Estate Association (EPRA) which are widely used alternate metrics to their IFRS equivalents. Management also monitors EPRA NAV as this provides a transparent and consistent basis to enable comparison between European property companies. Linked to this, the use of Total Accounting Return allows management to monitor return to shareholders based on movements in a consistently applied metric, being EPRA NAV, and dividends paid. Loan to value (proportionally consolidated) is also monitored by management as a key measure of the level of debt employed by the Group to meet its strategic objectives, along with a measurement of risk. It also allows comparison to other property companies who similarly monitor and report this measure. British Land | Annual Report and Accounts 2019 47 FINANCIAL REVIEW CONTINUED Income statement 1. Underlying Profit Underlying Profit is the measure that is used internally to assess income performance. This is presented below on a proportionally consolidated basis. No company adjustments have been made in the current or prior period and therefore this is the same as the pre-tax EPRA earnings measure which includes a number of adjustments to the IFRS reported profit or loss before tax. Gross rental income Property operating expenses Net rental income Net fees and other income Administrative expenses Net financing costs Underlying Profit Non-controlling interests in Underlying Profit EPRA adjustments1 IFRS profit/(loss) before tax Underlying EPS IFRS basic EPS Dividend per share Section 1.2 1.3 1.4 2 1.1 2 3 2018 £m 613 (37) 576 15 (83) (128) 380 2019 £m 576 (44) 532 10 (81) (121) 340 14 107 501 37.4p 48.7p 30.08p 12 (671) (319) 34.9p (30.0)p 31.00p 1. EPRA adjustments consist of investment and development property revaluations, gains/losses on investment and trading property disposals, changes in the fair value of financial instruments and associated close out costs. These items are presented in the ‘capital and other’ column of the consolidated income statement 1.1 Underlying EPS Underlying EPS is 34.9p, a decline of 6.7% on the prior year. This reflects Underlying Profit decline of 10.5%, partially offset by the impact of share buyback completed in the year which added 1.2p in the period. 1.2 Net rental income 576 (20) 15 532 (21) (14) (4) 2018 Surrender premia Net divestment CVAs & adminis- trations Like-for-like rental growth Develop- ments 2019 The £44m decrease in net rental income is primarily a result of the one-off surrender premia received in the prior year and the impact of net divestment over the last two years. The impact of CVAs and administrations has been more than offset by like-for-like growth. 48 British Land | Annual Report and Accounts 2019 Net sales of income producing assets over the last two years was over £2bn. This has reduced net rents by £21m in the year, including £14m from the sale of 5 Broadgate in June 2018, and £3m from the sale of The Leadenhall Building in May 2017. As well as funding the £500m of share buybacks we have completed over the last 18 months, proceeds from these sales are being reinvested in the development pipeline, which is expected to deliver £63m in rents in future years and is already 76% pre-let or under offer (£48m). Occupier CVAs and administrations in the Retail portfolio have reduced net rents by £14m in the year. Excluding this impact, like-for-like rental growth across the portfolio is 2.4%, or £15m. This has been driven by 4.9% growth within Offices, resulting from strong leasing activity across our campuses, particularly at 4 Kingdom Street. Retail like-for-like growth is up marginally at 0.8%. 1.3 Administrative expenses Administrative expenses have marginally decreased this year as a result of lower variable pay. The Group’s operating cost ratio has increased by 180 bps to 18.7% (2017/18: 16.9%) as a result of lower rental income following sales activity. 1.4 Net financing costs (128) 5 12 (4) (2) (4) (121) 2018 Financing activity – our actions Financing activity – impact of market rates Net divestment Develop- ments Share buyback 2019 Financing activity undertaken over the last two years has reduced costs by £5m in the year, more than offsetting the impact of increases in market interest rates. Financing activity includes the amendment and extension of our largest syndicated RCF at £735m, with 12 banks, at an initial margin of 90 bps and maturity of five years, as well as the repayment of £223m (£111m our share) of secured Broadgate bonds. This released 1-2 Broadgate and 2-3 Finsbury Avenue from the securitisation, providing greater flexibility and optionality over these buildings as we continue to progress our vision for Broadgate. The reduction in finance costs as a result of proceeds from net divestment has been partially offset by development spend and share buybacks. We have a risk managed approach to interest rates on debt. At 31 March 2019, on a spot basis, the interest rate on 87% of our debt is hedged. On average, we are 63% hedged over the next five years, based on current commitments. 2. IFRS profit or loss before tax 4. EPRA net asset value per share The main difference between IFRS profit or loss before tax and Underlying Profit is that IFRS includes the valuation movement on investment and development properties, fair value movements on financial instruments and capital financing costs. In addition, the Group’s investments in joint ventures and funds are equity accounted in the IFRS income statement but are included on a proportionally consolidated basis within Underlying Profit. The IFRS loss before tax for the year was £319m, compared with a profit before tax for the prior period of £501m. This reflects the change in valuation movement on the Group’s properties which was £834m less than the prior period, and the capital and other income result from joint ventures and funds being £115m less than the prior period, both driven principally by outward yield shift of 37 bps and ERV decline in the Retail portfolio. In addition, the result on disposal of investment properties and investments was £36m lower than the prior period. These items were partially offset by £78m of additional trading property sale profits, as a result of the completion of a number of Clarges units in the period, along with a £117m decrease in capital financing charges. IFRS basic EPS was (30.0)p per share, compared to 48.7p per share in the prior year, driven principally by the decline in property valuations. The basic weighted average number of shares in issue during the period was 971m (2017/18: 1,013m). 3. Dividends As previously announced, we have increased the dividend by 3.0% for the year to 31 March 2019 bringing the full year dividend to 31 March 2019 to 31.0p. The dividend pay-out ratio is 89% for the period (2017/18: 80%). British Land will recommend to shareholders a final dividend payment for the year ended 31 March 2019 of 7.75p. Subject to approval by shareholders, payment will be made on 2 August 2019 to shareholders on the register at close of business on 28 June 2019. The final dividend will consist of two components: a Property Income Distribution of 3.875 pence and a Non-Property Income Distribution of 3.875 pence. No SCRIP alternative will be offered. Balance sheet Properties at valuation Other non-current assets Other net current liabilities Adjusted net debt Other non-current liabilities EPRA net assets EPRA NAV per share Non-controlling interests Other EPRA adjustments1 IFRS net assets Proportionally consolidated basis Section 6 4 5 2018 £m 13,716 185 13,901 (368) (3,973) – 9,560 967p 254 (308) 9,506 2019 £m 12,316 151 12,467 (297) (3,521) – 8,649 905p 211 (172) 8,689 1. EPRA net assets exclude the mark-to-market on derivatives and related debt adjustments, the mark-to-market on the convertible bonds as well as deferred taxation on property and derivative revaluations. They include the trading properties at valuation (rather than lower of cost and net realisable value) and are adjusted for the dilutive impact of share options. No dilution adjustment is made for the £350m zero coupon convertible bond maturing in 2020. Details of the EPRA adjustments are included in Table B within the supplementary disclosures 967 35 10 905 (68) (30) (7) (2) 2018 Valuation perfor- mance Under- lying profit Dividends Financing activity Share buyback Other 2019 The 6.4% decrease in EPRA NAV per share reflects a valuation decrease of 4.8% across the portfolio. Valuation gains in the Office portfolio of 1.1% have been more than offset by an 11.1% fall in Retail values as a result of weakening investment sentiment and a challenging occupational market. Office valuations were up 1.1% driven by strong leasing at our developments which were up 10.8%, including 135 Bishopsgate where values are up 33%, with ERV growth of 1.4% across the standing investments and relatively stable yields. This reflects specific asset lettings we’ve completed and the resulting washover effect. Valuations in Retail are down 11.1%, with outward yield shift of 37 bps and ERV decline of 3.8%, reflecting the impact of CVAs and administrations on both the investment and occupational markets, particularly at our smaller retail assets outside the South-East and department stores. However, the performance within the portfolio has been varied, and we continue to see ERV growth at high quality, well positioned assets with good supply/demand tension. Investment demand remains for long term, secure income assets. While financing activity has decreased NAV by 7p, it will deliver cost savings and the overall impact is NPV neutral. It includes the repayment of higher coupon debt including a portion of secured Broadgate bonds and termination of the associated interest rate swaps. Completion of the £200m share buyback programme during the year has contributed 10p to EPRA NAV. 5. IFRS net assets IFRS net assets at 31 March 2019 were £8,689m, a decrease of £817m from 31 March 2018. This was primarily due to IFRS loss before tax of £319m, along with £298m of dividends paid and £204m of share purchases under the share buyback programme. British Land | Annual Report and Accounts 2019 49 FINANCIAL REVIEW CONTINUED Cash flow, net debt and financing 6. Adjusted net debt1 935 (3,973) 613 (3,521) (267) (233) (94) (204) (298) 2018 Disposals Acqui- sitions Develop- ment & capex Net cash from opera- tions Divid- ends Share buyback Other 2019 1. Adjusted net debt is a proportionally consolidated measure. It represents the Group net debt as disclosed in Note 17 to the financial statements and the Group’s share of joint venture and funds’ net debt excluding the mark-to-market on derivatives, related debt adjustments and non-controlling interests. A reconciliation between the Group net debt and adjusted net debt is included in Table A within the supplementary disclosures Net sales reduced debt by £970m in the year. Completed sales included 5 Broadgate for £500m (BL share) and, in line with our strategy of focusing on multi-let assets, 57 standalone assets totalling £367m (BL share) and three retail parks (Cheltenham Gallagher, Leeds Westside and Bath Weston Lock). We have completed purchases of £233m including Royal Victoria Place in Tunbridge Wells. We spent £223m on developments and a further £44m on capital expenditure related to asset management on the standing portfolio. The value of recently completed and committed developments is £867m, with £263m costs to come. Speculative development exposure is 2.3% of the portfolio. There are 866,000 sq ft of developments in our near term pipeline with anticipated cost of £404m. 7. Financing Group Proportionally consolidated 2018 2019 2018 2019 £3,046m £2,765m £3,973m £3,521m £3,007m £2,881m £4,265m £3,895m 28.1% 22.2% 28.4% Net debt / adjusted net debt1 Principal amount of gross debt Loan to value Weighted average interest rate Interest cover Weighted average maturity of drawn debt 8.1 years 7.3 years 2.2% 4.9 2.0% 5.3 22.1% 1. Group data as presented in note 17 of the financial statements. The proportionally consolidated figures include the Group’s share of joint venture and funds’ net debt and exclude the mark-to-market on derivatives and related debt adjustments and non-controlling interests 50 British Land | Annual Report and Accounts 2019 Over the year, we completed £1.6bn of financing activity, including £1.4bn of new financing arranged. This includes the amendment and extension of our largest syndicated RCF at £735m, with 12 banks, at an initial margin of 90 bps and maturity of five years. We also arranged new bi-lateral RCFs totalling £140m for 5 years. Each of these facilities may be extended by a further two years at our request and on the relevant bank’s approval. We issued £231m new US Private Placement notes to four investors for 7-10 years (average of 8.2 years), at blended pricing of 3 month Libor +124bps. We are pleased with this ongoing support from all the lenders, which provides liquidity and flexible finance from diverse sources. We also repaid £223m (£111m our share) of secured Broadgate bonds, releasing 1-2 Broadgate and 2-3 Finsbury Avenue from the securitisation, providing greater flexibility and optionality over these buildings as we continue to progress our vision for Broadgate. At 31 March 2019, our proportionally consolidated LTV was 28.1%, down 30 bps from 28.4% at 31 March 2018 due to net disposals, offset by share buybacks, development spend and the valuation decline. This positions us well to enable investment into our development pipeline. Note 17 of the financial statements sets out the calculation of the Group and proportionally consolidated LTV. Our liability and debt management activity has enabled us to keep our weighted average interest rate low at 2.9%, despite the impact of net divestment and increase in market rates. Our interest cover has reduced to 3.8 times as a result of proportionately lower Underlying Profits. Our weighted average debt maturity is largely unchanged at 8.1 years. At 31 March 2019, British Land had £1.8bn of committed unsecured revolving bank facilities, £1.5bn undrawn. Based on our current commitments, these facilities and debt maturities, we have no requirement to refinance until late 2022. The current uncertain environment reinforces the importance of a strong balance sheet and we have capacity to progress opportunities when the time is right. 2.8% 4.0 2.9% 3.8 8.6 years 8.1 years Chief Financial Officer Simon Carter FINANCIAL POLICIES AND PRINCIPLES Financial strength and balanced approach To deliver our property strategy, we focus on having an appropriate balance of debt and equity funding. Managing interest rate exposure We manage our interest rate profile separately from our debt, considering the sensitivity of underlying earnings to movements in market rates of interest over a five-year period. The Board sets appropriate ranges of hedged debt over that period and the longer term. Our debt finance is raised at both fixed and variable rates. Derivatives (primarily interest rate swaps and caps) are used to achieve the desired interest rate profile across proportionally consolidated net debt. At 31 March we had interest rate hedging on 87% of our debt (spot), and on 63% of our projected debt on average over the next five years, with a decreasing profile over that period. Accordingly we have a higher degree of certainty on interest costs in the short term and achieve market rate finance in the medium to longer term. The use of derivatives is managed by a Derivatives Committee. The interest rate management of joint ventures and funds is considered separately by each entity’s board, taking into account appropriate factors for its business. Counterparties We monitor the credit standing of our counterparties to minimise risk exposure in placing cash deposits and arranging derivatives. Regular reviews are made of the external credit ratings of the counterparties. Foreign currency Our policy is to have no material unhedged net assets or liabilities denominated in foreign currencies. When attractive terms are available, the Group may choose to borrow in currencies other than Sterling, and will fully hedge the foreign currency exposure. Leverage We manage our use of debt and equity finance to balance the benefits of leverage against the risks, including magnification of property returns. A loan to value ratio (‘LTV’) measures our leverage, primarily on a proportionally consolidated basis including our share of joint ventures and funds and excluding non-controlling interests. At 31 March 2019, our proportionally consolidated LTV was 28.1% and the Group measure was 22.2%. Our LTV is monitored in the context of wider decisions made by the business. We manage our LTV through the property cycle such that our financial position would remain robust in the event of a significant fall in property values. This means we do not adjust our approach to leverage based only on changes in property market yields. Consequently, our LTV may be higher in the low point in the cycle and will trend downwards as market yields tighten. Debt finance The scale of our business combined with the quality of our assets and rental income means that we are able to approach a diverse range of debt providers to arrange finance on attractive terms. Good access to the capital and debt markets is a competitive advantage, allowing us to take advantage of opportunities when they arise. The Group’s approach to debt financing for British Land is to raise funds predominantly on an unsecured basis with our standard financial covenants (set out on page 53). This provides flexibility and low operational cost. Our joint ventures and funds which choose to have external debt are each financed in ‘ring-fenced’ structures without recourse to British Land for repayment and are secured on their relevant assets. Presented on the following page are the five guiding principles that govern the way we structure and manage debt. Monitoring and controlling our debt We monitor our debt requirement by focusing principally on current and projected borrowing levels, available facilities, debt maturity and interest rate exposure. We undertake sensitivity analysis to assess the impact of proposed transactions, movements in interest rates and changes in property values on key balance sheet, liquidity and profitability ratios. We also consider the risks of a reduction in the availability of finance, including a temporary disruption of the debt markets. Based on our current commitments and available facilities, the Group has no requirement to refinance until late 2022. British Land’s committed bank facilities total £1.8bn, of which £1.5bn was undrawn at 31 March 2019. British Land | Annual Report and Accounts 2019 51 FINANCIAL POLICIES AND PRINCIPLES CONTINUED Our five guiding principles 1 2 3 4 5 Diversify our sources of finance We monitor finance markets and seek to access different sources of finance when the relevant market conditions are favourable to meet the needs of our business and, where appropriate, those of our joint ventures and funds. The scale and quality of our business enables us to access a broad range of unsecured and secured, recourse and non-recourse debt. We develop and maintain long term relationships with banks and debt investors. We aim to avoid reliance on particular sources of funds and borrow from a large number of lenders from different sectors in the market across a range of geographical areas, with over 25 debt providers in bank facilities and private placements alone. We work to ensure that debt providers understand our business, adopting a transparent approach to provide sufficient disclosures to enable them to evaluate their exposure within the overall context of the Group. These factors increase our attractiveness to debt providers, and in the last five years we have arranged £4.7bn (British Land share £4.2bn) of new finance in unsecured and secured bank loan facilities, Sterling bonds, US Private Placements and convertible bonds. In addition we have existing long dated debentures and securitisation bonds. A European Medium Term Note programme is maintained to enable us to access Sterling/Euro unsecured bond markets when it is appropriate for our business. £3.9bn total drawn debt (proportionally consolidated) Phase maturity of debt portfolio The maturity profile of our debt is managed with a spread of repayment dates, currently between one and 19 years, reducing our refinancing risk in respect of timing and market conditions. As a result of our financing activity, we are ahead of our preferred refinancing date horizon of not less than two years. In accordance with our usual practice, we expect to refinance facilities ahead of their maturities. 8.1 years average drawn debt maturity (proportionally consolidated) Maintain liquidity In addition to our drawn debt, we aim always to have a good level of undrawn, committed, unsecured revolving bank facilities. These facilities provide financial liquidity, reduce the need to hold resources in cash and deposits, and minimise costs arising from the difference between borrowing and deposit rates, while reducing credit exposure. We arrange these revolving credit facilities in excess of our committed and expected requirements to ensure we have adequate financing availability to support business requirements and new opportunities. £1.5bn undrawn revolving credit facilities Maintain flexibility Our facilities are structured to provide valuable flexibility for investment activity execution, whether sales, purchases, developments or asset management initiatives. Our unsecured revolving credit facilities provide full operational flexibility of drawing and repayment (and cancellation if we require) at short notice without additional cost. These are arranged with standard terms and financial covenants and generally have maturities of five years. Alongside this, our secured term debt in debentures has good asset security substitution rights, where we have the ability to move assets in and out of the security pool. £1.8bn total revolving credit facilities Maintain strong metrics We use both debt and equity financing. We manage LTV through the property cycle such that our financial position would remain robust in the event of a significant fall in property values and we do not adjust our approach to leverage based on changes in property market yields. We manage our interest rate profile separately from our debt, setting appropriate ranges of hedged debt over a five-year period and the longer term. We maintained our strong senior unsecured credit rating (‘A’) and long term IDR credit rating (‘A-’). 28.1% LTV (proportionally consolidated) A senior unsecured credit rating 3.8x interest cover (proportionally consolidated) 52 British Land | Annual Report and Accounts 2019 Secured borrowings Secured debt with recourse to British Land is provided by debentures with long maturities and limited amortisation. These are secured against a combined pool of assets with common covenants; the value of the assets is required to cover the amount of the debentures by a minimum of 1.5 times and net rental income must cover the interest at least once. We use our rights under the debentures to actively manage the assets in the security pool, in line with these cover ratios. We continue to focus on unsecured finance at a Group level. Borrowings in our joint ventures and funds External debt for our joint ventures and funds has been arranged through long dated securitisations or secured bank debt, according to the requirements of the business of each venture. Hercules Unit Trust has term loan facilities maturing in 2020 and 2022 arranged for its business and secured on property portfolios, without recourse to British Land. These loans include LTV ratio (with maximum levels of 65%) and income based covenants. The securitisations of Broadgate (£1,300m), Meadowhall (£613m) and the Sainsbury’s Superstores portfolio (£196m), have weighted average maturities of 11.0 years, 8.6 years and 5.0 years respectively. The key financial covenant applicable is to meet interest and scheduled amortisation (equivalent to 1 times cover); there are no LTV covenants. These securitisations have quarterly amortisation with the balance outstanding reducing to approximately 15% to 30% of the original amount raised by expected final maturity, thus mitigating refinancing risk. There is no obligation on British Land to remedy any breach of these covenants in the debt arrangement of joint ventures and funds. Group borrowings Unsecured financing for the Group includes bilateral and syndicated revolving bank facilities (with initial terms usually of five years, often extendable); US Private Placements with maturities up to 2028; the Sterling unsecured bond maturing in 2029; and the convertible bond maturing in 2020. Secured debt for the Group (excluding debt in Hercules Unit Trust which is covered under ‘Borrowings in our joint ventures and funds’) is provided by debentures with maturities up to 2035. Unsecured Borrowings and covenants There are two financial covenants which apply across all of the Group’s unsecured debt. These covenants, which have been consistently agreed with all unsecured lenders since 2003, are: – Net Borrowings not to exceed 175% of Adjusted Capital and Reserves – Net Unsecured Borrowings not to exceed 70% of Unencumbered Assets There are no income or interest cover covenants on any of the unsecured debt of the Group. The Unencumbered Assets of the Group, not subject to any security, stood at £6.9 billion as at 31 March 2019. Although secured assets are excluded from Unencumbered Assets for the covenant calculations, unsecured lenders benefit from the surplus value of these assets above the related debt and the free cash flow from them. During the year ended 31 March 2019, these assets generated £16 million of surplus cash after payment of interest. In addition, while investments in joint ventures do not form part of Unencumbered Assets, our share of free cash flows generated by these ventures is regularly passed up to the Group. Unsecured financial covenants At 31 March Net borrowings to adjusted capital and reserves Net unsecured borrowings to unencumbered assets 2015 % 2016 % 2017 % 2018 % 2019 % 38 34 29 29 29 28 29 26 23 21 British Land | Annual Report and Accounts 2019 53 MANAGING RISK IN DELIVERING OUR STRATEGY Effective risk management is integral to our objective of delivering sustainable long term value British Land core strengths – Increasing focus on mixed use places as we evolve our business to reflect the changing way people use space – High quality commercial portfolio focused on London campuses and multi-let retail centres around the UK and building a Residential business – Long term strategy positioning the business to benefit from long term trends – Customer focused approach to respond to changing lifestyles – Diverse and high quality occupier base – High occupancy – Well balanced and risk managed development pipeline – Execution of asset management and development activity – Ability to source and execute attractive investment deals – Efficient capital structure with good access to capital and debt markets – Strong sustainability performance Our risk management framework For British Land, effective risk management is a cornerstone of our strategy and integral to the achievement of our objective of delivering sustainable long term value. We maintain a comprehensive risk management process which serves to identify, assess and respond to the range of financial and non-financial risks facing our business, including those risks that could threaten solvency and liquidity, as well as to identify emerging risks. Our approach is not intended to eliminate risk entirely, but instead to manage our risk exposures across the business, whilst at the same time making the most of our opportunities. Our integrated approach combines a top down strategic view with a complementary bottom up operational process outlined in the diagram on the right. The Board has overall responsibility for risk management with a particular focus on determining the nature and extent of exposure to the principal risks the business is willing to take in achieving its strategic objectives. The amount of risk is assessed in the context of the core strengths of our business (as summarised above) and the external environment in which we operate – this is our risk appetite. It is integral both to our consideration of strategy and to our medium term planning process. 54 British Land | Annual Report and Accounts 2019 The Audit Committee takes responsibility for overseeing the effectiveness of risk management and internal control systems on behalf of the Board, and advises the Board on the principal risks facing the business including those that would threaten its solvency or liquidity. The Executive Directors are responsible for delivering the Company’s strategy, as set by the Board, and managing risk. Our risk management framework categorises our risks into external, strategic and operational risks. The Risk Committee (comprising the Executive Committee and senior management across the business and chaired by the Chief Financial Officer) is responsible for managing the principal risks in each category in order to achieve our performance goals. Whilst ultimate responsibility for oversight of risk management rests with the Board, the effective day-to-day management of risk is embedded within our operational business units and forms an integral part of how we work. This bottom up approach allows potential risks to be identified at an early stage and escalated as appropriate, with mitigations put in place to manage such risks. Each business unit maintains a comprehensive risk register. Changes to the register are reviewed quarterly by the Risk Committee, with significant and emerging risks escalated to the Audit Committee. To read more about the Board and Audit Committee’s risk oversight, see pages 77, 78 and 84. Top down Strategic risk management Bottom up Operational risk management BOARD / AUDIT COMMITTEE Review external environment – Robust assessment of principal risks – Set risk appetite and parameters – Determine strategic action points Assess effectiveness of risk management systems – Report on principal risks and uncertainties RISK COMMITTEE/ EXECUTIVE DIRECTORS Identify principal risks – Direct delivery of strategic actions in line with risk appetite – Monitor key risk indicators Consider completeness of identified risks and adequacy of mitigating actions – Consider aggregation of risk exposures across the business BUSINESS UNITS Execute strategic actions – Report on key risk indicators Report current and emerging risks – Identify, evaluate and mitigate operational risks recorded in risk register Our risk appetite Principal internal risks Investment strategy Key risk indicators (including current thresholds) – Execution of targeted acquisitions and disposals in line with capital allocation plan (overseen by Investment Committee) Change in risk appetite in the year – Annual IRR process which forecasts prospective returns of each asset – Percentage of portfolio in non-core sectors – Total development exposure <15% of investment portfolio by value – Speculative development exposure <8% of investment portfolio by value Development strategy Capital structure Finance strategy People Income sustainability – Progress on execution of key development projects against plan – Manage our leverage such that LTV should not exceed a maximum level if market yields were to rise to previous peaks – Financial covenant headroom – Period until refinancing is required of not less than two years – Percentage of debt with interest rate hedging (spot and over next five years) – Unplanned executive departures – Employee engagement – Market letting risk including vacancies, upcoming expiries, and breaks and speculative development – Weighted average unexpired lease term – Concentration of exposure to individual customers or sectors Key Change in risk appetite from last year Increase No change Our risk appetite is reviewed annually as part of the strategy review process and approved by the Board. This evaluation guides the actions we take in executing our strategy. We have identified a suite of Key Risk Indicators (KRIs) and defined specific tolerances for each (summarised above). These are reviewed quarterly by the Risk Committee, to ensure that the activities of the business remain within our risk appetite and that our risk exposure is well matched to changes in our business and our markets. These include the most significant judgements affecting our risk exposure, including our investment and development strategy; the level of occupational and development exposure; and our financial leverage. Whilst our appetite for risk will vary over time and during the course of the property cycle, in general we maintain a balanced approach to risk. The Board considers our overall risk appetite in the year is broadly unchanged from last year. Having over the last few years lowered our financial risk we are now prepared to accept an increase in our risk relating to the more operational nature of property, reflecting market trends and our strategy as we build an increasingly mixed use business. Given the backdrop of economic and political challenges, we have actively managed our incremental risk exposure by: – maintaining a limited exposure to speculative development coupled with our successful pre-letting strategy – continuing to take a thoughtful approach to capital allocation, demonstrated by selling £1.5bn of mature and off-strategy assets, reinvesting partly in our share buyback programme, selective acquisitions and profitable development, whilst reducing our LTV further to 28.1%, despite valuation falls – maintaining substantial financial headroom with £1.8bn of committed unsecured revolving bank facilities, of which £1.5bn is undrawn. Based on our current commitments, these facilities and debt maturities, we have no requirement to refinance until late 2022. British Land | Annual Report and Accounts 2019 55 MANAGING RISK IN DELIVERING OUR STRATEGY CONTINUED Our risk focus The general risk environment in which the Group operates has heightened over the course of the year, which is largely due to the continued level of uncertainty associated with the future impact of the UK’s exit from the EU, the significant deterioration in the UK retail market and weaker investment markets. Our principal risks and assessment Our risk management framework is structured around the principal risks facing British Land. The Board confirms that a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity, was carried out during the year. Whilst we consider there has been no material change to the nature of the Group’s principal risks, not surprisingly, several risks are elevated as a result of the challenging external environment, with the increased level of political uncertainty associated with the UK’s departure from the EU, alongside the continued challenging trading conditions in retail (as shown by the risk heat map opposite). The risks considered to be elevated since the year end due to continuing Brexit uncertainty are both the economic and political and regulatory outlook. In addition, we consider the principal risks of occupier demand and investor demand to be elevated since the year end due to the continued challenging trading conditions in retail with several recent high profile CVAs and administrations. This could impact our ability to execute our investment strategy and present an increased risk to income sustainability. The principal risks are summarised opposite (and detailed on pages 58 to 61), including an assessment of the potential impact and likelihood and how the risks have changed in the year, together with how they relate to our strategic priorities. Inevitably the risk of a disruptive or ‘no deal’ Brexit has loomed large and remains an actively managed risk, supported by a dedicated risk checklist. While it is not possible to predict fully the impact Brexit will have on our business and our markets, the Board is continuing to monitor external events and is taking appropriate action to prepare for short term risks to ensure our business is both resilient and responsive in the short term, and well positioned for the long term. Our primary areas of focus have been to mitigate risks, where practical, in our construction supply chain, in our operational day-to-day property management and our crisis management plans; and we remain alert to potential uncertainties caused by Brexit which could adversely impact investment, capital, financial, occupier and labour markets. During the year, the Risk Committee has focused on some key operational risk areas across the business including: – ongoing GDPR programme to manage personal data appropriately – retailer tenant risk and managing our exposure to customers or sectors in a more challenging market backdrop – enhancing our crisis management strategy including a simulation exercise undertaken by senior management – health, safety and environmental risk management. Our Health and Safety management system was re-certified under BS OHSAS 18001 – detailed review of the covenant strength of current and potential construction contractors to mitigate our future exposure – climate change including establishing a Steering Committee to progress towards TCFD alignment – payment operations and key financial controls – procurement policy and new supplier onboarding process. 56 British Land | Annual Report and Accounts 2019 Our risk assessment Risk heat map Related strategic priority Change Principal risk External risks 1 Economic outlook 2 Political and regulatory outlook 3 Commercial property investor demand 4 Occupier demand and tenant default 5 Availability and cost of finance 6 Catastrophic business event Internal risks – strategic 7 Investment strategy 8 Development strategy 9 Capital structure 10 Finance strategy Internal risks – operational 11 People 12 Income sustainability Other Group risks In addition to our principal risks, there are also a number of other risks that are largely operational in nature and are managed centrally with appropriate processes and mitigation plans in place. d o o h i l e k i L 2 1 12 4 3 7 5 6 10 9 11 8 Impact Note: The above illustrates principal risks which by their nature are those which have the potential to significantly impact the Group’s strategic objectives, financial position or reputation. The heat map highlights net risk, after taking account of principal mitigations. Key Strategic priorities Customer Orientation Right Places Capital Efficiency Expert People Change year on year No change Increase Decrease These risks comprise: – Operating model including reliance on third parties – Culture – Information systems and cyber security – Effective control environment – Fraud and corruption – Compliance and legal framework – Supply chain management British Land | Annual Report and Accounts 2019 57 PRINCIPAL RISKS External risks Risks and impacts Economic outlook The UK economic climate and future movements in interest rates present risks and opportunities in property and financing markets and the businesses of our customers which can impact both the delivery of our strategy and our financial performance. Political and regulatory outlook Significant political events and regulatory changes, including the decision to leave the EU, bring risks principally in three areas: – reluctance of investors and businesses to make investment and occupational decisions whilst the outcome remains uncertain – on determination of the outcome, the impact on the case for investment in the UK, and on specific policies and regulation introduced, particularly those which directly impact real estate or our customers – the potential for a change of leadership, political direction, or an early general election. Commercial property investor demand Reduction in investor demand for UK real estate may result in falls in asset valuations and could arise from variations in: – the health of the UK economy – the attractiveness of investment in the UK – availability of finance – relative attractiveness of other asset classes. How we monitor and manage the risk Change in risk assessment in year – The Risk Committee reviews the economic – The UK economic position has weakened environment in which we operate quarterly to assess whether any changes to the economic outlook justify a re-assessment of the risk appetite of the business. – Key indicators including forecast GDP growth, employment rates, business and consumer confidence, interest rates and inflation/deflation are considered, as well as central bank guidance and government policy updates. – We stress test our business plan against a downturn in economic outlook to ensure our financial position is sufficiently flexible and resilient. – Our resilient business model focuses on a high quality portfolio and secure income streams and robust finances. – Whilst we are not able to influence the outcome of significant political events, we do take the uncertainty related to such events and the range of possible outcomes into account when making strategic investment and financing decisions. – Internally we review and monitor proposals and emerging policy and legislation to ensure that we take the necessary steps to ensure compliance if applicable. Additionally, we engage public affairs consultants to ensure that we are properly briefed on the potential policy and regulatory implications of political events. We also monitor public trust in business. – Where appropriate, we act with other industry participants and representative bodies to contribute to policy and regulatory debate. We monitor and respond to social and political reputational challenges relevant to the industry and apply our own evidence-based research to engage in thought leadership discussions, such as with Design for Life. – The Risk Committee reviews the property market quarterly to assess whether any changes to the market outlook present risks and opportunities which should be reflected in the execution of our strategy and our capital allocation plan. The Committee considers indicators such as margin between property yields and borrowing costs and property capital growth forecasts, which are considered alongside the Committee members’ knowledge and experience of market activity and trends. – We focus on prime assets and sectors which we believe will be less susceptible over the medium term to a reduction in occupier and investor demand. – Strong relationships with agents and direct investors active in the market. – We stress test our business plan for the effect of a change in property yields. during the year, largely due to the uncertainty associated with Brexit together with the weaker global economy. – Inflation and interest rates remain relatively stable. However, markets remain sensitive to external shocks, particularly associated with Brexit. – Against this employment is at its highest level since 1975 and real wage growth has strengthened. – We are mindful of the ongoing political and economic uncertainties, but our focus remains on controlling what we can within our business. Looking ahead our business is well positioned, financially strong and we have a clear long term strategy. – The political environment remains unstable and the risk of a disruptive or ‘no deal’ Brexit has loomed large, alongside the possibility of a general election. This heightens both the economic and political risk outlook. – Furthermore the global geopolitical and trade environments remain uncertain. – Whilst it is not possible to predict fully the impact Brexit will have on our business and our markets, we have prepared a Brexit checklist to identify and manage the key risks to different areas of our business and have considered various Brexit scenarios as part of our five-year forecasts. – Investment markets have slowed more recently with fewer transactions, particularly in retail, reflecting macro-economic uncertainty and challenges in the retail occupational market. – The London office investment market has remained robust, continuing to benefit from demand from overseas investors. – The theme of polarisation has continued with activity focused on high quality, well-let assets with strong occupational characteristics or alternative use potential. – London office yields have remained broadly stable throughout the year, however we have seen yield expansion in retail reflecting weakening investor sentiment, with weaker locations the most affected. – Notwithstanding this market backdrop we have continued to be active and have successfully sold £1.5bn of assets. Key Change year on year No change Increase Decrease 58 British Land | Annual Report and Accounts 2019 Risks and impacts Occupier demand and tenant default Underlying income, rental growth and capital performance could be adversely affected by weakening occupier demand and occupier failures resulting from variations in the health of the UK economy and corresponding weakening of consumer confidence, business activity and investment. Changing consumer and business practices including the growth of internet retailing, flexible working practices and demand for energy efficient buildings, new technologies, new legislation and alternative locations may result in earlier than anticipated obsolescence of our buildings if evolving occupier and regulatory requirements are not met. Availability and cost of finance Reduced availability of finance may adversely impact ability to refinance debt and/or drive up cost. These factors may also result in weaker investor demand for real estate. Regulation and capital costs of lenders may increase cost of finance. Catastrophic business event An external event such as a civil emergency, including a large-scale terrorist attack, cyber crime, extreme weather occurrence, environmental disaster or power shortage could severely disrupt global markets (including property and finance) and cause significant damage and disruption to British Land’s portfolio and operations. How we monitor and manage the risk Change in risk assessment in year – The Risk Committee reviews indicators of occupier demand quarterly including consumer confidence surveys and employment and ERV growth forecasts, alongside the Committee members’ knowledge and experience of occupier plans, trading performance and leasing activity in guiding execution of our strategy. – We have a high quality, diversified occupier base and monitor concentration of exposure to individual occupiers or sectors. We perform rigorous occupier covenant checks ahead of approving deals and on an ongoing basis so that we can be proactive in managing exposure to weaker occupiers. – Through our Key Occupier Account programme, we work together with our customers to find ways to best meet their evolving requirements. – Our sustainability strategy links action on customer health and wellbeing, energy efficiency, community and sustainable design to our business strategy. Our social and environmental targets help us comply with new legislation and respond to customer demands; for example, we expect all our office developments to achieve a BREEAM Excellent rating. – Market borrowing rates and real estate debt availability are monitored by the Risk Committee quarterly and reviewed regularly in order to guide our financing actions in executing our strategy. – We monitor our projected LTV and our debt requirements using several internally generated reports focused on borrowing levels, debt maturity, available facilities and interest rate exposure. – We maintain good long term relationships with our key financing partners. – The scale and quality of our business enables us to access a diverse range of sources of finance with a spread of repayment dates. We aim always to have a good level of undrawn, committed, unsecured revolving facilities to ensure we have adequate financing availability to support business requirements and opportunities. – We work with industry bodies and other relevant organisations to participate in debate on emerging finance regulations where our interests and those of our industry are affected. – We maintain a comprehensive crisis response plan across all business units as well as a head office business continuity plan. – The Risk Committee monitors the Home Office terrorism threat level and we have access to security threat information services. – Asset emergency procedures are regularly reviewed, and scenario tested. Physical security measures are in place at properties and development sites. – Our Sustainability Committee continues to monitor environmental risks and we have established a TCFD Steering Committee to review our management processes for climate-related risks and opportunities. Asset risk assessments are carried out to assess a range of risks including security, flood, environmental and health and safety. – We have implemented corporate cyber security systems which are supplemented by incident management, disaster recovery and business continuity plans, all of which are regularly reviewed to be able to respond to changes in the threat landscape and organisational requirements. – We also have appropriate insurance in place across the portfolio. – London offices are continuing to show resilience with above average take up. Retail has been weak with retailers facing both economic and structural challenges. As such, we have seen further retailers enter CVAs or administration, resulting in store closures and rent reductions. – In light of these market dynamics, prime London rents have been stable both in the West End and City, however retail has experienced rental value declines. – Across our markets, we are seeing polarisation of occupier demand continuing with occupiers focusing on the best quality assets. – In this context, we are focused on delivering high quality space with the right mix of uses; we have let or renewed 2.7m sq ft of space across the portfolio, and occupancy remains high at 97%. – Ongoing and increased uncertainty about Brexit and the impacts of the macro economic and political environment are affecting market sentiment, and operations of some lenders. – Debt continues to be available for the ‘right’ transactions; strong sponsor and quality of property are key. – Lenders’ appetite varies in different debt markets. There is a more cautious and reduced appetite for retail. – Interest margins/spreads have increased in the market recently in some sectors, although overall debt cost still relatively low. – Development finance is difficult to obtain for projects without pre-lets. – During the year we have continued to be active in debt markets, with £1.4bn of new finance arranged across a variety of sources. – The evaluation of the likely impact of this risk has not changed notably since the prior year. The Home Office threat level from international terrorism remains ‘Severe’. – The wider use and enhancement of digital technology across the Group increases the risks associated with Information and Cyber security; with an increasing risk from legacy system vulnerabilities, social engineering and phishing. During the year, we have continued to enhance our technical security position as well as provide employee awareness training on Information Security and Data Privacy principles. – We have carried out a crisis simulation exercise and enhanced our procedures where appropriate. British Land | Annual Report and Accounts 2019 59 PRINCIPAL RISKS CONTINUED Internal risks Risks and impacts Investment strategy In order to meet our strategic objectives, we aim to invest in and exit from the right properties at the right time. Underperformance could result from changes in market sentiment as well as inappropriate determination and execution of our property investment strategy, including: – sector selection and weighting – timing of investment and divestment decisions – exposure to developments – asset, tenant, region concentration – co-investment arrangements. Development strategy Development provides an opportunity for outperformance but usually brings with it elevated risk. This is reflected in our decision-making process around which schemes to develop, the timing of the development, as well as the execution of these projects. Development strategy addresses several development risks that could adversely impact underlying income and capital performance including: – development letting exposure – construction timing and costs (including construction cost inflation) – major contractor failure – adverse planning judgements. How we monitor and manage the risk Change in risk assessment in year – We have continued to allocate capital thoughtfully in light of the current market conditions. – Since 1 April 2018, we have sold 5 Broadgate for £500m and successfully executed £646m of retail sales – overall marginally ahead of book value. Overall we were a net divestor of £0.9bn of assets. – The retail market faces structural challenges and we have continued to refine our Retail portfolio to deliver a smaller, more focused business, with total sales of £2.9bn over the last five years. – We remain thoughtful about the use of proceeds from disposals, and are continuing to invest into our development pipeline and have extended our share buyback programme. – Our portfolio values were down 4.8%, led by Retail where values were down 11.1% whereas Offices values were up 1.1%. – Development is an important part of our business and has delivered some of our strongest returns, but is inherently higher risk, particularly when pursued on a speculative basis. We limit our development exposure to 15% of the total investment portfolio by value, with a maximum of 8% to be developed speculatively. – We actively manage our development risk and pre-letting our space is an important part of that approach. – We have successfully pre-let or under offer on 76% of our completed and committed developments and speculative exposure remains low at 2.3% of portfolio gross asset value. Also, 93% of the costs on our committed development programme have been fixed. – Our investment strategy is determined to be consistent with our target risk appetite and is based on the evaluation of the external environment. – Progress against the strategy and continuing alignment with our risk appetite is discussed at each Risk Committee with reference to the property markets and the external economic environment. – The Board carries out an annual review of the overall corporate strategy including the current and prospective asset portfolio allocation. – Individual investment decisions are subject to robust risk evaluation overseen by our Investment Committee including consideration of returns relative to risk adjusted hurdle rates. – Review of prospective performance of individual assets and their business plans. – We foster collaborative relationships with our co-investors and enter into ownership agreements which balance the interests of the parties. – We manage our levels of total and speculative development exposure as a proportion of the investment portfolio value within a target range taking into account associated risks and the impact on key financial metrics. This is monitored quarterly by the Risk Committee along with progress of developments against plan. – Prior to committing to a development, a detailed appraisal is undertaken. This includes consideration of returns relative to risk adjusted hurdle rates and is overseen by our Investment Committee. – Pre-lets are used to reduce development letting risk where considered appropriate. – Competitive tendering of construction contracts and, where appropriate, fixed price contracts entered into. – Detailed selection and close monitoring of contractors including covenant reviews. – Experienced development management team closely monitors design, construction and overall delivery process. – Early engagement and strong relationships with planning authorities. – We actively engage with the communities in which we operate, as detailed in our Local Charter, to ensure that our development activities consider the interests of all stakeholders. – We manage environmental and social risks across our development supply chain by engaging with our suppliers, including through our Supplier Code of Conduct, Sustainability Brief for Developments and Health and Safety Policy. Key Change year on year No change Increase Decrease 60 British Land | Annual Report and Accounts 2019 Risks and impacts Capital structure – leverage Our capital structure recognises the need for balance between performance, risk and flexibility. – leverage magnifies property returns, both positive and negative – an increase in leverage increases the risk of a breach of covenants on borrowing facilities and may increase finance costs. Finance strategy Finance strategy addresses risks both to continuing solvency and profits generated. Failure to manage refinancing requirements may result in a shortage of funds to sustain the operations of the business or repay facilities as they fall due. People A number of critical business processes and decisions lie in the hands of a few people. Failure to recruit, develop and retain staff and Directors with the right skills and experience may result in significant underperformance or impact the effectiveness of operations and decision making, in turn impacting business performance. Income sustainability We are mindful of maintaining sustainable income streams which underpin a stable and growing dividend and provide the platform from which to grow the business. We consider sustainability of our income streams in: – execution of investment strategy and capital recycling, notably timing of reinvestment of sale proceeds – nature and structure of leasing activity – nature and timing of asset management and development activity. How we monitor and manage the risk Change in risk assessment in year – We manage our use of debt and equity finance to balance the benefits of leverage against the risks. – We aim to manage our loan to value (LTV) through the property cycle such that our financial position would remain robust in the event of a significant fall in property values. This means we do not adjust our approach to leverage based on changes in property market yields. – We manage our investment activity, the size and timing of which can be uneven, as well as our development commitments to ensure that our LTV level remains appropriate. – We leverage our equity and achieve benefits of scale while spreading risk through joint ventures and funds which are typically partly financed by debt without recourse to British Land. – Five key principles guide our financing, employed together to manage the risks in this area: diversify our sources of finance, phase maturity of debt portfolio, maintain liquidity, maintain flexibility, and maintain strong metrics. – We monitor the period until financing is required, which is a key determinant of financing activity. Debt and capital market conditions are reviewed regularly to identify financing opportunities that meet our business requirements. – Financial covenant headroom is evaluated regularly and in conjunction with transactions. – We are committed to maintaining and enhancing relationships with our key financing partners. – We are mindful of relevant emerging regulation which has the potential to impact the way that we finance the business. Our HR strategy is designed to minimise risk through: – informed and skilled recruitment processes – talent performance management and succession planning for key roles – highly competitive compensation and benefits – people development and training. The risk is measured through employee engagement surveys, employee turnover and retention metrics. We monitor this through the number of unplanned executive departures in addition to conducting exit interviews. We engage with our employees and suppliers to make clear our requirements in managing key risks including health and safety, fraud and bribery and other social and environmental risks, as detailed in our policies and codes of conduct. – We undertake comprehensive profit and cash flow forecasting incorporating scenario analysis to model the impact of proposed transactions. – We take a proactive asset management approach to maintain a strong occupier line-up. We monitor our market letting exposure including vacancies, upcoming expiries and breaks and speculative development as well as our weighted average unexpired lease term. – We have a high quality and diversified occupier base and monitor concentration of exposure to individual occupiers or sectors. – We are proactive in addressing key lease breaks and expiries to minimise periods of vacancy. – We actively engage with the communities in which we operate, as detailed in our Local Charter, to ensure we provide places that meet the needs of all relevant stakeholders. – We manage our use of debt and equity finance to balance the benefits of leverage against the risks, including magnification of property valuation movements. – Our financial position remains strong; our proportionally consolidated LTV has been reduced by a further 30bps during the year to 28.1%, despite the valuation fall. – This financial strength provides us with the capacity to progress opportunities including our development pipeline whilst retaining significant headroom to our covenants. – The scale of our business, quality of our assets and rental income enable us to access a broad range of debt finance on attractive terms. During the year we have completed £1.4bn of new financing. – We have £1.8bn of committed unsecured, revolving bank facilities, of which £1.5bn is undrawn. Based on current commitments, these facilities and debt maturities, we have no requirement to refinance the business until late 2022. – Expert People is one of the four core focus areas of our strategy and a key factor in our performance. We continue to empower our people to make the most of their potential through training and development and are focused on building a supportive and inclusive culture for our people. – During the year, we have made several important changes to encourage cross-team collaboration and shared learnings. We have combined our Retail and Offices businesses under the single leadership of Darren Richards and we have also integrated the property management business within the wider business at a single office site. – We are mindful of the challenges facing the retail market which has seen several more operators apply for CVA or administration. We continue to actively monitor our exposure to occupiers at risk of default and administration and are selective about the sectors and operators we target. – We also recognise that in delivering our investment strategy and selling some of our mature assets, we have had to be conscious of the impact on our income in the short term. – However, our income streams are underpinned by prime assets and a high quality, diverse occupier base with high occupancy. Looking forward our development pipeline offers significant potential to generate future income. British Land | Annual Report and Accounts 2019 61 TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) Climate change is one of the most pressing challenges our world faces today The Board recognises the systemic threat posed by climate change and the need for urgent mitigating action. We have a track record of improving environmental performance and were one of the first real estate companies to introduce stretching carbon reduction targets that go beyond the demands of the Science Based Targets initiative for Scope 1 and 2 emissions. For more information, see our 2019 Sustainability Accounts at britishland.com/data. Our focus on mitigating climate risks and leveraging climate opportunities has protected value, reduced occupational costs and enhanced our revenue. The TCFD recommendations provide an excellent framework for us to continue this journey. To progress towards TCFD alignment, in March 2019 we established a TCFD Steering Committee, sponsored by our Chief Financial Officer, Simon Carter. This Committee will: – undertake long term scenario analysis of the impact of climate change on our business – recommend adjustments to our strategic and risk management processes to further integrate climate change issues into our day-to-day operations – identify metrics that translate climate change issues into financial exposure. The TCFD Steering Committee reports to the Risk and Sustainability Committees, both of which meet quarterly. Ultimate oversight is at Board level, with our new Corporate Social Responsibility Committee playing a role from May 2019. Any resulting disclosure requires approval by the Audit Committee. Board Board of Directors Audit Committee Corporate Social Responsibility (CSR) Committee Executive and Management Risk Committee Sustainability Committee TCFD Steering Committee Members include representatives from across the business: Asset management, Development, Finance, Investment, Procurement, Property management, Risk management, Strategy and Sustainability Governance Board oversight of climate-related risks and opportunities Our Board Director responsible for climate-related issues is Simon Carter, Chief Financial Officer. Simon chairs or attends our Risk and Sustainability Committees, ensuring continuity and accountability. The Board is updated on climate-related issues at least annually and has ultimate oversight of risk management. Significant and emerging risks are escalated to the Audit Committee and climate risk is tracked as part of our Catastrophic Business Event risk category (see page 59). 62 British Land | Annual Report and Accounts 2019 Management’s role in assessing and managing climate-related risks and opportunities The Board delegates responsibility for analysing: – climate-related risks to the Risk Committee, which consists of the Executive Committee and leaders from business units, including procurement and property management. Each business unit maintains a comprehensive risk register, which is reviewed quarterly by the Risk Committee. Climate risks are identified through a process involving trend analysis and stakeholder engagement. Identified risks are incorporated into our risk framework and managed by the appropriate business areas – climate-related opportunities to the Sustainability Committee, which will report to our new Corporate Social Responsibility Committee. Strategy Impacts of climate-related risks and opportunities on our business We consider climate-related issues within the time horizons used in our corporate strategy: Short term Less than 12 months Medium term 1 to 5 years Long term Over 5 years To date, we have focused on climate-related risks and opportunities for short and medium term horizons. This work will be expanded to consider long term horizons through our new TCFD Steering Committee. Examples of climate-related risks Extreme weather Short term risks Higher flood risks could increase insurance costs. This could, in turn, increase service charge costs for customers. Impact on corporate strategy Inability to sell or rent property assets at book value, due to flood risk. Flood risk assessments undertaken for our current portfolio. Impact on financial planning 100% of high-risk assets have flood management plans. Flood risk is effectively priced into our valuations. Flood risk factored into our process for acquisitions and developments. Energy regulation Medium term risks Impact on corporate strategy Impact on financial planning Energy prices Medium term risks Impact on corporate strategy Impact on financial planning Lease renewals subject to Minimum Energy Efficiency Standard (MEES) compliance and all leased properties subject to MEES from April 2023, with few exemptions. Through our futureproofing programme we monitor the 5% of our portfolio with F or G Energy Performance Certificate (EPC) ratings (by floor area). Property Managers will take action on F and G rated assets by 1 April 2023. MEES non-compliance would pose a risk of revenue loss and a potential liability from non-compliance penalties. Energy cost volatility. Through our efficiency programme, we reduce our energy consumption profile and ultimately our exposure to price fluctuations. Financial modelling includes the expected occupancy of assets and their associated energy costs. Procurement manages the financial risk of volatile energy prices. Examples of climate-related opportunities Resource efficiency Short term opportunity Impact on corporate strategy Impact on financial planning Energy sources Short term opportunity Impact on corporate strategy Impact on financial planning Products and services Medium term opportunity Impact on corporate strategy Impact on financial planning Energy savings from the UK Energy Savings Opportunity Scheme (ESOS). As part of complying with ESOS, we have identified initiatives representing £6.4m of capex investment that would save £3.7m annually. The business cases for these capex investments are considered as part of our overarching financial process. Revenue generated from solar PV installations on our assets. Installation of solar PV at 10 assets, generating 1,131 MWh in 2018/19. The cost savings and revenue from exporting to the grid are factored into our financial planning. Earning a rental premium from high efficiency buildings with a Design for Performance approach. Our Sustainability Brief for Developments sets out our requirement for detailed energy modelling early in the design stage to inform design and set operational performance benchmarks. Rental income for high efficiency and low efficiency assets would be factored into our revenue forecasts in the medium term, as this would affect their marketability. The resilience of our strategy British Land undertook an initial analysis of medium term portfolio risks in 2017. We will carry out TCFD-aligned scenario analysis in 2020, including a scenario where global warming is limited to 2ºC or lower. British Land | Annual Report and Accounts 2019 63 TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) CONTINUED Metrics and targets Through our TCFD Steering Committee work, we will quantify our total climate-related financial exposure. Below are the climate-related metrics and targets against which we currently report. Climate-related risks MEES Extreme weather EPCs rated F or G (% by floor area) Portfolio at high risk of flood (% by value) High flood risk assets with flood management plans (% by value) Climate-related opportunities Resource efficiency Energy sources Products and services Scope 1 and 2 carbon intensity reduction versus 2009 (2020 target: 55% reduction, index scored) Landlord energy intensity reduction versus 2009 (2020 target: 55% reduction, index scored) Electricity purchased from renewable sources (2020 target: 100%) On site renewable energy generation (MWh) Portfolio with green building ratings (% by floor area) Developments outperforming Building Regulations for carbon efficiency (% better on average) 2019 5% 3% 2018 5% 3% 100% 100% 2019 64% 2018 54% 44% 40% 96% 97% 1,131 MWh 18% 782 MWh 18% 25% 26% Risk management Climate-related risks are identified and assessed using our risk management framework, set out on page 54 of this Report. We consider climate change within ‘External risks Catastrophic business event’, which is a principal risk to our business. We define principal risks as those with a substantive financial or strategic impact on the business, high likelihood of occurrence and medium/high potential impact on our performance. Our integrated approach combines a top down strategic view with a complementary bottom up operational process. Identifying and assessing climate-related risks As part of our top down strategic view, our risk heat mapping process allows us to determine the relative significance of principal risks. As a factor within a principal risk category, climate change is monitored by the Risk Committee. Our risk register tracks: i) Description of the risk (identification) ii) Impact-likelihood rating (evaluation enabling prioritisation) iii) Mitigants (mitigation) iv) Risk owner (monitoring): As part of our bottom up operational process, we maintain Asset Plans which include provisions for identifying climate-related risks and opportunities, such as flood risk assessments and audits to identify energy saving opportunities. Our Sustainability Brief for Acquisitions sets out our environmental criteria for acquiring a new property, including energy efficiency and flood risk categories. Our Sustainability Brief for Developments sets out our environmental criteria for new constructions and renovations, including requirements for energy efficiency, flood risk, materials choice and embodied carbon reductions. Managing climate-related risks Our process for mitigating, accepting and controlling principal risks, including climate-related risks, is set out on page 54 of this Report. We prioritise principal risks through our corporate risk register and risk heat map. The impact-likelihood rating, which is evaluated during risk identification, is our primary metric for prioritising risks. As a factor within a principal risk category, climate change risks are logged in our corporate risk register and reviewed quarterly by the Risk Committee, which comprises the Executive Committee and senior management. The Board is ultimately responsible for and determines the nature and extent of principal risks it is willing to take to achieve its strategic objectives. 64 British Land | Annual Report and Accounts 2019 Viability statement Assessment of prospects The Group’s annual corporate planning process includes the completion of a strategic review, reassessing the Group’s risk appetite and updating the Group’s forecasts. The Group’s strategy provides the focus for our annual priorities and is formally reviewed annually. This process is led by the Chief Executive through the Executive Committee and includes the active engagement of the Board. Part of the Board’s role is to consider whether the strategy takes appropriate account of the Group’s principal risks. The latest updates to the strategic plan and Group’s risk appetite were approved by the Board in February and March 2019, respectively. The strategy and risk appetite drive the Group’s forecasts. These cover a five-year period and consist of a forecast which includes committed transactions only, and a forecast which also includes non-committed transactions the Board expects the Group to make in line with the Group’s strategy. A five-year forecast is considered to be the optimal balance between the Group’s long term business model to create Places People Prefer and the fact that property investment is a long term business (with weighted average lease lengths and debt maturities in excess of five years), offset by the progressively unreliable nature of forecasting in later years, particularly given the historically cyclical nature of the UK property industry. Assessment of viability For the reasons outlined above, the period over which the Directors consider it feasible and appropriate to report on the Group’s viability is the five-year period to 31 March 2024. The assumptions underpinning these forecast cash flows and covenant compliance forecasts were sensitised to explore the resilience of the Group to the potential impact of the Group’s significant risks, or a combination of those risks. The principal risks table on pages 58 to 61 summarises those matters that could prevent the Group from delivering on its strategy. A number of these principal risks, because of their nature or potential impact, could also threaten the Group’s ability to continue in business in its current form if they were to occur. The Directors paid particular attention to the risk of a downturn in economic outlook which could impact property fundamentals, including investor and occupier demand which would have a negative impact on valuations, cash flows and a reduction in the availability of finance. The remaining principal risks, whilst having an impact on the Group’s business model, are not considered by the Directors to have a reasonable likelihood of impacting the Group’s viability over the five-year period to 31 March 2024. The sensitivities performed were designed to be severe but plausible; and relate to a single ’downturn scenario’ before mitigating actions: – downturn in economic outlook: key assumptions including occupancy, void periods, rental growth and yields were sensitised in the ‘downturn scenario’ to reflect reasonably likely levels associated with an economic downturn, including: – a reduction in occupier demand reflected by an ERV decline, occupancy decline, increased void periods and additional impact of retail CVAs or administrations – a reduction in investment property demand to the level seen in the last severe downturn in 2008/2009, with outward yield shift to 8% net initial yield. – Restricted availability of finance: based on the Group’s current commitments and available facilities there is no requirement to refinance until late 2022. In the normal course of business, financing is arranged in advance of expected requirements and the Directors have reasonable confidence that additional or replacement debt facilities will be put in place. In the ‘downturn scenario’, the following sensitivity of this assumption was conducted: – a reduction in the availability of finance, for two years of the five-year assessment in tandem with the Group’s refinancing date. The outcome of the ‘downturn scenario’ was that the Group’s covenant headroom based on existing debt (i.e. the level by which investment property values would have to fall before a financial covenant breach occurs) decreases from the current 56% to, at its lowest level, 13%, indicating covenants on existing facilities would not be breached. In the ‘downturn scenario’, mitigating actions would be required to enable the Group to meet its future liabilities, including through asset sales, which would allow the Group to continue to meet its liabilities over the assessment period. Viability statement Having considered the forecast cash flows and covenant compliance and the impact of the sensitivities in combination in the ‘downturn scenario’, the Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period to 31 March 2024. Going concern The Directors also considered it appropriate to prepare the financial statements on the going concern basis, as explained in the Governance review. To read more information on going concern, go to page 78. The Strategic Report was approved by the Board on 14 May 2019 and signed on its behalf by: Chris Grigg Chief Executive British Land | Annual Report and Accounts 2019 65 Governance Board of Directors Chairman’s introduction Governance at a glance Corporate governance review Report of the Audit Committee Report of the Nomination Committee Directors’ Remuneration Report Directors’ Report and additional disclosures Directors’ responsibility statement 68 72 74 75 80 86 88 110 113 66 British Land | Annual Report and Accounts 2019 1 Triton Square Excellent environmental stewardship Large-scale development carries a broad responsibility and we are careful to manage the impact of our projects on the environment. At 1 Triton Square we worked closely with our design team and contractor to retain much of the original building. Smart material reuse and sustainability innovations mean that the building will produce 33% less carbon in construction and operation than best practice new build equivalents – a reduction of 35,600 tonnes of CO2e. This saving is greater than the building’s operational emissions over the next 20 years and it exceeds the ambitious carbon reduction targets required to meet the UK’s commitment to the Paris Climate Agreement. High efficiency equipment, low-carbon materials and a circular approach to waste are all part of our BREEAM Outstanding sustainability plans for the building. British Land | Annual Report and Accounts 2019 67 BOARD OF DIRECTORS Driving success Our Board develops strategy and leads British Land to achieve long term success. John Gildersleeve, Non-Executive Chairman N Appointed as a Non-Executive Director in September 2008 and as Chairman in January 2013. Chris Grigg, Chief Executive Appointed to the Board in January 2009. Skills and experience Skills and experience John is deputy chairman of TalkTalk Telecom Group PLC. He was formerly chairman of Carphone Warehouse Group, New Look Retail Group, EMI Group and Gallaher Group; a non-executive director of Dixons Carphone plc, Lloyds TSB Bank PLC, Vodafone Group and Pick n Pay Stores (South Africa); deputy chairman of Spire Healthcare; and an executive director of Tesco plc. John will be stepping down as Chairman and from the Board at the end of the 2019 AGM. Chris has more than 30 years’ experience in real estate and financial services industries, in a range of leadership roles. He brings a strong track record of driving growth, delivering strategic plans and a wealth of experience in corporate finance to the Board. Until November 2008, Chris was chief executive of Barclays Commercial Bank, having joined Barclays in 2005. Prior to that, Chris spent over 20 years at Goldman Sachs. Chris is a non-executive director of BAE Systems plc where he also sits on the Corporate Responsibility Committee. He is a board member of the European Public Real Estate Association and a member of the Cancer Research UK Corporate Board. Lynn Gladden, Non-Executive Director C R Alastair Hughes, Non-Executive Director A C Appointed as a Non-Executive Director in March 2015. Appointed as a Non-Executive Director in January 2018. Skills and experience Skills and experience Lynn is recognised as an authority in working at the interface of advanced technology and industry. Her critical thinking and analytical skills bring a unique dimension to the Board. She is Shell Professor of Chemical Engineering at the University of Cambridge and Executive Chair of the Engineering and Physical Sciences Research Council. She is also a fellow of the Royal Society and Royal Academy of Engineering. Alastair has proven experience of growing real estate companies and is a fellow of the Royal Institution of Chartered Surveyors. Alastair is a non-executive director of Schroders Real Estate Investment Trust Limited and Tritax Big Box REIT, with over 25 years of experience in real estate markets. He is a former director of Jones Lang LaSalle Inc. (JLL) having served as managing director of JLL in the UK, as chief executive for Europe, Middle East and Africa and then as regional CEO for Asia Pacific. 68 British Land | Annual Report and Accounts 2019 Simon Carter, Chief Financial Officer Appointed to the Board in May 2018. Skills and experience Simon has extensive experience of finance and the real estate sector. He joined British Land from Logicor, the owner and operator of European logistics real estate, where he had served as chief financial officer since January 2017. Prior to joining Logicor, from 2015 to 2017 Simon was finance director at Quintain Estates & Development Plc. Simon previously spent over 10 years with British Land, working in a variety of financial and strategic roles and was a member of our Executive Committee from 2012 until his departure in January 2015. Simon also previously worked for UBS in fixed income and qualified as a chartered accountant with Arthur Andersen. William Jackson, Senior Independent Director N R Appointed as a Non-Executive Director in April 2011 and Senior Independent Director in July 2017. Skills and experience William’s experience spans business operations and financial planning. He is Managing Partner of Bridgepoint, one of Europe’s leading private equity groups, which he has led since 2001. William has served on a wide range of UK and international boards during his career and has extensive property experience. Nicholas Macpherson, Non-Executive Director A Preben Prebensen, Non-Executive Director R Appointed as a Non-Executive Director in December 2016. Appointed as a Non-Executive Director in September 2017. Skills and experience Skills and experience Nicholas has directed organisations through both fiscal and strategic change management and brings this vital expertise to the Board. Preben has 30 years’ experience in driving long term growth for British banking businesses. He is chairman of C. Hoare & Co and a director of The Scottish American Investment Company PLC. Nicholas was the Permanent Secretary to the Treasury for over 10 years from 2005 to March 2016, leading the department through the financial crisis and the subsequent period of banking reform. He joined the Treasury in 1985 and held a number of roles prior to his appointment as Permanent Secretary. Nicholas trained as an economist and has worked at the CBI and Peat Marwick Consulting. He has been chief executive of Close Brothers Group plc since 2009. Preben was formerly chief investment officer at Catlin Group Limited and chief executive of Wellington Underwriting plc. Prior to that he held a number of senior positions at JP Morgan. British Land | Annual Report and Accounts 2019 69 BOARD OF DIRECTORS CONTINUED Tim Score – Non-Executive Director A N Laura Wade-Gery, Non-Executive Director R Appointed as a Non-Executive Director in March 2014. Appointed as a Non-Executive Director in May 2015. Skills and experience Skills and experience Tim has significant experience in the rapidly evolving global technology landscape and brings years of engagement both with mature economies and emerging markets to the Board. Laura has deep knowledge of digital transformation and customer experience and brings her experience leading business change management to the Board. He is a non-executive director of Pearson plc and HM Treasury and sits on the board of trustees of the Royal National Theatre. Tim was formerly chief financial officer of ARM Holdings PLC and held senior financial positions at Rebus Group Limited, William Baird plc, LucasVarity plc and BTR plc. From 2005 to 2014, he was a non-executive director of National Express Group PLC, including time as interim chairman and six years as senior independent director. Tim has been appointed to succeed John Gildersleeve as Chairman from the end of the 2019 AGM. She is a non-executive director of John Lewis Partnership plc and NHS Improvement. Previously, Laura was executive director Multi Channel at Marks and Spencer Group plc, served in a number of senior positions at Tesco PLC including chief executive officer of Tesco.com and was a non-executive director of Trinity Mirror plc. Rebecca Worthington, Non-Executive Director A Appointed as a Non-Executive Director in January 2018. Skills and experience Rebecca has extensive listed property sector experience and brings key commercial acumen to the Board. She was formerly group chief operating officer (having previously been group chief finance officer) of Countryside Properties PLC and spent 15 years at Quintain Estates and Development PLC, first as finance director and latterly as deputy chief executive. Rebecca was also a non-executive director and chair of the audit committee at Hansteen Holdings plc until 20 March 2018, and a non-executive director of Aga Rangemaster Group plc to September 2015. She qualified as a chartered accountant with Pricewaterhouse Coopers LLP. Brona McKeown, General Counsel and Company Secretary Appointed as General Counsel and Company Secretary in January 2018. Skills and experience Before joining British Land, Brona was General Counsel and Company Secretary of The Co-operative Bank plc for four years as part of the restructuring executive team. Immediately prior to that she was Interim General Counsel and Secretary at the Coventry Building Society. Until October 2011, Brona was Global General Counsel of the Corporate division of Barclays Bank plc, having joined Barclays in 1998. Brona trained and spent a number of years at a large City law firm. 70 British Land | Annual Report and Accounts 2019 Directors’ core areas of expertise1 37% 42% 11% 5% 5% Board Committee membership key A Audit Committee member C Corporate Social Responsibility Committee member N Nomination Committee member R Remuneration Committee member Chairman of a Board Committee Board attendance Director John Gildersleeve1 Alastair Hughes Charles Maudsley2 Chris Grigg Laura Wade-Gery4 Lynn Gladden Nicholas Macpherson4 Preben Prebensen4 Rebecca Worthington Simon Carter2,3 Tim Roberts2 Tim Score1, 4 William Jackson5 Scheduled meetings 7/7 7/7 7/7 7/7 7/7 7/7 7/7 7/7 7/7 6/6 7/7 7/7 6/7 Ad hoc meetings 2/2 3/3 2/2 3/3 2/3 3/3 2/3 2/3 3/3 2/2 2/2 1/2 3/3 Total 9/9 10/10 9/9 10/10 9/10 10/10 9/10 9/10 10/10 8/8 9/9 8/9 9/10 1. Due to their conflicts of interest, Tim Score and John Gildersleeve were not invited to attend one ad hoc Board meeting, the sole business of which was Chairman succession 2. Due to their conflicts of interest, Charles Maudsley, Tim Roberts and Simon Carter were not invited to attend one ad hoc Board meeting, the sole business of which was the reorganisation of Executive Director positions 3. Simon Carter did not start employment until 21 May 2018 and therefore did not attend one meeting that took place before he joined 4. Laura Wade-Gery, Nicholas Macpherson, Preben Prebensen and Tim Score each missed one ad hoc meeting that was called at short notice. In each case, the Directors who were unable to attend had been separately briefed on the business of the meeting and had provided their views beforehand 5. Pre-existing diary commitments meant William Jackson was unable to attend one meeting in January 2019. This was scheduled some time after the 2019 Board dates had been settled as a response to the Board evaluation feedback that there was a large gap between the November and March meetings British Land | Annual Report and Accounts 2019 71 CHAIRMAN’S INTRODUCTION TO CORPORATE GOVERNANCE Welcome to the Governance and Remuneration sections – ensuring that the Board is aware of the processes and mechanisms used by the Company to engage with key stakeholders – ensuring that those processes and mechanisms are fit for purpose and assist in contributing to the wider society. The following Corporate Governance Report, including the reports of the Audit, Nomination and Remuneration Committees, outlines how the Company has applied the Code’s principles and provisions. Board changes The Board has continued to evolve during the year. Simon Carter joined in May 2018 as Chief Financial Officer and Tim Roberts and Charles Maudsley stepped down from the Board on 31 March 2019. Charles Maudsley left British Land on that date but Tim Roberts remains an employee until 31 July 2019. I would like to thank both Tim and Charles for their commitment to British Land. Tim joined British Land in 1997 and was appointed to the Board in 2006, since when he has been the Head of Offices. Charles joined British Land in 2010 and has been on the Board since that time, most recently as the Head of Retail, Leisure and Residential. In addition, I will step down as Chairman and as a Director at the end of the 2019 AGM with Tim Score having been appointed to succeed me as Chairman at that time. With the exception of Tim, Charles and I, all Directors in role at 31 March 2019 will stand for re-election at the 2019 AGM. This year we carried out an internal evaluation of the Board. Details of the process undertaken and a summary of the outcomes are set out on page 77. However, I am pleased to report here that the review concluded that your Board, its Committees and its individual members continue to operate effectively and with due diligence. It also confirmed that good progress has been made on the recommendations of last year’s externally facilitated evaluation. The focus for the coming year will be: – continuing development of the Board’s understanding of culture and values; – continuing the development of succession plans; and – refining agendas and timings to enhance discussion and debate around important issues. This year’s AGM will again provide an opportunity for all shareholders to hear more about our performance during the year and to ask questions of the Board. I look forward to welcoming you on 19 July 2019. John Gildersleeve Non-Executive Chairman I am pleased to present the Corporate Governance Report for the year ended 31 March 2019. The Board’s responsibility for leading the Company and overseeing the governance of the Group continues to be supported by a robust structure which allows for constructive debate and challenge by its members. This approach enables the Directors to make effective decisions, at the right time and based on the right information. As I mention in my statement on pages 2 and 3, our level of thoughtful activity and the resilience of our strategy set British Land apart. We take this thoughtfulness and consideration into our governance structure and this year a review of our governance policies has been carried out. This resulted in revisions to a number of our policies including our matters reserved to the Board, various Committee terms of reference and delegated authorities. Governance underpins the way in which the business of the Group is managed, our behaviour and our corporate culture. This year, we are reporting against the 2016 UK Corporate Governance Code (the ‘Code’) available at frc.org.uk. I am pleased to report that the Board has continued to apply good governance and considers that the Company has complied with the provisions of the Code throughout the year. We have also been making preparations for compliance with the 2018 UK Corporate Governance Code. Our commitment to engaging with our stakeholders means that we already have in place several methods of engaging with various stakeholder groups. To help with reviewing this engagement we have recently constituted a Board level Corporate Social Responsibility Committee to assist the Board in: – understanding the views of key stakeholders (including our employees) of the Company – understanding the Company’s impact on community and environment 72 British Land | Annual Report and Accounts 2019 BOARD ACTIVITY IN 2019 Our core focus areas The Board meets regularly with people from across the British Land business and interacts with a range of advisers including corporate brokers and valuers. Board discussions have covered a wide range of topics with a significant amount of time spent on the following strategic topics: Strategic topic Areas on which the Board has focused during the year Customer Orientation – Decision to focus our business on three core elements: our London campuses, a smaller Retail portfolio and Residential which would see campuses increase to 55-60% of the portfolio, with Retail reducing to 30-35% and Residential increasing to 10% on a five year view – Smart Places team established to focus on delivering technology-enabled places and the personalisation of the working environment – Continued roll out of Storey, now operational across 141,000 sq ft at our campuses Right Places – Signed our Master Development Agreement and submitted our planning application at Canada Water – Progressing our vision for Broadgate including obtaining planning permission for the redevelopment of 1-2 Broadgate – Overseeing our Retail disposal strategy Capital Efficiency – Sale of 5 Broadgate for £1bn (BL share £500m) – Use of proceeds split between a £200m extension to our share buyback programme and reinvestment in development – Recommendation of 31.00p per share in dividends representing a 3% year-on-year increase – Repayment of £223m of debt in the Broadgate JV releasing buildings for potential development – Maintenance of appropriate leverage at 28% Expert People – Combining our Offices and Retail businesses under the leadership of Darren Richards as Head of Real Estate – Appointment to the Executive Committee* of Emma Cariaga, Head of Operations at Canada Water and David Lockyer, Head of Broadgate – Combination of British Land and our property management business within a single office site, enabling collaboration and maximising the efficiency of our operations – Roll out of agile working, enabling our people to work more flexibly Sustainability – Establishment of a Board level Corporate Social Responsibility Committee with effect from April 2019 – Consideration of our approach to sustainability for beyond 2020 – Diversity and inclusion across our business * Details of the members of our Executive Committee can be found on our website at britishland.com/executive-committee British Land | Annual Report and Accounts 2019 73 GOVERNANCE AT A GLANCE A strategic enabler Our governance structure ensures that the right people have access to the right information. Delegated authorities throughout our organisation enable effective decision making at appropriate levels. Board Board of Directors Audit Committee Corporate Social Responsibility Committee* Nomination Committee Remuneration Committee Executive Chief Executive Executive Committee Investment Committee Risk Committee Management * With effect from 1 April 2019 Community Investment Committee Health and Safety Committee Sustainability Committee Board gender split as at 2019 AGM versus 2018 AGM Average board member age over a three-year period 60 58 56 54 52 50 2019 2 018 30% 23% 77% 70% Male Female 74 British Land | Annual Report and Accounts 2019 2017 2018 2019 GOVERNANCE REVIEW Governance is an integral part of the way we deliver our strategy Leadership The Board As at 31 March 2019 the Board comprised the Chairman, eight independent Non-Executive Directors and four Executive Directors. Biographies of the Directors as at the date of publication are set out on pages 68 to 70 and include details of the skills and experience each brings to the Board. By the conclusion of the 2019 AGM, the Board will have reduced in size to comprise the Chairman, seven independent Non-Executive Directors and two Executive Directors. Our rigorous and transparent procedures for appointing new Directors are led by the Nomination Committee. Non-Executive Directors are appointed for specified terms and all continuing Directors offer themselves for election or re-election by shareholders at the AGM each year provided the Board, on the recommendation of the Nomination Committee, deems it appropriate that they do so. The composition of the Board is fundamental to its success in providing strong and effective leadership. The Nomination Committee is responsible for reviewing the composition of the Board and its Committees and assessing whether the balance of skills, experience, knowledge and diversity is appropriate to enable them to operate effectively. We continue to have a strong mix of experienced individuals on the Board. The majority are independent Non-Executive Directors who are not only able to offer an external perspective on the business, but also constructively challenge the Executive Directors, particularly when developing the Company’s strategy. The Non-Executive Directors scrutinise the performance of management in meeting their agreed goals and objectives, and monitor the reporting of that performance. The high calibre of debate and the participation of all Directors, Executive and Non-Executive, in its meetings allows the Board to utilise the experience and skills of the individual Directors to their maximum potential and make decisions that are in the best interests of the Company. Role of the Board The Board has reserved key decisions and matters for its own approval, including its core responsibilities of setting the Group’s strategic direction, overseeing the delivery of the agreed strategy, managing risk and establishing the culture, values and standards of the Group as a whole. Matters below the financial limit set by the Board are delegated either to the Investment Committee (for property and financing issues) comprising the Executive Directors, Head of Strategy & Investment, Head of Real Estate and Head of Development or to an approvals committee of any two of the Executive Directors and General Counsel and Company Secretary with all decisions taken reported to the next Board meeting. The Board culture is one of openness and constructive debate. The Directors are able to voice their opinions in a relaxed and respectful environment, allowing coherent discussion. When running Board meetings, the Chairman maintains a collaborative atmosphere and ensures that all Directors have the opportunity to contribute to the debate. The Chairman also arranges informal meetings and events throughout the year to help build constructive relationships between Board members and the senior management team. The Chairman meets with individual Directors outside formal Board meetings to allow for open, two-way discussion about the effectiveness of the Board, its Committees and its members. The Chairman is therefore able to remain mindful of the views of the individual Directors. Division of responsibilities There is a clear written division of responsibilities between the Chairman (who is responsible for the leadership and effectiveness of the Board) and the Chief Executive (who is responsible for managing the Company’s business). The Board has delegated authority for the day-to-day management of the business to the Chief Executive. The Executive Directors are involved in, or aware of, all major activities and are therefore extremely well placed to ensure that any decisions align with the Group’s agreed strategy. The Executive Directors make decisions within predefined parameters delegated by the Board, although any proposal may still be taken to the full Board for consideration and approval where this is considered appropriate, even if it falls within those parameters. Three standing Committees have been operating throughout the year: the Audit, Nomination and Remuneration Committees, to which certain powers have been delegated. Membership of each of these Committees is comprised solely of independent Non-Executive Directors. The reports of these three standing Committees are set out on pages 80 to 109. The Corporate Social Responsibility Committee had its first meeting in May 2019. Management Committees have also been established to make recommendations on matters delegated to them by the Board, its standing Committees or the Executive Directors. This governance structure (set out on the previous page) ensures that the Board is able to focus on strategic proposals, major transactions and governance matters which affect the long term success of the business. British Land | Annual Report and Accounts 2019 75 GOVERNANCE REVIEW CONTINUED Strategy days The Board held its annual offsite strategy event during February 2019. The strategy days are structured to provide the Directors, and the Non-Executive Directors in particular, with an opportunity to focus on the development of, and challenge to, the Group’s corporate strategy. The Executive Directors, senior executives and external guests delivered a number of presentations to attendees providing in-depth analysis on aspects of the business and the external environment. The days were carefully structured to achieve a balance between presentations, debate and discussion. Areas focused on at the 2019 strategy days included: corporate strategy, Canada Water, technology, the flexible workspace market and the build to rent market. Board meetings Regular Board and Committee meetings are scheduled throughout the year and the Directors ensure that they allocate sufficient time to discharge their duties effectively. Occasionally, Board meetings may be held at short notice when Board-level decisions of a time-critical nature need to be made or for exceptional business. The Board agenda is set by the Chairman, in conjunction with the Chief Executive and General Counsel and Company Secretary. Each scheduled meeting includes a management report delivered by the Chief Executive and regular updates on the activities of various standing and management committees. Discussions also take place on strategic proposals, major acquisitions, disposals, developments and legal and governance matters. Care is taken to ensure that information is circulated in good time before Board and Committee meetings, and that papers are presented clearly and with the appropriate level of detail to enable the Board to discharge its duties. All papers are circulated one week prior to meetings and clearly marked as being ‘For Decision’, ‘For Information’ or ‘For Discussion’. To enhance the delivery of Board and Committee papers the Board uses a Board portal and tablets which provide a secure and efficient process for meeting pack distribution. Under the direction of the Chairman, the General Counsel and Company Secretary facilitates effective information flows between the Board and its Committees, and between senior management and Non-Executive Directors. In March 2019 the Board held its meeting at the recently redeveloped 3 Broadgate in the City of London. The meeting was followed by a site visit to the 100 Liverpool Street development which had recently had its topping out ceremony. Effectiveness Board induction On appointment, all Directors whether Executive or Non-Executive receive a comprehensive induction. Each new Director is invited to meet the General Counsel and Company Secretary or Head of Secretariat to discuss their induction in detail, following which the programme is tailored specifically to their requirements and adapted to reflect their existing knowledge and experience. Each induction programme would ordinarily include: – meetings with the Chairman, Executive Directors, Committee Chairmen, external auditor or remuneration consultants (as appropriate) 76 British Land | Annual Report and Accounts 2019 – information on the corporate strategy, the investment strategy, the financial position and tax matters (including details of the Company’s REIT status) – an overview of the property portfolio provided by members of the senior management team – visits to key assets – details of Board and Committee procedures and Directors’ responsibilities – details on the investor relations programme – information on the Company’s approach to sustainability. All induction documents are made available on our secure electronic Board portal and are therefore available to Directors both during and after their induction. Training and development The Chairman and General Counsel and Company Secretary agree what Board-wide training or development may be appropriate. During the year ended 31 March 2019, the Board considered papers and presentations on legal and regulatory developments including the 2018 UK Corporate Governance Code and The Reporting of Payment Practices and Performance Regulations, SMART technology, the macro-economic environment and specific issues relating to Brexit, sustainability-related developments and briefings on the views of stakeholders and the external environment. Directors are also entitled to seek independent advice in relation to the performance of their duties at the Company’s expense, subject to having first notified the Chairman or the General Counsel and Company Secretary. Commitment Non-Executive Directors’ letters of appointment set out the time commitments expected from them. Following consideration, the Nomination Committee has concluded that all the Non-Executive Directors continue to devote sufficient time to discharging their duties to the required high standard. British Land’s policy is to allow Executive Directors to take one non-executive directorship at another FTSE company, subject to Board approval. External appointments of the Executive Directors are disclosed in their biographies. Any fees earned by the Executive Directors are disclosed on page 106 within the Remuneration Report. Conflicts of interest The Directors are required to avoid a situation in which he or she has, or can have, a direct or indirect conflict with the interests of the Company. The Board has established a procedure whereby the Directors are required to notify the Chairman and the General Counsel and Company Secretary of all potential new outside interests and actual or perceived conflicts of interest that may affect them in their roles as Directors of British Land. All potential conflicts of interest are authorised by the Board and the register of Directors’ interests is reviewed by the full Board at least annually. The Board also reviews the Directors’ Interests Policy on an annual basis. Following the last review in November 2018, the Board concluded that the policy continued to operate effectively. Re-election The Board has reviewed the Nomination Committee’s assessment of whether each Non-Executive Director remains independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, that judgement. As a result, the Board as a whole considers that each of the Non-Executive Directors is independent and is of the stature and has the required experience to perform his or her role as an independent Director. The results of the Board evaluation also confirm the Board’s belief that each Non-Executive Director standing for re-election at the 2019 AGM remains committed to their role within British Land and continues to perform effectively. Board evaluation The effectiveness of the Board and its Committees is reviewed annually, with an independent, externally facilitated review being conducted at least once every three years. The next external review will be in 2021. In 2019, an internal evaluation of the Board and its Committees was conducted by the General Counsel and Company Secretary by circulating questionnaires, seeking quantitative and qualitative feedback and reporting the outcomes to the Board. In addition to the formal evaluation, the Chairman met each Non-Executive Director individually during the year to discuss their contribution to the Board. The Senior Independent Director led the appraisal of the Chairman’s performance by the Non-Executive Directors, with the views of the Executive Directors also being taken into consideration. The Chairman and Chief Executive presented their appraisals of the performance of the Chief Executive and other Executive Directors respectively. These appraisals were taken into account when considering the performance of the Board as a whole as well as in relation to annual and long term incentive awards. The evaluation of the Board and its Committees concluded that the Board and its Committees continued to operate effectively with a high standard of performance throughout the year. The focus for the coming year will be: – continuing development of the Board’s understanding of culture and values – continuing the development of succession plans – refining agendas and timings to enhance discussion and debate around important issues. Accountability Financial and business reporting The Board is responsible for preparing the Annual Report and confirms in the Directors’ responsibility statement set out on page 113 that it believes that the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the information necessary to assess British Land’s position, performance, business model and strategy. The basis on which the Company creates and preserves value over the long term is described in the Strategic Report. The Audit Committee reviewed the procedure undertaken to enable the Board to provide the fair, balanced and understandable confirmation to shareholders. Meetings were held between the Group Financial Controller, Head of Investor Relations and other senior employees to review and document the key considerations undertaken and a detailed report was then presented to the Audit Committee. Risk management and internal control The Board determines the extent and nature of the risks it is prepared to take in order to achieve the Company’s strategic objectives. The Board has responsibility for the Company’s overall approach to risk management and internal control which includes ensuring the design and implementation of appropriate risk management and internal control systems. Oversight of the effectiveness of these systems is delegated to the Audit Committee which undertakes regular reviews to ensure that the Group is identifying, considering and as far as practicable mitigating the risks for the business. The Board confirms that a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity, was carried out during the year. British Land’s approach to risk, including the roles of the Board and the Audit Committee in setting risk appetite and monitoring risk exposure, is detailed in the ‘Managing risk in delivering our strategy’ section on pages 54 to 57. As well as complying with the Code, the Group has adopted the best practice recommendations in the FRC ‘Guidance on risk management, internal control and related financial and business reporting’ and the Company’s internal control framework operates in line with the recommendations set out in the internationally recognised COSO Internal Control Integrated Framework. The Company is committed to conducting its business in an ethical manner, with integrity and in line with all relevant laws and regulations. The Group has adopted a number of policies and procedures including policies and training on anti-bribery and corruption and fraud awareness, information security and GDPR. All employees are made aware of the Group’s policies through the Employee Handbook and regular bulletins and also receive training appropriate to their roles and responsibilities. The Audit Committee reviews the effectiveness of the Group’s system of internal control annually, including the systems of control for material joint ventures and funds. The Group’s internal control system is built on the following fundamental principles, and is subject to review by internal audit: – a defined schedule of matters reserved for approval by the Board – a detailed authorisation process: no material commitments are entered into without thorough review and approval by an authorised person – formal documentation of all significant transactions – a robust system of business and financial planning: including cash flows and profitability forecasting, with scenario analysis performed on major corporate, property and financing proposals – a robust process for property investment appraisals – monitoring of key outcomes, particularly expenditure and performance of significant investments, against budget and forecast British Land | Annual Report and Accounts 2019 77 GOVERNANCE REVIEW CONTINUED – clearly defined policies and review of actual performance against policies – benchmarking of property performance against external sources such as the Investment Property Databank – key controls testing – a comprehensive property and corporate insurance programme – a formal whistleblowing policy. During the course of its review for the year ended 31 March 2019, and to the date of this Report, the Audit Committee has not identified, nor been advised of, a failing or weakness which it has determined to be significant. Going concern and viability statements During the year the Board assessed the appropriateness of using the ‘going concern’ basis of accounting in the financial statements. The assessment considered future cash flows and debt facilities (to assess the liquidity risk of the Company) and the availability of finance (to assess the solvency risk). The assessment covered the 12-month period required by the ‘going concern’ basis of accounting. In accordance with the Code, the Board has also assessed the prospects of the Group over a five-year period, which is deemed appropriate for the viability statement. In preparing the viability statement the Board considered the principal risks set out on pages 58 to 61 and the sensitivities of cash flow and debt covenant forecasts, all of which are considered to have a reasonable likelihood of impacting the viability of the Company. Full details of this assessment are set out on page 65. Following these assessments the Directors believe that the Group is well placed to manage its financing and other business risks satisfactorily and have a reasonable expectation that the Company and the Group have adequate resources to continue in operation for at least 12 months from the date of the Annual Report. They therefore consider it appropriate to adopt the going concern basis of accounting in preparing the financial statements. The Board also considers that the Company and the Group will be able to continue in operation and meet its liabilities as they fall due over the period ending 31 March 2024. Taxation Our principles of good governance extend to our responsible approach to tax. Our tax strategy (‘Our Approach to Tax’), available on our website britishland.com/governance, is approved by the Board and is in line with the Group’s long term values, culture and strategy. Remuneration The Directors’ Remuneration Report is set out on pages 88 to 109. In accordance with the Code, the Remuneration Committee is recommending a new Remuneration Policy for approval at the 2019 AGM. The recommended Remuneration Policy is set out on pages 92 to 96. Relations with stakeholders The Board is committed to maintaining open channels of communication with all of the Company’s stakeholders. An important part of this is providing a clear explanation of the Company’s strategy and objectives, and ensuring that feedback 78 British Land | Annual Report and Accounts 2019 is acknowledged, considered and, where appropriate, acted upon. Stakeholder feedback is essential to the success of our business, so we ensure the Chairman, Senior Independent Director and Executive Directors are available to address any concerns our stakeholders may wish to raise. British Land aims to be informative and accessible to all shareholders. Announcements relating to the Group’s financial results and key events are provided in a timely manner and are easily accessible via our website and social media. The Group website also provides detailed information on our assets, as well as case studies illustrating our strategy, including our sustainability activities. British Land has a dedicated Investor Relations team which is available to respond to any questions or concerns investors may have on an ad hoc basis. All stakeholders are able to contact the Company directly via the contacts page on our website: britishland.com/contacts To read more on our key stakeholders, the issues that matter to them and how we engage with them, go to page 26. Annual General Meeting Directors attend the AGM, which provides retail shareholders in particular with an opportunity to hear directly from the Board on the Company’s performance over the past year, its strategy and the objectives for the year ahead. The AGM also provides shareholders with the opportunity to ask questions. The 2018 AGM was attended by approximately 110 shareholders. All resolutions were voted on by way of a poll and passed by the required majority. The results of the AGM voting are announced to the London Stock Exchange as soon as practicable following the AGM and also made available on the Company’s website. Retail shareholders Our ‘Shareholders Centre’ on our website: britishland.com/ shareholders-centre includes information on the AGM, dividends, shareholder communication, how to contact our registrar, Equiniti, and other useful resources for shareholders. Institutional investors Institutional investors and analysts receive regular communications from the Company, including details of investor relations events (see the chart to the right), one-to-one and group meetings with Executive Directors, and tours of our major assets. This year, our investor relations activity included analyst and investor events comprising presentations and tours of Broadgate and Canada Water, and a CFO investor dinner. In total, the Chief Executive, Chief Financial Officer and Investor Relations team met with representatives from 215 institutions during the year ended 31 March 2019. We periodically commission an independent investor perception study, which provides feedback on our strategy, highlights material concerns from key investors and is presented to the Board. The Executive team is committed to ensuring that shareholder views, both positive and negative, are relayed back to the Board. The Chief Executive provides a written report at each scheduled Board meeting which includes direct market feedback on activity during the period and commentary on any meetings with major shareholders. Key investor relations activities during the year y a M – Full year results presentation – Full year results roadshow, London – Investor roadshow, Frankfurt – Investor property conference, Netherlands e n u J – Investor property conference, London – Private client investor roadshow, London – Investor roadshow, Paris – Analyst & investor presentation & tour, Broadgate – Analyst & investor presentation & tour, Canada Water – Investor property conference, t p e New YorkS Lenders and bondholders The Board recognises the contribution made by our lenders and bondholders. Through our Treasury team, the Group maintains an open dialogue with our debt providers which helps the Board understand their investment appetite and criteria. y l u J – AGM – Private client investor breakfast, London AGM – US roadshow Community British Land recognises that the people who live in and around our assets are essential to creating Places People Prefer, and therefore to the success of our business. Investing in these communities is an important part of our approach, and our ‘Local Charter’ details how we build trust by making positive contributions locally. Our ‘Community Funding Guidelines’ set out how we allocate funding, with a particular focus on initiatives close to our assets that provide opportunities to local people through education, employment and training. Both documents can be found on our website at britishland.com/policies Our approach to social and environmental reporting is set out on pages 28 to 29. v o N – Industry dinner – Half year results – Half year results roadshow, London – Investor roadshow, Edinburgh – Investor property conference, London – Investor dinner, London – Investor roadshow, Frankfurt & Zurich b e F – Investor property h – Investor property conference, Miami c r a M conference, London British Land | Annual Report and Accounts 2019 79 REPORT OF THE AUDIT COMMITTEE We monitor the quality and integrity of the financial reporting and valuation process Key areas of focus Ultimately, the Committee continues to play a key role in overseeing the integrity of the Group’s financial statements, including assessing whether the Annual Report is fair, balanced and understandable, as well as ensuring that a sound system of risk management and internal control is in place. During the year, the Committee has reviewed the process for identification and mitigation of key business risks, challenging management actions where appropriate. The Committee has also reviewed the appropriateness of the accounting treatment of significant transactions, including asset acquisitions and disposals, along with scrutinising the valuation of the Group’s property assets as well as the effectiveness of the valuers. The Committee continued to monitor the implementation of the new valuer policy which was approved in 2017. As at 31 March 2019 65% of the portfolio was under new instruction with a further 17% due to be retendered the following year. The Committee continues to appreciate the professionalism of all its valuers during the tender process. Committee composition and governance There have been no changes to the membership of the Committee during the year to 31 March 2019. The Committee continues to be composed solely of independent Non-Executive Directors with sufficient financial experience, commercial acumen and sector knowledge to fulfil their responsibilities. Members’ attendance at Committee meetings is set out in the following table: Director Tim Score Alastair Hughes Nicholas Macpherson Rebecca Worthington Position Chairman Member Member Member Date of joining the Committee Attendance 3/3 3/3 3/3 3/3 20 Mar 2014 1 Jan 2018 1 Apr 2017 1 Jan 2018 The Board is satisfied that the Committee as a whole has competence relevant to the real estate sector. For the purposes of the UK Corporate Governance Code, Rebecca and I are deemed to meet the specific requirement of having significant, recent and relevant financial experience. With effect from the conclusion of the 2019 AGM, Rebecca will succeed me as Chairman of the Committee as I begin my role as Chairman of the Group. I am pleased to present the report of the Audit Committee for the year ended 31 March 2019. In line with the focus on improved governance and clear, relevant and concise reporting, this report of the Audit Committee highlights the main issues which arose during the year and how they were addressed. Role and responsibilities The principal responsibilities of the Committee are: Financial reporting – Monitoring the integrity of the Company’s financial statements and any formal announcements relating to financial performance, and considering significant financial reporting issues, judgements and estimates External Audit – Oversight and remuneration of the external auditor, assessing effectiveness and making recommendations to the Board on the appointment of, and the policy for non-audit services provided by, the external auditor Internal Audit – Monitoring and reviewing reports on the work performed by the internal auditor and reviewing effectiveness, including its plans and resourcing Risk management and internal controls – Reviewing the system of internal control and risk management Investment and development property valuations – Considering the valuation process and outcome and the effectiveness of the Company’s valuers 80 British Land | Annual Report and Accounts 2019 Financial reporting The Committee continues to review the content and tone of the preliminary results press release, Annual Report and half year results at the request of the Board. Drafts of the Annual Report are reviewed by the Committee Chairman and the Committee as a whole prior to formal consideration by the Board, with sufficient time provided for feedback. The Committee reviewed the key messaging included in the Annual Report and half year results, paying particular attention to those matters considered to be important to the Group by virtue of their size, complexity, level of judgement required and potential impact on the financial statements and wider business model. Any issues which were deemed to be significant were debated openly by the Committee members and other attendees, including management, external and internal auditors. The Committee has satisfied itself that the controls over the accuracy and consistency of the information presented in the Annual Report are robust. The Committee therefore recommended to the Board that the Annual Report presented a fair, balanced and understandable overview of the business of the Group and that it provided stakeholders with the necessary information to assess the Group’s position, performance, business model and strategy. Members of the senior management team, including the Chief Financial Officer, General Counsel and Company Secretary, Group Financial Controller, Head of Financial Reporting and representatives of both external and internal auditors are invited to attend each Committee meeting. In addition, the Chairman of the Board, Chief Executive Officer, Head of Investor Relations, Head of Planning and Analysis and other key employees are invited to attend part, or all, of specific Committee meetings. The Committee meets privately with both external and internal auditors after each scheduled meeting and continues to be satisfied that neither is being unduly influenced by management. As Committee Chairman, I additionally hold regular meetings with the Chief Executive Officer, Chief Financial Officer and other members of management to obtain a good understanding of key issues affecting the Group and am thereby able to identify those matters which require meaningful discussion at Committee meetings. I also meet the external audit partner, internal audit partner and representatives from each of the valuers privately to discuss any matters they wish to raise or concerns they may have. Committee effectiveness The Committee assessed its own effectiveness during the year through an internal questionnaire. The Committee reviews its terms of reference on an annual basis and these have been updated to reflect the requirements of the 2018 UK Corporate Governance Code. The current terms of reference were effective from 1 April 2019 and are available on our website at britishland.com/committees. The information below sets out in detail the activity undertaken by the Committee during the year ended 31 March 2019. I hope that you find it useful in understanding our work. Tim Score Chairman of the Audit Committee British Land | Annual Report and Accounts 2019 81 REPORT OF THE AUDIT COMMITTEE CONTINUED The significant issues considered by the Committee in relation to the financial statements during the year ended 31 March 2019, and the actions taken to address these issues, are set out in the following table: Significant issues considered How these issues were addressed Going concern statement The appropriateness of preparing the Group financial statements on a going concern basis. The Committee reviewed management’s analysis supporting the going concern basis of preparation. This included consideration of forecast cash flows, availability of committed debt facilities and expected covenant headroom. The Committee also received a report from the external auditor on the results of the testing undertaken on management’s analysis. As a result of the assessment undertaken, the Committee satisfied itself that the going concern basis of preparation remained appropriate. Viability statement Whether the assessment undertaken by management regarding the Group’s long term viability appropriately reflects the prospects of the Group and covers an appropriate period of time. The going concern statement is set out on page 78. The Committee considered whether management’s assessment adequately reflected the Group’s risk appetite and principal risks as disclosed on pages 58 to 61; whether the period covered by the statement was reasonable given the strategy of the Group and the environment in which it operates; and whether the assumptions and sensitivities identified, and stress tested, represented severe but plausible scenarios in the context of solvency or liquidity. The Committee also considered a report from the external auditor. Accounting for significant transactions The accounting treatment of significant property acquisitions, disposals, financing and leasing transactions is a recurring risk for the Group with non-standard accounting entries required, and in some cases management judgement applied. REIT status Maintenance of the Group’s REIT status through compliance with certain conditions has a significant impact on the Group’s results. Valuation of property portfolio Revenue recognition The valuation of investment and development properties conducted by external valuers is inherently subjective as it is undertaken on the basis of assumptions made by the valuers which may not prove to be accurate. The outcome of the valuation is significant to the Group in terms of investment decisions, results and remuneration. For certain transactions, judgement is applied by management as to whether, and to what extent, they should be treated as revenue for the financial year. The Committee concurred with management’s assessment and recommended the viability statement to the Board. The viability statement, together with further details on the assessment undertaken, is set out on page 65. The Committee reviewed management papers on key judgements, including those for significant transactions, as well as the external auditor’s findings on these matters. In particular, the Committee considered the accounting treatment of the share buyback programme, the sale of 5 Broadgate and the treatment of leasing transactions within the London Offices portfolio. The external auditor confirmed that management’s judgements in relation to these transactions were appropriate and reasonable and the Committee agreed with this conclusion. The Committee reviewed the Company’s compliance with the REIT tests. Management presented details of the methodology and results of their process for REIT testing, with any change in long term trends, and the level of headroom, highlighted. The Committee also considered the external auditor’s review of the REIT tests performed by management. The Committee concluded that the Company’s REIT status had been maintained in the year. The external valuers presented their reports to the Committee prior to the half year and full year results, providing an overview of the UK property market and summarising the performance of the Group’s assets. Significant judgements were also highlighted. The Committee analysed the reports and reviewed the valuation outcomes, challenging assumptions made where thought fit. In particular, with the implementation of the second stage of the new valuer appointment policy, the Committee paid specific attention to those assets which were subject to a new valuation instruction during the year. The Committee was satisfied with the valuation process and the effectiveness of the Company’s valuers. The Committee also approved the relevant valuation disclosures to be included in the Annual Report. The Committee and the external auditor separately considered the appropriateness of the accounting treatment applied by management in relation to revenue recognition. In particular, the Committee considered the treatment of the sale of third party property management rights to Savills and the timing of contingent consideration and costs. The Committee considered the scope of the accounting standard and agreed with the reasonableness of judgements made. 82 British Land | Annual Report and Accounts 2019 External Audit PricewaterhouseCoopers LLP (PwC) was appointed as the Group’s external auditor for the 2015 Annual Report following a formal competitive tender. The Committee will consider the need for a competitive tender for the role of external auditor every five years and, in accordance with legislation and its own terms of reference, will ensure that a competitive tender takes place at least every 10 years. The Group’s audit engagement partner is John Waters, who has been in role since PwC’s appointment, and as required by the applicable legislation this Annual Report and Accounts will be his final year as audit engagement partner. I would like to thank John for his hard work and diligence over the last five years and, following a rigorous selection process, welcome Sandra Dowling as PwC’s new appointment as audit engagement partner. The Committee has also considered the rationale for a competitive tender following PwC’s fifth year of appointment as external auditor. In our view, given the knowledge, the robustness of challenge and the continuing effectiveness of PwC in their role as external auditor, the Committee believe it is in the best interests of shareholders for PwC to remain as external auditor for the following financial year. The Committee will continue to review this annually ahead of the requirement for a competitive tender within 10 years as defined by legislation. There are no contractual obligations in place which would restrict the Committee’s selection of a different auditor. The Committee is responsible for overseeing the relationship with the external auditor and for considering their terms of engagement, remuneration, effectiveness, independence and continued objectivity. The Committee annually reviews the audit requirements of the Group, for the business and in the context of the external environment, placing great importance on ensuring a high quality, effective external audit process. Fees and non-audit services The Committee discussed the audit fee for the 2019 Annual Report with the external auditor and approved the proposed fee on behalf of the Board. In addition, the Group has adopted a policy for the provision of non-audit services by the external auditor. The policy helps to safeguard the external auditor’s independence and objectivity. The policy allows the external auditor to provide the following non-audit services to British Land where they are considered to be the most appropriate provider: – audit related services: including formal reporting relating to borrowings, shareholder and other circulars and work in respect of acquisitions and disposals. In some circumstances, the external auditor is required to carry out the work because of their office. In other circumstances, selection would depend on which firm was best suited to provide the services required – sustainability assurance: PwC currently provides an assurance opinion to the Company over selected sustainability data. This appointment is reviewed annually. In addition, the following protocols apply to non-audit fees: – total non-audit fees are limited to 70% of the audit fees in any one year. Additionally, the ratio of audit to non-audit fees is calculated in line with the methodology set out in the 2014 EU Regulations – Committee approval is required where there might be questions as to whether the external auditor has a conflict of interest – the Audit Committee Chairman is required to approve in advance each additional project or incremental fee between £25,000 and £100,000, and Committee approval is required for any additional projects over £100,000. During the year the engagement relating to sustainability assurance was approved by the Audit Committee Chairman on the basis that PwC were best placed to provide the service and that it created no conflict of interest with their role as external auditor. Total fees for non-audit services amounted to £0.1m, which represents 23% of the total Group audit fees payable for the year ended 31 March 2019. Details of all fees charged by the external auditor during the year are set out on page 132. The Committee is satisfied that the Company has complied with the provisions of the Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Processes and Audit Committee Responsibilities) Order 2014, published by the Competition and Markets Authority on 26 September 2014. Effectiveness Assessment of the annual evaluation of the external auditor‘s performance was undertaken by way of a questionnaire completed by key stakeholders across the Group, including senior members of the Finance team. The review took into account the quality of planning, delivery and execution of the audit (including the audit of subsidiary companies), the technical competence and strategic knowledge of the audit team and the effectiveness of reporting and communication between the audit team and management. PwC also provide the Committee with an annual report on its independence, objectivity and compliance with statutory, regulatory and ethical standards. For the year ended 31 March 2019, as for the prior year, the external auditor confirmed that it continued to maintain appropriate internal safeguards to ensure its independence and objectivity. The Committee concluded that the quality of the external auditor’s work, and the knowledge and competence of the audit team, had been maintained at an appropriate standard during the year. The Committee therefore recommended to the Board that a resolution to reappoint PwC as external auditor of the Company be put to shareholders at the 2019 AGM. British Land | Annual Report and Accounts 2019 83 REPORT OF THE AUDIT COMMITTEE CONTINUED Internal Audit The role of Internal Audit is to act as an independent and objective assurance function, designed to improve the effectiveness of the governance, risk management and internal controls framework in mitigating the key risks of British Land. Ernst & Young LLP (EY) continue to provide internal audit services to British Land and attended all Committee meetings to present their audit findings and the status of management actions. During the year, the Committee reviewed and approved the annual internal audit plan, including consideration of the plan’s alignment to the principal risks of the Group and its joint ventures. Internal audits completed during the year included those in relation to cybersecurity, GDPR programme design effectiveness, health and safety and environmental governance, tax and crisis management. Overall, no significant control issues were identified although several process and control improvements were proposed, with follow up audits scheduled where necessary. Effectiveness The annual effectiveness review of the internal auditor included consideration of the Internal Audit charter which defines EY’s role and responsibilities, review of the quality of the audit work undertaken and the skills and competence of the audit teams. The Committee concluded that EY continued to discharge its duties as internal auditor effectively and should continue in the role for the year commencing 1 April 2019. Risk management and internal controls The Board has delegated responsibility for overseeing the effectiveness of the Group’s risk management and internal control systems to the Committee. The Committee has oversight of the activities of the executive Risk Committee, receiving minutes of all Risk Committee meetings and discussing any significant matters raised. At the full and half year, the Committee reviewed the Group’s principal risks including consideration of how risk exposures have changed during the period and any emerging risks in the Company’s risk register. Both external and internal risks are reviewed and their effect on the Company’s strategic aims considered. The Committee considered the Group’s risk appetite, concluding that it remains set at an appropriate level to achieve the Group’s strategic goals without taking undue risk. The Board accepted the Committee’s recommendation for the Group’s risk appetite, ensuring that it was set at an appropriate level to achieve strategic goals without taking undue risk. The Committee also reviewed the status of key risk indicators throughout the year against the risk appetite set, focusing on any which were outside optimal ranges. The Committee gave particular attention to the risks relating to tenant credit risk exposure as well as continuing and increasing political uncertainty around the UK’s decision to leave the EU. 84 British Land | Annual Report and Accounts 2019 Half yearly, in conjunction with the internal auditor, management reports to the Committee on the effectiveness of internal controls, highlighting control issues identified through the exceptions reporting process. Risk areas identified are considered for incorporation in the Internal Audit plan and the findings of internal audits are taken into account when identifying and evaluating risks within the business. Key observations and management actions are reported to, and debated by, the Committee. For the year ended 31 March 2019, the Committee has not identified, nor been advised of, a failing or weakness which it has deemed to be significant. At the request of the Remuneration Committee, the Committee considers annually the level of risk taken by management and whether this affects the performance of the Company. The Remuneration Committee takes this confirmation into account when determining incentive awards granted to the Executive Directors and senior management. Taking into account reports received on internal key controls and risk management, and the results of the internal audit reviews, the Committee concluded that for the year ended 31 March 2019 there was no evidence of excessive risk taking by management which ought to be taken into account by the Remuneration Committee when determining incentive awards. The Group’s whistleblowing arrangements which enable all staff, including temporary and agency staff, suppliers and occupiers to report any suspected wrongdoing remained unchanged during the year. These arrangements, which are monitored by the General Counsel and Company Secretary and reviewed by the Committee annually, include an independent and confidential whistleblowing service provided by a third party. The Committee received a summary of all whistleblowing reports received during the year and concluded that each had been dealt with appropriately. The Committee also reviewed the Group’s tax strategy which sets out the Group’s approach to risk management and governance in relation to UK taxation, its attitude towards tax planning, the level of risk the Group is prepared to accept in relation to tax and its relationship with HM Revenue & Customs. The resulting document (‘Our Approach to Tax’) was approved by the Board and is available on the Company’s website (britishland.com/governance). Additional information on the Company’s internal controls systems is set out in the ‘Managing risk in delivering our strategy’ section on pages 54 to 57. Investment and development property valuations The external valuation of British Land’s property portfolio is a key determinant of the Group’s balance sheet, its performance and the remuneration of the Executive Directors and senior management. The Committee is committed to the rigorous monitoring and review of the effectiveness of its valuers as well as the valuation process itself. The Group’s valuers are now CBRE, Knight Frank, Jones Lang LaSalle (JLL) and Cushman & Wakefield. The Committee reviews the effectiveness of the external valuers bi-annually, focusing on a quantitative analysis of capital values, yield benchmarking, availability of comparable market evidence and major outliers to subsector movements, with an annual qualitative review of the level of service received from each valuer. The valuers attend Committee meetings at which the full and half year valuations are discussed, presenting their reports which include details of the valuation process, market conditions and any significant judgements made. The external auditor reviews the valuations and valuation process, having had full access to the valuers to determine that due process had been followed and appropriate information used, before separately reporting its findings to the Committee. The valuation process is also subject to regular review by Internal Audit. British Land has fixed fee arrangements in place with the valuers in relation to the valuation of wholly-owned assets, in line with the recommendations of the Carsberg Committee Report. Copies of the valuation certificates of CBRE, Knight Frank, JLL and Cushman & Wakefield can be found on our website at britishland.com/reports. Focus for the coming year During the year ending 31 March 2020 the Committee will continue to focus on the processes by which the Board identifies, assesses, monitors, manages and mitigates risk, particularly in light of the challenging conditions within the retail sector. The Committee will also continue to monitor key risk areas for the business, particularly those scheduled for review by Internal Audit including, but not limited to, non-development related supplier risk management and financial IT system upgrades. The Committee will have particular interest in the new reporting requirements arising from the 2018 UK Corporate Governance Code and will describe in the 2020 Annual Report how they have been met. British Land | Annual Report and Accounts 2019 85 THE REPORT OF THE NOMINATION COMMITTEE The Committee leads the process for Board appointments Diversity The Committee, the Board of Directors and British Land as a whole continue to pay full regard to the benefits of diversity, including gender diversity, both when searching for candidates for Board appointments and when the Company is searching for candidates for other appointments. The Committee’s Board Diversity and Inclusion Policy aspires for women to represent 30% of Board membership by 2020, as well as having regard to other aspects of diversity when making recruitment decisions at both Board and senior management level. British Land currently has three female Board members: Lynn Gladden, Laura Wade-Gery and Rebecca Worthington, all of whom are Non-Executive Directors. Following Tim Roberts and Charles Maudsley stepping down from the Board, this represents 27% female Board membership (2018: 25%). Following my departure after the 2019 AGM, our target of 30% will have been achieved. The Board Diversity and Inclusion Policy also sets out British Land’s commitment to strengthen the gender balance on British Land’s leadership and senior management teams. Further information on diversity within British Land is available on our website britishland.com/inclusive-culture. Welcome to the report of the Nomination Committee for the year ended 31 March 2019. Role and responsibilities The Committee’s principal responsibilities remain: – reviewing the structure, size and composition (including the skills, knowledge and experience and diversity) of the Board and its Committees and recommending changes to the Board We recently published our gender pay gap report. The report is available on our website britishland.com/gender-pay-gap and summarised on page 90. – considering succession planning for Directors and other senior executives – reviewing the independence and time commitment requirements of Non-Executive Directors – making recommendations as to the Directors standing for election or re-election at the AGM. Full details of the Committee’s role and responsibilities are set out in its terms of reference available on our website at britishland.com/committees. Committee composition and governance The Committee has three members: William Jackson and Tim Score, both independent Non-Executive Directors, while I continue to Chair the Committee. I refer you to the page opposite for William Jackson’s report on the process for appointing my successor as Chairman, in which I took no part. Details of the Committee’s membership and attendance at meetings is set out in the following table and the table on page 87: Director John Gildersleeve William Jackson Tim Score Position Chairman Member Member Date of Committee appointment 1 Jan 2013 11 Apr 2011 1 Apr 2017 Attendance 1/1 1/1 1/1 86 British Land | Annual Report and Accounts 2019 Board membership The Committee regularly reviews the structure, size and composition of the Board in order to ensure it is made up of the right people with the requisite skills and experience, including diversity of thought and approach, who can provide strong and effective leadership to the business and support delivery of the Company’s strategy. Succession planning The Committee is responsible for reviewing the succession plans for the Board, including the Chief Executive. The succession plans for the Executive Directors are prepared on immediate, medium and long term bases while those for Non-Executive Directors reflect the need to refresh the Board regularly. Such plans take account of the tenure of individual members. The Committee’s review of Executive Director succession plans includes consideration of the process for talent development within the organisation to create a pipeline to the Board. The Chief Executive, with the support of the HR Director, is responsible for developing succession plans for executives and senior management which are presented to and considered by the Committee. A number of issues that would normally be dealt with by the Committee were discussed at full Board meetings, so as to give the Board the benefit of hearing the presentations and discussion first hand. The succession plans for Executive Directors and senior managers were presented and discussed with the full Board in May 2018. Similarly, the changes to the numbers of Executive Directors on the Board were discussed in January with the Board (excluding the potentially conflicted Executive Directors). Appointment of new Chairman In light of the 2018 UK Corporate Governance Code, I led an expanded Nomination Committee which met three times to consider the succession plan for the role of Chairman. The expanded Committee included all Non-Executive Directors with the exception of John Gildersleeve and Tim Score (who had expressed interest in the role). This Committee was assisted by Luke Meynell of Russell Reynolds Associates, who produced a list of 10 external potential candidates, of whom five were women and two were from ethnic minorities, who were capable of fulfilling the job description, met the personal characteristics required and were interested in the position of a FTSE 100 Chairman. All were ranked according to the evidence they displayed of having met the criteria required in the categories of Board/ listed company experience, property exposure, style/cultural fit and capacity. The Committee considered the merits of an internal candidate as opposed to an external candidate taking into account the profile and tenure of experience on the Board. Given the calibre of the internal candidate, the Committee unanimously agreed that the best interests of the Company would be served by appointing Tim Score to succeed John Gildersleeve. Director William Jackson Alastair Hughes Nick Macpherson Laura Wade-Gery1 Lynn Gladden Preben Prebensen Rebecca Worthington Position Chairman Member Member Member Member Member Member Attendance 3/3 3/3 3/3 2/3 3/3 3/3 3/3 1. Laura Wade-Gery was unable to attend one Committee meeting that was called on short notice and which was immediately followed by a Board meeting William Jackson Senior Independent Director Other than the provision of recruitment consultancy services Russell Reynolds Associates has no connection with British Land. Independence and re-election Prior to recommending the re-appointment of any Non-Executive Director to the Board, the Committee assesses their continued independence, the time commitment required and whether the re-appointment would be in the best interests of the Company. Detailed consideration is given to each Non-Executive Director’s contribution to the Board and its Committees, together with the overall balance of knowledge, skills, experience and diversity. Following its review, the Committee is of the opinion that each Non-Executive Director continues to demonstrate commitment to his or her role as a member of the Board and its Committees, discharges his or her duties effectively and that each makes a valuable contribution to the leadership of the Company for the benefit of all stakeholders. Accordingly, the Committee recommended to the Board that resolutions to re-elect each Non-Executive Director be proposed as appropriate to the AGM alongside the resolutions to re-elect the Executive Directors. Therefore, in accordance with the Code, each of the Directors in role at the date of this Annual Report, with the exception of myself, will offer themselves for re-election. Biographies for each Director can be found on pages 68 to 70. Committee effectiveness The Committee assessed its own effectiveness during the year as part of the internal Board evaluation and reviews its terms of reference on an annual basis. These have been updated to reflect the requirements of the 2018 UK Corporate Governance Code. The current terms of reference were effective from 1 April 2019 and are available on our website at britishland.com/committees. Focus for the coming year Having overseen significant changes to membership of the Board and leadership team over the last 12 months, the Committee intends to focus its attention for the coming year on continuing the progress on the gender balance of the leadership team and reviewing the succession plans for the Board and senior management, including improving gender and ethnic diversity. John Gildersleeve Non-Executive Chairman British Land | Annual Report and Accounts 2019 87 DIRECTORS’ REMUNERATION REPORT Our Remuneration Policy aligns management incentives with our strategy Committee Membership Lynn Gladden, Laura Wade-Gery, Preben Prebensen and I were members of the Remuneration Committee throughout the year. Board changes There have been a number of Board changes this year. Simon Carter joined as Chief Financial Officer on 21 May 2018. Tim Roberts and Charles Maudsley stood down from the Board on 31 March 2019. Charles left British Land on that day and Tim Roberts remains an employee until his scheduled leaving date in July 2019. Tim and Charles were both eligible for an annual bonus for the 2018/2019 financial year, subject to performance of a combination of quantitative and strategic objectives. Both were considered ‘good leavers’ and, as such, their outstanding executive share plan awards will be pro-rated and treated in line with the good leaver provisions for the respective plan rules. Full details are provided on page 105. Remuneration in respect of the year ended 31 March 2019 As noted by the Company Chairman, the business has continued to make good strategic and operational progress over the year against an uncertain economic and political backdrop. Financial performance was robust, the Company’s financial position is strong and it took important steps for long term value creation. However, performance in the year to 31 March 2019 measured by Total Property Return for property investments is expected to underperform against the benchmark MSCI Investment Property Databank (IPD) indices which will be published at the end of May 2019. This underperformance against IPD reflects the mix of assets owned by British Land, which have performed well against direct comparators but have underperformed relatively against other parts of the property market included in the IPD benchmarks. The Board recognises this short term relative under performance, but believes that the Company has the right mix of assets to outperform in the longer term. Reflecting this likely under performance against IPD, payouts from the annual incentive plan are expected to fall from last year’s level to be circa 36% of the maximum for the Executive Directors. For the LTIP, we measure performance against targets for Total Property Return, Total Accounting Return and Total Shareholder Return over three years relative to the original benchmarks. We are also forecasting an underperformance against the median of the benchmarks over this period for the reasons stated above and as a result expect the LTIP maturing this June to lapse in full. This is the last year of awards under the Matching Share Plan which measures both Rent Roll Growth and Total Shareholder Return and we expect half of these awards to vest in June this year. Dear Shareholders On behalf of the Board, I am pleased to present the Directors’ Remuneration Report for the year ended 31 March 2019 which includes our new Remuneration Policy and the Company’s Annual Report on Remuneration. Our Directors’ Remuneration Policy was last approved by shareholders at the 2016 AGM and as a result is being presented to shareholders for approval again at the 2019 AGM. The Annual Report on Remuneration which describes how the Committee implements the Remuneration Policy is set out on pages 97 to 109 and is subject to an advisory vote at this year’s AGM. The current policy is available in the 2016 Annual Report on our website at britishland.com/committees. Over the last year the British Land Remuneration Committee has reviewed the current Policy in detail to ensure that it is working effectively, is aligned to both shareholders’ and other key stakeholders’ interests and continues to operate in line with the long term business strategy, the culture and values. We have also reviewed the Policy in light of the UK Corporate Governance Code’s latest requirements including the five additional tests of simplicity, clarity, risk, predictability and proportionality. The new Remuneration Policy is subject to a binding vote at this year’s AGM and I hope to continue to have your support for the Company’s remuneration arrangements. 88 British Land | Annual Report and Accounts 2019 The Remuneration Committee and the Board believe that these outcomes demonstrate the Company’s remuneration policy is working well. In recent years Annual Bonus and LTIP vesting have increased during periods of relative outperformance and decreased when our asset base has underperformed. New Remuneration Policy During the last year the Committee conducted an extensive review of the current Policy and concluded that it is generally working well as demonstrated above. We are therefore not proposing substantial changes to our policy. However, we are recommending a small number of amendments to both simplify and ensure the Policy continues to be compliant both with best practice and the Company’s current objectives. The Committee recognised that the recent incentive pay-out levels have been well below the historical averages. These lower pay-out levels reflect the impact of weaker shareholder returns in the sector which have been the result of market uncertainty since the EU referendum and more challenging retail markets. This important and strong connection between performance and reward is fully understood by the Board and executives. The amendments to the Policy and how we will apply it, set out in detail below, are intended to strengthen further the link between pay and performance at British Land, alignment to shareholders and simplify its operation. They will also provide greater clarity to executives on the targets the Board wishes them to achieve, and reflect changes recommended under the revised UK Corporate Governance Code. I would note that in recommending an updated Policy and how we intend to operate it to shareholders we are not proposing to increase remuneration quantum, other than through the annual review of salary levels in the context of increases in line with the workforce. The key changes to the Policy and how that Policy will be operated are as follows: – Any salary increases granted will continue to be normally no higher than the average for the wider employee population. – The maximum pension contribution for new Executive Director appointments will be at the level for the wider employee population under the new Policy. – Under the new Policy there is no change to the opportunity under the Annual Incentive Plan or the Long-Term Incentive Plan (150% of salary and 300% of salary respectively). The measures we intend to use also remain largely unchanged as these are key performance indicators of how British Land’s strategy is delivered. – We are proposing to simplify the Annual Incentive Plan and introduce more specific targets. 70% of the bonus will continue to be measured on quantitative measures with the remainder based on strategic measures. Currently, we award up to 10% for individual performance in the year and this is therefore being consolidated within these two sets of measures. The increased focus on strategic measures reflects the desire to more directly focus and incentivise management on the actions required to deliver the long term relative outperformance measured by the LTIP. – In addition, the Committee has noted that the financial performance range over which the Annual Incentive Plan is currently operated is very narrow, which means that under the current Policy small movements across targeted performance integers can result in outsized impacts on bonus awards, both up and down. The Committee is proposing to widen the target range for the Annual Incentive Plan at both the top and bottom end and in common with many other companies set the threshold marginally below the Budget/Index performance for the year. We also intend to reduce the amount earned at the threshold from a quarter to zero. Taken together, these changes are intended to be no more favourable in terms of their financial impact on executives. Target bonus will continue to be set at no higher than half of the maximum. – Total Property Return (TPR), Total Accounting Return (TAR) and Total Shareholder Return (TSR) will continue to be used as the LTIP performance metrics. We are however increasing the weighting on TSR from 20% to 40% with a corresponding decrease in the weighting on TAR. This reflects the Board’s wish to focus the Executive team on narrowing (over the long term) the discount to NAV at which shares in British Land trade, something the Board is focused on and reflects the feedback we have had from many shareholders who view this as a priority. – We are also significantly simplifying the LTIP to remove the opportunity for executives to exchange Performance Share awards before they are granted, for market-priced Share Options (on a 1 for 4 ratio basis) in future. This follows the change in 2016 of removing Matching Share awards and will leave British Land with only the Performance Share award element in the Long Term Incentive Plan. – In order to provide a more robust and simple method of assessing performance under each of the LTIP metrics, performance will be measured relative to a more tailored market benchmark. Matching the benchmark will result in threshold vesting of 20% (unchanged) of each part of the award, with the stretch (for full vesting) set at an absolute level of outperformance of the market benchmark. The market benchmark will, where possible, be tailored to British Land’s asset base and size in order to provide a more robust yardstick to assess performance. – TPR will continue to be assessed against a sector weighted MSCI IPD Index but it will be simplified by removing the additional stretch created when the benchmark grows by more than 10% pa. – TAR and TSR will be assessed against market capitalisation weighted indices rather than a median ranked company’s performance. This means that the largest REITs, which are more directly comparable to British Land, will have a greater weighting than the smaller ones in the future. The Committee feels that these targets will be simpler, fairer and more aligned to shareholders and other stakeholders. British Land | Annual Report and Accounts 2019 89 CEO Pension The Committee has accepted the Chief Executive Officer’s decision to reduce his pension allowance by 5% of salary annually to bring it in line with the employee contribution rate over the next 4 years. The Committee notes that the CEO’s existing scheme is a contractual right agreed on his appointment in 2008 and thanks him for volunteering to respond to broader shareholder concern over executive pension contributions. Below Board-level incentives In line with the 2018 UK Corporate Governance Code, the Committee’s remit will also include approving the pay arrangements for the employees below the main Board who sit on the Executive Committee. The Remuneration Committee will continue to have oversight of the Group’s remuneration policy for the wider employee population. Gender Pay Gap The latest gender pay gap for the 5 April 2019 snapshot shows a further reduction in the median pay gap of 5.7% to 34.9% from 40.6% for British Land. Broadgate Estates, a subsidiary company shows an increase in the median from 31.3% to 37.7% due to the sale of the third party business and the transfer of a significant number of employees to Savills last year. More information can be found at britishland.com/gender-pay-gap. Recommendation British Land continues to strive to apply best practice in its remuneration policies and to listen carefully to shareholder feedback. We therefore hope to see your support for our approach to remuneration by voting for the Remuneration Policy and the Directors’ Remuneration Report at the 2019 AGM. Yours sincerely William Jackson Chairman of the Remuneration Committee DIRECTORS’ REMUNERATION REPORT CONTINUED In line with the provisions in the new Code, under the new Policy the Remuneration Committee will be able to override formulaic incentive outcomes. – Recovery provisions have been toughened in the new Policy so that bonus and LTIP payments can be recovered in the event of corporate failure or reputational damage (in addition to gross misconduct, misstatement of financial statements and error in calculating the pay-outs). These will now apply for 3 years from the date that performance is calculated. – In line with the new Code, shareholding guidelines will apply to Executive Directors following the cessation of employment for 2 years. We have developed these so that they meet investor expectations and have provided the flexibility in the Policy for them to be adapted between Policy reviews by the Committee to continue to meet those expectations over time. The guideline whilst employed will remain at 225% for the CEO and be increased from 150% to 200% of salary for other Executive Directors. Remuneration in respect of the year commencing 1 April 2019 Salary and Fees The Committee has discussed and reviewed the Company’s annual salary review framework for all employees. It has also reviewed the salaries of the Executive Directors and concluded that Chris Grigg’s salary will be increased by 2% and Simon Carter’s by 3.1% which is below the average increase for the wider employee population. In March, the Company announced that the Chairman would step down on 19 July 2019. The Committee set the new Chairman’s annual fee at £10,000 less than the current Chairman’s at £375,000 as he comes into his new role. The Executive Directors also reviewed the fees payable to the Non-Executive Directors and concluded the basic fee should be increased from £62,500 to £64,000. The new Corporate Social Responsibility Chair would receive a fee of £14,000 and the member £5,000 and the Nomination Committee member fee would be increased from £4,000 to £5,000. Annual incentives For the coming year, 70% of the annual incentive will continue to be measured on quantitative measures with the remaining 30% based on strategic measures. Further information is provided on page 97. Long Term Incentives The Committee intends to grant long term incentive awards during this coming year at 250% of salary, the same level as last year. Details of the grants, including performance conditions are set out on page 98. The grants will be delayed until after the AGM so that, if approved, the new Policy will apply to these grants. 90 British Land | Annual Report and Accounts 2019 Overview of Remuneration Policy Our Remuneration Policy is aligned with the long term business strategy, the culture and the values of the Company. The Remuneration Policy outlined on pages 92 to 96 will, subject to shareholder approval, take effect from 19 July 2019. The bar charts below illustrate the levels of remuneration receivable by the Executive Directors in the first year of operation of the proposed Remuneration Policy for varying levels of performance. Illustration of application of Remuneration Policy Chief Executive Maximum 25% 28% 47% In line with expectations 52% 29% 19% Minimum 100% Total: £4,661k (£5,753k including share price growth) £2,259k £1,167k Chief Financial Officer Maximum 23% 29% 48% In line with expectations 49% 31% 20% Minimum 100% Total: £2,599k (£3,224k including share price growth) £1,224k £599k (£’000) 0 1,000 2,000 3,000 4,000 5,000 6,000 (£’000) 0 500 1,000 1,500 2,000 2,500 3,000 3,500 Fixed Pay Annual Incentive LTIP LTIP value with 50% share price growth Fixed Pay Annual Incentive LTIP LTIP value with 50% share price growth 1. Calculated using (a) salaries for the year ending 31 March 2020; (b) benefit values for the year ending 31 March 2019; and (c) pension policy as applicable for the year ending 31 March 2020 i.e. 30% of salary for the CEO and 15% of salary for the CFO Executive Directors Fixed remuneration The components of fixed remuneration are intended to provide a base package at a level that will attract high-calibre individuals, with the appropriate degree of expertise and experience to carry out their roles to the high standards we require. Executive Directors’ salaries are set taking into account the scope and responsibilities of the role and the level of remuneration paid at companies of broadly similar size, and, in addition to salary, the fixed remuneration package includes the provision of benefits, a pension or pension allowance and the opportunity to take part in all-employee share schemes. Annual Incentive The Annual Incentive forms part of the variable proportion of an Executive Director’s remuneration package. The level of Annual Incentive award received is directly linked to quantitative and strategic measures which are set annually. A proportion of each Executive Director’s Annual Incentive award is used to purchase shares that must be held for three years, providing longer term alignment with shareholders. Magnitude of Annual Incentive award is dependent on performance against Annual Incentive measures over one year Two thirds is paid as cash on award One third (net of tax) is used to purchase shares, which must be held for three years (Annual Incentive Shares) Long-Term Incentive Plan The LTIP is the second element of variable remuneration. The proportion of an LTIP award that is actually released to an Executive Director is dependent on British Land’s performance against specified performance measures over a three-year period. LTIP award consists of performance shares with performance measures attached Performance is measured over three years The number of performance shares vesting is dependent on the degree to which the performance measures have been met A two-year holding period applies to LTIP awards following vesting Chairman and Non-Executive Directors Fees paid to the Company Chairman and Non-Executive Directors are set taking into account fees paid at companies of broadly similar size with the aim of attracting individuals with the appropriate degree of expertise and experience to work with and challenge the Executive Directors. British Land | Annual Report and Accounts 2019 91 DIRECTORS’ REMUNERATION REPORT CONTINUED Executive Directors’ Remuneration Policy Fixed remuneration Operation Basic salary To attract, motivate and retain talented Executive Directors. The level of basic salary is set taking into account the scope and responsibilities of the role and the level of remuneration paid at companies of broadly similar size. Basic salaries are reviewed annually by the Remuneration Committee, with increases usually taking effect on 1 April for the subsequent year. Employment conditions and salary increases throughout the Group are taken into account when basic salaries are reviewed. Maximum opportunity Performance conditions The maximum level of basic salary will not be greater than the current salary as increased, typically in line with the market and general salary increases throughout the Group. Not applicable. If an individual is appointed at a lower salary, for example, to reflect inexperience as a listed company Director, larger increases may be awarded over future years as they prove their capability. Changes in the scope of an Executive Director’s role may result in a review of salary. Car allowance, benefits and all-employee share schemes To provide a car allowance and set of benefits which support the Executive Director and encourages participation in the all-employee share schemes. A car allowance is paid to Executive Directors in lieu of the provision of a company car. The maximum car allowance is £20,000 per annum. Not applicable. Executive Directors are eligible to receive other taxable and non-taxable benefits, that may include: – private medical insurance (covering the Director and family) – life assurance cover – permanent health insurance – access to independent actuarial, financial and legal advice when necessary – gym membership, subsidised by the Company – annual medical checks – relevant professional subscription fees – other benefits on substantially the same basis as other employees. Executive Directors are eligible to participate in British Land’s Share Incentive Plan (SIP), Sharesave Scheme and any other future plans on the same basis as other eligible employees. The Company provides Directors’ and Officers’ Liability Insurance and may provide an indemnity to the fullest extent permitted by the Companies Act. Pension or pension allowance To provide an appropriate level of pension in retirement for Executive Directors. The maximum cost of other taxable and non-taxable benefits permitted under the Policy is the amount required to continue providing benefits at a similar level year-on-year. The maximum opportunities under the SIP, Sharesave Scheme and any subsequent plans are set by the rules of the schemes and may be determined by statutory limits. Not applicable. Executive Directors may receive pension benefits through a defined contribution scheme or cash allowance in lieu of pension contributions or defined benefit scheme (for Directors who joined the scheme before it was closed to new members in 2006). Cash allowances in lieu of pension contributions would typically be paid at the same level of salary as Company contributions under the defined contribution arrangement. Accrual rates for Directors receiving benefits through the defined benefit scheme are determined by the rules of the scheme and are dependent on the age at which the Director joined the Company. Benefits up to the limit permitted by the tax legislation are provided in a registered plan. Benefits over that limit are currently provided in an employer financed retirement benefit scheme (EFRBS). EFRBS participants are currently offered a choice annually as to whether they wish to accrue benefits in the EFRBS or to receive a cash payment in lieu. Employer pension contributions to Executive Directors under the defined contribution arrangement and cash allowances in lieu of pension are made at a fixed percentage of salary, between 15% and 30%. Under the defined benefit scheme the target benefit is the pension that can be provided by the 31 March 2012 lifetime allowance (£1.8m), uplifted by RPI from 31 March 2011. The maximum accrual rate for a defined benefit scheme member is that which will give the target benefit at age 60, subject to the accrual rate being no greater than one thirtieth and no less than one sixtieth of salary. Future appointments will not receive a contribution greater than the majority of the workforce (currently 15% of salary) and, unless already within the defined benefit scheme, will not be able to participate in it. 92 British Land | Annual Report and Accounts 2019 Variable remuneration Operation Maximum opportunity Performance conditions Annual Incentive To reward performance against quantitative and strategic objectives that are set annually. The maximum level of Annual Incentive which may be granted is equivalent to 150% of basic salary. The objectives are set by the main Board and the measures by the Remuneration Committee normally at the beginning of the financial year over which performance will be assessed and following the end of the financial year when performance can be determined. The Committee has the discretion to adjust the outturn to ensure it reflects underlying performance. No more than 25% of any part of the award will be earned for threshold performance. Up to half of the maximum potential award is payable for target performance that is in line with expectations. If the stretch target is met the maximum potential award will be earned. No further performance conditions are attached to the Annual Incentive Shares during the holding period. Annual Incentive awards may be granted to Executive Directors each year, with the level of award reflecting quantitative and strategic aims of the Company. Objectives are set by the Board and measures set by the Remuneration Committee. Awards are granted following the financial year end, when actual performance over that year is measured. A portion of the Annual Incentive Award is paid in cash and the remaining portion (net of tax) is used to purchase British Land shares on behalf of the Executive Director (Annual Incentive Shares). For the Annual Incentive Award for the year commencing 1 April 2019, one third of any Award will be required to be used to purchase Annual Incentive Shares. Annual Incentive Shares must be held for three years from the date of grant of the Annual Incentive award before they may be transferred or sold, regardless of whether or not the individual remains an employee of British Land throughout this period. Executive Directors are entitled to the dividends paid in respect of the Annual Incentive Shares during the holding period. The Annual Incentive award (cash and shares) may be clawed back during the three-year period following determination of the award in certain circumstances. These are set out on page 96. Long-Term Incentive Plan (LTIP) To link the level of reward to Company performance against specified long term measures, promoting and rewarding activities that support our strategy and create sustainable long term value for shareholders. The maximum value (using the share price at the time of award multiplied by the number of shares) of an LTIP award which may be granted is equivalent to 300% of basic salary. LTIP awards may be granted annually by the Remuneration Committee to Executive Directors. Awards may consist of performance shares (conditional rights to receive shares). LTIP awards typically vest after three years. The number of performance shares vesting is dependent on the degree to which performance conditions attached to the LTIP have been met over this three-year performance period. The Committee has the discretion to adjust the outturn to ensure it reflects underlying performance. A payment equivalent to the dividends accrued on vesting performance shares is paid at the point of vesting in shares or cash. On vesting, sufficient performance shares may be sold to cover any liability to income tax and National Insurance contributions and related costs of sale. The remaining performance shares must be held for two years following vesting before they are permitted to be transferred or sold, regardless of whether or not the individual remains an employee of British Land throughout this period. LTIP awards may be forfeited and/or clawed back from the date of grant until three years after the determination of the vesting level of an award in certain circumstances. These are set out on page 96. If it is discovered that an LTIP award was granted or vested on the basis of materially misstated accounts or other data the Committee may require some or all of the performance shares to be forfeited or clawed back during the five-year period following the grant date. The LTIP performance conditions have been chosen to reward performance that is aligned with British Land’s strategy: – total property return (TPR) performance is assessed relative to an MSCI benchmark, weighted in sector returns at the property level – total accounting return (TAR) is assessed relative to a market capitalisation weighted index of the companies within the FTSE 350 property companies that use EPRA accounting – total shareholder return (TSR) is assessed against both the FTSE 100 and a comparator group consisting of the companies within the FTSE 350 property companies that use EPRA accounting, both on market capitalisation weighted bases. The relative weighting of the performance conditions may be varied by the Committee to ensure the LTIP best supports British Land’s strategy and to meet investor preferences. The Committee currently intends to apply the performance conditions with the following weightings: 40% of the award will be linked to the TPR condition, 20% will be linked to the TAR condition and 40% will be linked to the TSR condition, split equally between the FTSE and real estate benchmarks. TPR performance is currently assessed against the MSCI IPD UK Annual Property Index. The Committee may amend the comparator groups of companies during the performance period if there is a corporate event affecting any member of the group and may amend the MSCI benchmark if a different benchmark is deemed more appropriate. Performance conditions are challenging, requiring significant outperformance for 100% of the LTIP award to vest. 20% of the award will vest if the minimum performance threshold is achieved; performance below the minimum threshold for a performance condition will result in the LTIP award in respect of that condition lapsing. Pre-defined levels of stretch performance in excess of the benchmark must be achieved against each performance measure for the entire award to vest. These are 1.00% pa for TPR, 2.00% pa for TAR, 3.00% pa for Real Estate TSR and 5.00% pa for FTSE 100 TSR over the three-year period. British Land | Annual Report and Accounts 2019 93 DIRECTORS’ REMUNERATION REPORT CONTINUED Non-Executive Directors’ Remuneration Policy Operation Maximum opportunity Performance conditions Typically increases, if required, will be in line with market. Chairman’s fee To attract and retain an individual with the appropriate degree of expertise and experience. The Chairman’s annual fee is set by the Remuneration Committee and reviewed annually. The level of the Chairman’s annual fee is set taking into account fees paid at companies of broadly similar size. Non-Executive Directors’ fees To attract and retain Non-Executive Directors with the appropriate degree of expertise and experience. Remuneration of the Non-Executive Directors is a matter The maximum aggregate amount of basic fees for the Executive Directors and Chairman, and fees are reviewed payable to all Non-Executive Directors shall not annually. Non-Executive Directors receive an annual fee plus exceed the limit set in the Company’s Articles of additional fees if they are members of a Committee, or if they Association, which is currently £900,000. hold the position of Senior Independent Director, Chairman of a Committee, perform additional roles or have a greater time commitment. The Company’s Policy is to deliver a total fee at a level in line with similar positions. The Chairman and members’ fees for the new CSR Committee will apply for the full year from 1 April 2019. Other arrangements for the Chairman and the Non-Executive Directors To support the Directors in the fulfilment of their duties. The Company may reimburse expenses reasonably incurred by the Chairman and the Non-Executive Directors in fulfilment of the Company’s business, together with any taxes thereon. The Company provides the Chairman and the Non-Executive Directors with Directors’ and Officers’ Liability Insurance and may provide an indemnity to the fullest extent permitted by the Companies Act. The maximum reimbursement is expenses reasonably incurred, together with any taxes thereon. The maximum value of the Directors’ and Officers’ Liability Insurance and the Company’s indemnity is the cost at the relevant time. Not applicable. Not applicable. Not applicable. Considerations when setting Remuneration Policy In drawing up the Remuneration Policy, the Committee took into account views expressed by shareholders during meetings and communicated to the Company. The Company engaged with its shareholders via consultation meetings with investor bodies, and by writing to its largest shareholders, offering each a meeting to discuss remuneration proposals. Each year the Remuneration Committee takes into account the pay and employment conditions of employees in the Group, noting the general increase in salary proposed for all employees and levels of incentive payments and performance, before setting the remuneration of the Executive Directors. The Committee did not consult with the Company’s employees when drawing up the Directors’ Remuneration Policy. Notes to the Remuneration Policy table Remuneration Policy for other employees Salary reviews across the Group are carried out on the same basis as salary reviews for the Executive Directors; consideration is given to the individual’s role, duties, experience and performance, along with consideration of typical salary levels of employees in similar roles in comparable companies, where the data is available. Employees are entitled to taxable and non-taxable benefits, with executives being entitled to substantially the same benefits as the Executive Directors. Executives may be granted Long-Term Incentive Plan and/or Restricted Share awards. Employees joining the Company after 2006 are eligible to take part in a defined contribution pension arrangement. The Company’s all-employee share schemes (the Share Incentive Plan and the Sharesave Scheme) are also open to eligible employees. Pre-existing obligations and commitments It is a provision of this Policy that the Company can honour all pre-existing obligations and commitments that were entered into prior to this 2019 Remuneration Policy taking effect. The terms of those pre-existing obligations and commitments may differ from the terms of the Remuneration Policy and may include (without limitation) obligations and commitments under service contracts, long term incentive schemes (including previous Long-Term Incentive Plans), pension and benefit plans. 94 British Land | Annual Report and Accounts 2019 Approach to recruitment remuneration Executive Directors Basic salary is set at a level appropriate to recruit a suitable candidate, taking into account external market competitiveness and internal equity. The level of basic salary may initially be positioned below the mid-market of the chosen comparator group, with the intention of increasing it to around the mid-market of the comparator group after an initial period of satisfactory service. Individuals will be able to receive a contribution to a pension plan, or cash in lieu thereof, and the Company contribution will not be greater than the majority of the workforce (currently 15% of salary). Where a recruit is forfeiting incentive awards granted by his or her existing employer, compensation in the form of a restricted share plan (RSP) award or otherwise may be made (in accordance with Listing Rule 9.4.2), the maximum value of which will be that which the Committee, in its reasonable opinion, considers to be equal to the value of remuneration forfeited. Vesting of the shares granted and the value of any dividends will be subject to the Director completing a minimum period of qualifying service, so the award will not be released until this condition has been satisfied. The vesting of the award may be subject to additional performance measures being met over the same period. The Committee will determine the most relevant measures to use at the time of award, bearing in mind the responsibilities of the individual being appointed and the Company’s strategic priorities at the time. The Company’s Policy is to give notice periods of no longer than 12 months. Chairman and Non-Executive Directors On recruitment, the Chairman will be offered an annual fee in accordance with the Policy. The level of the annual fee may initially be positioned below the mid-market level, with the intention of increasing it to around the mid-market level of the comparator group after an initial period of satisfactory service. Non-Executive Directors will be offered Non-Executive Directors’ fees in accordance with the Policy. Appointment of internal candidates If an existing employee of the Group is appointed as an Executive Director, Chairman or Non-Executive Director, any obligation or commitment entered into with that individual prior to his or her appointment can be honoured in accordance with the terms of those obligations or commitments, even where they differ from the terms of the Policy. Policy on loss of office Executive Directors The Executive Directors’ service contracts can be lawfully terminated by either party giving 12 months’ notice, or by the Company making a lump sum payment in lieu of notice (PILON) equal to the Executive Director’s base salary for the notice period. Additionally, when the Company makes a PILON, it may either pay a lump sum equal to the value of any benefits for the notice period or continue to provide benefits until the notice period expires or the Executive Director starts new employment (whichever is the earlier). These lawful termination mechanisms do not prevent the Company, in appropriate circumstances, from terminating an Executive Director’s employment in breach of his or her service contract and seeking to apply mitigation in determining the damages payable. Where this is achievable in negotiation with the outgoing Director, settlement arrangements are structured so that the termination payment is paid in instalments and the instalments are reduced by an amount equal to any earnings received from the outgoing Director’s new employment, consultancy or other paid work. For departing Executive Directors and Executive Directors that have left British Land the Committee may agree to cash commutation of pension benefits under the defined benefit scheme (including EFRBS benefits) and other pension arrangements entered into prior to the adoption of the 2019 Remuneration Policy. Any commutation would take into account valuations provided by independent actuarial advisers so as to be undertaken on a basis considered by the Committee to be cost neutral to the Company. The circumstances of the loss of office dictate whether the individual is treated as a good leaver or otherwise, in accordance with the Company’s Policy. The Remuneration Committee uses its discretion to form a view taking into account the circumstances. Good leavers typically receive pro-rata Annual Incentive and long term incentive awards, subject to performance measurement, and other leavers forfeit their entitlements. In the event of a change of control the rules of the share plans generally provide for accelerated vesting of awards, subject (where applicable) to time apportionment and achievement of performance targets. The Chief Executive’s contract pre-dates 27 June 2012 but does not contain contractual provisions that could impact on the amount of any payment for loss of office and which fall outside the Policy. Details of the Executive Directors’ service contracts and notice periods are given in the table below: Director: Length of service contract Date of service contract Normal notice period to be given by either party 12 months Chris Grigg Simon Carter 12 months Charles Maudsley 12 months 12 months Tim Roberts 19.12.08 18.01.18 03.11.09 14.11.06 12 months 12 months 12 months 12 months British Land | Annual Report and Accounts 2019 95 Malus and Clawback In relation to both Annual Incentive Plan and LTIP awards under this Policy, malus and clawback provisions will apply in the following circumstances: – discovery of a material misstatement resulting in an adjustment in the audited accounts of the Group – the assessment of any performance condition was based on error, or inaccurate or misleading information – the discovery that any information used to determine cash or share awards was based on error, or inaccurate or misleading information – action or conduct of a participant which amounts to fraud or gross misconduct – corporate failure – events or the behaviour of a participant have led to the censure of a Group company by a regulatory authority or have had a significant detrimental impact on the reputation of the Group. Discretion The Committee has discretion in several areas of Policy as set out in this Report. The Remuneration Committee may also exercise operational and administrative discretions under relevant plan rules approved by shareholders as set out in those rules. In addition, the Committee has discretion to amend the Policy with regard to minor or administrative matters where it would be, in the opinion of the Committee, disproportionate to seek or await shareholder approval. In addition, the Committee retains the discretion to override the formulaic outcomes of incentive schemes. The purpose of this discretion is to ensure that the incentive scheme outcomes are consistent with overall Company performance and the long term experience of shareholders. DIRECTORS’ REMUNERATION REPORT CONTINUED Chairman and Non-Executive Directors The letters of appointment of Non-Executive Directors are subject to renewal on a triennial basis. In accordance with the UK Corporate Governance Code, all Directors stand for election or re-election by the Company’s shareholders on an annual basis. The Directors’ service contracts and letters of appointment are available for inspection during normal business hours at the Company’s registered office and at the Annual General Meeting. The unexpired terms of the Chairman’s and Non-Executive Directors’ letters of appointment are shown below: Director: John Gildersleeve (Chairman) Lynn Gladden Alastair Hughes William Jackson Nick Macpherson Preben Prebensen Tim Score Laura Wade-Gery Rebecca Worthington Date of current appointment 01/01/2019 22/03/2018 01/01/2018 11/04/2017 19/12/2016 01/09/2017 23/03/2017 13/05/2018 01/01/2018 Unexpired term of appointment at 31 March 2019 33 months 28 months 21 months 12 months 9 months 17 months 12 months1 28 months 21 months 1. Tim Score’s appointment as Chairman does not take effect until the end of the AGM being held on 19 July 2019 Although the Chairman’s and Non-Executive Directors’ appointments are for fixed terms, their appointments may be terminated immediately without notice if they are not reappointed by shareholders or if they are removed from the Board under the Company’s Articles of Association or if they resign and do not offer themselves for re-election. In addition, their appointments may be terminated by either the individual or the Company giving three months’ written notice of termination (or, for the current Chairman, six months’ written notice of termination). Despite these terms of appointment, neither the Chairman nor the Non-Executive Directors are entitled to any compensation (other than accrued and unpaid fees and expenses for the period up to the termination) for loss of office save that the Chairman and Non-Executive Directors may be entitled, in certain limited circumstances, such as corporate transactions, to receive payment in lieu of their notice period where the Company has terminated their appointment with immediate effect. Policy on shareholdings of Executive Directors The Company has a policy that Executive Directors will be required to build and retain a level of shareholding in the Company. The application of this will be contained from time to time in the Annual Report on Remuneration and is currently 225% of salary for the CEO and 200% of salary for other Executive Directors. 96 British Land | Annual Report and Accounts 2019 How we intend to apply our Remuneration Policy during the year commencing 1 April 2019 The following pages set out how the Committee intends to apply the Remuneration Policy during the coming year, subject to the new Policy being approved by shareholders at the 2019 AGM. Executive Directors’ remuneration Basic salaries Basic salaries for our current Directors have been set at the following levels for the year commencing 1 April 2019. Director Chris Grigg Simon Carter Basic salary £ 873,396 500,000 Pension and benefits Chris Grigg has volunteered to reduce the pension contribution he receives from the Company over the coming years. As such, for the year commencing 1 April 2019 his contribution has been reduced to 30% of salary and this will continue to be reduced by 5% of salary per annum until it is at 15% of salary (in line with the current workforce level). Simon Carter will continue to receive a 15% of salary pension contribution. Benefits will continue to be provided in line with the policy and include a car allowance, private medical insurance and subsidised gym membership. Annual Incentive awards The maximum bonus opportunity for Executive Directors remains at 150% of salary. The performance measures for the Annual Incentive awards have been selected to reflect a range of quantitative and strategic goals that support the Company’s key strategic objectives. The performance measures and weightings for the year commencing 1 April 2019 will be as follows: Measure Quantitative measures Total Property Return relative to IPD (sector weighted) 0% payout for 25bp below IPD rising to 100% payout for 125bp outperformance of IPD Profit growth relative to budget 0% payout for 1% below budget rising to 100% payout for 4% outperformance of budget Development profit relative to budget 0% payout for 1% below budget rising to 100% payout for 4% outperformance of budget Strategic measures Customer Orientation Right Places Capital Efficiency Expert People Proportion of Annual Incentive as a percentage of maximum opportunity 70% 30% 30% 10% 30% The detailed targets that the Committee has agreed are considered to be commercially sensitive and as such the specific targets for the quantitative measures for the coming year will be disclosed in the 2020 Remuneration Report. In assessing how the Executive Directors performed during the year commencing 1 April 2019, the Committee will take into account their performance against all of the measures and make an assessment in the round to ensure that performance warrants the level of award determined by the table above. As disclosed previously, the Committee agreed that for Annual Incentive awards, the sector weighted IPD March Annual Universe benchmark (which includes sales, acquisitions and developments and so takes into account active asset management as well as a more representative peer group) would be most suitable. However, due to timing of publication of the March Universe benchmark, the Company’s actual performance against IPD metrics is unlikely to be known when the 2020 Annual Report is approved by the Board. The 2020 Remuneration Report will therefore include an estimate of the vesting value of Annual Incentive awards for that financial year, with the actual awards, based on the final IPD March Annual Universe Data, set out in the following Annual Report (for the year ending 31 March 2021). British Land | Annual Report and Accounts 2019 97 DIRECTORS’ REMUNERATION REPORT CONTINUED Long term incentive awards An LTIP award of 250% of salary will be granted to Executive Directors during the year commencing 1 April 2019. The performance measures that apply to this LTIP award will be as follows: Measure Total Property Return (TPR) The change in capital value, less any capital expenditure incurred, plus net income. TPR is expressed as a percentage of capital employed over the LTIP performance period and is calculated by IPD. Total Accounting Return (TAR) The growth in British Land’s EPRA NAV per share plus dividends per share paid over the LTIP performance period. Total Shareholder Return (TSR) The growth in value of a British Land shareholding over the LTIP performance period, assuming dividends are reinvested to purchase additional shares. Link to strategy The TPR measure is designed to link reward to strong performance at the gross property level. Measured relative to TPR performance will be assessed against the performance of an IPD sector weighted benchmark. Weighting 40% The TAR measure is designed to link reward to performance at the net property level that takes account of gearing and our distributions to shareholders. The TSR measure is designed to directly correlate reward with the return delivered to shareholders. 20% 40% TAR will be measured relative to a market capitalisation weighted index of the FTSE 350 property companies that use EPRA accounting. Half of the TSR measure will be measured relative to the performance of the FTSE 100 and the other half will be measured relative to a market capitalisation weighted index of the FTSE 350 property companies that use EPRA accounting. Performance against the LTIP measures will be assessed over a period of three years. If performance against a measure is equal to the index, 20% of the proportion attached to that measure will vest and if performance is below index the proportion attached to that measure will lapse.100% of the proportion of each element of award attached to each measure will vest if British Land’s performance is at a stretch level. Those stretch levels are TPR 1.00% pa, TAR 2.00% pa, TSR (Real Estate) 3.00% pa and TSR (FTSE 100) 5.00% p.a. There will be straight-line vesting between index and stretch performance for each measure. The Committee retains the discretion to override the formulaic outcomes of incentive schemes. The purpose of this discretion is to ensure that the incentive scheme outcomes are consistent with overall Company performance and the experience of shareholders. Non-Executive Directors’ fees Fees paid to the Chairman and Non-Executive Directors are positioned around the mid-market with the aim of attracting individuals with the appropriate degree of expertise and experience. The fee structure set out below incorporates a 2.4% increase to the annual fee for the Non-Executive Directors for the year commencing 1 April 2019. Upon appointment as Chairman of the Company at the 2019 AGM, Tim Score will receive £375,000 p.a. Chairman’s annual fee Non-Executive Director’s annual fee Senior Independent Director’s annual fee Audit or Remuneration Committee Chairman’s annual fee Audit or Remuneration Committee member’s annual fee CSR Committee Chairman’s annual fee Nomination or CSR Committee member’s annual fee 1. For the new Chairman from 19 July 2019. The current Chairman’s fee remains at £385,000 £375,0001 £64,000 £10,000 £20,000 £8,000 £14,000 £5,000 98 British Land | Annual Report and Accounts 2019 How we applied our Remuneration Policy during the year ended 31 March 2019 The following pages set out how we implemented the Directors’ Remuneration Policy during the year ended 31 March 2019 and the remuneration received by each of the Directors. Single total figure of remuneration (audited) The following tables detail all elements of remuneration receivable by British Land’s Executive Directors in respect of the year ended 31 March 2019 and show comparative figures for the year ended 31 March 2018. Salary/fees Taxable benefits Other items in the nature of remuneration Pension or pension allowance Annual incentives1 Long term incentives Executive Directors Chris Grigg Simon Carter (from May 2018) Charles Maudsley Tim Roberts 2019 £000 857 421 455 457 2019 £000 21 18 21 21 1. 2019 Annual Incentive outcomes are subject to the publication of final IPD results Chris Grigg Charles Maudsley Tim Roberts 2018 £000 840 446 448 2018 £000 22 22 23 2019 £000 15 599 12 12 2018 £000 15 12 12 2019 £000 300 53 68 98 2018 £000 294 67 89 2019 £000 460 238 251 251 2018 £000 792 406 416 2019 £000 324 – 158 154 2018 £000 316 148 157 Total 2019 £000 1,977 1,329 964 991 2018 £000 2,279 1,101 1,145 Notes to the single total figure of remuneration table Fixed pay Taxable benefits: Taxable benefits include car allowance (between £14,495 and £16,800), private medical insurance and subsidised gym membership. The Company provides the tax gross-up on subsidised gym membership and the figures included above are the grossed up values. Other items in the nature of remuneration: include life assurance, permanent health insurance, annual medical check-ups, professional subscriptions, the value of shares awarded under the all-employee Share Incentive Plan and any notional gain on exercise for Sharesave options that matured during the year. As disclosed last year, to replace deferred payments forfeited on joining British Land, Simon Carter was conditionally awarded €675,000 of shares (86,196 shares) which have to be held for at least a year, with a value of £592,684. Pensions: Chris Grigg and Charles Maudsley do not participate in any British Land pension plan. Instead they receive cash allowances, in lieu of pension. Tim Roberts is a member of the British Land Defined Benefit Pension Scheme. Simon Carter is a member of the Defined Contribution Scheme and utilises his Annual Pension Allowance of £10,000 per annum, the remaining amount of his pension is paid to him in cash, for him to make his own arrangements for retirement. Simon Carter is also a deferred member of the British Land Defined Benefit Pension Scheme. The table below details the defined benefit pensions accrued at 31 March 2019. Executive Director Tim Roberts Simon Carter Defined benefit pension accrued at 31 March 20191 £000 98 37 Normal retirement age 60 60 1. The accrued pension is based on service to the year end There are no additional benefits that will become receivable by a Director in the event that a Director retires early. British Land | Annual Report and Accounts 2019 99 DIRECTORS’ REMUNERATION REPORT CONTINUED Annual Incentives FY19 The level of Annual Incentive award is determined by the Committee based on British Land’s performance and Executive Directors’ performance against quantitative and strategic targets during the year. For the year ended 31 March 2019 the Committee’s assessment and outcomes are set out below. This year, part of the individual element has been allocated across some of the strategic objectives and all elements have been scored separately. Quantitative measures are a direct assessment of the Company’s financial performance and in the very long term business we operate are a reflection of many of the decisions taken in prior years. The delivery of strategic objectives positions the future performance of the business so payouts under this part of the Annual Incentive Plan will not necessarily correlate with payouts under the quantitative measures in any year. Quantitative measure Weighting Range of performance between 25% and 100% 25% payout 50% pay-out (performance in line with expectations) 100% payout (no increased pay-out above this maximum pay-out point Final outcome (% of max) Final outcome (% of salary) Total property returns vs IPD 42% 0% 0% Profit Weighting 28% 70% 11.76% 17.64% Sub-total 11.76% 17.64%¹ Performance achieved against target range Target range of matching sector weighted index to outperforming it by 1%. TPR of -1%, underperforming against the estimated threshold of weighted IPD index by 1.9%. Target range of matching the budget target to outperforming it by 3.5%. Profit achievement of £340m. 1. Simon Carter receives 15.23% of salary for this element (pro-rata of 129.5%) Note: The above chart is a forecast of the 2019 TPR outcomes which will depend on performance against IPD figures that will only become available after the publication of this report and as such, represent an estimate of the final figures. Strategic objective Measure Weighting Performance achieved Final outcome (% of max) Final outcome (% of salary) CHRIS GRIGG Individual objective Right Places Customer orientation Deliver Corporate Scorecard Planning approval at Canada Water Simplify British Land’s brand hierarchy 3% 5% 5% Corporate Scorecard delivered Planning approval at Canada Water on track Brand hierarchy developed and implemented Capital Efficiency Deliver Capital Overall Capital Plan delivered Expert People Plan Sell Broadgate Estates Third Party Business Embed our new Values Reduce Gender Pay Gap (April 19 snapshot data) 10% Broadgate Estates third party business sold successfully 7% New Values: Bring your Whole Self, Be Smarter Together, Listen & Understand, Build for the Future Gender Pay Gap median reduction of 5.7% as at 5 April 2019 and significant progress on inclusive culture 3% 3% 4% 8% 6% 24% 36.00% 100 British Land | Annual Report and Accounts 2019 Strategic objective Measure Weighting Performance achieved SIMON CARTER Individual objective Right Places Customer Orientation Execute Investor Relations Programme Improved management information to optimise new operational businesses Drive Financial Systems Enhancements Project 3% Investor Relations programme delivered 5% Management information project successfully delivered 5% Systems project progressing successfully Capital Efficiency Deliver Capital Plan Overall Capital Plan delivered Refinance Requirements Maintained Expert People Embed our new Values Reduce Gender Pay Gap (April 19 snapshot data) 10% Refinance Delivered. £1.4bn. 7% New Values: Bring your Whole Self, Be Smarter Together, Listen & Understand, Build for the Future Gender Pay Gap median reduction of 5.7% as at 5 April 2019 and significant progress on inclusive culture TIM ROBERTS Individual objective Diversify Offices Income 6% Offices income diversification plan Right Places Expand Storey achieved 5% Storey expanding successfully. Storey Clubspace open at 4KS Customer Orientation Broaden Office offer Office offer broadened successfully Deliver Marketing Advantage from Smart Campus/Buildings Capital Efficiency Deliver Capital Plan Expert People Embed our new Values Reduce Gender Pay Gap (April 19 snapshot data) 6% SMART launched at 100 Liverpool St 6% Outperformance on Office Capital Plan New Values: Bring your Whole Self, Be Smarter Together, Listen & Understand, Build for the Future 7% Gender Pay Gap median reduction of 5.7% as at 5 April 2019 and significant progress on inclusive culture CHARLES MAUDSLEY Individual objective Design and execute Build to Rent strategy 4% Strategy designed and commenced Right Places Deliver Retail Insights plan 5% Programme implemented and rolled out Customer Orientation Capital Plan Deliver Leasing offer 5% Leasing offer delivered Deliver Capital Plan Proactively manage CVAs 9% Retail Capital plan delivered CVAs successfully managed Expert People Embed our new Values Reduce Gender Pay Gap (April 19 snapshot data) Weighting 30% 7% New Values: Bring your Whole Self, Be Smarter Together, Listen & Understand, Build for the Future Gender Pay Gap median reduction of 5.7% as at 5 April 2019 and significant progress on inclusive culture Total bonus payout Chris Grigg Simon Carter Tim Roberts2 Charles Maudsley2 Final outcome (% of max) Final outcome (% of salary) 26% 39.00% (before pro- rating for part year)¹ 24% 36.00% 23% 34.50% 3% 4% 4% 9% 6% 5% 4% 3% 6% 6% 2% 3% 5% 7% 6% Final outcome (% of max) Final outcome (% of salary) 53.64% 35.76% 37.76% 48.88%¹ 55.14% 36.76% 55.14% 36.76% 2018 comparative: In May 2018, the Committee confirmed that the outperformance of TPR compared to the IPD benchmark was 46 bps rather than the estimate of 20 bps made for the purposes of the single total figure of remuneration table in the 2018 Annual Report. Consequently, the actual annual incentive amounts paid increased and are stated in their revised amounts in this year’s table at page 99. 1. Simon Carter joined British Land on 21 May 2018 and as such his maximum bonus opportunity of 150% of salary has been pro-rated to reflect time served and is therefore 129.5% of salary for the year ended 31 March 2019 2. Includes an additional 1.5% of salary for Tim Roberts and 3% of salary for Charles Maudsley in line with the remuneration terms agreed British Land | Annual Report and Accounts 2019 101 DIRECTORS’ REMUNERATION REPORT CONTINUED Long term incentives The information in the long term incentives column in the single total figure of remuneration table (see page 99) relates to vesting of awards granted under the following schemes, including, where applicable, dividend equivalent payments on those awards. Long-Term Incentive Plan The awards granted to Executive Directors on 22 June 2016, and which will vest on 22 June 2019, were subject to two equally weighted performance conditions over the three-year period to 31 March 2019. The first measured British Land’s TPR relative to the funds in the December IPD UK Annual Property Index (the Index), while the second measured TAR relative to a comparator group of British Land and 16 or so other property companies. The TPR element is expected to lapse, based on British Land’s adjusted TPR of 3% per annum when compared to the funds in the Index. The TAR element is also expected to lapse based on British Land’s TAR of 8.2%. The actual vesting of the TPR and TAR elements can only be calculated once results have been published by IPD and all the companies within the comparator group respectively. The actual percentage vesting will be confirmed by the Committee in due course and details provided in the 2020 Remuneration Report. Executive Director Chris Grigg Charles Maudsley Tim Roberts Performance shares or options Performance shares Performance shares Performance shares Market value options Number of performance shares/options awarded Estimated value of award on vesting £000 Estimated dividend equivalent and interest £000 229,979 122,176 61,088 244,353 0 0 0 0 0 0 0 0 Increase in value as a result of share price movement between grant and vesting £000 0 0 0 0 2018 comparative: As set out in the 2018 Annual Report, the 2015 LTIP awards lapsed in full on 22 June 2018 as expected. Matching Share Plan The performance conditions for the MSP Matching awards granted on 29 June 2016 were (i) TSR relative to a comparator group of British Land and 16 other property companies and (ii) British Land’s gross income growth (GIG) relative to the IPD Quarterly Universe (the Universe). These performance conditions are equally weighted. The MSP Matching awards will vest on 29 June 2019. Korn Ferry has confirmed that the TSR element of the award will lapse as British Land’s TSR performance over the period was -5.1% compared to a median of 9.5% for the comparator group. The GIG element is expected to vest at 100% as British Land’s annualised GIG over the period of 3.4% is expected to exceed the expected growth of the Universe by more than the upper hurdle. As a result, 50% of the MSP Matching awards granted in June 2016 are expected to vest. Executive Director Chris Grigg Charles Maudsley Tim Roberts Number of Matching Shares awarded Estimated value of award on vesting £000 Estimated dividend equivalent £000 96,718 47,206 46,056 280 137 133 43 21 21 2018 comparative: In June 2018, the Committee confirmed that the 2015 MSP Matching awards would vest as to 50% on the vesting date (being 29 June 2018). The long term incentive figures in the 2018 comparatives of the single total figure of remuneration table have therefore been updated to reflect the actual share price on vesting (670.6768 pence) rather than the average for the 90-day period used in the 2018 Annual Report of 653.26 pence. Share scheme interests awarded during the year (audited) Long-Term Incentive Plan The total value of each Executive Director’s LTIP award for the year ended 31 March 2019 was equivalent to 250% of basic salary at grant. At grant each Director was able to indicate a preference as to the proportion of the award that they wish to receive as either performance shares or market value options. The share price used to determine the face value of performance shares and the fair value of options, and thereby the number of performance shares or options awarded, is the average over the three dealing days immediately prior to the day of award. For the award granted in June 2018, no Executive Director elected to receive market value options and the share price for determining the number of performance shares awarded was 682.20 pence. The performance conditions attached to these awards are set out in the Remuneration Policy approved by shareholders in July 2016 and summarised on page 98. 102 British Land | Annual Report and Accounts 2019 Performance shares Executive Director Chris Grigg Simon Carter Charles Maudsley Tim Roberts Grant date 26/06/18 26/06/18 26/06/18 26/06/18 Number of performance shares granted 313,984 177,733 166,804 166,804 Face value £000 2,142 1,213 1,138 1,138 End of performance period 31/03/21 31/03/21 31/03/21 31/03/21 Percentage vesting on achievement of minimum performance threshold % 20 20 20 20 Vesting date 26/06/21 26/06/21 26/06/21 26/06/21 Directors’ shareholdings and share interests (audited) Directors’ shareholdings at 31 March 2019 The following table shows the Executive Directors’ interests in fully paid ordinary British Land shares, including shares held by connected persons, MSP Bonus Shares, Annual Incentive Shares and shares held in the Share Incentive Plan. All interests are beneficial. Director Chris Grigg Simon Carter Charles Maudsley Tim Roberts Holding at 31 March 2019 (or date of departure from the Board, if earlier) 1,320,436 134,185* 262,557 266,583 Holding at 31 March 2018 1,297,818 – 251,194 265,748 * Includes 86,196 shares awarded shortly after joining to replace deferred payments forfeited at his previous employer Shareholding guidelines The shareholding guidelines for Executive Directors have been reviewed by the Committee and have been increased for the year commencing 1 April 2019 to 200% for Executive Directors other than the Chief Executive whose guideline remains 225% of salary. In addition, Executive Directors will normally be required to retain shares equal to the level of this guideline (or if they have not reached the guideline, the shares that count at that time) for the two years following their departure. There is no set timescale for Executive Directors to reach the prescribed guideline but they are expected to retain net shares received on the vesting of long term incentive awards until the target is achieved. Shares that count towards the holding guideline are unfettered and beneficially owned by the Executive Directors and their connected persons, deferred annual incentive shares, MSP Bonus Shares, locked-in SIP shares and all vested awards count towards the requirement on a net of tax basis. All other awards that are still the subject of a performance assessment do not count. The guideline shareholdings for the year ending 31 March 2019 are shown below: Executive Director Chris Grigg Simon Carter Charles Maudsley Tim Roberts Guideline as percentage of basic salary 225% 150% 150% 150% Guideline holding1 327,301 123,514 115,919 115,919 Unfettered holding at 31 March 2019 1,258,701 47,779 229,037 231,904 Unfettered holding as percentage of basic salary at 31 March 2019 (%) 865 58 296 300 Total shareholding at 31 March 2019² 1,320,436 134,185 *expected as at 30 June 2019 262,557 266,583 Total holding as a percentage of basic salary at 31 March 2019 (%) 908 163 340 345 1. Calculated on a share price of 589 pence on 29 March 2019 2. See Directors’ shareholdings table above which include MSP Bonus Shares and all shares held in the SIP Acquisitions of ordinary shares after the year end The Executive Directors have purchased or been granted the following fully paid ordinary British Land shares under the terms of the partnership, matching and dividend elements of the Share Incentive Plan: Executive Director Chris Grigg Simon Carter Date of purchase or award 15/04/19 03/05/19 14/05/19 15/04/19 03/05/19 14/05/19 Purchase price Partnership shares Matching shares Dividend shares 608.40p 600.50p 564.01p 608.40p 600.50p 564.01p 25 27 24 27 50 54 48 54 147 4 Other than as set out above, there have been no further changes since 31 March 2019. British Land | Annual Report and Accounts 2019 103 DIRECTORS’ REMUNERATION REPORT CONTINUED Unvested share awards Executive Director Chris Grigg Simon Carter Charles Maudsley Tim Roberts LTIP performance shares1 LTIP performance shares LTIP performance shares MSP Matching Shares1 LTIP performance shares LTIP performance shares1 LTIP performance shares LTIP performance shares MSP Matching Shares1 LTIP performance shares1 LTIP performance shares LTIP performance shares MSP Matching Shares1 Date of grant 22/06/16 28/06/17 26/06/18 29/06/16 26/06/18 22/06/16 28/06/17 26/06/18 29/06/16 22/06/16 28/06/17 26/06/18 29/06/16 Number outstanding at 31 March 2019 Subject to performance measures 229,979 340,264 313,984 96,718 177,733 122,176 180,765 166,804 47,206 61,088 180,765 166,804 46,056 Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes End of performance period 31/03/19 31/03/20 31/03/21 31/03/19 31/03/21 31/03/19 31/03/20 31/03/21 31/03/19 31/03/19 31/03/20 31/03/31 31/03/19 Vesting date 22/06/19 28/06/20 26/06/21 29/06/19 26/06/21 22/06/19 28/06/20 26/06/21 29/06/19 22/06/19 28/06/20 26/06/21 29/06/19 1. The LTIP and MSP awards granted in June 2016 are also included within the ‘2019 Long term incentives’ column of the single total figure of remuneration table on page 99. The degree to which performance measures have been or are expected to be achieved, and the resultant proportions of the awards expected to vest, are detailed on page 102 Unvested option awards (not available to be exercised) Executive Director Tim Roberts Sharesave options LTIP options Date of grant 23/06/14 22/06/16 Number outstanding at 31 March 2019 3,135 244,353 Option price pence 574.0 730.5 Subject to performance measures No Yes End of performance period na 31/03/19 Date becomes exercisable Exercisable until 29/02/20 01/09/19 22/06/26 22/06/19 Vested option awards (available to be exercised) Executive Director Chris Grigg LTIP options LTIP options LTIP options Date of grant 11/06/10 28/06/11 14/09/12 Number outstanding at 31 March 2019 1,073,825 695,652 743,494 Option price pence Exercisable until 447 575 538 11/06/20 28/06/21 14/09/22 Options exercised during the year ended 31 March 2019 Executive Director Tim Roberts Sharesave options Date of grant 19/06/13 Number exercised 2,348 Option price pence Date became exercisable Date exercised Market price on date of exercise pence 511.00 01/09/18 03/09/18 623.60.20 Payments to past Directors and for loss of office (audited) As disclosed in the 2018 Directors’ Remuneration Report, in October 2017 Lucinda Bell informed the Board of her intention to stand down from the Board, and following the completion of the search for her replacement, stood down from the Board on 19 January 2018 and left the Company on 4 April 2018. The treatment of her remuneration arrangements upon leaving the Company were disclosed in full on page 86 of the 2018 Annual Report. During the year ending 31 March 2019 British Land has therefore made the following payments in line with the treatment disclosed: – A payment in lieu of notice for the period from when she left the company to the end of her notice period totalling £309,895. – A payment of £27,494 in lieu of untaken holiday and £100 in respect of accepting the terms on leaving. – The bonus in respect of the year ending 31 March 2018 which totalled £457,702 of which one-third was used to purchase shares which must be held for 3 years. Following the publication of the final TPR benchmark, the total bonus payout to Lucinda was revised from the estimate disclosed in the 2018 Report to c. 93% of salary. – The vesting of the 2016 MSP award which vested at 50% of maximum and had a value of £151,723. On 21 January 2019 we announced that Tim Roberts and Charles Maudsley would be standing down from the Board of the British Land Company PLC (the Company) on 31 March 2019. Charles Maudsley ceased to be a Director of the Company and left the Company on 31 March 2019. Tim Roberts ceased to be a Director of the Company on 31 March 2019 and will remain an employee until 31 July 2019. He will continue to be employed on his existing terms until his planned departure date of 31 July 2019. During this period, he will continue to receive his salary and employment benefits in full. He will also be eligible for a bonus on a pro-rated basis whilst actively employed. Following ceasing employment each will receive monthly payments in lieu of notice for the remainder of their 12 months’ notice periods (to 21 January 2020). 104 British Land | Annual Report and Accounts 2019 (i) Tim Roberts The total amount payable for the period following ceasing employment for the remainder of the notice period comprises base salary and car allowance of £224,696, pension contributions/allowance of £43,381 and the value of other benefits of £1,946. These payments may be reduced by the value of any alternative paid employment secured during the period until 21 January 2020. Tim Roberts was also eligible for an annual bonus for the 2018/19 financial year. This bonus has been estimated to be £250,983 and is included in the table on page 99. In line with the terms of the Directors’ Remuneration Policy, two-thirds of any annual bonus will be paid in cash and one-third will be used to purchase British Land shares which must be held for a period of three years. Tim Roberts will be treated as a “good leaver” under the Company’s Long Term Incentive Plan and Matching Share Plan. Consequently, awards (including the value of any dividend equivalents) will continue to vest on the normal vesting dates subject to the extent to which the applicable performance criteria have been met and where relevant any time prorating reduction that the Remuneration Committee may apply: 1. A maximum of 61,088 Performance Shares and 244,353 options (with an exercise price of 730.5p per share) may vest under the 2016 LTIP awards and 46,056 shares under the 2016 MSP awards. The 2016 LTIP awards are expected to lapse as the expectation is that the minimum performance targets will not be met. 2. A maximum of 180,765 Performance Shares may vest under the 2017 LTIP awards. 3. A maximum of 166,804 Performance Shares may vest under the 2018 LTIP awards. Tim Roberts will not be eligible to receive further LTIP awards and, on ceasing to be employed, will cease to participate in the Company’s all-employee share plans. A contribution towards legal fees has been made of £10,000 plus VAT. (ii) Charles Maudsley The total amount payable for the period following ceasing employment for the remainder of the notice period comprises base salary and car allowance of £382,671, pension contributions/allowance of £55,369 and the value of other benefits of £3,310. These payments may be reduced by the value of any alternative paid employment secured during the period until 21 January 2020. Charles Maudsley was also eligible for an annual bonus for the 2018/19 financial year. This bonus has been estimated to be £250,983 and is included in the table on page 99. In line with the terms of the Directors’ Remuneration Policy, two-thirds of any annual bonus will be paid in cash and one-third will be used to purchase British Land shares which must be held for a period of three years. Charles Maudsley has been treated as a ‘good leaver’ under the Company’s Long-Term Incentive Plan and Matching Share Plan. Consequently, awards (including the value of any dividend equivalents) will continue to vest on the normal vesting dates subject to the extent to which the applicable performance criteria have been met. These awards have been reduced by the relevant time pro-rating reductions that the Remuneration Committee has applied of 8% for the 2016 awards, 42% for the 2017 LTIP awards and 75% for the 2018 LTIP awards: 1. A maximum of 111,994 Performance Shares may vest under the 2016 LTIP awards and 43,272 shares under the 2016 MSP awards. The 2016 LTIP awards are expected to lapse as the expectation is that the minimum performance targets will not be met. 2. A maximum of 105,446 Performance Shares may vest under the 2017 LTIP awards. 3. A maximum of 41,701 Performance Shares may vest under the 2018 LTIP awards. Other disclosures Service contracts All Executive Directors have rolling service contracts with the Company which have notice periods of 12 months on either side. Director Chris Grigg Simon Carter Date of service contract 19/12/2008 18/01/2018 Normal notice period to be given by Company 12 months 12 months Normal notice period to be given by Director 12 months 12 months In accordance with the Code, all continuing Directors stand for election or re-election by the Company’s shareholders on an annual basis. The Directors’ service contracts are available for inspection during normal business hours at the Company’s registered office and at the Annual General Meeting. The Company may terminate an Executive Director’s appointment with immediate effect without notice or payment in lieu of notice under certain circumstances, prescribed within the Executive Director’s service contract. British Land | Annual Report and Accounts 2019 105 DIRECTORS’ REMUNERATION REPORT CONTINUED Executive Directors’ external appointments Executive Directors may take up one non-executive directorship at another FTSE company, subject to British Land Board approval. Chris Grigg was appointed a non-executive director of BAE Systems plc on 1 July 2013. During the year to 31 March 2019, Chris received a fee of £92,640 (including £12,640 of overseas travel allowances and benefits deemed to be taxable) from BAE Systems plc, which he retained in full (2018: £85,845). Relative importance of spend on pay The graph below shows the amount spent on remuneration of all employees (including Executive Directors) relative to the amount spent on distributions to shareholders for the years to 31 March 2019 and 31 March 2018. The remuneration of employees decreased by 5.88% relative to the prior year. As a result of the share buyback, the total cost of distributions to shareholders decreased by 1% despite a 3% increase in dividends per share. Distributions to shareholders include ordinary and, where offered, scrip dividends. No scrip alternative was offered during the year ended 31 March 2019. Relative importance of spend on pay £80m £85m 2018/19 2017/18 0 0 Remuneration of employees including Directors: Wages and salaries Annual incentives Social security costs Pension costs Equity-settled share-based payments Distribution to shareholders: PID cash dividends paid to shareholders PID tax withholding £298m 310 £302m 310 Total shareholder return and Chief Executive’s remuneration The graph below shows British Land’s total shareholder return for the 10 years from 1 April 2009 to 31 March 2019 against that of the FTSE Real Estate Investment Trusts (REIT) Total Return Index for the same period. The graph shows how the total return on a £100 investment in the Company made on 1 April 2009 would have changed over the 10-year period, compared with the total return on a £100 investment in the FTSE REIT Total Return Index. The FTSE REIT Total Return Index has been selected as a suitable comparator because it is the index in which British Land’s shares are classified. Total shareholder return 400 300 200 100 01 April 2009 31 March 2010 31 March 2011 31 March 2012 31 March 2013 31 March 2014 31 March 2015 31 March 2016 31 March 2017 31 March 2018 31 March 2019 The British Land Company PLC FTSE All-Share REIT’s Sector The base point required by the regulations governing Remuneration Report disclosures was close to the bottom of the property cycle at 1 April 2009. Since British Land’s share price had not fallen as much as the average share price of the FTSE REITs sector at that time, a higher base point for subsequent growth was set. The table below sets out the total remuneration of Chris Grigg, Chief Executive, over the same period as the Total Shareholder Return graph. The quantum of Annual Incentive awards granted each year and long term incentive vesting rates are given as a percentage of the maximum opportunity available. Chief Executive 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 Chief Executive’s single total figure of remuneration (£000) Annual Incentive awards against maximum opportunity (%) Long term incentive awards vesting rate against maximum opportunity (%) 2,082 2,329 5,353 4,810 5,398 6,551 3,623 1,938 2,279 1,977 67 na 83 na 75 99 75 63 90 98 96 93 67 54 33 15 63 16 36 15 106 British Land | Annual Report and Accounts 2019 CEO pay ratio Whilst the new CEO pay ratio regulations do not technically apply to the Company until the 2020 Directors’ Remuneration Report, we have prepared and voluntarily disclosed the ratio for 2017/18 and 2018/19 in line with the regulations. The ratios are set out in the table below. In calculating this information we have used the gender pay gap data calculated for each employee to provide consistency. The table below shows that the ratio has fallen since 2017/18. This fall is predominantly due to the lower level of the CEO single figure rather than movements in employee pay. The Committee Chairman has provided an explanation of the relationship between reward and performance on page 88. CEO pay ratio Method CEO Single figure Upper quartile Median Lower quartile 2017/18 2018/19 B 2,279 23 : 1 35 : 1 50 : 1 B 1,976 16:1 27:1 40:1 The salary and total pay for the individuals identified at the Lower quartile, Median and Upper quartile positions in 2018/19 are set out below: 2018/19 CEO pay ratio Upper quartile Median Lower quartile Salary Total pay £65,000 £50,000 £48,000 £126,266 £74,225 £49,760 Chief Executive’s remuneration compared to remuneration of British Land employees The table below shows the percentage changes in different elements of the Chief Executive’s remuneration relative to the previous financial year and the average percentage changes in those elements of remuneration for employees. Value of Chief Executive remuneration 2019 £000 Value of Chief Executive remuneration 2018 £000 Change in Chief Executive remuneration % Average change in remuneration of British Land employees % Remuneration element Salary Taxable benefits Annual Incentive 857 21 460 840 22 792 2.00 -5.10 -41.96 Non-Executive Directors’ remuneration (audited) The table below shows the fees paid to our Non-Executive Directors for the years ended 31 March 2019 and 2018: Chairman and Non-Executive Directors John Gildersleeve (Chairman) Lynn Gladden Alastair Hughes (from 1 January 2018) William Jackson Nicholas Macpherson Preben Prebensen (from 1 September 2017) Tim Score Laura Wade-Gery Rebecca Worthington (from 1 January 2018) Fees Taxable benefits1 Total 2019 £000 385 71 73 105 71 71 95 71 73 2018 £000 369 69 17 100 69 40 93 69 17 2019 £000 64 – – – – – – 1 1 2018 £000 43 1 – – – – – 1 – 2019 £000 449 72 73 105 71 71 95 72 74 1. Taxable benefits include the Chairman’s chauffeur cost and expenses incurred by other Non-Executive Directors. The Company provides the tax gross up on these benefits and the figures shown above are the grossed up values British Land | Annual Report and Accounts 2019 107 5.60 -0.32 -4.53 2018 £000 412 70 17 100 69 40 93 70 17 DIRECTORS’ REMUNERATION REPORT CONTINUED Shareholding (audited) Although there are no shareholding guidelines for Non-Executive Directors, they are each encouraged to hold shares in British Land. The Company facilitates this by offering Non-Executive Directors the ability to purchase shares quarterly using their post-tax fees. During the year ended 31 March 2019, Lynn Gladden, William Jackson, Tim Score and Laura Wade-Gery have each received shares in full or part satisfaction of their Non-Executive Directors’ fees. The table below shows the Non-Executive Directors’ shareholdings, including shares held by connected persons, as at year end or the date of retirement from the Board if earlier: Director John Gildersleeve Lynn Gladden Alastair Hughes William Jackson Nicholas Macpherson Preben Prebensen Tim Score Laura Wade-Gery Rebecca Worthington Holding at 31 March 2019 5,220 18,339 7,274 135,115 5,600 20,000 43,899 9,585 3,000 Holding at 31 March 2018 5,220 13,950 7,274 128,123 4,600 – 34,134 8,059 3,000 In addition, on 5 April 2019, the following Non-Executive Directors were allotted shares at a price of 599.20688 pence per share in full or part satisfaction of their fees: Non-Executive Director William Jackson Tim Score Shares allotted 2,310 2,286 Other than as set out above, there have been no further changes since 31 March 2019. Letters of appointment (audited) All Non-Executive Directors have a letter of appointment with the Company. The effective dates of appointment are shown below: Director John Gildersleeve (Chairman) Lynn Gladden Alastair Hughes William Jackson Nicholas Macpherson Preben Prebensen Tim Score Laura Wade-Gery Rebecca Worthington Effective date of appointment 1 September 2008 (Non-Executive Director), 1 January 2019 (Chairman) 22 March 2018 1 January 2018 11 April 2017 19 December 2016 1 September 2017 23 March 2017 13 May 2018 1 January 2018 All continuing Non-Executive Directors stand for election or re-election on an annual basis. The letters of appointment are available for inspection during normal business hours at the Company’s registered office and at the AGM. The appointment of the Chairman or any Non-Executive Directors may be terminated immediately without notice if they are not reappointed by shareholders or if they are removed from the Board under the Company’s Articles of Association or if they resign and do not offer themselves for re-election. In addition, appointments may be terminated by either the individual or the Company giving three months’ written notice of termination or, for the current Chairman, six months’ written notice of termination. Remuneration Committee membership There was no change to the Committee membership during the year to 31 March. As at 31 March 2019, and throughout the year under review, the Committee was comprised wholly of independent Non-Executive Directors. The members of the Committee, together with attendance at Committee meetings, are set out in the table below: Director William Jackson Lynn Gladden Preben Prebensen Laura Wade-Gery Position Chairman Member Member Member Date of appointment (to the Committee) 14 January 2013 20 March 2015 1 September 2017 13 May 2015 Attendance 7/7 7/7 7/7 7/7 108 British Land | Annual Report and Accounts 2019 During the year ended 31 March 2019, Committee meetings were also part attended by John Gildersleeve (Company Chairman), Chris Grigg (Chief Executive), Simon Carter (Chief Financial Officer), Charles Maudsley (Executive Director), Bruce James (Head of Secretariat), Brona McKeown (General Counsel and Company Secretary), Ann Henshaw (HR Director) and Kelly Barry (Head of Reward) other than for any item relating to their own remuneration. A representative from Korn Ferry also routinely attends Committee meetings. The Committee Chairman holds regular meetings with the Chairman, Chief Executive and HR Director to discuss all aspects of remuneration within British Land. He also meets the Committee’s independent remuneration advisers, Korn Ferry, prior to each substantive meeting to discuss matters of governance, Remuneration Policy and any concerns they may have. How the Committee discharged its responsibilities during the year The Committee’s role and responsibilities have remained unchanged during the year and are set out in full in its terms of reference which can be found on the Company’s website: britishland.com/committees. The Committee’s key areas of responsibility are: – setting the Remuneration Policy for Executive Directors and the Company Chairman; reviewing the Remuneration Policy and strategy for members of the Executive Committee and other members of executive management, whilst having regard to pay and employment conditions across the Group – determining the total individual remuneration package of each Executive Director, Executive Committee member and other members of management – monitoring performance against conditions attached to all annual and long term incentive awards to Executive Directors, Executive Committee and other members of management and approving the vesting and payment outcomes of these arrangements – selecting, appointing and setting the terms of reference of any independent remuneration consultants. In addition to the Committee’s key areas of responsibility, during the year ended 31 March 2019, the Committee also considered the following matters: – reviewing and recommending to the Board the Remuneration Report to be presented for shareholder approval – appraisal of the Chairman’s annual fee; remuneration of the Executive Directors including achievement of corporate and individual performance; and pay and annual incentive awards below Board-level – considering the extent to which performance measures have been met and, where appropriate, approving the vesting of Annual Incentive and long term incentive awards – granting discretionary share awards; reviewing and setting performance measures for Annual Incentive awards – considering the impact of the share buyback on incentive plans – reviewing the Committee’s terms of reference – considering gender pay gap reporting requirements – departure terms for Charles Maudsley – departure terms for Tim Roberts – receiving updates and training on corporate governance and remuneration matters from the independent remuneration consultant. For the year ahead, the Committee’s terms of reference have been updated to reflect changes in the UK Corporate Governance Code. These include ensuring alignment of the remuneration policy with the Company’s purpose and culture, setting the remuneration for senior management and considering alignment of pension contributions of the workforce, Executive Directors and senior management. Remuneration consultants Korn Ferry was appointed as independent remuneration adviser by the Committee on 21 March 2017 following a competitive tender process. Korn Ferry is a member of the Remuneration Consultants Group and adheres to that group’s Code of Conduct. The Committee assesses the advice given by its advisers to satisfy itself that it is objective and independent. The advisers have private discussions with the Committee Chairman at least once a year in accordance with the Code of Conduct of the Remuneration Consultants Group. Fees, which are charged on a time and materials basis, were £211,298 (excluding VAT). Korn Ferry also provided general remuneration advice to the Company during the year. Voting at the Annual General Meeting The table below shows the voting outcomes of the resolutions put to shareholders regarding the Directors’ Remuneration Report (at the AGM in July 2018) and the Remuneration Policy (at the AGM in July 2016). Resolution Votes for % for Votes against % against Total votes cast Votes withheld Directors’ Remuneration Report (2018) Directors’ Remuneration Policy (2016) 718,283,375 722,144,638 95.46 97.13 34,197,587 21,494,166 4.54 752,480,962 2.87 748,638,804 1,400,399 7,869,489 This Remuneration Report was approved by the Board on 14 May 2019. William Jackson Chairman of the Remuneration Committee British Land | Annual Report and Accounts 2019 109 DIRECTORS’ REPORT AND ADDITIONAL DISCLOSURES Directors’ Report and additional disclosures The Directors present their Report on the affairs of the Group, together with the audited financial statements and the report of the auditor for the year ended 31 March 2019. The Directors’ Report is also the Management Report for the year ended 31 March 2019 for the purpose of Disclosure and Transparency Rule 4.1.8R. Information that is relevant to this Report, and which is incorporated by reference and including information required in accordance with the UK Companies Act 2006 and or Listing Rule 9.8.4R, can be located in the following sections: Board of Directors The names and biographical details of the Directors and details of the Board Committees of which they are members are set out on pages 68 to 71 and incorporated into this Report by reference. Changes to the Directors during the year and up to the date of this Report are set out on page 72. The Company’s current Articles require any new Director to stand for election at the next AGM following their appointment. However, in accordance with the Code and the Company’s current practice, all continuing Directors offer themselves for election or re-election, as required, at the AGM. Information Future developments of the business of the Company Risk factors and principal risks Financial instruments – risk management objectives and policies Dividends Sustainability governance Greenhouse gas emissions Viability and going concern statements Governance arrangements Employment policies and employee involvement Capitalised interest Additional unaudited financial information Section in Annual Report Strategic Report Page 4 to 23 Strategic Report Strategic Report 54 to 61 51 to 53 Strategic Report Strategic Report Strategic Report Strategic Report 49 62 45 65 and 78 Governance Strategic Report 72 to 109 30 to 31 133 and 141 186 to 194 Financial statements Other information unaudited Annual General Meeting (AGM) The 2019 AGM will be held at 11.00am on 19 July 2019 at The Montcalm London Marble Arch, 2 Wallenberg Place, London W1H 7TN. A separate circular, comprising a letter from the Chairman of the Board, Notice of Meeting and explanatory notes on the resolutions being proposed, has been circulated to shareholders and is available on our website britishland.com/agm Articles of Association The Company’s Articles of Association (Articles) may only be amended by special resolution at a general meeting of shareholders. Subject to applicable law and the Company’s Articles, the Directors may exercise all powers of the Company. The Articles are available on the Company’s website: britishland.com/governance Details of the Directors’ interests in the shares of the Company and any awards granted to the Executive Directors under any of the Company’s all-employee or executive share schemes are given in the Directors’ Remuneration Report on pages 88 to 109. The service agreements of the Executive Directors and the letters of appointment of the Non-Executive Directors are also summarised in the Directors’ Remuneration Report and are available for inspection at the Company’s registered office. The appointment and replacement of Directors is governed by the Company’s Articles, the Code, the Companies Act 2006 and any related legislation. The Board may appoint any person to be a Director so long as the total number of Directors does not exceed the limit prescribed in the Articles. In addition to any power of removal conferred by the Companies Act 2006, the Company may by ordinary resolution remove any Director before the expiry of their period of office. Directors’ interests in contracts and conflicts of interest No contract existed during the year in relation to the Company’s business in which any Director was materially interested. The Company’s procedures for managing conflicts of interest by the Directors are set out on page 76. Provisions are also contained in the Company’s Articles which allow the Directors to authorise potential conflicts of interest. Directors’ liability insurance and indemnity The Company maintains appropriate Directors’ & Officers’ liability insurance cover in respect of any potential legal action brought against its Directors. The Company has also indemnified each Director to the extent permitted by law against any liability incurred in relation to acts or omissions arising in the ordinary course of their duties. The indemnity arrangements are qualifying indemnity provisions under the Companies Act 2006 and were in force throughout the year. 110 British Land | Annual Report and Accounts 2019 Share capital The Company has one class of shares, being ordinary shares of 25 pence each, all of which are fully paid. The rights and obligations attached to the Company’s shares are set out in the Articles. There are no restrictions on the transfer of shares except in relation to Real Estate Investment Trust restrictions. The Directors were granted authority at the 2018 AGM to allot relevant securities up to a nominal amount of £81,910,507 as well as an additional authority to allot shares to the same value on a rights issue. This authority will apply until the conclusion of the 2019 AGM. At this year’s AGM, shareholders will be asked to renew the authority to allot relevant securities. At the 2018 AGM, the Directors were also given power by the shareholders to make market purchases of ordinary shares representing up to 10% of its issued capital at that time, being 98,292,608 ordinary shares. This authority will also expire at the 2019 AGM and it is proposed that the renewal of the authority will be sought. In June 2018, the Board decided that following on from the sale of 5 Broadgate, the strength of the investment market and the continuing discount in the Company’s share price, the best use of capital would be to extend the share buyback programme. As a result, during the year ended 31 March 2019, the Company repurchased 33,672,430 ordinary shares of 25 pence each for an aggregate consideration of £200m. This represents 3.55% of the issued share capital (excluding shares held in Treasury) at that date. All shares repurchased during the year were cancelled. The Company continued to hold 11,266,245 ordinary shares in treasury during the whole of the year ended 31 March 2019 and to the date of this Report. Further details relating to share capital, including movements during the year, are set out in note 20 to the financial statements on pages 159 to 161. Rights under an employee share scheme Employee Benefit Trusts (EBTs) operate in connection with some of the Company’s employee share plans. The trustees of the EBTs may exercise all rights attached to the Company’s ordinary shares in accordance with their fiduciary duties other than as specifically restricted in the documents which govern the relevant employee share plan. Waiver of dividends Blest Limited acts as trustee (Trustee) of the Company’s discretionary Employee Share Trust (EST). The EST holds and, from time to time, purchases British Land ordinary shares in the market, for the benefit of employees, including to satisfy outstanding awards under the Company’s various executive employee share plans. A dividend waiver is in place from the Trustee in respect of all dividends payable by the Company on shares which it holds in trust. Substantial interests All notifications made to British Land under the Disclosure and Transparency Rules (DTR 5) are published on a Regulatory Information Service and made available on the Investors section of our website. As at 31 March 2019, the Company had been notified of the following interests in its ordinary shares in accordance with DTR 5. The information provided is correct at the date of notification: BlackRock, Inc. Invesco Ltd. Norges Bank GIC Private Limited APG Asset Management N.V. Interests in ordinary shares 86,740,206 48,821,013 48,606,089 41,121,137 38,039,738 Percentage holding disclosed % 10.00 5.08 5.01 3.99 3.99 No notifications have been submitted to the Company since year end Change of control The Group’s unsecured borrowing arrangements include provisions that may enable each of the lenders or bondholders to request repayment or have a put at par within a certain period following a change of control of the Company. In the case of the Sterling bond this arises if the change of control also results in a rating downgrade to below investment grade. In the case of the convertible bond there may also be an adjustment to the conversion price applicable for a limited period following a change of control. There are no agreements between the Company and its Directors or employees providing for compensation for loss of office or employment that occurs specifically because of a takeover, merger or amalgamation with the exception of provisions in the Company’s share plans which could result in options and awards vesting or becoming exercisable on a change of control. All appointment letters for Non-Executive Directors will, as they are renewed, contain a provision that allows payment of their notice period in certain limited circumstances, such as corporate transactions, where the Company has terminated their appointment with immediate effect. Payments policy We recognise the importance of good supplier relationships to the overall success of our business. We manage dealings with suppliers in a fair, consistent and transparent manner. For more information please visit the Suppliers section of our website at www.britishland.co.uk/about-us/suppliers Events after the balance sheet date Details of subsequent events, if any, can be found in note 26 on page 164. Political donations The Company made no political donations during the year (2018: nil). British Land | Annual Report and Accounts 2019 111 Health and safety We have retained formal recognition of our focus on health and safety through a successful audit of our OHSAS 18001 accreditation. We continue to improve our approach to health and safety management to ensure that we consistently achieve best practice across all activities in the business (construction, managed portfolio and head office) to deliver Places People Prefer to our employees and our customers. Total RIDDOR incidents 2019 4 2018 3 Injury rate 2019 0.12 2018 0.13 18 31 0.01 0.01 4 0 4 0 14.17 12.88 0 0 per 100,000 hours worked per 100,000 footfall per 100,000 workers per 100,000 full time equivalents * Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013 Auditor and disclosure of information Each of the Directors at the date of approval of this Report confirms that: – so far as the Director is aware, there is no relevant audit information that has not been brought to the attention of the auditor – the Director has taken all steps that he/she should have taken to make himself/herself aware of any relevant audit information and to establish that the Company’s auditor was aware of that information. PwC has indicated its willingness to remain in office and, on the recommendation of the Audit Committee, a resolution to reappoint PwC as the Company’s auditor will be proposed at the 2019 AGM. The Directors’ Report was approved by the Board on 14 May 2019 and signed on its behalf by: Brona McKeown General Counsel and Company Secretary The British Land Company PLC Company Number: 621920 DIRECTORS’ REPORT AND ADDITIONAL DISCLOSURES CONTINUED Our gender split British Land Group of which are Board of which are senior managers 2019 2018 2017 Male Female Male Female Male Female 266 284 359 338 346 313 10 71 3 35 9 3 71 35 10 71 3 30 Figures expressed as full time equivalent Inclusive culture British Land employees are committed to promoting an inclusive, positive and collaborative culture. We treat everyone equally irrespective of age, sex, sexual orientation, race, colour, nationality, ethnic origin, religion, religious or other philosophical belief, disability, gender identity, gender reassignment, marital or civil partner status, or pregnancy or maternity. Construction Retail Offices Head Office Community investment Our financial donations to good causes during the year totalled £1,424,000 (2018: £1,687,000). Our Community Investment Committee approves all expenditure from our Community Investment Fund. In addition, the Company also supports fundraising and payroll giving for causes that matter to staff. The support provided for the year ended 31 March 2019 includes: – 50% uplift of British Land staff payroll giving contributions (capped at £5,000 per person and £50,000 per annum for the whole organisation); and – A staff matched funding pledge, matching money raised for charity by British Land staff up to £750 per person per year. Our community investment is guided by our Local Charter, working with local partners to make a lasting positive difference: – connecting with local communities – supporting educational initiatives for local people – supporting local training and jobs – supporting local businesses – contributing to local people’s wellbeing and enjoyment. Through our community investment and Local Charter activity, we connect with communities where we operate, make positive local contributions, help people fulfil their potential, help businesses grow, and promote wellbeing and enjoyment. This all supports our strategy to create Places People Prefer. Fishing for plastic in the River Thames on a boat made from recycled plastic; a project run by Hubbub, a behaviour change charity supported by one of our trustee volunteers 112 British Land | Annual Report and Accounts 2019 DIRECTORS’ RESPONSIBILITY STATEMENT The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation. Each of the Directors, whose names and functions are listed in the Board of Directors on pages 68 to 71, confirm that, to the best of their knowledge: Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period. In preparing the financial statements, the Directors are required to: – the Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company – the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Group – the Strategic Report and the Directors’ Report include a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces. – select suitable accounting policies and then apply By order of the Board. Simon Carter Chief Financial Officer 14 May 2019 them consistently – state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the parent Company financial statements, subject to any material departures disclosed and explained in the financial statements – make judgements and accounting estimates that are reasonable and prudent – prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and the Company’s position and performance, business model and strategy. British Land | Annual Report and Accounts 2019 113 Financial statements Report of the auditors Primary statements and notes Company balance sheet Supplementary disclosures 116 123 167 179 114 British Land | Annual Report and Accounts 2019 100 Liverpool Street Reinvesting in East London We have carefully managed the redevelopment of 100 Liverpool Street to directly benefit people and businesses in the local community. Rather than purchasing everything nationally, 58% of construction spend so far – £59m – has been invested within the City and neighbouring boroughs, ensuring that this project directly benefits local businesses in financial terms. £43m of the overall construction spend has gone to small and medium sized enterprises, boosting growth. British Land | Annual Report and Accounts 2019 115 FINANCIAL STATEMENTS Independent auditors’ report to the members of The British Land Company PLC Report on the audit of the financial statements Opinion In our opinion: – The British Land Company PLC’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 March 2019 and of the Group’s loss and cash flows for the year then ended; – the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; – the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and – the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. We have audited the financial statements, included within the Annual Report and Accounts 2019 (the “Annual Report”), which comprise: – the Consolidated balance sheet as at 31 March 2019; – the Company balance sheet as at 31 March 2019; – the Consolidated income statement for the year ended 31 March 2019; – the Consolidated statement of comprehensive income for the year ended 31 March 2019; – the Consolidated statement of cash flows for the year ended 31 March 2019; – the Consolidated statement of changes in equity for the year ended 31 March 2019, – the Company statement of changes in equity for the year ended 31 March 2019; – and the notes to the financial statements, which include a description of the significant accounting policies. Our opinion is consistent with our reporting to the Audit Committee. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Company. Other than those disclosed in note 5 to the financial statements, we have provided no non-audit services to the Group or the Company in the period from 1 April 2018 to 31 March 2019. Our audit approach Overview Materiality – Overall Group materiality: £122.5 million (2018: £131.8 million), based on 1% of total assets. – Specific Group materiality: £16.9 million (2018: £19.6 million), which represents 5% of underlying pre-tax profits. This is applied to the underlying profit and loss column. – Overall Company materiality: £110.4 million (2018: £119.0 million), based on 1% of total assets. Audit scoping – We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole. The Group financial statements are prepared on a consolidated basis, and the audit team carries out an audit over the consolidated Group balances in support of the Group audit opinion. The following joint ventures are also audited to Group materiality: Broadgate and Meadowhall. Key audit matters – Valuation of investment and development properties (Group). – Revenue recognition (Group). – Accounting for transactions (Group). – Taxation (Group). The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. Capability of the audit in detecting irregularities, including fraud Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations related to compliance with the Real Estate Investment Trust (REIT) status section 1158 of the Corporation Tax Act 2010 and the UK and European regulatory principles, such as those governed by the Financial Conduct Authority, and we considered the extent to which non-compliance might have a material effect on the financial statements of the Group and Company. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006 and the UK tax legislation. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to increase revenue or reduce expenditure, and management bias in accounting estimates and judgmental areas of the financial statements such as the valuation of investment properties. Audit procedures performed by the Group engagement team auditors included: – Discussions with management and internal audit, including consideration of known or suspected instances of non-compliance with laws and regulations and fraud, and review of the reports made by management and internal audit; – Understanding of management’s internal controls designed to prevent and detect irregularities, risk-based monitoring of customer processes; 116 British Land | Annual Report and Accounts 2019 – Inquired of management of any instances of non-compliance with laws and regulations, fraud and matters reported on the Group’s whistleblowing helpline; – Reviewing relevant meeting minutes; – Review of tax compliance with the involvement of our tax specialists in the audit; – Designing audit procedures to incorporate unpredictability over the nature, timing or extent of our testing of expenses; – Procedures relating to the valuation of investment properties described in the related key audit matter below; and – Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations, posted by unexpected users and posted on unexpected days. There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Key audit matter How our audit addressed the key audit matter Valuation of investment and development properties – Group Refer to page 82 (Report of the Audit Committee), pages 128 to 130 (Accounting policies) and page 131 to 166 (Notes to the Accounts). The Group’s investment property portfolio is split between office and residential properties in Central London, retail and leisure properties across the UK, developments and the assets at the Canada Water site in East London. The valuation in the Consolidated Balance Sheet is £8,931 million. The valuation of the Group’s investment property portfolio is inherently subjective due to, among other factors, the individual nature of each property, its location and the expected future rentals for that particular property. For developments, factors include projected costs to complete and timing of practical completion. The valuations were carried out by third party valuers, CB Richard Ellis, Jones Lang LaSalle, Cushman and Wakefield and Knight Frank (the “valuers”). The valuers were engaged by the Directors, and performed their work in accordance with the Royal Institute of Chartered Surveyors (“RICS”) Valuation – Professional Standards. The valuers used by the Group have considerable experience of the markets in which the Group operates. In determining a property’s valuation the valuers take into account property-specific information such as the current tenancy agreements and rental income. They apply assumptions for yields and estimated market rent, which are influenced by prevailing market yields and comparable market transactions, to arrive at the final valuation. For developments, the residual appraisal method is used, by estimating the fair value of the completed project using a capitalisation method less estimated costs to completion and a risk premium. The significance of the estimates and judgements involved, coupled with the fact that only a small percentage difference in individual property valuations, when aggregated, could result in a material misstatement, warrants specific audit focus in this area. There were also certain specific factors affecting the valuations in the year. Properties under development, completed developments that are now valued as standing investment properties and standing investment properties that have been reclassified to development properties, continue to be an area of focus. We read the valuation reports for all the properties and confirmed that the valuation approach for each was in accordance with RICS standards and suitable for use in determining the carrying value for the purpose of the financial statements. We assessed the valuers’ qualifications and expertise and read their terms of engagement with the Group to determine whether there were any matters that might have affected their objectivity or may have imposed scope limitations upon their work. We also considered fee arrangements between the valuers and the Group and other engagements which might exist between the Group and the valuers. We found no evidence to suggest that the objectivity of the valuers in their performance of the valuations was compromised. We obtained details of each property held by the Group and set an expected range for yield and capital value movement, determined by reference to published benchmarks and using our experience and knowledge of the market. We compared the investment yields used by the valuers with the range of expected yields and the year on year capital movement to our expected range. We also considered the reasonableness of other assumptions that are not so readily comparable with published benchmarks, such as Estimated Rental Value. We attended meetings with management and the valuers, at which the valuations and the key assumptions therein were discussed. Our work covered the valuation of each property in the Group, but the discussions with management and the valuers focused on the largest properties in the portfolio, properties under development or where the valuation basis has changed in the year, the Canada Water site and those where the yields used and / or year on year capital value movement suggested a possible outlier versus externally published market data for the relevant sector. Where assumptions were outside the expected range or otherwise appeared unusual, and / or valuations showed unexpected movements, we undertook further investigations and, when necessary, held further discussions with the valuers and obtained evidence to support explanations received. The valuation commentaries provided by the valuers and supporting evidence, enabled us to consider the property specific factors that may have had an impact on value, including recent comparable transactions where appropriate. 117 British Land | Annual Report and Accounts 2019 Independent auditors’ report to the members of The British Land Company PLC continued Key audit matter How our audit addressed the key audit matter Valuation of investment and development properties – Group continued Revenue recognition – Group Refer to page 82 (Report of the Audit Committee), pages 128 to 130 (Accounting policies) and page 132 (Notes to the Accounts). Revenue for the Group consists primarily of rental income. Rental income is based on tenancy agreements where there is a standard process in place for recording revenue, which is system generated. There are certain transactions within revenue that warrant additional audit focus because of an increased inherent risk of error due to their non-standard nature. These include spreading of tenant incentives and guaranteed rent increases – these balances require adjustments made to rental income to ensure revenue is recorded on a straight line basis over the course of the lease. We saw evidence that alternative assumptions had been considered and evaluated by management and the valuers, before determining the final valuation. We concluded that the assumptions used in the valuations were supportable in light of available and comparable market evidence. We performed testing on the standing data in the Group’s information systems concerning the valuation process. We carried out procedures, on a sample basis, to satisfy ourselves of the accuracy of the property information supplied to the valuers by management. For developments, we confirmed that the supporting information for construction contracts and budgets, which was supplied to the valuers, was also consistent with the Group’s records for example by inspecting original construction contracts. For developments, capitalised expenditure was tested on a sample basis to invoices, and budgeted costs to complete compared with supporting evidence (for example construction contracts). It was evident from our interaction with management and the valuers, and from our review of the valuation reports, that close attention had been paid to each property’s individual characteristics at a granular, tenant by tenant level, as well as considering the overall quality, geographic location and desirability of the asset as a whole. No issues were identified in our testing. We carried out tests of controls over the cash and accounts receivable processes and the related IT systems to obtain evidence that postings to these accounts were reliable. For rental income balances, we then used data-enabled audit techniques to identify all standard revenue journals posted using these systems and processes. The remaining journals related to non-standard transactions. These included reclassifications within revenue, accrued income, and bad debt provisions. For each category of non-standard revenue summarised above, we have understood the nature and assessed the reasonableness of journals being generated, and performed substantive testing over a sample of these items. There weren’t any exceptions arising from our testing over non-standard revenue transactions. For balances not included within rental income, such as service charge income, we performed substantive testing on a sample basis. No issues were identified in our testing. 118 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 Key audit matter How our audit addressed the key audit matter Accounting for transactions – Group Refer to page 82 (Report of the Audit Committee), pages 128 to 130 (Accounting policies) and pages 131 to 166 (Notes). There have been a number of transactions during the year. These warranted additional audit focus due to the magnitude of the transactions and the potential for complex contractual terms that introduce judgement into how they were accounted for. Key transactions subject to additional audit focus were: – Investment property acquisitions of £221m including the acquisition of Tunbridge Wells, Royal Victoria Place for £97m. – Investment property disposals of £664m, including the disposal of 5 Broadgate (Group share £500m). – Share buyback of £204m. Taxation Refer to page 82 (Report of the Audit Committee), page 130 (Accounting policies) and page 134 and 148 (Notes to the Accounts). The Group’s status as a REIT underpins its business model and shareholder returns. For this reason, it warrants special audit focus. The obligations of the REIT regime include requirements to comply with balance of business, dividend and income cover tests. The Broadgate joint venture is also structured as a REIT and as such, REIT compliance is also of relevance for this joint venture in addition to the overall Group. Tax provisions are in place to account for the risk of challenge of certain of the Group’s tax provisions. Given the subjective nature of these provisions, additional audit focus was placed on tax provisions. For each transaction, we understood the nature of the transaction and assessed the proposed accounting treatment in relation to the Group’s accounting policies and relevant IFRSs. For all acquisitions and disposals, we obtained and reviewed the key supporting documentation such as Sale and Purchase Agreements and completion statements. Consideration received or paid was agreed to bank statements. No material issues were found as a result of these procedures. For the share buyback, we read the broker contracts and audited the accounting for the buyback in accordance with IAS 32. For shares repurchased by the Group, we tested the subsequent cancellation of the shares acquired and checked the associated costs of the transactions were correctly recognised within reserves (retained earnings).No exceptions were identified in the accounting for the share buyback programme. We re-performed the Group’s annual REIT compliance tests, as well as those tests for the Broadgate REIT. Based on our work performed, we agreed with management’s assessment that all REIT compliance tests had been met to ensure that the Group and Broadgate maintain their REIT status. We evaluated the tax provisions and potential exposures as at 31 March 2019. We used our knowledge of tax circumstances and by reading relevant correspondence between the Group and Her Majesty’s Revenue & Customs and the Group’s external tax advisors are satisfied that the assumptions and judgements used by the Group are reasonable. 119 British Land | Annual Report and Accounts 2019 Independent auditors’ report to the members of The British Land Company PLC continued How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. Our 2019 audit was planned and execute having regard to the fact that the Group’s operations were largely unchanged in nature from the previous year. Additionally, there have been no significant changes to the valuation methodology and accounting standards relevant to the Group. In light of this, our approach to the audit in terms of scoping and areas of focus was largely unchanged. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall materiality How we determined it Rationale for benchmark applied Group financial statements Company financial statements £122.5 million (2018: £131.8 million). £110.4 million (2018: £119.0 million). 1% of total assets. 1% of total assets. A key determinant of the Group’s value is direct property investments. Due to this, the key area of focus in the audit is the valuation of investment properties. On this basis, and consistent with the prior year, we set an overall Group materiality level based on total assets. The Company’s main activity is the holding of investments in subsidiaries. Given this, and consistent with the prior year, we set an overall Company materiality level based on total assets. For purposes of the Group audit, we capped the overall materiality for the Company to be 90% of the Group overall materiality. In addition, we set a specific materiality level of £16.9m (2018: £19.6m) for items within underlying pre-tax profit. This equates to 5% of profit before tax adjusted for capital and other items. In arriving at this judgment we had regard to the fact that the underlying pre-tax profit is a secondary financial indicator of the Group (Refer to Note 2 of the financial statements page 131 where the term is defined in full). We agreed with the Audit Committee that we would report to them, any other misstatements identified during our audit above £6.2m (2018: £6.7m) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. In addition we agreed with the Audit Committee that we would report to them misstatement identified during our audit for items within underlying profit above £1m (Group and Company audit) (2018: £1m) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. Going concern In accordance with ISAs (UK) we report as follows: Reporting obligation Outcome We are required to report if we have anything material to add or draw attention to in respect of the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the directors’ identification of any material uncertainties to the Group’s and the Company’s ability to continue as a going concern over a period of at least twelve months from the date of approval of the financial statements. We have nothing material to add or to draw attention to. As not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s and Company’s ability to continue as a going concern. For example, the terms on which the United Kingdom may withdraw from the European Union are not clear, and it is difficult to evaluate all of the potential implications on the Group’s trade, customers, suppliers and the wider economy. We are required to report if the directors’ statement relating to Going Concern in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit. We have nothing to report. 120 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic Report, Directors’ Report and Additional Disclosures and Corporate Governance Statement, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06), ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described below (required by ISAs (UK) unless otherwise stated). Strategic Report and Directors’ Report and Additional Disclosures In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report and Additional Disclosures for the year ended 31 March 2019 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. (CA06) In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report and Additional Disclosures. (CA06) Corporate Governance Statement In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance Statement (on page 77 in the Governance Review) about internal controls and risk management systems in relation to financial reporting processes and about share capital structures in compliance with rules 7.2.5 and 7.2.6 of the Disclosure Guidance and Transparency Rules sourcebook of the FCA (“DTR”) is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. (CA06) In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in this information. (CA06) In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance Statement (on pages 73 to 74 in the Governance Review) with respect to the Company’s corporate governance code and practices and about its administrative, management and supervisory bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the DTR. (CA06) We have nothing to report arising from our responsibility to report if a corporate governance statement has not been prepared by the Company. (CA06) The directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group We have nothing material to add or draw attention to regarding: – The directors’ confirmation on pages 56 to 57 of the Annual Report that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. – The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated. – The directors’ explanation on page 65 of the Annual Report as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of the principal risks facing the Group and statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the “Code”); and considering whether the statements are consistent with the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit. (Listing Rules) Other Code Provisions We have nothing to report in respect of our responsibility to report when: – The statement given by the directors, on page 77, that they consider the Annual Report taken as a whole to be fair, balanced and understandable, and provides the information necessary for the members to assess the Group’s and Company’s position and performance, business model and strategy is materially inconsistent with our knowledge of the Group and Company obtained in the course of performing our audit. – The section of the Annual Report on page 80 describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. – The directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified, under the Listing Rules, for review by the auditors. Directors’ Remuneration In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. (CA06) 121 British Land | Annual Report and Accounts 2019 Independent auditors’ report to the members of The British Land Company PLC continued Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements As explained more fully in the Directors’ Responsibilities Statement set out on page 113, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: – we have not received all the information and explanations we require for our audit; or – adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or – certain disclosures of directors’ remuneration specified by law are not made; or – the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Appointment Following the recommendation of the audit committee, we were appointed by the members on 18 July 2014 to audit the financial statements for the year ended 31 March 2015 and subsequent financial periods. The period of total uninterrupted engagement is five years, covering the years ended 31 March 2015 to 31 March 2019. John Waters (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditors’ report. 14 May 2019 Use of this report This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 122 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 Consolidated income statement For the year ended 31 March 2019 Revenue Costs Joint ventures and funds (see also below) Administrative expenses Valuation movement (Loss) profit on disposal of investment properties and investments Net financing costs – financing income – financing charges (Loss) profit on ordinary activities before taxation Taxation (Loss) profit for the year after taxation Attributable to non-controlling interests Attributable to shareholders of the Company Earnings per share: – basic – diluted All results derive from continuing operations. Results of joint ventures and funds accounted for using the equity method Underlying Profit Valuation movement Capital financing costs Profit (loss) on disposal of investment properties, trading properties and investments Taxation 1. See definition in note 2 Note Underlying1 £m 554 (141) 413 86 (80) – – – (67) (67) 352 – 12 340 3 3 3 11 4 6 6 7 2 2 2018 Capital and other £m Underlying1 £m 561 (136) 425 115 (82) – – 1 (65) (64) 394 – 14 380 78 (64) 14 36 – 202 18 – (163) (163) 107 6 – 113 2019 Capital and other £m 350 (258) 92 (79) – (620) Total £m 904 (399) 505 7 (80) (620) (18) (18) – (46) (46) (671) (1) (41) (631) – (113) (113) (319) (1) (320) (29) (291) (30.0)p (30.0)p Note Underlying1 £m 2019 Capital and other £m Total £m Underlying1 £m 2018 Capital and other £m 4 86 – – – – – (63) (21) 3 2 11 86 (79) 86 (63) (21) 3 2 7 115 – – – – 115 – 52 (13) (3) – 36 Total £m 639 (200) 439 151 (82) 202 18 1 (228) (227) 501 6 507 14 493 48.7p 48.5p Total £m 115 52 (13) (3) – 151 123 British Land | Annual Report and Accounts 2019 Consolidated statement of comprehensive income For the year ended 31 March 2019 (Loss) profit for the year after taxation Other comprehensive income (loss): Items that will not be reclassified subsequently to profit or loss: Net actuarial gain on pension schemes Valuation movements on owner-occupied properties Items that may be reclassified subsequently to profit or loss: Gains on cash flow hedges – Group – Joint ventures and funds Transferred to the income statement (cash flow hedges) – Interest rate derivatives – group – Interest rate derivatives – joint ventures1 Deferred tax on items of other comprehensive income Other comprehensive income for the year Total comprehensive (loss) income for the year Attributable to non-controlling interests Attributable to shareholders of the Company 2019 £m (320) – 3 3 1 – 1 – 18 (1) 21 (299) (29) (270) 2018 £m 507 9 (3) 6 12 8 20 120 – (5) 141 648 16 632 1. Represents a reclassification of cumulative losses within the group revaluation reserve to capital profit and loss, because the hedged item has affected profit or loss 124 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 Consolidated balance sheet As at 31 March 2019 ASSETS Non-current assets Investment and development properties Owner-occupied properties Other non-current assets Investments in joint ventures and funds Other investments Deferred tax assets Interest rate and currency derivative assets Current assets Trading properties Debtors Cash and short term deposits Total assets LIABILITIES Current liabilities Short term borrowings and overdrafts Creditors Corporation tax Non-current liabilities Debentures and loans Other non-current liabilities Interest rate and currency derivative liabilities Total liabilities Net assets EQUITY Share capital Share premium Merger reserve Other reserves Retained earnings Equity attributable to shareholders of the Company Non-controlling interests Total equity EPRA NAV per share1 1. As defined in note 2 John Gildersleeve Chairman Simon Carter Chief Financial Officer Note 2019 £m 2018 £m 10 10 11 12 16 17 10 13 17 17 14 17 15 17 8,931 73 9,004 9,507 90 9,597 2,560 2,822 151 1 154 174 4 115 11,870 12,712 87 57 242 386 328 35 105 468 12,256 13,180 (99) (289) (25) (413) (27) (324) (22) (373) (2,932) (3,101) (92) (130) (3,154) (3,567) 8,689 240 1,302 213 37 6,686 8,478 211 8,689 (62) (138) (3,301) (3,674) 9,506 248 1,300 213 33 7,458 9,252 254 9,506 2 905p 967p The financial statements on pages 123 to 166 were approved by the Board of Directors and signed on its behalf on 14 May 2019. Company number 621920 125 British Land | Annual Report and Accounts 2019 Consolidated statement of cash flows For the year ended 31 March 2019 Note Rental income received from tenants Fees and other income received Operating expenses paid to suppliers and employees Sale of trading properties Payments received in respect of future trading property sales Cash generated from operations Interest paid Interest received Corporation taxation repayments (payments) Distributions and other receivables from joint ventures and funds 11 Net cash inflow from operating activities Cash flows from investing activities Development and other capital expenditure Purchase of investment properties Sale of investment properties Disposal of joint venture held-for-sale Disposal of Tesco joint venture Purchase of investments Sale of investments Indirect taxes paid in respect of investing activities Investment in and loans to joint ventures and funds Loan repayments from joint ventures and funds Capital distributions from joint ventures and funds Net cash inflow from investing activities Cash flows from financing activities Issue of ordinary shares Unit issues attributable to non-controlling interests Purchase of own shares Dividends paid Dividends paid to non-controlling interests Acquisition of units in Hercules Unit Trust Capital payments in respect of interest rate derivatives Receipts on closeout of interest rate derivative assets Decrease in bank and other borrowings Drawdowns on bank and other borrowings Net cash outflow from financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at 1 April Cash and cash equivalents at 31 March Cash and cash equivalents consists of: Cash and short term deposits 126 2019 £m 449 62 (162) 268 – 617 (75) 7 5 59 613 (218) (185) 380 – – (9) 13 (3) 2018 £m 446 78 (173) 77 8 436 (73) 4 (7) 78 438 (190) (165) 135 568 68 (9) – (7) (298) (175) 247 260 187 2 – (204) (298) (14) – (19) – (576) 446 (663) 137 105 242 7 29 261 2 2 (301) (304) (15) (4) (18) 27 (626) 529 (708) (9) 114 105 19 17 242 105 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 Consolidated statement of changes in equity For the year ended 31 March 2019 Balance at 1 April 2018 Loss for the year after taxation Revaluation of owner-occupied property Gains on cash flow hedges – group Closeout of cash flow hedges – joint ventures and funds Reserves transfer – joint venture cash flow hedges Deferred tax on items of other comprehensive income Other comprehensive income Total comprehensive income for the year Share issues Fair value of share and share option awards Purchase of own shares Dividends payable in year (30.54p per share) Dividends payable by subsidiaries Balance at 31 March 2019 Balance at 1 April 2017 Profit for the year after taxation Revaluation of owner-occupied property Gains on cash flow hedges – group Gains on cash flow hedges – joint ventures and funds Transferred to the income statement (cash flow hedges) – Interest rate derivatives Net actuarial gain on pension schemes Reserves transfer Deferred tax on items of other comprehensive income Other comprehensive income Total comprehensive income for the year Share issues Unit issues attributable to non-controlling interests Purchase of own shares Purchase of units from non-controlling interests Dividends payable in year (29.64p per share) Dividends payable by subsidiaries Balance at 31 March 2018 Share capital £m Share premium £m Hedging and translation reserve1 £m Re- valuation reserve £m Merger reserve £m Retained earnings £m Non- controlling interests £m Total £m Total equity £m 248 1,300 11 22 213 7,458 9,252 254 9,506 – – – – – – – – – – (8) – – – – – – – – – – 2 – – – – – – 1 – – (1) – – – – – – – – 3 – 18 (17) – 4 4 – – – – – – – – – – – – – – – – – – (291) (291) (29) (320) – – – 17 – 17 3 1 18 – (1) 21 – – – – – – 3 1 18 – (1) 21 (274) (270) (29) (299) – (4) (196) (298) – 2 (4) (204) (298) – – – – – (14) 2 (4) (204) (298) (14) 240 1,302 11 26 213 6,686 8,478 211 8,689 260 1,298 (112) – – – – – – – – – – – – (12) – – – – – – – – – – – – – 2 – – – – – – – 10 – 120 – (2) (5) 123 123 – – – – – – 15 – (3) – 8 – – 2 – 7 7 – – – – – – 213 7,547 9,221 – – – – – – – – – – – – – – – – 493 – – – – 9 – – 9 502 – – 493 (3) 10 8 120 9 – (5) 139 632 2 – (289) (301) – – (302) (302) – – 248 1,300 11 22 213 7,458 9,252 255 14 9,476 507 – 2 – – – – – 2 16 – 2 – (4) – (15) 254 (3) 12 8 120 9 – (5) 141 648 2 2 (301) (4) (302) (15) 9,506 1. The balance at the beginning of the current year includes £15m in relation to translation and (£4m) in relation to hedging (2017/18: £15m and (£127m)). Opening and closing balances in relation to hedging relate to continuing hedges only 127 British Land | Annual Report and Accounts 2019 Notes to the accounts 1 Basis of preparation, significant accounting policies and accounting judgements The financial statements for the year ended 31 March 2019 have been prepared on the historical cost basis, except for the revaluation of properties, investments held for trading and derivatives. The financial statements have also been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and interpretations issued by the IFRS Interpretations Committee (IFRS IC), and therefore comply with article 4 of the EU IAS regulation, and in accordance with the Companies Act 2006. In the current financial year the Group has adopted a number of minor amendments to standards effective in the year issued by the IASB and endorsed by the EU, none of which have had a material impact on the Group. The accounting policies used are otherwise consistent with those contained in the Group’s previous Annual Report and Accounts for the year ended 31 March 2018. New standards effective for the current accounting period do not have a material impact on the consolidated financial statements of the Group. These are discussed in further detail below. IFRS 9 – Financial instruments IFRS 9 Financial instruments, as issued by the IASB in July 2014, has been adopted by the Group for the year ended 31 March 2019. IFRS 9 supersedes the existing accounting guidance in IAS 39 Financial instruments. The standard was applied using the modified retrospective approach. The Group has not restated prior periods or recognised any adjustments in opening retained earnings. – The new standard addresses the classification and measurement of financial assets and financial liabilities. – The alignment of the classification and measurement model under IFRS 9 results in changes in the classification of all financial assets excluding derivatives. These changes will not have a quantitative impact on the financial statements. – IFRS 9 introduces a forward looking expected credit loss model, replacing the IAS 39 incurred loss model. The new model requires an expected credit loss to be recognised on all financial assets held at amortised cost at initial recognition. The quantitative impact for the year ended 31 March 2019 results in the recognition of an expected credit loss of £2m, with a corresponding reduction in financial assets held at amortised cost of £2m. The Group has previously provided for a materially similar balance against trade and other receivables and therefore the resulting reclassification of existing provisions does not have a material impact on the net assets of the Group. – IFRS 9 introduces changes to the qualifying criteria for hedge accounting and expands the financial and non-financial instruments which may be designated as hedged items and hedging instruments in order to align hedge accounting with business strategy. The changes introduced by IFRS 9 do not have a quantitative impact on the consolidated financial statements of the Group. IFRS 15 – Revenue from contracts with customers The Group has adopted IFRS 15 Revenue from contracts with customers for the year ended 31 March 2019. The standard was applied using the modified retrospective approach. The new standard combines a number of previous standards, setting out a five step-model for the recognition of revenue and establishing principles for reporting useful information to users of financial statements about the nature, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The new standard does not apply to rental income, which is in the scope of IAS 17, but does apply to service charge income, management and 128 performance fees and trading property disposals. The changes introduced by IFRS 15 did not have a quantitative impact on the consolidated financial statements of the Group. The Group has considered the following amendments to standards endorsed by the EU effective for the current accounting period, and determined that these do not have a material impact on the consolidated financial statements of the Group: – Amendments to IAS 40: Transfers of Investment Property A number of new standards and amendments to standards and interpretations have been issued but are not yet effective for the current accounting period. None are expected to have a material impact on the consolidated financial statements of the Group. Amendments to IFRS 3 (Business Combinations) is effective from the next financial year. The amendments have no impact but will be applied to any future business combinations. IFRS 16 (Leases) is effective from the next financial year. The Group conducted an impact assessment based on the Group’s current activities and have quantified the impact (see below). The results of the assessment confirm that the new standard leads to limited changes to presentation and disclosure. IFRS 16 – Leases (effective year ending 31 March 2020). – For lessees, IFRS 16 will result in almost all operating leases being brought on balance sheet, as the distinction between operating and finance leases will be removed. The accounting for lessors will however not significantly change. On adoption of the new standard, these changes will have an immaterial impact on the consolidated financial statements of the Group. In the first year of adoption as at 31 March 2020, based on current lease information, the projected impact will be an increase in right of use assets (within the investment property balance) of £37m and a corresponding increase in current liabilities of £7m and non-current liabilities of £38m. There will also be an immaterial net impact on underlying profit with the reduction in rental expense outweighing the increase in finance costs and depreciation in the first year of adoption. Going concern The financial statements are prepared on a going concern basis as explained in the corporate governance section on page 78. Subsidiaries, joint ventures and associates (including funds) The consolidated accounts include the accounts of the British Land Company PLC and all subsidiaries (entities controlled by British Land). Control is assumed where British Land is exposed, or has the rights, to variable returns from its involvement with investees and has the ability to affect those returns through its power over those investees. The results of subsidiaries, joint ventures or associates acquired or disposed of during the year are included from the effective date of acquisition or up to the effective date of disposal. Accounting policies of subsidiaries, joint ventures or associates which differ from Group accounting policies are adjusted on consolidation. Business combinations are accounted for under the acquisition method. Any excess of the purchase price of business combinations over the fair value of the assets, liabilities and contingent liabilities acquired and resulting deferred tax thereon is recognised as goodwill. Any discount received is credited to the income statement in the period of acquisition. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. Joint ventures and associates, including funds, are accounted for under the equity method, whereby FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 the consolidated balance sheet incorporates the Group’s share (investor’s share) of the net assets of its joint ventures and associates. The consolidated income statement incorporates the Group’s share of joint venture and associate profits after tax. Their profits include revaluation movements on investment properties. Distributions and other receivables from joint ventures and associates (including funds) are classed as cash flows from operating activities, except where they relate to a cash flow arising from a capital transaction, such as a property or investment disposal. In this case they are classed as cash flows from investing activities. Properties Properties are externally valued on the basis of fair value at the balance sheet date. Investment and owner-occupied properties are recorded at valuation whereas trading properties are stated at the lower of cost and net realisable value. Any surplus or deficit arising on revaluing investment properties is recognised in the capital and other column of the income statement. Any surplus arising on revaluing owner-occupied properties above cost is recognised in other comprehensive income, and any deficit arising in revaluation below cost for owner-occupied and trading properties is recognised in the capital and other column of the income statement. The cost of properties in the course of development includes attributable interest and other associated outgoings including attributable development personnel costs. Interest is calculated on the development expenditure by reference to specific borrowings, where relevant, and otherwise on the weighted average interest rate of British Land Company PLC borrowings. Interest is not capitalised where no development activity is taking place. A property ceases to be treated as a development property on practical completion. Investment property disposals are recognised on completion. Profits and losses arising are recognised through the capital and other column of the income statement. The profit on disposal is determined as the difference between the net sales proceeds and the carrying amount of the asset at the commencement of the accounting period plus capital expenditure in the period. Trading properties are initially recognised at cost less impairment, and trading property disposals are recognised in line with the revenue policies outlined below. Where investment properties are appropriated to trading properties, they are transferred at market value. If properties held for trading are appropriated to investment properties, they are transferred at book value. In determining whether leases and related properties represent operating or finance leases, consideration is given to whether the tenant or landlord bears the risks and rewards of ownership. Transfers to or from investment property occur when, and only when, there is evidence of change in use. Financial assets and liabilities Debtors and creditors are initially recognised at fair value and subsequently measured at amortised cost and discounted as appropriate. On initial recognition the Group calculates the expected credit loss for debtors based on lifetime expected credit losses under the IFRS 9 simplified approach. Other investments include investments classified as amortised cost and investments classified as fair value through profit or loss. Loans and receivables classified as amortised cost are measured using the effective interest method, less any impairment. Interest is recognised by applying the effective interest rate. Investments classified as fair value through profit or loss are initially recorded at fair value and are subsequently externally valued on the same basis at the balance sheet date. Any surplus or deficit arising on revaluing investments held for trading is recognised in the capital and other column of the income statement. Where an investment property is held under a head lease, the head lease is initially recognised as an asset, being the sum of the premium paid on acquisition plus the present value of minimum ground rent payments. The corresponding rent liability to the head leaseholder is included in the balance sheet as a finance lease obligation. Debt instruments are stated at their fair value on issue. Finance charges including premia payable on settlement or redemption and direct issue costs are spread over the period to redemption, using the effective interest method. Exceptional finance charges incurred due to early redemption (including premia) are recognised in the income statement when they occur. Convertible bonds are designated as fair value through profit or loss and so are initially recognised at fair value with all subsequent gains and losses, including the write-off of issue costs, recognised in the capital and other column of the income statement as a component of net financing costs. The interest charge in respect of the coupon rate on the bonds is recognised within the underlying component of net financing costs on an accruals basis. As defined by IFRS 9, cash flow and fair value hedges are initially recognised at fair value at the date the derivative contracts are entered into, and subsequently remeasured at fair value. Changes in the fair value of derivatives that are designated and qualify as effective cash flow hedges are recognised directly through other comprehensive income as a movement in the hedging and translation reserve. Changes in the fair value of derivatives that are designated and qualify as effective fair value hedges are recorded in the capital and other column of the income statement, along with any changes in the fair value of the hedged item that is attributable to the hedged risk. Any ineffective portion of all derivatives is recognised in the capital and other column of the income statement. Changes in the fair value of derivatives that are not in a designated hedging relationship under IFRS 9 are recorded directly in the capital and other column of the income statement. These derivatives are carried at fair value on the balance sheet. Cash equivalents are limited to instruments with a maturity of less than three months. Revenue Revenue comprises rental income and surrender premia, service charge income, management and performance fees and proceeds from the sale of trading properties. Rental income and surrender premia are recognised in accordance with IAS 17 Leases. Rental income, including fixed rental uplifts, from investment property leased out under an operating lease is recognised as revenue on a straight-line basis over the lease term. Lease incentives, such as rent-free periods and cash contributions to tenant fit-out, are recognised on the same straight-line basis being an integral part of the net consideration for the use of the investment property. Any rent adjustments based on open market estimated rental values are recognised, based on management estimates, from the rent review date in relation to unsettled rent reviews. Contingent rents, being those lease payments that are not fixed at the inception of the lease, including for example turnover rents, are recognised in the period in which they are earned. 129 British Land | Annual Report and Accounts 2019 Notes to the accounts continued Surrender premia for the early determination of a lease are recognised as revenue immediately upon receipt, net of dilapidations and non-recoverable outgoings relating to the lease concerned. Accounting judgements and estimates In applying the Group’s accounting policies, the Directors are required to make judgements and estimates that affect the financial statements. The Group applies the five step-model as required by IFRS 15 in recognising its service charge income, management and performance fees and proceeds from the sale of trading properties. Service charge income is recognised as revenue in the period to which it relates. Management fees are recognised as revenue in the period to which they relate and relate to property management. Performance fees are recognised at the end of the performance period when the performance obligations are met, the fee amount can be estimated reliably and it is highly probable that the fee will be received. Performance fees are based on property valuations compared to external benchmarks at the end of the reporting period. Proceeds from the sale of trading properties are recognised when control has been transferred to the purchaser. This generally occurs on completion. Proceeds from the sale of trading properties are recognised as revenue in the capital and other column of the income statement. All other revenue described above is recognised in the underlying column of the income statement. Taxation Current tax is based on taxable profit for the year and is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are not taxable (or tax deductible). Deferred tax is provided on items that may become taxable in the future, or which may be used to offset against taxable profits in the future, on the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes, and the amounts used for taxation purposes on an undiscounted basis. On business combinations, the deferred tax effect of fair value adjustments is incorporated in the consolidated balance sheet. Employee costs The fair value of equity-settled share-based payments to employees is determined at the date of grant and is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares or options that will eventually vest. In the case of options granted, fair value is measured by a Black-Scholes pricing model. The fair value of shares granted is based on the market value at grant date. Defined benefit pension scheme assets are measured using fair values. Pension scheme liabilities are measured using the projected unit credit method and discounted at the rate of return of a high quality corporate bond of equivalent term to the scheme liabilities. The net surplus (where recoverable by the Group) or deficit is recognised in full in the consolidated balance sheet. Any asset resulting from the calculation is limited to the present value of available refunds and reductions in future contributions to the plan. The current service cost and gains and losses on settlement and curtailments are charged to operating profit. Actuarial gains and losses are recognised in full in the period in which they occur and are presented in the consolidated statement of comprehensive income. Contributions to the Group’s defined contribution schemes are expensed on the basis of the contracted annual contribution. 130 Significant areas of estimation are: Valuation of properties and investments held for trading: The Group uses external professional valuers to determine the relevant amounts. The primary source of evidence for property valuations should be recent, comparable market transactions on an arms-length basis. However, the valuation of the Group’s property portfolio and investments held for trading are inherently subjective, as they are based upon valuer assumptions which may prove to be inaccurate. Sensitivity tables are included within note 10. Other less significant areas of estimation include the valuation of fixed rate debt and interest rate derivatives, the determination of share- based payment expense, the actuarial assumptions used in calculating the Group’s retirement benefit obligations, and taxation provisions. The key areas of accounting judgement are: REIT status: British Land is a Real Estate Investment Trust (REIT) and does not pay tax on its property income or gains on property sales, provided that at least 90% of the Group’s property income is distributed as a dividend to shareholders, which becomes taxable in their hands. In addition, the Group has to meet certain conditions such as ensuring the property rental business represents more than 75% of total profits and assets. Any potential or proposed changes to the REIT legislation are monitored and discussed with HMRC. It is management’s intention that the Group will continue as a REIT for the foreseeable future. Accounting for joint ventures and funds: In accordance with IFRS 10 ‘Consolidated financial statements’, IFRS 11 ‘Joint arrangements’, and IFRS 12 ‘Disclosures of interests in other entities’ an assessment is required to determine the degree of control or influence the Group exercises and the form of any control to ensure that the financial statement treatment is appropriate. The assessment undertaken by management includes consideration of the structure, legal form, contractual terms and other facts and circumstances relating to the relevant entity. This assessment is updated annually and there have been no changes in the judgement reached in relation to the degree of control the Group exercises within the current or prior year. Group shares in joint ventures and funds resulting from this process are disclosed in note 11 to the financial statements. Interest in the Group’s joint ventures is commonly driven by the terms of the partnership agreements which ensure that control is shared between the partners. All significant joint venture arrangements of the Group are held in structures in which the Group has 50% of the voting rights. Joint ventures are accounted for under the equity method, whereby the consolidated balance sheet incorporates the Group’s share of the net assets of its joint ventures and associates. The consolidated income statement incorporates the Group’s share of joint venture and associate profits after tax. Accounting for transactions: Property transactions are complex in nature and can be material to the financial statements. Judgements made in relation to transactions include whether an acquisition is a business combination or an asset; whether held for sale criteria have been met for transactions not yet completed; accounting for transaction costs and contingent consideration; and application of the concept of linked accounting. Management consider each transaction separately in order to determine the most appropriate accounting treatment, and, when considered necessary, seek independent advice. FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 2 Performance measures Earnings per share The Group measures financial performance with reference to underlying earnings per share, the European Public Real Estate Association (EPRA) earnings per share and IFRS earnings per share. The relevant earnings and weighted average number of shares (including dilution adjustments) for each performance measure are shown below, and a reconciliation between these is shown within the supplementary disclosures (Table B). EPRA earnings per share is calculated using EPRA earnings, which is the IFRS loss after taxation attributable to shareholders of the Company excluding investment and development property revaluations, gains/losses on investing and trading property disposals, changes in the fair value of financial instruments and associated close-out costs and their related taxation. In the current year, diluted EPRA earnings per share did not include the dilutive impact of the 2015 convertible bond, as the Group’s share price was below the current exchange price of 1007.24 pence. IFRS diluted earnings per share would include the dilutive impact as IAS 33 ignores this hurdle to conversion, however due to the current year loss, this would be anti-dilutive and therefore no adjustment is made. In the prior year, both EPRA and IFRS measures exclude the dilutive impact of the 2015 convertible bond as the Company’s share price had not exceeded the level required for the convertible conditions attached to the bond to trigger conversion into shares. Underlying earnings per share is calculated using Underlying Profit adjusted for underlying taxation (see note 7). Underlying Profit is the pre-tax EPRA earnings measure, with additional Company adjustments. No Company adjustments were made in either the current or prior year. Earnings per share Underlying Underlying basic Underlying diluted EPRA EPRA basic EPRA diluted IFRS Basic Diluted 2019 2018 Relevant earnings £m Relevant number of shares million Earnings per share pence Relevant earnings £m Relevant number of shares million Earnings per share pence 340 340 340 340 (291) (291) 971 974 971 974 971 971 35.0 34.9 35.0 34.9 (30.0) (30.0) 380 380 380 380 493 493 1,013 1,016 1,013 1,016 1,013 1,016 37.5 37.4 37.5 37.4 48.7 48.5 Net asset value The Group measures financial position with reference to EPRA net asset value (NAV) per share and EPRA triple net asset value (NNNAV) per share. The net asset value and number of shares for each performance measure are shown below. A reconciliation between IFRS net assets and EPRA net assets, and the relevant number of shares for each performance measure, is shown within the supplementary disclosures (Table B). EPRA net assets is a proportionally consolidated measure that is based on IFRS net assets excluding the mark-to- market on derivatives and related debt adjustments, the mark-to-market on the convertible bonds, and deferred taxation on property and derivative valuations. They include the valuation surplus on trading properties and are adjusted for the dilutive impact of share options. As at 31 March 2019, EPRA NAV and EPRA NNNAV did not include the dilutive impact of the 2015 convertible bond, as the Group’s share price was below the exchange price of 1007.24 pence. IFRS net assets also does not include the convertible impact following the treatment of IFRS earnings per share. In the prior year, both EPRA and IFRS measures exclude the dilutive impact of the 2015 convertible bond as the Company’s share price had not exceeded the level required for the convertible conditions attached to the bond to trigger conversion into shares. Net asset value per share EPRA EPRA NAV EPRA NNNAV IFRS Basic Diluted 2019 2018 Relevant net assets £m Relevant number of shares million Net asset value per share pence Relevant net assets £m Relevant number of shares million Net asset value per share pence 8,649 8,161 8,689 8,689 956 956 949 956 905 854 916 909 9,560 9,044 9,506 9,506 989 989 983 989 967 914 967 961 Total accounting return The Group also measures financial performance with reference to total accounting return. This is calculated as the movement in EPRA net asset value per share and dividend paid in the year as a percentage of the EPRA net asset value per share at the start of the year. Total accounting return (62) 30.54 (3.3%) 52 29.64 Decrease in NAV per share pence 2019 Dividend per share paid pence Total accounting return Increase in NAV per share pence 2018 Dividend per share paid pence Total accounting return 8.9% 131 British Land | Annual Report and Accounts 2019 Notes to the accounts continued 3 Revenue and costs Rent receivable Spreading of tenant incentives and guaranteed rent increases Surrender premia Gross rental income Trading property sales proceeds Service charge income Management and performance fees (from joint ventures and funds) Other fees and commissions Revenue Trading property cost of sales Service charge expenses Property operating expenses Other fees and commissions expenses Costs 2019 Capital and other £m Underlying £m 444 (6) 1 439 – 76 7 32 – – – – 350 – – – 554 350 Total £m 444 (6) 1 439 350 76 7 32 904 – (76) (35) (30) (141) 413 (258) (258) – – – (258) 92 (76) (35) (30) (399) 505 2018 Capital and other £m Underlying £m 441 (6) 6 441 – 66 6 48 561 – (66) (29) (41) (136) 425 – – – – 78 – – – 78 (64) – – – (64) 14 Total £m 441 (6) 6 441 78 66 6 48 639 (64) (66) (29) (41) (200) 439 The cash element of net rental income (gross rental income less property operating expenses) recognised during the year ended 31 March 2019 from properties which were not subject to a security interest was £356m (2017/18: £301m). Property operating expenses relating to investment properties that did not generate any rental income were £1m (2017/18: £2m). Contingent rents of £3m (2017/18: £4m) were recognised in the year. 4 Valuation movements on property Consolidated income statement Revaluation of properties Revaluation of properties held by joint ventures and funds accounted for using the equity method Consolidated statement of comprehensive income Revaluation of owner-occupied properties 5 Auditors’ remuneration – PricewaterhouseCoopers LLP Fees payable to the Company’s auditors for the audit of the Company’s annual accounts Fees payable to the Company’s auditors for the audit of the Company’s subsidiaries, pursuant to legislation Total audit fees Audit-related assurance services Total audit and audit-related assurance services Other fees Other services Total 2019 £m (620) (63) (683) 3 (680) 2019 £m 0.3 0.4 0.7 0.1 0.8 0.1 0.9 2018 £m 202 52 254 (3) 251 2018 £m 0.3 0.4 0.7 0.1 0.8 0.2 1.0 In addition to the above, PricewaterhouseCoopers LLP were remunerated in the prior year for non-audit fees in PREF, an equity accounted property fund (see note 11). The Group’s share of fees totalled £nil (2017/18: £0.1m). PricewaterhouseCoopers LLP are not the external auditors to PREF. 132 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 6 Net financing costs Underlying Financing charges Bank loans and overdrafts Derivatives Other loans Obligations under head leases Development interest capitalised Financing income Deposits, securities and liquid investments 2019 £m 2018 £m (21) 29 (75) (3) (70) 3 (67) – – (21) 28 (76) (2) (71) 6 (65) 1 1 Net financing charges – underlying (67) (64) Capital and other Financing charges Valuation movements on translation of foreign currency net assets Hedging reserve recycling1 Valuation movements on fair value derivatives3 Valuation movements on fair value debt3 Recycling of fair value movement on close-out of derivatives Capital financing costs2 Fair value movement on convertible bonds Valuation movement on non-hedge accounted derivatives Financing income Fair value movement on convertible bonds Net financing charges – capital Net financing costs Total financing income Total financing charges Net financing costs – – 41 (38) – (32) (6) (11) (46) – – (1) (106) (79) 80 (14) (27) – (16) (163) – – (46) (163) – (113) (113) 1 (228) (227) Interest payable on unsecured bank loans and related interest rate derivatives was £8m (2017/18: £9m). Interest on development expenditure is capitalised at the Group’s weighted average interest rate of 2.2% (2017/18: 2.0%). The weighted average interest rate on a proportionately consolidated basis at 31 March 2019 was 2.9% (2017/18: 2.8%). 1. Represents a reclassification of cumulative losses within the hedging and translation reserve to capital profit and loss, in relation to hedging instruments which have been closed out or are no longer hedge accounted 2. Primarily bond redemption, tender offer and purchase costs 3. The difference between valuation movements on fair value derivatives and valuation movements on fair value debt represents hedge ineffectiveness for the period 133 British Land | Annual Report and Accounts 2019 Notes to the accounts continued 7 Taxation Taxation (expense) income Current taxation: UK corporation taxation: 19% (2017/18: 19%) Adjustments in respect of prior years Total current taxation income Deferred taxation on revaluations and derivatives Group total taxation Attributable to joint ventures and funds Total taxation income Taxation reconciliation (Loss) profit on ordinary activities before taxation Less: profit attributable to joint ventures and funds1 Group (loss) profit on ordinary activities before taxation Taxation on profit on ordinary activities at UK corporation taxation rate of 19% (2017/18: 19%) Effects of: – REIT exempt income and gains – Taxation losses – Deferred taxation on revaluations and derivatives – Adjustments in respect of prior years Group total taxation (expense) income 2019 £m 2018 £m (10) 13 3 (4) (1) 2 1 (319) (5) (324) 62 (73) 1 (4) 13 (1) – 1 1 5 6 – 6 501 (151) 350 (67) 71 (4) 5 1 6 1. A current taxation income of £2m (2017/18: £nil) and a deferred taxation credit of £nil (2017/18: £nil) arose on profits attributable to joint ventures and funds. The low tax charge reflects the Group’s REIT status Taxation expense attributable to Underlying Profit for the year ended 31 March 2019 was £nil (2017/18: £nil). Corporation taxation payable at 31 March 2019 was £25m (2017/18: £22m) as shown on the balance sheet. During the year to 31 March 2019 various tax provisions in respect of historic taxation matters and current points of uncertainty in the UK have been released and provisions made. The net movement, which is included within the tax credit above, is not material. 8 Staff costs Staff costs (including Directors) Wages and salaries Social security costs Pension costs Equity-settled share-based payments 2019 £m 62 8 7 (3) 74 2018 £m 70 9 7 – 86 The average monthly number of employees of the Company during the year was 293 (2017/18: 265). The average monthly number of Group employees, including those employed directly at the Group’s properties and their costs recharged to tenants, was 783 (2017/18: 835). The average monthly number of employees of the Company within each category of persons employed was as follows: Retail: 31; Offices: 20; Canada Water: 14; Developments: 32; Storey: 8; Support Functions: 188. The Executive Directors and Non-Executive Directors are the key management personnel. Their emoluments are summarised below and further detail is disclosed in the Remuneration Report on pages 88 to 109. Directors’ emoluments Short term employee benefits Service cost in relation to defined benefit pension schemes Equity-settled share-based payments 134 2019 £m 5.6 0.1 (2.0) 3.7 2018 £m 5.5 0.2 1.1 6.8 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 8 Staff costs continued Staff costs The Group’s equity-settled share-based payments comprise the Long-Term Incentive Plan (LTIP), the Matching Share Plan (MSP), the Restricted Share Plan (RSP) and various savings related share option schemes. The Company expenses an estimate of how many shares are likely to vest based on the market price at the date of grant, taking account of expected performance against the relevant performance targets and service periods, which are discussed in further detail in the Remuneration Report. For all schemes except the Company’s Long-Term Incentive Plan share options, the fair value of awards are equal to the market value at grant date. The key inputs used to value share options using a Black-Scholes model granted under the Company’s Long-Term Incentive Plan are shown below. Long-Term Incentive Plan: Awards in the year ended 31 March 2019 Share price and exercise price at grant date Expected option life in years Risk free rate Expected volatility Expected dividend yield Value per option Movements in shares and options are given in note 20. 25 June 2018 682p 5 0.8% 22% 5% 68p 28 June 2017 617p 5 0.8% 24% 5% 68p 9 Pensions The British Land Group of Companies Pension Scheme (‘the scheme’) is the principal defined benefit pension scheme in the Group. The assets of the scheme are held in a trustee-administered fund and kept separate from those of the Company. It is not contracted out of SERPS (State Earnings-Related Pension Scheme) and it is not planned to admit new employees to the scheme. The Group has three other small defined benefit pension schemes. There are also two Defined Contribution Pension Schemes. Contributions to these schemes are at a flat rate of salary and are paid by the Company. The total net pension cost charged for the year was £7m (2017/18: £7m), of which £5m (2017/18: £5m) relates to defined contribution plans and £2m (2017/18: £2m) relates to the current service cost of the defined benefit schemes. A full actuarial valuation of the scheme was carried out at 31 March 2015 by consulting actuaries, Aon. The next full actuarial valuation is currently being carried out by First Actuarial and will be completed by 30th June 2019. The valuations and employer’s contributions (72.9% per annum of basic salaries) in the current year are based on estimates produced by First Actuarial. The best estimate of employer contributions expected to be paid during the year to 31 March 2020 is £2m. The major assumptions used for the actuarial valuation were: Discount rate Salary inflation Pensions increase Price inflation 2019 % pa 2.4 4.8 3.3 3.4 2018 % pa 2.6 4.9 3.3 3.4 2017 % pa 2.4 4.9 3.3 3.4 2016 % pa 3.2 4.8 3.2 3.3 2015 % pa 3.1 4.8 3.2 3.3 The assumptions are that a member currently aged 60 will live on average for a further 27.8 years if they are male and for a further 29.4 years if they are female. For a member who retires in 2039 at age 60, the assumptions are that they will live on average for a further 29.2 years after retirement if they are male and for a further 30.8 years after retirement if they are female. Composition of scheme assets Equities Diversified growth funds Other assets Total scheme assets 97.9% of the scheme assets are quoted in an active market. All unquoted scheme assets sit within equities. 2019 £m 60 88 12 160 2018 £m 54 85 13 152 135 British Land | Annual Report and Accounts 2019 Notes to the accounts continued 9 Pensions continued The amount included in the balance sheet arising from the Group’s obligations in respect of its defined benefit scheme is as follows: Present value of defined scheme obligations Fair value of scheme assets Irrecoverable surplus Liability recognised in the balance sheet 2019 £m (147) 160 (13) – 2018 £m (147) 152 (5) – 2017 £m (167) 154 – (13) 2016 £m (143) 137 – (6) 2015 £m (145) 139 – (6) The sensitivities of the defined benefit obligation in relation to the major actuarial assumptions used to measure scheme liabilities are as follows: Increase/(decrease) in defined scheme obligations 2019 £m (15) 2 12 5 2018 £m (14) 1 12 4 Change in assumption +0.5% +0.5% +0.5% +1 year 2019 £m 2018 £m 2017 £m 2016 £m 2015 £m – 0.1% 9 6.1% (12) 7.2% (1) (5) 0.7% 3.6% 2019 £m (147) (2) (3) (2) 1 6 2018 £m (167) (2) (4) 7 7 12 (147) (147) 2019 £m 152 4 2 8 (6) 160 2018 £m 154 3 7 – (12) 152 Assumption Discount rate Salary inflation RPI inflation Assumed life expectancy History of experience gains and losses Total actuarial gain (loss) recognised in the consolidated statement of comprehensive income1, 2 Percentage of present value on scheme liabilities 1. Movements stated after adjusting for irrecoverability of any surplus 2. Cumulative loss recognised in the statement of comprehensive income is £40m (2017/18: £40m) Movements in the present value of defined benefit obligations were as follows: At 1 April Current service cost Interest cost Actuarial (loss) gain (Loss) gain from change in financial assumptions Gain on scheme liabilities arising from experience Benefits paid At 31 March Movements in the fair value of the scheme assets were as follows: At 1 April Interest income on scheme assets Contributions by employer Actuarial gain Benefits paid At 31 March 136 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 9 Pensions continued Through its defined benefit plans, the Group is exposed to a number of risks, the most significant of which are detailed below: Asset volatility The liabilities are calculated using a discount rate set with reference to corporate bond yields; if assets underperform this yield, this will create a deficit. The scheme holds a significant portion of growth assets (equities and diversified growth funds) which, although expected to outperform corporate bonds in the long term, create volatility and risk in the short term. The allocation to growth assets is monitored to ensure it remains appropriate given the scheme’s long term objectives. Changes in bond yields A decrease in corporate bond yields will increase the value placed on the scheme’s liabilities for accounting purposes, although this will be partially offset by an increase in the value of the scheme’s bond holdings. Inflation risk The majority of the scheme’s benefit obligations are linked to inflation, and higher inflation will lead to higher liabilities (although, in most cases, caps on the level of inflationary increases are in place to protect against extreme inflation). The majority of the assets are either unaffected by or only loosely correlated with inflation, meaning that an increase in inflation will also increase the deficit. Life expectancy The majority of the scheme’s obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the liabilities. 10 Property Property reconciliation for the year ended 31 March 2019 Investment Retail Level 3 £m Offices and residential Level 3 £m 5,195 3,659 Canada Water Level 3 £m 298 Investment and development properties Level 3 £m Developments Level 3 £m Trading properties £m Owner- occupied Level 3 £m Total £m 355 9,507 328 90 9,925 128 2 – 27 157 – (409) – (621) – (5) 93 – – 15 108 – – 19 (12) – 2 – 19 3 – 22 – – – (2) – – – 151 2 – 153 – (3) – 15 – – 221 172 5 42 440 – (412) 19 (620) – (3) – 11 – – 11 – (252) – – – – – – – – – (1) – (19) – 3 – 221 183 5 42 451 (1) (664) – (620) 3 (3) 4,317 3,776 318 520 8,931 87 73 9,091 Carrying value at 1 April 2018 Additions – property purchases – development expenditure – capitalised interest and staff costs – capital expenditure on asset management initiatives Depreciation Disposals Reclassifications Revaluations included in income statement1 Revaluations included in OCI Movement in tenant incentives and contracted rent uplift balances Carrying value at 31 March 2019 Head lease liabilities (note 15) Valuation surplus on trading properties Group property portfolio valuation at 31 March 2019 Non-controlling interests Group property portfolio valuation at 31 March 2019 attributable to shareholders 1. Included within the offices and residential property revaluation movement above is a £4m increase to the valuation of 10 Brock Street following the leasing transaction with Facebook and Debenhams 137 (92) 29 9,028 (267) 8,761 British Land | Annual Report and Accounts 2019 Notes to the accounts continued 10 Property continued Property reconciliation for the year ended 31 March 2018 Investment Carrying value at 1 April 2017 Additions – property purchases – development expenditure – capitalised interest and staff costs – capital expenditure on asset management initiatives Depreciation Disposals Reclassifications Revaluations included in income statement Revaluations included in OCI Movement in tenant incentives and contracted rent uplift balances Carrying value at 31 March 2018 Head lease liabilities (note 15) Valuation surplus on trading properties Retail Level 3 £m 5,021 Offices and residential Level 3 £m 3,616 Canada Water Level 3 £m 286 Investment and development properties Level 3 £m Developments Level 3 £m Trading properties £m Owner- occupied Level 3 £m Total £m 150 9,073 334 94 9,501 237 5 – 29 271 – (134) (4) 40 – 1 – 15 1 – 16 – (2) (137) 165 – 1 8 22 3 – 33 – – – (21) – – – 44 1 1 46 – – 141 18 – – 245 86 5 30 366 – (136) – 202 – 2 5 46 5 – 56 – (62) – – – – 5,195 3,659 298 355 9,507 328 – – – – – (1) – – – (3) – 90 250 132 10 30 422 (1) (198) – 202 (3) 2 9,925 (62) 134 9,997 (315) 9,682 Group property portfolio valuation at 31 March 2018 Non-controlling interests Group property portfolio valuation at 31 March 2018 attributable to shareholders Property valuation The different valuation method levels are defined below: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs). These levels are specified in accordance with IFRS 13 ‘Fair Value Measurement’. Property valuations are inherently subjective as they are made on the basis of assumptions made by the valuer which may not prove to be accurate. For these reasons, and consistent with EPRA’s guidance, we have classified the valuations of our property portfolio as Level 3 as defined by IFRS 13. The inputs to the valuations are defined as ‘unobservable’ by IFRS 13 and these are analysed in a table on the following page. There were no transfers between levels in the year. The Group’s total property portfolio was valued by external valuers on the basis of fair value, in accordance with the RICS Valuation – Professional Standards 2014, ninth edition, published by The Royal Institution of Chartered Surveyors. The information provided to the valuers, and the assumptions and valuation models used by the valuers, are reviewed by the property portfolio team, the Head of Real Estate and the Chief Financial Officer. The valuers meet with the external auditors and also present directly to the Audit Committee at the interim and year end review of results. Further details of the Audit Committee’s responsibilities in relation to valuations can be found in the Report of the Audit Committee (on pages 80 to 85). Investment properties, excluding properties held for development, are valued by adopting the ‘investment method’ of valuation. This approach involves applying capitalisation yields to current and future rental streams net of income voids arising from vacancies or rent-free periods and associated running costs. These capitalisation yields and future rental values are based on comparable property and leasing transactions in the market using the valuers’ professional judgement and market observation. Other factors taken into account in the valuations include the tenure of the property, tenancy details and ground and structural conditions. 138 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 10 Property continued In the case of ongoing developments, the approach applied is the ‘residual method’ of valuation, which is the investment method of valuation as described above, with a deduction for all costs necessary to complete the development, including a notional finance cost, together with a further allowance for remaining risk. Properties held for development are generally valued by adopting the higher of the residual method of valuation, allowing for all associated risks, or the investment method of valuation for the existing asset. Copies of the valuation certificates of Knight Frank LLP, CBRE, Jones Lang LaSalle and Cushman & Wakefield can be found at britishland.com/reports A breakdown of valuations split between the Group and its share of joint ventures and funds is shown below: Knight Frank LLP CBRE Jones Lang LaSalle Cushman & Wakefield Total property portfolio valuation Non-controlling interests Total property portfolio valuation attributable to shareholders 2019 Joint ventures and funds £m 2,256 231 1,099 19 Total £m 3,690 2,906 2,988 3,049 3,605 12,633 (50) (317) 3,555 12,316 Group £m 1,434 2,675 1,889 3,030 9,028 (267) 8,761 2018 Joint ventures and funds £m 2,680 1,403 – 19 Total £m 4,354 5,914 561 3,270 4,102 14,099 (68) (383) 4,034 13,716 Group £m 1,674 4,511 561 3,251 9,997 (315) 9,682 Information about fair value measurements using unobservable inputs (Level 3) for the year ended 31 March 2019 Fair value at 31 March 2019 £m ERV per sq ft Equivalent yield Costs to complete per sq ft Valuation technique Min £ Max £ Average £ Min % Max % Average % Min £ Max £ Average £ Investment Retail Offices1 Canada Water Residential Developments Total Trading properties at fair value Group property portfolio valuation 1. Includes owner-occupied Investment methodology Investment methodology Investment methodology Investment methodology Residual methodology 2 8 15 38 47 87 145 31 38 63 24 58 22 38 55 4 4 2 4 4 10 5 6 4 5 6 4 4 4 4 – – – – – 37 465 1 – 6 53 – – 334 228 4,278 3,769 302 43 520 8,912 116 9,028 139 British Land | Annual Report and Accounts 2019 Notes to the accounts continued 10 Property continued Information about fair value measurements using unobservable inputs (Level 3) for the year ended 31 March 2018 Fair value at 31 March 2018 £m ERV per sq ft Equivalent yield Costs to complete per sq ft Valuation technique Min £ Max £ Average £ Min % Max % Average % Min £ Max £ Average £ Investment methodology Investment methodology Investment methodology Investment methodology Residual methodology 2 8 38 15 18 84 117 38 29 66 24 58 38 22 61 3 4 4 2 2 9 5 4 6 6 5 4 4 4 5 – – – – – 51 323 2 1 2 53 (34) 1 614 541 5,210 3,617 283 70 355 9,535 462 9,997 Investment Retail Offices1 Canada Water Residential Developments Total Trading properties at fair value Group property portfolio valuation 1. Includes owner-occupied Information about the impact of changes in unobservable inputs (Level 3) on the fair value of the Group’s property portfolio for the year ended 31 March 2019 Retail Offices1 Canada Water Residential Developments Group property portfolio valuation 1. Includes trading properties at fair value Fair value at 31 March 2019 £m 5,530 5,444 303 99 940 12,316 Impact on valuations Impact on valuations Impact on valuations +5% ERV £m -5% ERV £m -25bps NEY £m +25bps NEY £m -5% costs £m +5% costs £m 230 228 4 1 48 511 (220) (207) (4) (1) (52) (484) 272 361 5 2 64 704 (251) (313) (4) (2) (60) (630) – – 31 – 26 57 – – (30) – (30) (60) Information about the impact of changes in unobservable inputs (Level 3) on the fair value of the Group’s property portfolio for the year ended 31 March 2018 Fair value at 31 March 2018 £m Impact on valuations Impact on valuations Impact on valuations +5% ERV £m -5% ERV £m -25bps NEY £m +25bps NEY £m -5% costs £m +5% costs £m 5,210 4,079 283 70 355 9,997 210 167 4 1 31 413 (199) (161) (5) (1) (31) (397) 269 244 1 2 39 555 (278) (219) (1) (2) (35) (535) na na 21 – 13 34 na na (20) – (13) (33) Retail Offices1 Canada Water Residential Developments Group property portfolio valuation 1. Includes trading properties at fair value 140 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 10 Property continued All other factors being equal: – a higher equivalent yield or discount rate would lead to a decrease in the valuation of an asset – an increase in the current or estimated future rental stream would have the effect of increasing the capital value – an increase in the costs to complete would lead to a decrease in the valuation of an asset. However, there are interrelationships between the unobservable inputs which are partially determined by market conditions, which would impact on these changes. Additional property disclosures – including covenant information At 31 March 2019, the Group property portfolio valuation of £9,028m (2017/18: £9,997m) comprises freeholds of £4,929m (2017/18: £5,711m); virtual freeholds of £940m (2017/18: £895m); and long leaseholds of £3,097m (2017/18 £3,391m); and short leaseholds of £62m (2017/18: £nil). The historical cost of properties was £5,853m (2017/18: £6,294m). The property valuation does not include any investment properties held under operating leases (2017/18: £nil). Cumulative interest capitalised against investment, development and trading properties amounts to £99m (2017/18: £101m). Properties valued at £1,019m (2017/18: £1,202m) were subject to a security interest and other properties of non-recourse companies amounted to £1,115m (2017/18: £1,245m), totalling £2,134m (2017/18: £2,447m). Included within the property valuation is £28m (2017/18: £60m) in respect of accrued contracted rental uplift income. The balance arises through the IFRS treatment of leases containing such arrangements, which requires the recognition of rental income on a straight-line basis over the lease term, with the difference between this and the cash receipt changing the carrying value of the property against which revaluations are measured. 11 Joint ventures and funds Summary movement for the year of the investments in joint ventures and funds At 1 April 2018 Additions Disposals Share of profit on ordinary activities after taxation Distributions and dividends: – Capital – Revenue Hedging and exchange movements At 31 March 2019 Joint ventures £m 2,600 23 (2) 24 (260) (73) 18 2,330 Funds £m 222 38 – (17) – (13) – 230 Total £m 2,822 61 (2) 7 (260) (86) 18 Equity £m 2,392 41 – 7 (260) (86) 18 Loans £m 430 20 (2) – – – – Total £m 2,822 61 (2) 7 (260) (86) 18 2,560 2,112 448 2,560 141 British Land | Annual Report and Accounts 2019 Notes to the accounts continued 11 Joint ventures and funds continued The summarised income statements and balance sheets below and on the following page show 100% of the results, assets and liabilities of joint ventures and funds. Where necessary, these have been restated to the Group’s accounting policies. Joint ventures’ and funds’ summary financial statements for the year ended 31 March 2019 Broadgate REIT Ltd MSC Property Intermediate Holdings Ltd BL Sainsbury Superstores Ltd The SouthGate Limited Partnership USS joint ventures1 Hercules Unit Trust joint ventures and sub-funds2 Other joint ventures and funds3 Total 2019 Group share Total 2019 Partners Property sector Group share Summarised income statements Revenue4 Costs Administrative expenses Net interest payable Underlying Profit Net valuation movement Capital financing costs (Loss) profit on disposal of investment properties and investments Profit (loss) on ordinary activities before taxation Taxation Profit (loss) on ordinary activities after taxation Other comprehensive income Total comprehensive income (expense) British Land share of total comprehensive income (expense) British Land share of distributions payable Summarised balance sheets Investment and trading properties Current assets Cash and deposits Gross assets Current liabilities Bank and securitised debt Loans from joint venture partners Other non-current liabilities Gross liabilities Net assets British Land share of net assets less shareholder loans Euro Bluebell LLP (GIC) Norges Bank Investment Management City Offices Broadgate Shopping Centres Meadowhall 50% £m 194 (60) 134 (1) (71) 62 117 (37) 10 152 4 156 36 192 96 275 £m 4,024 (1) 219 4,242 (83) (1,442) (479) – (2,004) 2,238 1,119 50% £m 102 (24) 78 – (32) 46 (152) – – (106) – (106) – (106) (53) 4 £m 1,744 4 31 1,779 (37) (612) (385) (20) (1,054) 725 363 J Sainsbury plc Superstores 50% Universities Superannuation Investors Scheme Group PLC Aviva Shopping Centres 50% Shopping Centres 50% Retail Parks Various £m 32 – 32 – (11) 21 1 (3) (4) 15 – 15 – 15 8 20 £m 488 4 40 532 (22) (196) – – (218) 314 157 £m 18 (4) 14 – (1) 13 (25) – – – – (12) (12) (12) (6) 5 £m 252 1 9 – – 262 (3) (28) (31) 231 116 (15) £m 14 (5) 9 – – 9 – – – – (6) (6) (6) (3) 4 £m 238 1 6 – – 245 (4) (30) (34) 211 105 £m 33 (8) 25 (1) (1) 23 (52) (2) (7) (38) (38) – – (38) (19) 13 £m 456 6 13 475 (11) – – – (11) 464 232 £m – (1) (1) – – (1) (1) – 5 3 – 3 – 3 2 – £m – 40 5 45 (10) – (6) 8 (8) 37 18 £m 393 (102) 291 (2) (116) 173 (127) (42) 4 8 4 12 36 48 25 321 £m 7,202 55 323 7,580 (170) (2,250) (900) (40) (3,360) 4,220 2,110 £m 196 (51) 145 (1) (58) 86 (63) (21) 3 5 2 7 18 25 – – £m 3,601 27 162 3,790 (85) (1,125) (450) (20) (1,680) 2,110 1. USS joint ventures include the Eden Walk Shopping Centre Unit Trust and the Fareham Property Partnership 2. Hercules Unit Trust joint ventures and sub-funds includes 50% of the results of Deepdale Co-Ownership Trust, Fort Kinnaird Limited Partnership and Valentine Co-Ownership Trust and 41.25% of Birstall Co-Ownership Trust. The balance sheet shows 50% of the assets of these joint ventures and sub-funds 3. Included in the column headed ‘Other joint ventures and funds’ are contributions from the following: BL Goodman Limited Partnership, The Aldgate Place Limited Partnership, Bluebutton Property Management UK Limited, City of London Office Unit Trust and Pillar Retail Europark Fund (PREF). The Group’s ownership share of PREF is 65%, however as the Group is not able to exercise control over significant decisions of the fund, the Group equity accounts for its interest in PREF 4. Revenue includes gross rental income at 100% share of £310m (2017/18: £385m) 142 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 Summarised income statements Partners Property sector Group share Revenue4 Costs Administrative expenses Net interest payable Underlying Profit Net valuation movement Capital financing costs (Loss) profit on disposal of investment properties and investments Profit (loss) on ordinary activities before taxation Taxation Profit (loss) on ordinary activities after taxation Other comprehensive income Total comprehensive income (expense) British Land share of total comprehensive income (expense) British Land share of distributions payable Summarised balance sheets Investment and trading properties Current assets Cash and deposits Gross assets Current liabilities Bank and securitised debt Loans from joint venture partners Other non-current liabilities Gross liabilities Net assets British Land share of net assets less shareholder loans 50% £m 194 (60) 134 (1) (71) 62 117 (37) 10 152 4 156 36 192 96 275 £m 4,024 (1) 219 4,242 (83) (1,442) (479) – (2,004) 2,238 1,119 50% £m 102 (24) 78 – (32) 46 (152) – – – – (106) (106) (106) (53) 4 £m 4 31 1,744 1,779 (37) (612) (385) (20) (1,054) 725 363 50% £m 32 – 32 – (11) 21 1 (3) (4) 15 – 15 – 15 8 20 £m 488 4 40 532 (22) (196) – – (218) 314 157 Joint ventures’ and funds’ summary financial statements for the year ended 31 March 2019 Broadgate REIT Ltd MSC Property Intermediate Holdings Ltd BL Sainsbury Superstores Ltd The SouthGate Limited Partnership USS joint ventures1 Hercules Unit Trust joint ventures and sub-funds2 Other joint ventures and funds3 Total 2019 Total Group share 2019 Euro Bluebell LLP Norges Bank Investment (GIC) Management J Sainsbury plc City Offices Shopping Centres Broadgate Meadowhall Superstores Aviva Investors Shopping Centres 50% Universities Superannuation Scheme Group PLC Shopping Centres 50% Retail Parks Various £m 18 (4) 14 – (1) 13 (25) – – (12) – (12) – (12) (6) 5 £m 252 1 9 262 (3) – – (28) (31) 231 116 £m 14 (5) 9 – – 9 (15) – – (6) – (6) – (6) (3) 4 £m 238 1 6 245 (4) – (30) – (34) 211 105 £m 33 (8) 25 (1) (1) 23 (52) (2) (7) (38) – (38) – (38) (19) 13 £m 456 6 13 475 (11) – – – (11) 464 232 £m – (1) (1) – – (1) (1) – 5 3 – 3 – 3 2 – £m – 40 5 45 (10) – (6) 8 (8) 37 18 £m 393 (102) 291 (2) (116) 173 (127) (42) 4 8 4 12 36 48 25 321 £m 7,202 55 323 7,580 (170) (2,250) (900) (40) (3,360) 4,220 2,110 £m 196 (51) 145 (1) (58) 86 (63) (21) 3 5 2 7 18 25 – – £m 3,601 27 162 3,790 (85) (1,125) (450) (20) (1,680) 2,110 The borrowings of joint ventures and funds and their subsidiaries are non-recourse to the Group. All joint ventures are incorporated in the United Kingdom, with the exception of Broadgate REIT Limited and the Eden Walk Shopping Centre Unit Trust which are incorporated in Jersey. Of the funds, the Hercules Unit Trust (HUT) joint ventures and sub-funds are incorporated in Jersey and PREF in Luxembourg. These financial statements include the results and financial position of the Group’s interest in the Fareham Property Partnership, the Aldgate Place Limited Partnership, the BL Goodman Limited Partnership and the Gibraltar Limited Partnership. Accordingly, advantage has been taken of the exemptions provided by Regulation 7 of the Partnership (Accounts) Regulations 2008 not to attach the partnership accounts to these financial statements. 143 British Land | Annual Report and Accounts 2019 Notes to the accounts continued 11 Joint ventures and funds continued The summarised income statements and balance sheets below and on the following page show 100% of the results, assets and liabilities of joint ventures and funds. Where necessary, these have been restated to the Group’s accounting policies. Joint ventures’ and funds’ summary financial statements for the year ended 31 March 2018 Broadgate REIT Ltd1 MSC Property Intermediate Holdings Ltd BL Sainsbury Superstores Ltd The SouthGate Limited Partnership USS joint ventures2 Hercules Unit Trust joint ventures and sub-funds3 Other joint ventures and funds4 Total 2018 Group share Total 2018 Partners Property sector Group share Summarised income statements Revenue5 Costs Administrative expenses Net interest payable Underlying Profit Net valuation movement Capital financing costs (Loss) profit on disposal of investment properties and investments Profit (loss) on ordinary activities before taxation Taxation Profit (loss) on ordinary activities after taxation Other comprehensive income (expenditure) Total comprehensive income British Land share of total comprehensive income (expense) British Land share of distributions payable Summarised balance sheets Investment and trading properties Current assets Cash and deposits Gross assets Current liabilities Bank and securitised debt Loans from joint venture partners Other non-current liabilities Gross liabilities Net assets British Land share of net assets less shareholder loans Euro Bluebell LLP (GIC) Norges Bank Investment Management City Offices Broadgate Shopping Centres Meadowhall 50% £m 255 (64) 191 (1) (82) 108 105 – (18) 195 – 195 13 208 104 35 £m 4,668 6 291 4,965 (107) (1,744) (465) (41) (2,357) 2,608 1,304 50% £m 102 (23) 79 – (33) 46 21 – – 67 – 67 3 70 35 4 £m 1,895 6 39 1,940 (41) (641) (364) (20) (1,066) 874 437 J Sainsbury plc Superstores 50% £m 39 – 39 – (16) 23 (3) (26) 9 3 – 3 – 3 2 31 £m 523 – 90 613 (24) (251) – – (275) 338 169 1. Included within the Broadgate REIT revenue is a £29m (£15m British Land share) payment received in June 2017 from the Royal Bank of Scotland in relation to their surrender of a lease at 135 Bishopsgate 2. USS joint ventures include the Eden Walk Shopping Centre Unit Trust and the Fareham Property Partnership 3. Hercules Unit Trust joint ventures and sub-funds includes 50% of the results of Deepdale Co-Ownership Trust, Gibraltar Limited Partnership and Valentine Co-Ownership Trust and 41.25% of Birstall Co-Ownership Trust. The balance sheet shows 50% of the assets of these joint ventures and sub-funds 4. Included in the column headed ‘Other joint ventures and funds’ are contributions from the following: BL Goodman Limited Partnership, The Aldgate Place Limited Partnership, Bluebutton Property Management UK Limited, City of London Office Unit Trust and Pillar Retail Europark Fund (PREF). The Group’s ownership share of PREF is 65%, however as the Group is not able to exercise control over significant decisions of the fund, the Group equity accounts for its interest in PREF 5. Revenue includes gross rental income at 100% share of £385m (2017/18: £437m) 144 Universities Superannuation Investors Scheme Group PLC Aviva Shopping Centres 50% Shopping Centres 50% £m 13 (4) Retail Parks Various (28) £m 36 (5) 31 – (4) 27 – – – – (1) (1) (1) (1) 14 £m 590 4 10 604 (11) (140) – (4) (155) 449 226 9 – – 9 – – – 9 – 9 – 9 5 4 1 7 – – £m 250 258 (5) (26) (31) 227 113 £m 6 (2) 4 – – 4 – – 2 6 – 6 – 6 3 – £m – 42 8 50 (15) – (6) 5 (16) 34 16 £m 469 (102) 367 (2) (136) 229 105 (26) (6) 302 – 302 16 318 159 93 £m 8,201 60 454 8,715 (207) (2,776) (861) (88) (3,932) 4,783 2,392 £m 235 (51) 184 (1) (68) 115 52 (13) (3) 151 151 – 8 159 £m 4,100 31 227 4,358 (105) (1,388) (430) (43) (1,966) 2,392 £m 18 (4) 14 (1) (1) 12 10 – 1 23 – 23 – 23 11 5 £m 275 1 9 – – 285 (4) (28) (32) 253 127 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 Joint ventures’ and funds’ summary financial statements for the year ended 31 March 2018 Broadgate REIT Ltd1 MSC Property Intermediate Holdings Ltd BL Sainsbury Superstores Ltd The SouthGate Limited Partnership USS joint ventures2 Hercules Unit Trust joint ventures and sub-funds3 Other joint ventures and funds4 Total 2018 Total Group share 2018 Summarised income statements Partners Property sector Group share Revenue5 Costs Administrative expenses Net interest payable Underlying Profit Net valuation movement Capital financing costs (Loss) profit on disposal of investment properties and investments Profit (loss) on ordinary activities before taxation Taxation Profit (loss) on ordinary activities after taxation Other comprehensive income (expenditure) Total comprehensive income British Land share of total comprehensive income (expense) British Land share of distributions payable Summarised balance sheets Investment and trading properties Current assets Cash and deposits Gross assets Current liabilities Bank and securitised debt Loans from joint venture partners Other non-current liabilities Gross liabilities Net assets British Land share of net assets less shareholder loans 50% £m 255 (64) 191 (1) (82) 108 105 – (18) 195 – 195 13 208 104 35 £m 4,668 6 291 4,965 (107) (1,744) (465) (41) (2,357) 2,608 1,304 50% £m 102 (23) 79 – (33) 46 21 – – 67 – 67 3 70 35 4 £m 6 39 1,895 1,940 (41) (641) (364) (20) (1,066) 874 437 50% £m 39 – 39 – (16) 23 (3) (26) 9 3 – 3 – 3 2 31 £m 523 – 90 613 (24) (251) – – (275) 338 169 Euro Bluebell LLP Norges Bank Investment (GIC) Management J Sainsbury plc City Offices Shopping Centres Broadgate Meadowhall Superstores Aviva Investors Shopping Centres 50% Universities Superannuation Scheme Group PLC Shopping Centres 50% £m 18 (4) 14 (1) (1) 12 10 – 1 23 – 23 – 23 11 5 £m 275 1 9 285 (4) – – (28) (32) 253 127 £m 13 (4) 9 – – 9 – – – 9 – 9 – 9 5 4 £m 250 1 7 258 (5) – (26) – (31) 227 113 Retail Parks Various £m 36 (5) 31 – (4) 27 (28) – – (1) – (1) – (1) (1) 14 £m 590 4 10 604 (11) (140) – (4) (155) 449 226 £m 6 (2) 4 – – 4 – – 2 6 – 6 – 6 3 – £m – 42 8 50 (15) – (6) 5 (16) 34 16 £m 469 (102) 367 (2) (136) 229 105 (26) (6) 302 – 302 16 318 159 93 £m 8,201 60 454 8,715 (207) (2,776) (861) (88) (3,932) 4,783 2,392 £m 235 (51) 184 (1) (68) 115 52 (13) (3) 151 – 151 8 159 £m 4,100 31 227 4,358 (105) (1,388) (430) (43) (1,966) 2,392 6. Included in the column headed ‘Other joint ventures and funds’ are contributions from the following: BL Goodman Limited Partnership, The Aldgate Place Limited Partnership, Bluebutton Property Management UK Limited, City of London Office Unit Trust and Pillar Retail Europark Fund (PREF). The Group’s ownership share of PREF is 65%, however as the Group is not able to exercise control over significant decisions of the fund, the Group equity accounts for its interest in PREF 7. Revenue includes gross rental income at 100% share of £385m (2016/17: £437m) The borrowings of joint ventures and funds and their subsidiaries are non-recourse to the Group. All joint ventures are incorporated in the United Kingdom, with the exception of Broadgate REIT Limited and the Eden Walk Shopping Centre Unit Trust which are incorporated in Jersey. Of the funds, the Hercules Unit Trust (HUT) joint ventures and sub-funds are incorporated in Jersey and PREF in Luxembourg. These financial statements include the results and financial position of the Group’s interest in the Fareham Property Partnership, the Aldgate Place Limited Partnership, the BL Goodman Limited Partnership, the Auchinlea Partnership and the Gibraltar Limited Partnership. Accordingly, advantage has been taken of the exemptions provided by Regulation 7 of the Partnership (Accounts) Regulations 2008 not to attach the partnership accounts to these financial statements. 145 British Land | Annual Report and Accounts 2019 Notes to the accounts continued 11 Joint ventures and funds continued Operating cash flows of joint ventures and funds (Group share) Rental income received from tenants Operating expenses paid to suppliers and employees Cash generated from operations Interest paid Interest received UK corporation tax paid Cash inflow from operating activities Cash inflow from operating activities deployed as: Surplus cash retained within joint ventures and funds Revenue distributions per consolidated statement of cash flows Revenue distributions split between controlling and non-controlling interests Attributable to non-controlling interests Attributable to shareholders of the Company 2019 £m 160 (23) 137 (70) 1 (2) 66 7 59 3 56 2018 £m 199 (22) 177 (73) 1 (1) 104 26 78 2 76 146 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 12 Other investments At 1 April Additions Transfers / disposals Revaluation Depreciation / amortisation At 31 March Fair value through profit or loss £m 112 – – 2 – 114 2019 Property, plant and equipment £m Amortised cost £m Intangible assets £m 28 8 (27) (4) – 5 24 4 – – (6) 22 10 4 – – (4) 10 Fair value through profit or loss £m 107 – – 5 – 112 Total £m 174 16 (27) (2) (10) 151 2018 Property, plant and equipment £m Amortised cost £m Intangible assets £m 27 – (2) 3 – 28 11 15 – – (2) 24 9 4 – – (3) 10 Total £m 154 19 (2) 8 (5) 174 The investment at fair value through profit or loss comprises interests as a trust beneficiary. The trust’s assets comprise freehold reversions in a pool of commercial properties, comprising Sainsbury’s superstores. The interest is categorised as Level 3 in the fair value hierarchy, is subject to the same inputs as those disclosed in note 10, and its fair value was determined by the Directors, supported by an external valuation. 13 Debtors Trade and other debtors Prepayments and accrued income 2019 £m 48 9 57 2018 £m 28 7 35 Trade and other debtors are shown after deducting a provision for tenant incentives of £15m (2017/18: £14m) and a provision for doubtful debts of £5m (2017/18: £5m). The provision for doubtful debts is calculated as an expected credit loss on trade and other debtors in accordance with IFRS 9 (see Note 1). The charge to the income statement in relation to the write off of tenant incentives was £1m (2017/18: £1m). The Directors consider that the carrying amount of trade and other debtors is approximate to their fair value. There is no concentration of credit risk with respect to trade debtors as the Group has a large number of customers who are paying their rent in advance. 14 Creditors Trade creditors Other taxation and social security Accruals Deferred income 2019 £m 94 42 82 71 289 2018 £m 146 30 73 75 324 Trade creditors are interest-free and have settlement dates within one year. The Directors consider that the carrying amount of trade and other creditors is approximate to their fair value. 147 British Land | Annual Report and Accounts 2019 Notes to the accounts continued 15 Other non-current liabilities Head leases 16 Deferred tax The movement on deferred tax is as shown below: Deferred tax assets year ended 31 March 2019 Interest rate and currency derivative revaluations Other timing differences Deferred tax liabilities year ended 31 March 2019 Property and investment revaluations Net deferred tax assets Deferred tax assets year ended 31 March 2018 Interest rate and currency derivative revaluations Other timing differences Deferred tax liabilities year ended 31 March 2018 Property and investment revaluations Net deferred tax assets 2019 £m 92 92 2018 £m 62 62 1 April 2018 £m Debited to income £m Credited to equity £m 31 March 2019 £m 4 7 11 £m (7) (7) 4 1 April 2017 £m 4 7 11 £m (7) (7) 4 (3) (1) (4) £m – – (4) – – – £m 1 1 1 1 6 7 £m (6) (6) 1 Credited to income £m Debited to equity £m 31 March 2018 £m 5 – 5 £m – – 5 (5) – (5) £m – – (5) 4 7 11 £m (7) (7) 4 The following corporation tax rates have been substantively enacted: 19% effective from 1 April 2017 reducing to 17% effective from 1 April 2020. The deferred tax assets and liabilities have been calculated at the tax rate effective in the period that the tax is expected to crystallise. The Group has recognised a deferred tax asset calculated at 17% (2017/18: 17%) of £6m (2017/18: £7m) in respect of capital losses from previous years available for offset against future capital profit. Further unrecognised deferred tax assets in respect of capital losses of £123m (2017/18: £123m) exist at 31 March 2019. The Group has recognised deferred tax assets on derivative revaluations to the extent that future matching taxable profits are expected to arise. At 31 March 2019, the Group had an unrecognised deferred tax asset calculated at 17% (2017/18: 17%) of £49m (2017/18: £43m) in respect of UK revenue tax losses from previous years. Under the REIT regime, development properties which are sold within three years of completion do not benefit from tax exemption. At 31 March 2019, the value of such properties is £148m (2017/18: £176m) and if these properties were to be sold and no tax exemption was available, the tax arising would be £11m (2017/18: £13m). 148 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 17 Net debt Secured on the assets of the Group 5.264% First Mortgage Debenture Bonds 2035 5.0055% First Mortgage Amortising Debentures 2035 5.357% First Mortgage Debenture Bonds 2028 Bank loans Loan notes Unsecured 5.50% Senior Notes 2027 3.895% Senior US Dollar Notes 2018 4.635% Senior US Dollar Notes 2021 4.766% Senior US Dollar Notes 2023 5.003% Senior US Dollar Notes 2026 3.81% Senior Notes 2026 3.97% Senior Notes 2026 0% Convertible Bond 2020 2.375% Sterling Unsecured Bond 2029 4.16% Senior US Dollar Notes 2025 2.67% Senior Notes 2025 2.75% Senior Notes 2026 Floating Rate Senior Notes 2028 Bank loans and overdrafts Gross debt Interest rate and currency derivative liabilities Interest rate and currency derivative assets Cash and short term deposits Total net debt Net debt attributable to non-controlling interests Net debt attributable to shareholders of the Company 1. These are non-recourse borrowings with no recourse for repayment to other companies or assets in the Group Hercules Unit Trust Footnote 2019 £m 2018 £m 1 2 2 2 2 2 3 4,5 368 94 252 512 2 369 95 255 512 2 1,228 1,233 99 – 168 106 69 111 113 343 298 78 37 37 80 264 1,803 3,031 130 (154) (242) 2,765 (104) 2,661 2019 £m 512 512 100 27 156 97 63 110 112 337 298 – – – – 595 1,895 3,128 138 (115) (105) 3,046 (109) 2,937 2018 £m 512 512 2. Principal and interest on these borrowings were fully hedged into Sterling at a floating rate at the time of issue 3. The principal amount of gross debt at 31 March 2019 was £2,881m (2017/18: £3,007m). Included in this is the principal amount of secured borrowings and other borrowings of non-recourse companies of £1,158m of which the borrowings of the partly-owned subsidiary, Hercules Unit Trust, not beneficially owned by the Group are £112m 4. Included within cash and short term deposits is the cash and short term deposits of Hercules Unit Trust, of which £9m is the proportion not beneficially owned by the Group 5. Cash and deposits not subject to a security interest amount to £228m (2017/18: £91m) 149 British Land | Annual Report and Accounts 2019 Notes to the accounts continued 17 Net debt continued Maturity analysis of net debt Repayable: within one year and on demand Between: one and two years two and five years five and ten years ten and fifteen years fifteen and twenty years Gross debt Interest rate and currency derivatives Cash and short term deposits Net debt 2019 £m 99 710 644 808 305 465 2,932 3,031 (24) (242) 2018 £m 27 163 1,194 803 305 636 3,101 3,128 23 (105) 2,765 3,046 0% Convertible bond 2015 (maturity 2020) On 9 June 2015, British Land (White) 2015 Limited (the 2015 Issuer), a wholly-owned subsidiary of the Group, issued £350 million zero coupon guaranteed convertible bonds due 2020 (the 2015 bonds) at par. The 2015 Issuer is fully guaranteed by the Company in respect of the 2015 bonds. Subject to their terms, the 2015 bonds are convertible into preference shares of the 2015 Issuer which are automatically transferred to the Company in exchange for ordinary shares in the Company or, at the Company’s election, any combination of ordinary shares and cash. Bondholders may exercise their conversion right at any time up to but excluding the 7th dealing day before 9 June 2020 (the maturity date), a bondholder may convert at any time. The initial exchange price was 1103.32 pence per ordinary share. The exchange price is adjusted based on certain events (such as the Company paying dividends in any quarter above 3.418 pence per ordinary share). As at 31 March 2019 the exchange price was 1007.24 pence per ordinary share. From 30 June 2018, the Company has the option to redeem the 2015 bonds at par if the Company’s share price has traded above 130% of the exchange price for a specified period, or at any time once 85% by nominal value of the 2015 bonds have been converted, redeemed, or purchased and cancelled. The 2015 bonds will be redeemed at par on 9 June 2020 (the maturity date) if they have not already been converted, redeemed or purchased and cancelled. Fair value and book value of net debt Debentures and unsecured bonds Convertible bonds Bank debt and other floating rate debt Gross debt Interest rate and currency derivative liabilities Interest rate and currency derivative assets Cash and short term deposits Net debt Net debt attributable to non-controlling interests Net debt attributable to shareholders of the Company 2019 2018 Fair value £m Book value £m Difference £m Fair value £m Book value £m Difference £m 2,036 1,910 126 343 784 343 778 – 6 3,163 3,031 132 130 (154) (242) 2,897 (105) 2,792 130 (154) (242) 2,765 (104) 2,661 – – – 132 (1) 131 1,783 337 1,116 3,236 138 (115) (105) 3,154 (110) 3,044 1,682 337 1,109 3,128 138 (115) (105) 3,046 (109) 2,937 101 – 7 108 – – – 108 (1) 107 The fair values of debentures, unsecured bonds and the convertible bond have been established by obtaining quoted market prices from brokers. The bank debt and other floating rate debt has been valued assuming it could be renegotiated at contracted margins. The derivatives have been valued by calculating the present value of expected future cash flows, using appropriate market discount rates, by an independent treasury adviser. Short term debtors and creditors and other investments have been excluded from the disclosures on the basis that the fair value is equivalent to the book value. The fair value hierarchy level of debt held at amortised cost is level 2 (as defined in note 10). 150 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 17 Net debt continued Group loan to value (LTV) Group loan to value (LTV) Principal amount of gross debt Less debt attributable to non-controlling interests Less cash and short term deposits (balance sheet) Plus cash attributable to non-controlling interests Total net debt for LTV calculation Group property portfolio valuation (note 10) Investments in joint ventures and funds (note 11) Other investments (note 12) Less property and investments attributable to non-controlling interests Total assets for LTV calculation Proportionally consolidated loan to value (LTV) Proportionally consolidated loan to value (LTV) Principal amount of gross debt Less debt attributable to non-controlling interests Less cash and short term deposits Plus cash attributable to non-controlling interests Total net debt for proportional LTV calculation Group property portfolio valuation (note 10) Share of property of joint ventures and funds (note 10) Other investments (note 12) Less other investments attributable to joint ventures and funds Less property attributable to non-controlling interests Total assets for proportional LTV calculation 2019 £m 2018 £m 22.2% 22.1% 2,881 3,007 (112) (242) 9 2,536 9,028 2,560 151 (317) (119) (105) 10 2,793 9,997 2,822 174 (366) 11,422 12,627 2019 £m 2018 £m 28.1% 28.4% 4,007 4,399 (112) (402) 9 3,502 9,028 3,605 151 – (317) (135) (331) 10 3,943 9,997 4,102 174 (2) (383) 12,467 13,888 151 British Land | Annual Report and Accounts 2019 Notes to the accounts continued 17 Net debt continued British Land Unsecured Financial Covenants The two financial covenants applicable to the Group unsecured debt including convertible bonds are shown below: Net Borrowings not to exceed 175% of Adjusted Capital and Reserves Principal amount of gross debt Less the relevant proportion of borrowings of the partly-owned subsidiary/non-controlling interests Less cash and deposits (balance sheet) Plus the relevant proportion of cash and deposits of the partly-owned subsidiary/non-controlling interests Net Borrowings Share capital and reserves (balance sheet) EPRA deferred tax adjustment (EPRA Table A) Trading property surpluses (EPRA Table A) Exceptional refinancing charges (see below) Fair value adjustments of financial instruments (EPRA Table A) Less reserves attributable to non-controlling interests (balance sheet) Adjusted Capital and Reserves 2019 £m 29% 2018 £m 29% 2,881 3,007 (112) (242) 9 2,536 8,689 5 29 216 113 (119) (105) 10 2,793 9,506 5 134 233 137 (211) 8,841 (254) 9,761 In calculating Adjusted Capital and Reserves for the purpose of the unsecured debt financial covenants, there is an adjustment of £216m (2017/18: £233m) to reflect the cumulative net amortised exceptional items relating to the refinancings in the years ended 31 March 2005, 2006 and 2007. Net Unsecured Borrowings not to exceed 70% of Unencumbered Assets Principal amount of gross debt Less cash and deposits not subject to a security interest (being £228m less the relevant proportion of cash and deposits of the partly-owned subsidiary/non-controlling interests of £7m) Less principal amount of secured and non-recourse borrowings Net Unsecured Borrowings Group property portfolio valuation (note 10) Investments in joint ventures and funds (note 11) Other investments (note 12) Less investments in joint ventures Less encumbered assets (note 10) Unencumbered Assets 2019 £m 21% 2018 £m 23% 2,881 (221) 3,007 (84) (1,158) (1,159) 1,502 9,028 2,560 151 (2,560) (2,134) 7,045 1,764 9,997 2,822 174 (2,822) (2,447) 7,724 152 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 17 Net debt continued Reconciliation of movement in Group net debt for the year ended 31 March 2019 Short term borrowings Long term borrowings Derivatives1 Total liabilities from financing activities4 Cash and cash equivalents Net debt Cash flows £m Transfers3 £m Foreign exchange £m Fair value £m Arrangement costs amortisation £m (25) (105) (2) (132) (137) (269) 99 (99) – – – – (2) (22) 24 – – – – 53 (69) (16) – (16) – 4 – 4 – 4 2018 £m 27 3,101 23 3,151 (105) 3,046 Reconciliation of movement in Group net debt for the year ended 31 March 2018 Short term borrowings Long term borrowings Derivatives2 Total liabilities from financing activities5 Cash and cash equivalents Net debt Cash flows £m Transfers3 £m Foreign exchange £m Fair value £m Arrangement costs amortisation £m (458) 361 29 (68) 9 (59) 27 (27) – – – – – (40) 40 – – – (6) (10) 27 11 – 11 – – – – – – 2017 £m 464 2,817 (73) 3,208 (114) 3,094 2019 £m 99 2,932 (24) 3,007 (242) 2,765 2018 £m 27 3,101 23 3,151 (105) 3,046 1. Cash flows on derivatives include £17m of net receipts on derivative interest 2. Cash flows on derivatives include £20 of net receipts on derivative interest 3. Transfers comprises debt maturing from long term to short term borrowings 4. Cash flows of £132m shown above represents net cash flows on capital payments in respect of interest rate derivative of £19m, decrease in bank and other borrowings of £576m and drawdowns on bank and other borrowings of £446m shown in the consolidated statement of cash flows, along with £17m of net receipts on derivative interest 5. Cash flows of £68m shown above represents net cash flows on interest rate derivative closeouts of £9m, decrease in bank and other borrowings of £626m and drawdowns on bank and other borrowings of £529m shown in the consolidated statement of cash flows, along with £20m of net receipts on derivative interest Fair value hierarchy The table below provides an analysis of financial instruments carried at fair value, by the valuation method. The fair value hierarchy levels are defined in note 10. Interest rate and currency derivative assets Other investments – fair value through profit or loss Assets Interest rate and currency derivative liabilities Convertible bonds Liabilities Total 2019 2018 Level 1 £m – (14) (14) – 343 343 329 Level 2 £m (154) – (154) 130 – 130 (24) Level 3 £m – (100) (100) – – – (100) Total £m (154) (114) (268) 130 343 473 205 Level 1 £m – (14) (14) – 337 337 323 Level 2 £m (115) – (115) 138 – 138 23 Level 3 £m – (98) (98) – – – (98) Total £m (115) (112) (227) 138 337 475 248 153 British Land | Annual Report and Accounts 2019 Notes to the accounts continued 17 Net debt continued Categories of financial instruments Financial assets Fair value through income statement Other investments – fair value through profit or loss Derivatives in designated hedge accounting relationships1,2 Derivatives not in designated hedge accounting relationships Amortised cost Trade and other debtors Cash and short term deposits Other investments – amortised cost Financial liabilities Fair value through income statement Convertible bond Derivatives in designated hedge accounting relationships1 Derivatives not in designated accounting relationships Amortised cost Gross debt Head leases payable Creditors Total 2019 £m 2018 £m 114 148 6 48 242 5 563 98 110 5 28 105 42 388 (343) (337) (4) (126) (5) (133) (2,688) (2,791) (92) (62) (208) (3,461) (2,898) (237) (3,565) (3,177) 1. Derivative assets and liabilities in designated hedge accounting relationships sit within the derivative assets and derivative liabilities balances of the consolidated balance sheet 2. The fair value of derivative assets in designated hedge accounting relationships represents the accumulated amount of fair value hedge adjustments on hedged items Gains and losses on financial instruments, as classed above, are disclosed in note 6 (net financing costs), note 13 (debtors), the consolidated income statement and the consolidated statement of comprehensive income. The Directors consider that the carrying amounts of other investments and head leases payable are approximate to their fair value, and that the carrying amounts are recoverable. Capital risk management The capital structure of the Group consists of net debt and equity attributable to the equity holders of The British Land Company PLC, comprising issued capital, reserves and retained earnings. Risks relating to capital structure are addressed within Managing risk in delivering our strategy on pages 54 to 57. The Group’s objectives, policies and processes for managing debt are set out in the Financial policies and principles on pages 51 to 53. Interest rate risk management The Group uses interest rate swaps and caps to hedge exposure to the variability in cash flows on floating rate debt, such as revolving bank facilities, caused by movements in market rates of interest. At 31 March 2019, the fair value of these derivatives is a net liability of £121m. Interest rate swaps with a fair value of £4m have been designated as cash flow hedges under IFRS 9. The ineffectiveness recognised in the income statement on cash flow hedges in the year ended 31 March 2019 was £nil (2017/18: £nil). The cash flows occur and are charged to profit and loss until the maturity of the hedged debt. The table below summarises variable rate debt hedged at 31 March 2019. 154 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 17 Net debt continued Variable rate debt hedged Outstanding: at one year at two years at five years at ten years 2019 £m 1,155 1,005 250 250 2018 £m 775 600 250 250 Fair value hedged debt The Group uses interest rate swaps to hedge exposure on fixed rate financial liabilities caused by movements in market rates of interest. At 31 March 2019, the fair value of these derivatives is a net asset of £145m. Interest rate swaps with a fair value of £148m have been designated as fair value hedges under IFRS 9 (2017/18: asset of £110m). The cross currency swaps of the 2021/2023/2025/2026 US Private Placements fully hedge the foreign exchange exposure at an average floating rate of 142 basis points above LIBOR. These have been designated as fair value hedges of the US Private Placements. Interest rate profile – including effect of derivatives Fixed or capped rate Variable rate (net of cash) 2019 £m 2,222 543 2,765 2018 £m 2,107 939 3,046 All the debt is effectively Sterling denominated except for £3m (2017/18: £3m) of Euro debt of which £3m is at a variable rate (2017/18: £3m) and £1m of USD debt of which £1m is at a variable rate (2018/19: £nil ). At 31 March 2019 the weighted average interest rate of the Sterling fixed rate debt is 3.4% (2017/18: 3.2%). The weighted average period for which the rate is fixed is 8.9 years (2017/18: 9.1 years). The floating rate debt is set for periods of the Company’s choosing at the relevant LIBOR (or similar) rate. The proportion of net debt (on a proportionally consolidated basis) at fixed or capped rates of interest was 87% at 31 March 2019 on a spot basis. The proportion of net debt at fixed or capped rates of interest as an average over the next five-year forecast period, on a proportionally consolidated basis, was 63% at 31 March 2019. Based on the Group’s interest rate profile, at the balance sheet date, a 98 bps increase in interest rates would decrease annual profits by £9m (2017/18: £59m decrease based on a 576 bps increase). Similarly, a 85 bps reduction would increase profits by £9m (2017/18: £10m increase based on a 72 bps reduction). The change in interest rates used for this sensitivity analysis is based on the largest annual change in three-month Sterling LIBOR over the last ten years. The impact assumes LIBOR does not fall below 0%. Upward movements in medium and long term interest rates, associated with higher interest rate expectations, increase the value of the Group’s interest rate swaps and caps that provide protection against such moves. The converse is true for downward movements in the yield curve. A 173 bps shift represents the largest annual change in the seven-year Sterling swap rate over the last ten years. At 31 March 2019 a 173 bps parallel upward shift in swap rates would increase the value of cash flow hedges and derivatives that are not hedge accounted by £65m (2017/18: £68m based on a 204 bps increase). A 173 bps downward shift in swap rates would reduce the value of these derivatives by £62m (2017/18: £81m based on a 204 bps decrease). The 0% 2015 Convertible Bond is designated as fair value through profit or loss. Principal components of the market value of this bond include British Land’s share price and its volatility, and market interest rates. The fair value of the 0% 2015 Convertible Bond at 31 March 2019 was a £343m liability. At 31 March 2019 a 173 bps parallel upward shift in interest rates would reduce the fair value liability by £7m, and a 173 bps downward shift in interest rates would increase the fair value liability by £7m. 155 British Land | Annual Report and Accounts 2019 Notes to the accounts continued 17 Net debt continued Foreign currency risk management The Group’s policy is to have no material unhedged net assets or liabilities denominated in foreign currencies. The currency risk on overseas investments is hedged via foreign currency denominated borrowings and derivatives. The Group has adopted net investment hedging in accordance with IFRS 9 and therefore the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity. The ineffective portion of the gain or loss on the hedging instrument is recognised immediately in the income statement. The table below shows the carrying amounts of the Group’s foreign currency denominated assets and liabilities. Provided contingent tax on overseas investments is not expected to occur it will be ignored for hedging purposes. Based on the 31 March 2019 position a 26% appreciation (largest annual change over the last ten years) in the Euro relative to Sterling would result in a £nil change (2017/18: £nil) in reported profits. Based on the 31 March 2019 position a 27% appreciation (largest annual change over the last ten years) in the USD relative to Sterling would result in a £nil change (2017/18: £nil) in reported profits. Euro denominated USD denominated Assets Liabilities 2019 £m 3 – 2018 £m 3 – 2019 £m 3 1 2018 £m 3 – Credit risk management The Group’s approach to credit risk management of counterparties is referred to in the Financial policies and principles on pages 51 to 53 and the risks addressed within Managing risk in delivering our strategy on pages 54 to 57. The carrying amount of financial assets recorded in the financial statements represents the Group’s maximum exposure to credit risk without taking account of the value of any collateral obtained. Cash and short term deposits at 31 March 2019 amounted to £242m (2017/18: £105m). Deposits and interest rate deposits were placed with financial institutions with BBB+ or better credit ratings. At 31 March 2019, the fair value of all interest rate derivative assets was £154m (2017/18: £115m). At 31 March 2019, prior to taking into account any offset arrangements, the largest combined credit exposure to a single counterparty arising from money market deposits, liquid investments and derivatives was £68m (2017/18: £49m). This represents 0.6% (2017/18: 0.4%) of gross assets. The deposit exposures are with UK banks and UK branches of international banks. Provisions are made for trade receivables taking into account historic credit losses and the creditworthiness of debtors. Liquidity risk management The Group’s approach to liquidity risk management is discussed in the Financial policies and principles on pages 51 to 53, and the risks addressed within Managing risk in delivering our strategy on pages 54 to 57. The following table presents a maturity profile of the contracted undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal flows. Where the interest payable is not fixed, the amount disclosed has been determined by reference to the projected interest rates implied by yield curves at the reporting date. For derivative financial instruments that settle on a net basis (e.g. interest rate swaps) the undiscounted net cash flows are shown and for derivatives that require gross settlement (e.g. cross currency swaps) the undiscounted gross cash flows are presented. Where payment obligations are in foreign currencies, the spot exchange rate ruling at the balance sheet date is used. Trade creditors and amounts owed to joint ventures, which are repayable within one year, have been excluded from the analysis. The Group expects to meet its financial liabilities through the various available liquidity sources, including a secure rental income profile, asset sales, undrawn committed borrowing facilities and, in the longer term, debt refinancings. The Group leases out all its investment properties under operating leases with a weighted average lease length of six years. This secure income profile is generated from upward only rent reviews, long leases and high occupancy rates. The future aggregate minimum rentals receivable under non-cancellable operating leases are also shown in the table below. Income from joint ventures and funds is not included below. Additional liquidity will arise from letting space in properties under construction as well as from distributions received from joint ventures and funds. 156 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 17 Net debt continued Liquidity risk management continued Debt1 Interest on debt Derivative payments Head lease payments Total payments Derivative receipts Net payment Operating leases with tenants Liquidity surplus (deficit) Cumulative liquidity surplus (deficit) Debt1 Interest on debt Derivative payments Head lease payments Total payments Derivative receipts Net payment Operating leases with tenants Liquidity surplus (deficit) Cumulative liquidity surplus (deficit) Within one year £m Following year £m 100 89 11 3 203 (26) 177 413 236 236 703 84 13 3 803 (27) 776 387 (389) (153) Within one year £m Following year £m 2019 Three to five years £m 635 212 267 9 1,123 (334) 789 876 87 (66) 2018 Three to five years £m 30 92 34 2 158 (52) 106 424 318 318 166 1,173 94 16 2 278 (20) 258 399 141 459 232 182 7 1,594 (209) 1,385 968 (417) 42 Over five years £m Total £m 1,505 2,943 386 243 382 2,516 (180) 2,336 1,307 (1,029) (1,095) Over five years £m 1,680 475 259 267 2,681 (196) 2,485 1,490 (995) (953) 771 534 397 4,645 (567) 4,078 2,983 (1,095) Total £m 3,049 893 491 278 4,711 (477) 4,234 3,281 (953) 1. Gross debt of £3,031m (2017/18: £3,128m) represents the total of £2,943m (2017/18: £3,049m), less unamortised issue costs of £12m (2017/18: £13m), plus fair value adjustments to debt of £100m (2017/18: £92m) Any short term liquidity gap between the net payments required and the rentals receivable can be met through other liquidity sources available to the Group, such as committed undrawn borrowing facilities. The Group currently holds cash and short term deposits of £242m of which £228m is not subject to a security interest (see footnote 5 to net debt table on page 149. Further liquidity can be achieved through sales of property assets or investments and debt refinancings. The Group’s property portfolio is valued externally at £9,028m and the share of joint ventures and funds’ property is valued at £3,605m. The committed undrawn borrowing facilities available to the Group are a further source of liquidity. The maturity profile of committed undrawn borrowing facilities is shown below. Maturity of committed undrawn borrowing facilities Maturity date: over five years between four and five years between three and four years Total facilities available for more than three years Between two and three years Between one and two years Within one year Total 2019 £m 275 832 86 1,193 435 – – 2018 £m 60 90 1,010 1,160 85 86 – 1,628 1,331 The above facilities are comprised of British Land undrawn facilities of £1,542m plus undrawn facilities of Hercules Unit Trust totalling £86m. 157 British Land | Annual Report and Accounts 2019 Notes to the accounts continued 18 Leasing Operating leases with tenants The Group leases out all of its investment properties under operating leases with a weighted average lease length of six years (2017/18: eight years). The future aggregate minimum rentals receivable under non-cancellable operating leases are as follows: Less than one year Between one and two years Between three and five years Between six and ten years Between eleven and fifteen years Between sixteen and twenty years After twenty years Total Operating lease commitments The future aggregate minimum rentals payable under non-cancellable operating leases are as follows: Less than one year Between one and two years Between three and five years Between six and ten years Between eleven and fifteen years Total 2019 £m 413 387 876 792 314 111 90 2018 £m 424 399 968 906 393 145 46 2,983 3,281 2019 £m 2018 £m 8 8 15 20 7 58 3 3 8 7 – 21 The Group’s leasehold investment properties are typically under non-renewable leases without significant restrictions. Finance lease liabilities are payable as follows; no contingent rents were payable in either period. 2019 2018 Minimum lease payments £m Interest £m Principal £m Minimum lease payments £m Interest £m Principal £m 2 2 7 205 216 – – – 62 62 3 3 9 290 305 – – – 92 92 3 3 9 382 397 (305) 92 92 92 2 2 7 267 278 (216) 62 62 62 British Land Group Less than one year Between one and two years Between two and five years More than five years Total Less future finance charges Present value of lease obligations More than five years Present value of lease obligations 158 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 19 Dividends As announced on 15 May 2019, the Board is recommending a final dividend of 7.75 pence per share, totalling £74m (2017/18: 7.52 pence per share, totalling £74m), subject to the approval of shareholders, this is payable on 2 August 2019 to shareholders on the register at the close of business on 28 June 2019. PID dividends are paid, as required by REIT legislation, after deduction of withholding tax at the basic rate (currently 20%), where appropriate. Certain classes of shareholders may be able to elect to receive dividends gross. Please refer to our website britishland.com/dividends for details. Payment date Dividend Current year dividends Pence per share 2019 £m 2018 £m 02.08.2019 03.05.2019 08.02.2019 09.11.2018 Prior year dividends 03.08.2018 04.05.2018 09.02.2018 10.11.2017 04.08.2017 05.05.2017 2019 Final 2019 3rd interim 2019 2nd interim 2019 1st interim 2018 4th interim 2018 3rd interim 2018 2nd interim 2018 1st interim 2017 4th interim 2017 3rd interim Dividends in consolidated statement of changes in equity Dividends settled in shares Dividends settled in cash Timing difference relating to payment of withholding tax Dividends in cash flow statement 1. Dividend split half PID, half non-PID 20 Share capital and reserves Number of ordinary shares in issue at 1 April Share issues Repurchased and cancelled At 31 March 7.751 7.75 7.75 7.75 31.00 7.52 7.52 7.52 7.52 30.08 7.30 7.30 74 76 74 74 298 – 298 – 298 75 77 75 75 302 – 302 2 304 2019 2018 993,857,125 1,041,035,058 404,377 429,206 (33,672,430) (47,607,139) 960,589,072 993,857,125 Of the issued 25p ordinary shares, 7,376 shares were held in the ESOP trust (2017/18: 7,376), 11,266,245 shares were held as treasury shares (2017/18: 11,266,245) and 949,315,451 shares were in free issue (2017/18: 982,583,504). No treasury shares were acquired by the ESOP trust during the year. All issued shares are fully paid. In the year ended 31 March 2019 the Company repurchased and cancelled 33,672,430 ordinary shares at a weighted average price of 594 pence. Hedging and translation reserve The hedging and translation reserve comprises the effective portion of the cumulative net change in the fair value of cash flow and foreign currency hedging instruments, as well as all foreign exchange differences arising from the translation of the financial statements of foreign operations. The foreign exchange differences also include the translation of the liabilities that hedge the Company’s net investment in a foreign subsidiary. Revaluation reserve The revaluation reserve relates to owner-occupied properties and investments in joint ventures and funds. 159 British Land | Annual Report and Accounts 2019 Notes to the accounts continued 20 Share capital and reserves continued Merger reserve This comprises the premium on the share placing in March 2013. No share premium is recorded in the Company’s financial statements, through the operation of the merger relief provisions of the Companies Act 2006. At 31 March 2019, options over 6,308,150 ordinary shares were outstanding under employee share option plans. The options had a weighted average life of 6.4 years. Details of outstanding share options and shares awarded to employees including Executive Directors are set out below and on the following page: Date of grant Share options Sharesave Scheme At 1 April 2018 Granted Vested but not exercised Exercised/ Vested Lapsed At 31 March 2019 Exercise price (pence) – – – – – – – – – – – – – – – – – – – – – (14,263) (587) – (2,038) (2,664) 77,810 – – (27,384) (3,872) (394) (13,962) – (3,256) 516 11,404 31,570 18,747 (5,408) (4,485) (51,056) 200,355 (24,212) 67,843 (109) (18,540) 112,254 – (7,103) 61,135 (26,697) (152,636) 581,634 (7,751) (1,615) (20,261) (14,557) (13,517) (16,327) (158,974) (14,546) (96,859) (10,601) – – 2,582 56,938 – 1,112,008 – – – – 40,576 799,302 53,848 809,583 (888) 46,763 (2,809) 194,410 (6,098) 155,210 26,540 – – 26,540 26,540 (355,008) (9,795) 3,297,760 511.00 574.00 697.00 697.00 608.00 608.00 508.00 508.00 549.00 549.00 387.00 446.00 447.00 510.00 575.00 451.00 538.00 563.00 601.00 600.00 617.17 Exercise dates From To 01.9.18 01.03.19 01.9.19 01.03.20 01.9.18 01.03.19 01.9.20 01.03.21 01.9.19 01.03.20 01.9.21 01.03.22 01.9.20 01.03.21 01.9.22 01.03.23 01.9.21 01.03.22 01.9.23 01.03.24 29.06.12 26.09.19 21.12.12 21.12.19 11.06.13 11.06.20 14.12.13 14.12.20 28.06.14 28.06.21 19.12.14 19.12.21 14.09.15 14.09.22 20.12.15 20.12.22 05.08.16 05.08.23 05.12.16 05.12.23 28.06.20 28.06.27 19.06.13 23.06.14 22.06.15 22.06.15 20.06.16 20.06.16 21.06.17 21.06.17 29.06.18 29.06.18 14,850 82,512 27,900 15,276 45,926 22,003 256,819 96,540 – – – – – – – – – – 130,903 68,238 561,826 199,141 Long-Term Incentive Plan – options vested, not exercised 29.06.09 21.12.09 11.06.10 14.12.10 28.06.11 19.12.11 14.09.12 20.12.12 05.08.13 05.12.13 28.06.17 10,333 58,553 1,132,269 55,133 812,819 70,175 968,557 62,197 294,078 171,909 – 3,636,023 Long-Term Incentive Plan – unvested options – – – – – – – – – – – – – – – 83,942 83,942 22.06.15 22.06.16 28.06.17 26.06.18 Total 889,122 1,221,620 1,208,942 – 3,319,684 – – – – – – – (889,122) – (6,927) 1,214,693 (26,540) (52,281) 1,130,121 – – 83,942 (26,540) (948,330) 2,428,756 813.17 730.50 617.17 681.40 22.06.18 22.06.25 22.06.19 22.06.26 28.06.20 28.06.27 26.06.21 26.06.28 7,517,533 283,083 26,540 (408,245) (1,110,761) 6,308,150 Weighted average exercise price of options (pence) 607 588 617 548 768 582 160 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 20 Share capital and reserves continued Date of grant Performance Shares Long-Term Incentive Plan 22.06.15 22.06.16 28.06.17 26.06.18 Restricted Share Plan 26.06.18 Matching Share Plan 29.06.15 29.06.16 Total At 1 April 2018 Granted Exercised/ Vested Lapsed At 31 March 2019 Share price at grant date (pence) Vesting date 1,068,458 1,137,050 1,897,612 – – – – 1,053,360 – (1,068,458) – – – – (65,495) 1,071,555 (180,910) 1,716,702 – 1,053,360 813.17 730.50 617.17 681.40 22.06.18 22.06.19 28.06.20 26.06.21 4,103,120 1,053,360 – (1,314,863) 3,841,617 – – 636,776 636,776 – – (8,794) 627,982 681.40 26.06.21 (8,794) 627,982 282,170 313,176 595,346 – – – (141,085) (141,085) – – (19,444) 293,732 803.00 604.00 26.06.18 26.06.19 (141,085) (160,529) 293,732 4,698,466 1,690,136 (141,085) (1,484,186) 4,763,331 Weighted average price of shares (pence) 699 681 803 781 665 21 Segment information The Group allocates resources to investment and asset management according to the sectors it expects to perform over the medium term. Its three principal sectors are Offices, Retail and Canada Water. The Retail sector includes leisure, as this is often incorporated into Retail schemes. The Other/unallocated sector includes residential properties. The relevant gross rental income, net rental income, operating result and property assets, being the measures of segment revenue, segment result and segment assets used by the management of the business, are set out below. Management reviews the performance of the business principally on a proportionally consolidated basis, which includes the Group’s share of joint ventures and funds on a line-by-line basis and excludes non-controlling interests in the Group’s subsidiaries. The chief operating decision maker for the purpose of segment information is the Executive Committee. Gross rental income is derived from the rental of buildings. Operating result is the net of net rental income, fee income and administrative expenses. No customer exceeded 10% of the Group’s revenues in either year. 161 British Land | Annual Report and Accounts 2019 Notes to the accounts continued 21 Segment information continued Segment result Offices Retail Canada Water Other/unallocated Total 2019 £m 150 70 220 139 66 205 132 61 193 2018 £m 139 102 241 131 98 229 126 95 221 2019 £m 260 83 343 238 76 314 235 71 306 2018 £m 273 87 360 254 82 336 248 79 327 2019 £m 2018 £m 2019 £m 2018 £m 9 – 9 9 – 9 4 – 4 8 – 8 7 – 7 4 – 4 4 – 4 4 – 4 4 – 4 4 – 4 (42) – (42) (42) (2) (44) Gross rental income British Land Group Share of joint ventures and funds Total Net rental income British Land Group Share of joint ventures and funds Total Operating result British Land Group Share of joint ventures and funds Total Reconciliation to Underlying Profit Operating result Net financing costs Underlying Profit Reconciliation to (loss) profit on ordinary activities before taxation Underlying Profit Capital and other Underlying Profit attributable to non-controlling interests (Loss) profit on ordinary activities before taxation Reconciliation to Group revenue Gross rental income per operating segment result Less share of gross rental income of joint ventures and funds Plus share of gross rental income attributable to non-controlling interests Gross rental income (note 3) Trading property sales proceeds Service charge income Management and performance fees (from joint ventures and funds) Other fees and commissions Revenue (Consolidated Income Statement) 2019 £m 423 153 576 390 142 532 329 132 461 2019 £m 461 (121) 340 340 (671) 12 (319) 576 (153) 16 439 350 76 7 32 2018 £m 424 189 613 396 180 576 336 172 508 2018 £m 508 (128) 380 380 107 14 501 613 (189) 17 441 78 66 6 48 904 639 A reconciliation between net financing costs in the consolidated income statement and net financing costs of £121m (2017/18: £128m) in the segmental disclosures above can be found within Table A in the supplementary disclosures. Of the total revenues above, £nil (2017/18: £nil) was derived from outside the UK. 162 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 21 Segment information continued Segment assets Property assets British Land Group Share of joint ventures and funds Total Reconciliation to net assets British Land Group Property assets Other non-current assets Non-current assets Other net current liabilities Adjusted net debt Other non-current liabilities EPRA net assets (diluted) Non-controlling interests EPRA adjustments Net assets Offices 2019 £m 2018 £m Retail 2019 £m 2018 £m 4,296 4,371 4,053 4,915 2,012 6,308 2,334 6,705 1,524 5,577 1,681 6,596 Canada Water Other/unallocated Total 2019 £m 303 – 303 2018 £m 283 – 283 2019 £m 2018 £m 2019 £m 2018 £m 109 113 8,761 9,682 19 128 19 132 3,555 4,034 12,316 13,716 2019 £m 2018 £m 12,316 13,716 151 185 12,467 13,901 (297) (368) (3,521) (3,973) – – 8,649 9,560 211 (171) 254 (308) 8,689 9,506 22 Capital commitments The aggregate capital commitments to purchase, construct or develop investment property, for repairs, maintenance or enhancements, or for the purchase of investments which are contracted for but not provided, are set out below: British Land and subsidiaries Share of joint ventures Share of funds 2019 £m 177 111 1 289 2018 £m 239 193 – 432 23 Related party transactions Details of transactions with joint ventures and funds are given in notes 3, 6 and 11. During the year the Group recognised joint venture management fees of £6m (2017/18: £6m). Details of Directors’ remuneration are given in the Remuneration Report on pages 88 to 109. Details of transactions with key management personnel are provided in note 8. Details of transactions with The British Land Group of Companies Pension Scheme, and other smaller pension schemes, are given in note 9. 24 Contingent liabilities Group, joint ventures and funds The Group, joint ventures and funds have contingent liabilities in respect of legal claims, guarantees and warranties arising in the ordinary course of business. It is not anticipated that any material liabilities will arise from contingent liabilities. 163 British Land | Annual Report and Accounts 2019 Notes to the accounts continued 25 Subsidiaries with material non-controlling interests Set out below is summarised financial information for each subsidiary that has non-controlling interests that are material to the Group. The information below is the amount before intercompany eliminations, and represents the consolidated results of the Hercules Unit Trust group. Summarised income statement for the year ended 31 March (Loss) profit on ordinary activities after taxation Attributable to non-controlling interests Attributable to the shareholders of the Company Summarised balance sheet as at 31 March Total assets Total liabilities Net assets Non-controlling interests Equity attributable to shareholders of the Company Summarised cash flows Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at 1 April Cash and cash equivalents at 31 March Hercules Unit Trust 2019 £m (122) (29) (93) 2018 £m 53 14 39 Hercules Unit Trust 2019 £m 1,415 (561) 854 (211) 643 2018 £m 1,548 (565) 983 (254) 729 Hercules Unit Trust 2019 £m (3) 43 40 2018 £m 3 40 43 The Hercules Unit Trust is a closed-ended property Unit Trust. The unit price at 31 March 2019 is £563 (2017/18: £684). Non-controlling interests collectively own 21.9% of units in issue. The British Land Company PLC owns 78.1% of units in issue, each of which confer equal voting rights, and therefore is deemed to exercise control over the trust. 26 Subsequent events There have been no significant events since year end. 164 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 27 Audit exemptions taken for subsidiaries The following subsidiaries are exempt from the requirements of the Companies Act 2006 relating to the audit of individual accounts by virtue of Section 479A of that Act. Name 17-19 Bedford Street Limited 18-20 Craven Hill Gardens Limited 20 Brock Street Limited 8-10 Throgmorton Avenue Limited Adshilta Limited Bayeast Property Co Limited BF Propco (No 1) Limited BF Propco (No 3) Limited BF Propco (No 4) Limited BF Propco (No 5) Limited BL (Maidenhead) Company Limited BL Broadgate Fragment 1 Limited BL Broadgate Fragment 2 Limited BL Broadgate Fragment 3 Limited BL Broadgate Fragment 4 Limited BL Broadgate Fragment 5 Limited BL Broadgate Fragment 6 Limited BL Clifton Moor Limited BL CW Developments Limited BL CW Developments Plot A1 Limited BL CW Developments Plot A2 Limited BL CW Developments Plot D1/2 Company Limited BL CW Holdings Plot G1 Company Limited BL Cwmbran Limited BL Eden Walk Limited BL European Holdings Limited BL Goodman (LP) Limited BL HC (DSCLI) Limited BL HC Health And Fitness Holdings Limited BL HC Invic Leisure Limited BL HC Property Holdings Limited BL Health Clubs PH No 1 Limited BL Health Clubs PH No 2 Limited BL High Street and Shopping Centres Holding Limited BL Holdings 2010 Limited BL Lancaster Investments Ltd BL Meadowhall No 4 Limited BL Piccadilly Residential Retail Limited BL Universal Limited Companies House reg number Name 7398971 7667839 7401697 3669490 1052683 0635800 5270158 5270196 5270137 5270219 7667834 9400407 9400541 9400411 9400409 9400413 9400414 7508019 10664198 10782150 10782335 10997879 10781471 7780251 10620935 3044033 5056902 4290601 4374665 2464159 6894046 5643248 5643261 6002148 7353966 10563072 2015506 9117243 0324647 BL Whiteley Limited BL Whiteley Retail Limited BLD (Ebury Gate) Limited BLD Properties Limited BLU Securities Limited Boldswitch Limited British Land Aqua Partnership (2) Limited British Land Aqua Partnership Limited British Land City Offices Limited British Land In Town Retail Limited British Land Leisure Limited British Land Offices (Non-City) Limited British Land Superstores (Non Securitised) Number 2 Limited Canada Water Offices Limited Cornish Residential Properties Trading Limited Cornish Residential Property Investments Limited Dinwell Limited Exchange House Holdings Limited Hempel Holdings Limited Hempel Hotels Limited Hereford Old Market Limited Insistmetal 2 Limited Ivoryhill Limited Lonebridge UK Limited Mercari Limited Minhill Investments Limited Moorage (Property Developments) Limited Osnaburgh Street Limited Pardev (Luton) Limited PC Canal Limited Piccadilly Residential Limited Pillar (Beckton) Limited Pillar Broadway Limited Pillar Estates Limited Pillar Fulham No.2 Limited Pillar Gallions Reach Limited Pillar Projects Limited Priory Park Merton Limited Companies House reg number 11253224 11254281 3863852 0732787 3323061 2307096 6024921 6024919 3946069 3325066 5215386 2740378 6514283 10182462 4106134 3523833 5035303 2037407 5341380 2728455 10509794 4181514 2307407 3292034 0112671 0823019 1185513 5886735 2849784 9712919 10525984 2783376 3589116 3044028 0266246 4895997 2444288 4888365 Regent’s Place Holding Company Limited 10068705 165 British Land | Annual Report and Accounts 2019 Notes to the accounts continued 27 Audit exemptions taken for subsidiaries continued Name Companies House reg number Name Regents Place Management Company Limited 7136724 TBL (Lisnagelvin) Limited Regents Place Residential Limited 11241644 TBL (Maidstone) Limited Rigphone Limited Shopping Centres Limited St James Retail Park Northampton Limited Storey Offices Limited Surrey Quays Limited Sydale (Unlimited) TBL (Brent Park) Limited TBL (Ferndown) Limited 5591740 2230056 5396394 TBL Properties Limited Teesside Leisure Park Limited The Liverpool Exchange Company Limited 11417071 Topside Street Limited 5294243 3864628 3852947 3854372 United Kingdom Property Company Limited Vicinitee Limited Wates City Point Limited Companies House reg number 3853983 3854615 3863190 2672136 0490255 11253428 0266486 4106142 2973114 The following partnerships are exempt from the requirements to prepare, publish and have audited individual accounts by virtue of regulation 7 of The Partnerships (Accounts) Regulations 2008. The results of these partnerships are consolidated within these Group accounts. Name Name BL Shoreditch Limited Partnership BL Chess No. 1 Limited Partnership BL CW Lower Limited Partnership BL CW Upper Limited Partnership BL Lancaster Limited Partnership Hereford Shopping Centre Limited Partnership Paddington Block A Limited Partnership Paddington Block B Limited Partnership Paddington Central I Limited Partnership Paddington Central II Limited Partnership Paddington Kiosk Limited Partnership Power Court Luton Limited Partnership 166 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 Company balance sheet As at 31 March 2019 Fixed assets Investments and loans to subsidiaries Investments in joint ventures Other investments Interest rate derivative assets Deferred tax assets Current assets Debtors Cash and short term deposits Current liabilities Short term borrowings and overdrafts Creditors Amounts due to subsidiaries Net current liabilities Total assets less current liabilities Non-current liabilities Debentures and loans Interest rate derivative liabilities Net assets Equity Called up share capital Share premium Other reserves Merger reserve Retained earnings Total equity Note 2019 £m 2018 £m D D D E G E E H E E I 27,821 28,148 397 29 153 7 376 34 115 10 28,407 28,683 5 182 187 (99) (126) 6 32 38 (27) (88) (20,786) (20,645) (21,011) (20,760) (20,824) (20,722) 7,583 7,961 (2,075) (2,250) (127) (133) (2,202) (2,383) 5,381 5,578 240 1,302 (5) 213 3,631 5,381 248 1,300 (5) 213 3,822 5,578 The profit after taxation for the year ended 31 March 2019 for the Company was £307m (year ended 31 March 2018: £192m loss). John Gildersleeve Simon Carter Chairman Chief Financial Officer Approved by the Board on 14 May 2019 Company number 621920 167 British Land | Annual Report and Accounts 2019 Company statement of changes in equity For the year ended 31 March 2019 Balance at 1 April 2018 Share issues Purchase of own shares Dividend paid Fair value of share and share option awards Profit for the year after taxation Balance at 31 March 2019 Balance at 1 April 2017 Share issues Purchase of own shares Dividend paid Net actuarial gain on pension schemes Loss for the year after taxation Transferred to the income statement (cash flow hedges) Share capital £m 248 Share premium £m 1,300 Other reserves £m Merger reserve £m Profit and loss account £m Total equity £m (5) 213 3,822 5,578 – (8) – – – 2 – – – – – – – – – – – – – – – (196) (298) (4) 307 2 (204) (298) (4) 307 240 1,302 (5) 213 3,631 5,381 260 – (12) – – – – 1,298 (134) 213 4,596 6,233 2 – – – – – – – – – – 129 (5) – – – – – – – (289) (302) 9 (192) – 2 (301) (302) 9 (192) 129 213 3,822 5,578 Balance at 31 March 2018 248 1,300 The value of distributable reserves within the profit and loss account is £1,846m (2017/18: £2,074m). 168 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 Notes to the financial statements (A) Accounting policies The financial statements for the year ended 31 March 2019 have been prepared on the historical cost basis, except for the revaluation of derivatives. These financial statements have also been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (‘FRS 101’). The amendments to FRS 101 (2015/16 Cycle) issued in July 2016 and effective immediately have been applied. In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of International Financial Reporting Standards as adopted by the EU (‘Adopted IFRSs’), but makes amendments where necessary in order to comply with the Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken. The Company has taken advantage of the following disclosure exemptions under FRS 101: of an expected credit loss of £nil , with a corresponding reduction in financial assets held at amortised cost of £nil . The Company has previously provided for a materially similar balance against trade and other receivables. A part of this provision has been released in the year ended 31 March 2019 to provide for the expected credit loss recognised in the Company’s subsidiaries upon adoption of IFRS 9. The reclassification of existing provisions results in a £2m increase in the net assets of the Company. – IFRS 9 introduces changes to the qualifying criteria for hedge accounting and expands the financial and non-financial instruments which may be designated as hedged items and hedging instruments in order to align hedge accounting with business strategy. The changes to hedge accounting under IFRS 9 results in qualitative enhancements to the interest rate and foreign currency risk management disclosures. The changes introduced by IFRS 9 do not have a quantitative impact on the financial statements of the Company. (a) the requirements of IAS 1 to provide a balance sheet at the beginning of the period in the event of a prior period adjustment (b) the requirements of IAS 1 to provide a statement of cash flows IFRS 15 – Revenue from contracts with customers The Company has adopted IFRS 15 Revenue from contracts with customers for the year ended 31 March 2019. for the period (c) the requirements of IAS 1 to provide a statement of compliance with IFRS (d) the requirements of IAS 1 to disclose information on the management of capital (e) the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to disclose new IFRSs that have been issued but are not yet effective (f) the requirements in IAS 24 Related Party Disclosures to disclose related party transactions entered into between two or more members of a group, provided that any subsidiary which is a party to the transaction is wholly-owned by such a member (g) the requirements of paragraph 17 of IAS 24 Related Party Disclosures to disclose key management personnel compensation (h) the requirements of IFRS 7 to disclose financial instruments (i) the requirements of paragraphs 91-99 of IFRS 13 Fair Value Measurement to disclose information of fair value valuation techniques and inputs. New standards effective for the current accounting period do not have a material impact on the financial statements of the Company. These are discussed in further detail below. IFRS 9 – Financial instruments IFRS 9 Financial instruments, as issued by the IASB in July 2014, has been adopted by the Company for the year ended 31 March 2019. IFRS 9 supersedes the existing accounting guidance in IAS 39 Financial instruments. The standard was applied using the modified retrospective approach. The Company has not restated prior periods or recognised any adjustments in opening retained earnings. – The new standard addresses the classification and measurement of financial assets. – The alignment of the classification and measurement model under IFRS 9 results in changes in the classification of all financial assets excluding derivatives. These changes will not have a quantitative impact on the financial statements. – IFRS 9 introduces a forward looking expected credit loss model, replacing the IAS 39 incurred loss model. The new model requires an expected credit loss to be recognised on all financial assets held at amortised cost at initial recognition. The quantitative impact for the year ended 31 March 2019 results in the release – The new standard combines a number of previous standards, setting out a five step model for the recognition of revenue and establishing principles for reporting useful information to users of financial statements about the nature, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The changes introduced by IFRS 15 have no qualitative or quantitatve changes to the revenue disclosure and will not have a quantitative impact on the financial statements of the Company. Going concern The financial statements are prepared on the going concern basis as explained in the corporate governance section on page 78. Investments and loans Investments and loans in subsidiaries and joint ventures are stated at cost less an expected credit loss on the balance in accordance with IFRS 9. The expected credit loss on the balance is immaterial. Significant judgements and sources of estimation uncertainty The key source of estimation uncertainty relates to the Company’s investments in subsidiaries and joint ventures. In estimating the requirement for impairment of these investments, management make assumptions and judgements on the value of these investments using inherently subjective underlying asset valuations, supported by independent valuers. (B) Dividends Details of dividends paid and proposed are included in note 19 of the consolidated financial statements. (C) Employee information Employee costs include wages and salaries of £38m (2017/18: £39m), social security costs of £5m (2017/18: £5m) and pension costs of £4m (2017/18: £5m). Details of the Executive Directors’ remuneration are disclosed in the Remuneration Report. Audit fees in relation to the parent Company only were £0.3m (2017/18: £0.3m). 169 British Land | Annual Report and Accounts 2019 Notes to the financial statements continued (D) Investments in subsidiaries and joint ventures, loans to subsidiaries and other investments On 1 April 2018 Additions Disposals Depreciation / amortisation Provision for impairment As at 31 March 2019 Shares in subsidiaries £m Loans to subsidiaries £m Investments in joint ventures £m Other investments £m 19,703 – – – (1) 8,445 677 (1,003) – – 376 31 (8) – (2) 19,702 8,119 397 34 5 (4) (6) – 29 Total £m 28,558 713 (1,015) (6) (3) 28,247 The historical cost of shares in subsidiaries is £20,025m (2017/18: £20,025m). Investments in joint ventures of £397m (2017/18: £376m) includes £201m (2017/18: £183m) of loans to joint ventures by the Company. Results of the joint ventures are set out in note 11 of the consolidated financial statements. The historical cost of other investments is £51m (2017/18: £50m). (E) Net debt Secured on the assets of the Company 5.264% First Mortgage Debenture Bonds 2035 5.0055% First Mortgage Amortising Debentures 2035 5.357% First Mortgage Debenture Bonds 2028 Unsecured 5.50% Senior Notes 2027 3.895% Senior US Dollar Notes 20181 4.635% Senior US Dollar Notes 20211 4.766% Senior US Dollar Notes 20231 5.003% Senior US Dollar Notes 20261 3.81% Senior Notes 2026 3.97% Senior Notes 2026 2.375% Sterling Unsecured Bond 2029 4.16% Senior US Dollar Notes 20251 2.67% Senior Notes 2025 2.75% Senior Notes 2026 Floating Rate Senior Notes 2028 Bank loans and overdrafts Gross debt Interest rate and currency derivative liabilities Interest rate and currency derivative assets Cash and short term deposits Net debt 1. Principal and interest on these borrowings were fully hedged into Sterling at a floating rate at the time of issue 170 2019 £m 368 94 252 714 99 – 168 106 69 111 113 298 78 37 37 80 2018 £m 369 95 255 719 100 27 156 97 63 110 112 298 – – – – 264 1,460 2,174 127 (153) (182) 595 1,558 2,277 133 (115) (32) 1,966 2,263 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 (E) Net debt continued 0% Convertible bond 2015 (maturity 2020) On 9 June 2015, British Land (White) 2015 Limited (the 2015 Issuer), a wholly-owned subsidiary of the Company, issued £350 million zero coupon guaranteed convertible bonds due 2020 (the 2015 bonds) at par. The 2015 Issuer is fully guaranteed by the Company in respect of the 2015 bonds. Subject to their terms, the 2015 bonds are convertible into preference shares of the 2015 Issuer which are automatically transferred to the Company in exchange for ordinary shares in the Company or, at the Company’s election, any combination of ordinary shares and cash. Bondholders may exercise their conversion right at any time up to but excluding the 7th dealing day before 9 June 2020 (the maturity date), a bondholder may convert at any time. The initial exchange price was 1103.32 pence per ordinary share. The exchange price is adjusted based on certain events (such as the Company paying dividends in any quarter above 3.418 pence per ordinary share). As at 31 March 2019 the exchange price was 1007.24 pence per ordinary share. From 30 June 2018, the Company has the option to redeem the 2015 bonds at par if the Company’s share price has traded above 130% of the exchange price for a specified period, or at any time once 85% by nominal value of the 2015 bonds have been converted, redeemed, or purchased and cancelled. The 2015 bonds will be redeemed at par on 9 June 2020 (the maturity date) if they have not already been converted, redeemed or purchased and cancelled. The intercompany loan between the Issuer and the Company arising from the transfer of the loan proceeds was initially recognised at fair value, net of capitalised issue costs, and is accounted for using the amortised cost method. In addition to the intercompany loan, the Company has entered into a derivative contract relating to its guarantee of the obligations of the Issuer in respect of the bonds and the commitment to provide shares or a combination of shares and cash on conversion of the bonds. This derivative contract is included within the balance sheet as a liability carried at fair value through profit and loss. Maturity analysis of net debt Repayable within one year and on demand between: one and two years two and five years five and ten years ten and fifteen years fifteen and twenty years Gross debt Interest rate derivatives Cash and short term deposits Net debt 2019 £m 99 17 479 808 306 465 2,075 2,174 (26) (182) 2018 £m 27 – 506 804 305 635 2,250 2,277 18 (32) 1,966 2,263 (F) Pension The British Land Group of Companies Pension Scheme and the Defined Contribution Pension Scheme are the principal pension schemes of the Company and details are set out in note 9 of the consolidated financial statements. 171 British Land | Annual Report and Accounts 2019 Notes to the financial statements continued (G) Debtors Trade and other debtors Prepayments and accrued income (H) Creditors Trade creditors Corporation tax Other taxation and social security Accruals and deferred income (I) Share capital Issued, called and fully paid At 1 April 2018 Share issues Repurchased and cancelled At 31 March 2019 Issued, called and fully paid At 1 April 2017 Share issues Repurchased and cancelled At 31 March 2018 2019 £m 4 1 5 2019 £m 46 25 25 30 126 2018 £m 6 – 6 2018 £m 12 21 21 34 88 Ordinary shares of 25p each 993,857,125 404,377 (33,672,430) 960,589,072 Ordinary shares of 25p each 1,041,035,058 429,206 (47,607,139) 993,857,125 £m 248 – (8) 240 £m 260 – (12) 248 (J) Contingent liabilities, capital commitments and related party transactions The Company has contingent liabilities in respect of legal claims, guarantees and warranties arising in the ordinary course of business. It is not anticipated that any material liabilities will arise from the contingent liabilities. At 31 March 2019, the Company has £nil of capital commitments (2017/18: £nil). Related party transactions are the same for the Company as for the Group. For details refer to note 23 of the consolidated financial statements. (K) Related undertakings Disclosures relating to subsidiary undertakings The Company’s subsidiaries and other related undertakings at 31 March 2019 are listed on the next page. Companies which have been dissolved since 31 March 2019 are marked with an asterisk (*). Companies which are in the process of being dissolved are marked with a double asterisk (**). All Group entities are included in the consolidated financial results. Unless otherwise stated, the Company holds 100% of the voting rights and beneficial interests in the shares of the following subsidiaries, partnerships, associates and joint ventures. Unless otherwise stated, the subsidiaries and related undertakings are registered in the United Kingdom. The share capital of each of the companies, where applicable, comprises ordinary shares unless otherwise stated. The Company holds the majority of its assets in UK companies, although some are held in overseas companies. In recent years we have reduced the number of overseas companies in the Group. Unless noted otherwise as per the following key, the registered address of each company is York House, 45 Seymour Street, London W1H 7LX. 1. 8 St George’s Street, Douglas IM1 1AH, Isle of Man 2. 47 Esplanade, St Helier, Jersey JE1 0BD 3. Barratt House, Cartwright Way, Forest Business Park, Bardon Hill, Coalville, Leicestershire LE67 1UF 4. 13-14 Esplanade, St Helier, Jersey JE1 1EE 5. 44 Esplanade, St Helier, Jersey JE4 9WG 6. 14 Porte de France, 4360 Esch-sur-Alzette, Luxembourg 7. 300 Meadowhall Way, Sheffield, South Yorkshire, England, S9 1EA DE 19801, USA 172 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 Direct holdings Company Name Indirect holdings UK/Overseas Tax Resident Status Company Name BL Bluebutton 2014 Limited UK Tax Resident 1 & 4 & 7 Triton Limited BL Davidson Limited UK Tax Resident 10 Brock Street Limited BL European Fund Management LLP BL Guaranteeco Limited UK Tax Resident UK Tax Resident 10 Portman Square Unit Trust (Jersey) (Units)2 BL Intermediate Holding Company Limited UK Tax Resident BLSSP (Funding) Limited UK Tax Resident Bluebutton Property Management UK Limited (50% interest) Boldswitch (No 1) Limited Boldswitch Limited British Land (White) 2015 Limited (Jersey) (Founder Shares)2 British Land City British Land City 2005 Limited 10 Triton Street Limited 17-19 Bedford Street Limited 18-20 Craven Hill Gardens Limited UK Tax Resident 20 Brock Street Limited UK Tax Resident 20 Triton Street Limited UK Tax Resident 338 Euston Road Limited UK Tax Resident UK Tax Resident UK Tax Resident 350 Euston Road Limited 39 Victoria Street Limited 8-10 Throgmorton Avenue Limited UK/Overseas Tax Resident Status UK Tax Resident UK Tax Resident Overseas Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident British Land Company Secretarial Limited UK Tax Resident British Land Financing Limited British Land Properties Limited British Land Real Estate Limited British Land Securities Limited British Land Securitisation 1999 Broadgate (Funding) PLC Broadgate Estates Insurance Mediation Services Limited Hyfleet Limited Kingsmere Productions Limited London and Henley Holdings Limited Meadowhall Pensions Scheme Trustee Limited MSC Property Intermediate Holdings Limited (50% interest) Priory Park Merton Limited Regis Property Holdings Limited The British Land Corporation Limited Vitalcreate ** UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident Adamant Investment Corporation Limited UK Tax Resident Adshilta Limited UK Tax Resident Aldgate Place (GP) Limited (50% interest)3 UK Tax Resident Apartpower Limited Ashband Limited UK Tax Resident UK Tax Resident B L Unit Trust (Jersey) (Units)2 Overseas Tax Resident B.L. Holdings Limited B.L.C.T. (12697) Limited (Jersey)2 B.L.C.T. (21500) Limited (Jersey)2 * Barnclass Limited Barndrill Limited Bayeast Property Co Limited Bexile Limited ** BF Propco (No 1) Limited BF Propco (No 13) Limited BF Propco (No 19) Limited BF Propco (No 3) Limited BF Propco (No 4) Limited BF Propco (No 5) Limited BF Properties (No 4) Limited BF Properties (No 5) Limited Birstall Co-Ownership Trust (Member interest) (41.25% interest) BL (Maidenhead) Company Limited BL (SP) Cannon Street Limited BL (SP) Investment (1) Limited ** BL (SP) Investment (2) Limited ** BL (SP) Investment (3) Limited ** BL (SP) Investment (4) Limited ** BL Bradford Forster Limited BL Brislington Limited BL Broadgate Fragment 1 Limited BL Broadgate Fragment 2 Limited UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident 173 British Land | Annual Report and Accounts 2019 Notes to the financial statements continued Company Name UK/Overseas Tax Resident Status Company Name BL Broadgate Fragment 3 Limited UK Tax Resident BL Fixed Uplift General Partner Limited BL Broadgate Fragment 4 Limited UK Tax Resident BL Fixed Uplift Nominee 1 Limited BL Broadgate Fragment 5 Limited UK Tax Resident BL Fixed Uplift Nominee 2 Limited BL Broadgate Fragment 6 Limited BL Broadway Investment Limited BL Chess Limited BL Chess No. 1 Limited Partnership (Partnership interest) UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident BL City Offices Holding Company Limited UK Tax Resident BL Clifton Moor Limited BL CW Developments Limited BL CW Developments Plot A1 Limited BL CW Developments Plot A2 Limited BL CW Developments Plot D1/2 Company Limited BL CW Developments Plot G1 Limited BL CW Developments Plot K1 Company Limited UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident BL CW Holdings Limited UK Tax Resident BL CW Holdings Plot A1 Company Limited UK Tax Resident BL CW Holdings Plot A2 Company Limited UK Tax Resident BL CW Holdings Plot D1/2 Company Limited UK Tax Resident BL Goodman (General Partner) Limited (50% interest) BL Goodman Limited Partnership (50% interest) BL Goodman (LP) Limited BL GP Chess No. 1 Limited BL HB Investments Limited BL HC (DSCH) Limited BL HC (DSCLI) Limited BL HC Dollview Limited BL HC Hampshire PH LLP (Member interest) BL HC Health And Fitness Holdings Limited BL HC Invic Leisure Limited BL HC PH CRG LLP (Member interest) BL HC PH LLP (Member interest) BL HC PH No 1 LLP (Member interest) BL HC PH No 2 LLP (Member interest) BL HC PH No 3 LLP (Member interest) BL CW Holdings Plot G1 Company Limited UK Tax Resident BL HC Property Holdings Limited BL CW Holdings Plot K1 Company Limited UK Tax Resident BL Health Clubs PH No 1 Limited BL CW Lower GP Company Limited UK Tax Resident BL Health Clubs PH No 2 Limited BL CW Lower Limited Partnership (Partnership interest) UK Tax Resident BL High Street and Shopping Centres Holding Company Limited BL CW Lower LP Company Limited UK Tax Resident BL Holdings 2010 Limited BL CW Upper GP Company Limited UK Tax Resident BL Lancaster Investments Limited BL CW Upper Limited Partnership (Partnership interest) BL CW Upper LP Company Limited BL Cwmbran Limited UK Tax Resident UK Tax Resident UK Tax Resident BL Debs Limited (Jersey)4 ** Overseas Tax Resident BL Department Stores Holding Company Limited UK Tax Resident BL Lancaster Limited Partnership (Partnership interest) BL Leisure and Industrial Holding Company Limited BL Marble Arch House Limited BL Mayfair Offices Limited BL Meadowhall Holdings Limited BL Doncaster Wheatley Limited UK Tax Resident BL Meadowhall Limited BL Drummond Properties Limited UK Tax Resident BL Meadowhall No 4 Limited BL Ealing Limited UK Tax Resident BL Newport Limited BL Eden Walk J2012 Limited (Jersey)2 Overseas Tax Resident BL Eden Walk Limited BL European Holdings Limited BL Fixed Uplift Fund Limited Partnership (Partnership interest) BL Fixed Uplift Fund Nominee No.1 Limited (Jersey)2 BL Fixed Uplift Fund Nominee No.2 Limited (Jersey)2 UK Tax Resident UK Tax Resident UK Tax Resident Overseas Tax Resident Overseas Tax Resident 174 BL Office (Non-City) Holding Company Limited BL Office Holding Company Limited BL Osnaburgh St Residential Ltd BL Paddington Holding Company 1 Limited BL Paddington Holding Company 2 Limited UK/Overseas Tax Resident Status UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident BL Paddington Property 1 Limited UK Tax Resident FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 Company Name UK/Overseas Tax Resident Status Company Name BL Paddington Property 2 Limited UK Tax Resident BLD Property Holdings Limited BL Paddington Property 3 Limited UK Tax Resident BLU Estates Limited BL Paddington Property 4 Limited UK Tax Resident BLU Property Management Limited BL Piccadilly Residential Limited UK Tax Resident BLU Securities Limited UK Tax Resident British Land (Joint Ventures) Limited British Land Acquisitions Limited British Land Aqua Partnership (2) Limited UK Tax Resident BL Piccadilly Residential Management Co Limited BL Piccadilly Residential Retail Limited BL Residential No.1 Limited ** BL Residential No.2 Limited ** BL Residential Investment Limited BL Residential Management Limited BL Residual Holding Company Limited BL Retail Holding Company Limited BL Retail Investment Holdings Limited BL Retail Investments Limited BL Retail Warehousing Holding Company Limited BL Sainsbury Superstores Limited (50% interest) BL Shoreditch Development Limited BL Shoreditch General Partner Limited BL Shoreditch Limited Partnership (Partnership interest) BL Shoreditch No. 1 Limited BL Shoreditch No. 2 Limited UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident BL Unitholder No. 2 (J) Limited (Jersey)2 Overseas Tax Resident BL Universal Limited BL Wardrobe Court Holdings Limited BL West (Watling House) Limited BL Whiteley Limited BL Whiteley Retail Limited BL Woolwich Limited BL Woolwich Nominee 1 Limited BL Woolwich Nominee 2 Limited Blackglen Limited Blackwall (1) Blaxmill (Twenty-nine) Limited Blaxmill (Thirty) Limited BLD (A) Limited BLD (Ebury Gate) Limited BLD (SJ) Investments Limited BLD (SJ) Limited BLD Land Limited BLD Properties Limited UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident British Land Aqua Partnership Limited British Land City Offices Limited British Land Construction Limited British Land Department Stores Limited British Land Developments Limited British Land Fund Management Limited British Land Hercules Limited British Land In Town Retail Limited British Land Industrial Limited British Land Investment Management Limited British Land Investments N V (Netherlands) British Land Offices (Non-City) Limited British Land Offices (Non-City) No. 2 Limited British Land Offices Limited British Land Offices No.1 Limited British Land Property Advisers Limited British Land Superstores (Non Securitised) Number 2 Limited Broadgate (PHC 8) Limited Broadgate Adjoining Properties Limited Broadgate City Limited Broadgate Court Investments Limited Broadgate Estates Limited Broadgate Estates People Management Limited Broadgate Exchange Square Broadgate Investment Holdings Limited Broadgate Properties Limited Broadgate REIT Limited (50% interest)4 Broadgate Square Limited Broughton Retail Park Limited (Jersey) (Units) (39.07% interest)2 BL Superstores Holding Company Limited UK Tax Resident BL Triton Building Residential Limited BL Tunbridge Wells Limited UK Tax Resident UK Tax Resident British Land Property Management Limited BL Unitholder No. 1 (J) Limited (Jersey)2 Overseas Tax Resident British Land Regeneration Limited ** UK/Overseas Tax Resident Status UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident Overseas Tax Resident Broughton Unit Trust (39.07% interest)2 Overseas Tax Resident Brunswick Park Limited BVP Developments Limited UK Tax Resident UK Tax Resident 175 British Land | Annual Report and Accounts 2019 Notes to the financial statements continued Giltbrook Retail Park Nottingham Limited UK Tax Resident UK/Overseas Tax Resident Status Company Name Company Name Canada Water Offices Limited Casegood Enterprises Caseplane Limited Cavendish Geared II Limited Cavendish Geared Limited Caymall Limited Chantway Limited Cheshine Properties Limited Chester Limited2 Chrisilu Nominees Limited City of London Office Unit Trust (Jersey) (Units) (35.94% interest)2 Clarges Estate Property Management Co Limited Comgenic Limited Cornish Residential Properties Trading Limited Cornish Residential Property Investments Limited Crescent West Properties Deepdale Co-Ownership Trust (39.07% interest) UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident Overseas Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident Gibraltar General Partner Limited (39.07% interest) Gibraltar Nominees Limited (39.07% interest) Glenway Limited Hempel Holdings Limited Hempel Hotels Limited Hercules Property UK Holdings Limited Hercules Property UK Limited Hercules Unit Trust (78.14% interest) (Jersey) (Units)2 Hereford Old Market Limited Hereford Shopping Centre GP Limited Hereford Shopping Centre Limited Partnership Horndrift Limited HUT Investments Limited (Jersey) (78.14% interest)2 Industrial Real Estate Limited Insistmetal 2 Limited Ivorydell Limited Derby Investment Holdings Limited UK Tax Resident Ivorydell Subsidiary Limited Dinwell Limited Drake Circus Centre Limited Drake Circus Leisure Limited UK Tax Resident Ivoryhill Limited UK Tax Resident Jetbloom Limited UK Tax Resident L&H Developments Limited ** Drake Property Holdings Limited UK Tax Resident Lancaster General Partner Limited Drake Property Nominee (No. 1) Limited UK Tax Resident Linestair Limited Drake Property Nominee (No. 2) Limited UK Tax Resident London and Henley (UK) Limited UK Tax Resident London and Henley Limited Eden Walk Shopping Centre General Partner Limited (50% interest) Eden Walk Shopping Centre Unit Trust5 (50% interest) (Jersey) (Units) Elementvirtue Limited Elk Mill Oldham Limited Estate Management (Brick) Limited Euston Tower Limited Exchange House Holdings Limited Exchange Square Management Limited Overseas Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident Fort Kinnaird GP Limited (39.07% interest) UK Tax Resident Fort Kinnaird Limited Partnership (39.07% interest) Fort Kinnaird Nominee Limited (39.07% interest) Four Broadgate Limited FRP Group Limited Garamead Properties Limited Gardenray Limited UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident 176 Lonebridge UK Limited Longford Street Residential Limited Ludgate Investment Holdings Limited Ludgate West Limited Mayfair Properties Mayflower Retail Park Basildon Limited Meadowbank Retail Park Edinburgh Limited Meadowhall Centre (1999) Limited Meadowhall Centre Limited Meadowhall Centre Pension Scheme Trustees Limited Meadowhall Estates (UK) Limited Meadowhall Group (MLP) Limited Meadowhall Holdings Limited Meadowhall (MLP) Limited Meadowhall Opportunities Nominee 1 Limited UK/Overseas Tax Resident Status UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident Overseas Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident Overseas Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 UK/Overseas Tax Resident Status Company Name UK Tax Resident Pillar (Cricklewood) Limited Company Name Meadowhall Opportunities Nominee 2 Limited Meadowhall Shopping Centre Limited Meadowhall Shopping Centre Property Holdings Limited Meadowhall SubCo Limited Meadowhall Training Limited Mercari Mercari Holdings Limited Minhill Investments Limited UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident Moorage (Property Developments) Limited UK Tax Resident Nugent Shopping Park Limited One Hundred Ludgate Hill UK Tax Resident UK Tax Resident One Sheldon Square Limited (Jersey)2 Overseas Tax Resident Orbital Shopping Park Swindon Limited Osnaburgh Street Limited Paddington Block A (GP) Ltd Paddington Block A LP (Partnership interest) Paddington Block B (GP) Ltd Paddington Block B LP (Partnership interest) UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident Pillar (Dartford) Limited Pillar (Fulham) Limited Pillar Auchinlea Limited Pillar Broadway Limited Pillar City Limited Pillar Dartford No.1 Limited Pillar Denton Limited Pillar Developments Limited Pillar Estates Limited Pillar Estates No.2 Limited Pillar Europe Management Limited Pillar Farnborough Limited Pillar Fort Limited Pillar Fulham No.2 Limited Pillar Gallions Reach Limited Pillar Glasgow 1 Limited Pillar Glasgow 2 Limited Pillar Glasgow 3 Limited Pillar Hercules No.2 Limited Pillar Kinnaird Limited Paddington Central I (GP) Limited UK Tax Resident Pillar Nugent Limited Paddington Central I LP (Partnership interest) UK Tax Resident Pillar Projects Limited Paddington Central I Nominee Limited UK Tax Resident Pillar Property Group Limited Pillarman Limited (50% interest) Paddington Central I Unit Trust (Jersey) (Units)2 Paddington Central II (GP) Limited Paddington Central II LP (Partnership interest) Paddington Central II Unit Trust (Jersey) (Units)2 Paddington Central IV Unit Trust (Jersey) (Units)2 Overseas Tax Resident UK Tax Resident UK Tax Resident PillarStore Limited PillarStore No.3 Limited Plymouth Retail Limited Power Court GP Limited Overseas Tax Resident Power Court Luton Limited Partnership (Partnership interest) Overseas Tax Resident Paddington Central IV (Trustee 1) Limited2 Overseas Tax Resident Paddington Central IV (Trustee 2) Limited2 Overseas Tax Resident Power Court Nominee Limited Power Court Nominees No. 2 Limited PREF Management Company SA (Luxembourg)6 Project Sunrise Investments Limited Project Sunrise Limited Project Sunrise Properties Limited Reboline Limited Regent’s Place Holding 1 Limited Regent’s Place Holding 2 Limited UK Tax Resident Prudential Property Investments Limited Paddington Kiosk (GP) Ltd Paddington Kiosk LP (Partnership interest) PaddingtonCentral Management Company Limited (87.5% interest) Pardev (Luton) Limited Parwick Holdings Limited Parwick Investments Limited PC Canal Limited PC Lease Nominee Ltd PC Partnership Nominee Ltd Piccadilly Residential Limited Pillar (Beckton) Limited UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK/Overseas Tax Resident Status UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident Overseas Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident 177 Regent’s Place Holding Company Limited UK Tax Resident Regents Place Management Company Limited UK Tax Resident Regents Place Residential Limited UK Tax Resident Rigphone Limited UK Tax Resident Rohawk Properties Limited British Land | Annual Report and Accounts 2019 The Meadowhall Education Centre (Limited by guarantee) (50% interest)7 The Retail and Warehouse Company Limited The TBL Property Partnership (Partnership interest) The Whiteley Co-Ownership (Member interest) (50% interest) Tollgate Centre Colchester Limited Topside Street Limited TPP Investments Limited Tweed Premier 4 Limited Union Property Corporation Limited UK/Overseas Tax Resident Status UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident Union Property Holdings (London) Limited UK Tax Resident United Kingdom Property Company Limited Valentine Co-ownership Trust (Member interest) (39.07% interest) Valentine Unit Trust (Jersey) (Units) (39.07% interest)2 Vicinitee Limited Vintners’ Place Limited Wardrobe Court Limited Wardrobe Holdings Limited Wardrobe Place Limited Wates City of London Properties Limited UK Tax Resident UK Tax Resident Overseas Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident Wates City Property Management Limited UK Tax Resident Westbourne Terrace Partnership (Partnership interest) Whiteley Shopping Centre Unit Trust (Jersey) (Units)2 WK Holdings Limited York House W1 Limited UK Tax Resident Overseas Tax Resident UK Tax Resident UK Tax Resident Notes to the financial statements continued UK/Overseas Tax Resident Status Company Name Company Name Salmax Properties Seymour Street Homes Limited Shopping Centres Limited Shoreditch Support Limited Six Broadgate Limited Southgate General Partner Limited (50% interest) Southgate Property Unit Trust (Jersey) (Units) (50% interest)2 UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident Overseas Tax Resident Speke Unit Trust (67.34% interest) (Jersey) (Units)2 Overseas Tax Resident Sprint 1118 Limited St James Parade (43) Limited ** St James Retail Park Northampton Limited St. Stephens Shopping Centre Limited Stockton Retail Park Limited Storey Offices Limited Storey Spaces Limited Surrey Quays Limited Sydale T (Partnership) Limited Tailress Limited TBL (Brent Park) Limited ** TBL (Bromley) Limited TBL (Bursledon) Limited TBL (Bury) Limited TBL (Ferndown) Limited ** TBL (Lisnagelvin) Limited TBL (Maidstone) Limited TBL (Milton Keynes) Limited TBL (Peterborough) Limited TBL Holdings Limited TBL Properties Limited Teesside Leisure Park Limited Ten Fleet Place The Aldgate Place Limited Partnership (Partnership interest) (50% interest) The Dartford Partnership (Member interest) (50% interest) The Gibraltar Limited Partnership (Partnership interest) (39.07% interest) The Hercules Property Limited Partnership (Partnership interest) (39.07% interest) The Leadenhall Development Company Limited (50% interest) UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident UK Tax Resident The Liverpool Exchange Company Limited UK Tax Resident The Mary Street Estate Limited UK Tax Resident 178 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 Supplementary disclosures Unaudited unless otherwise stated Table A: Summary income statement and balance sheet (Unaudited) Summary income statement based on proportional consolidation for the year ended 31 March 2019 The following pro forma information is unaudited and does not form part of the consolidated primary statements or the notes thereto. It presents the results of the Group, with its share of the results of joint ventures and funds included on a line-by-line basis and excluding non-controlling interests. Group £m 439 (35) 404 (80) 9 333 (67) 266 – 266 Gross rental income Property operating expenses Net rental income Administrative expenses Net fees and other income Ungeared income return Net financing costs Underlying Profit Underlying taxation Underlying Profit after taxation Valuation movement Other capital and taxation (net)1 Result attributable to shareholders of the company Year ended 31 March 2019 Joint ventures and funds £m Less non-controlling interests £m Proportionally consolidated £m 155 (10) 145 (1) – 144 (58) 86 – 86 (18) 1 (17) – 1 (16) 4 (12) – (12) 576 (44) 532 (81) 10 461 (121) 340 – 340 (683) 52 (291) Group £m 441 (29) 412 (82) 13 343 (64) 279 – 279 Year ended 31 March 2018 Joint ventures and funds £m Less non-controlling interests £m Proportionally consolidated £m 193 (9) 184 (1) – 183 (68) 115 – 115 (21) 1 (20) – 2 (18) 4 (14) – (14) 613 (37) 576 (83) 15 508 (128) 380 – 380 254 (141) 493 1. Includes other comprehensive income, movement in dilution of share options and the movement in items excluded for EPRA NAV Summary balance sheet based on proportional consolidation as at 31 March 2019 The following pro forma information is unaudited and does not form part of the consolidated primary statements or the notes thereto. It presents the composition of the EPRA net assets of the Group, with its share of the net assets of the joint venture and fund assets and liabilities included on a line-by-line basis, and excluding non-controlling interests, and assuming full dilution. Share of joint ventures and funds £m Less non- controlling interests £m 1,583 2,012 – 19 (317) – – – Group £m 4,378 4,299 318 96 9,091 3,614 (317) 2,560 (2,560) 151 (348) (2,765) 8,689 – (82) (972) – – – 3 103 (211) Mark-to- market on derivatives and related debt adjustments £m Share options £m Deferred tax £m – – – – – – – 24 – 24 – – – – – – – 5 – 5 – – – – – – – – 113 113 Head leases £m (67) (19) (15) – (101) – – 101 – – Retail properties Office properties Canada Water properties Other properties Total properties Investments in joint ventures and funds Other investments Other net (liabilities) assets Net debt Net assets EPRA NAV per share (note 2) Valuation surplus on trading properties £m EPRA Net assets 31 March 2019 £m – 16 – 13 29 – – – – 29 EPRA Net assets 31 March 2018 £m 6,596 6,705 283 132 5,577 6,308 303 128 12,316 13,716 – 151 (297) – 172 (355) (3,521) (3,973) 8,649 905p 9,560 967p 179 British Land | Annual Report and Accounts 2019 Supplementary disclosures continued Unaudited EPRA Net assets movement Opening EPRA NAV Income return Capital return Dividend paid Purchase of own shares Closing EPRA NAV Table B: EPRA Performance measures EPRA Performance measures summary table EPRA Earnings – basic – diluted EPRA Net Initial Yield EPRA ‘topped-up’ Net Initial Yield EPRA Vacancy Rate EPRA NAV EPRA NNNAV Year ended 31 March 2019 Year ended 31 March 2018 £m 9,560 340 (749) (298) (204) 8,649 Pence per share 967 35 (77) (30) 10 905 £m 9,498 380 285 (302) (301) 9,560 Pence per share 915 37 29 (29) 15 967 2019 2018 £m 340 340 Pence per share 35.0 34.9 4.5% 4.7% 4.1% £m 380 380 Pence per share 37.5 37.4 4.3% 4.6% 3.2% 2019 2018 Net assets £m Net asset value per share (pence) 8,649 8,161 905 854 Net assets £m 9,560 9,044 Calculation and reconciliation of EPRA/IFRS earnings and EPRA/IFRS earnings per share (Audited) (Loss) profit attributable to the shareholders of the Company Exclude: Group – current taxation Group – deferred taxation Joint ventures and funds – taxation Group – valuation movement Group – loss (profit) on disposal of investment properties and investments Group – profit on disposal of trading properties Joint ventures and funds – net valuation movement (including result on disposals) Joint ventures and funds – capital financing costs Changes in fair value of financial instruments and associated close-out costs Non-controlling interests in respect of the above Underlying Profit Group – underlying current taxation EPRA earnings – basic and diluted (Loss) profit attributable to the shareholders of the Company Dilutive effect of 2015 convertible bond IFRS earnings – diluted 180 2019 £m (291) (3) 4 (2) 620 18 (92) 60 21 46 (41) 340 – 340 (291) – (291) Net asset value per share (pence) 967 914 2018 £m 493 (1) (5) – (202) (18) (14) (49) 13 163 – 380 – 380 493 – 493 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 Table B continued Weighted average number of shares Adjustment for treasury shares IFRS/EPRA Weighted average number of shares (basic) Dilutive effect of share options Dilutive effect of ESOP shares Dilutive effect of 2015 convertible bond IFRS / EPRA Weighted average number of shares (diluted) Net assets per share (Audited) Balance sheet net assets Deferred tax arising on revaluation movements Mark-to-market on derivatives and related debt adjustments Dilution effect of share options Surplus on trading properties Less non-controlling interests EPRA NAV Deferred tax arising on revaluation movements Mark-to-market on derivatives and related debt adjustments Mark-to-market on debt EPRA NNNAV 2019 Number million 982 (11) 971 1 2 – 2018 Number million 1,024 (11) 1,013 1 2 – 974 1,016 2019 2018 Pence per share 905 £m 8,689 5 113 24 29 (211) 8,649 (11) (113) (364) Pence per share 967 £m 9,506 5 137 32 134 (254) 9,560 (31) (137) (348) 8,161 854 9,044 914 EPRA NNNAV is the EPRA NAV adjusted to reflect the fair value of the debt and derivatives and to include the deferred taxation on revaluations and derivatives. Number of shares at year end Adjustment for treasury shares IFRS/EPRA number of shares (basic) Dilutive effect of share options Dilutive effect of ESOP shares Dilutive effect of 2015 convertible bond IFRS / EPRA number of shares (diluted) 2019 Number million 2018 Number million 960 (11) 949 2 5 – 994 (11) 983 1 5 – 956 989 181 British Land | Annual Report and Accounts 2019 Supplementary disclosures continued Unaudited EPRA Net Initial Yield and ‘topped-up’ Net Initial Yield (Unaudited) Investment property – wholly-owned Investment property – share of joint ventures and funds Less developments, residential and land Completed property portfolio Allowance for estimated purchasers’ costs Gross up completed property portfolio valuation (A) Annualised cash passing rental income Property outgoings Annualised net rents (B) Rent expiration of rent-free periods and fixed uplifts1 ‘Topped-up’ net annualised rent (C) EPRA Net Initial Yield (B/A) EPRA ‘topped-up’ Net Initial Yield (C/A) Including fixed/minimum uplifts received in lieu of rental growth Total ‘topped-up’ net rents (D) Overall ‘topped-up’ Net Initial Yield (D/A) ‘Topped-up’ net annualised rent ERV vacant space Reversions Total ERV (E) Net Reversionary Yield (E/A) 2019 £m 8,761 3,555 2018 £m 9,682 4,034 (1,098) (1,315) 11,218 12,401 751 799 11,969 13,200 548 (14) 534 32 566 4.5% 4.7% 8 574 4.8% 566 22 30 618 5.2% 584 (11) 573 28 601 4.3% 4.6% 11 612 4.6% 601 21 32 654 5.0% 1. The weighted average period over which rent-free periods expire is 1 year (2017/18: 1 year) EPRA Net Initial Yield (NIY) basis of calculation EPRA NIY is calculated as the annualised net rent (on a cash flow basis), divided by the gross value of the completed property portfolio. The valuation of our completed property portfolio is determined by our external valuers as at 31 March 2019, plus an allowance for estimated purchaser’s costs. Estimated purchaser’s costs are determined by the relevant stamp duty liability, plus an estimate by our valuers of agent and legal fees on notional acquisition. The net rent deduction allowed for property outgoings is based on our valuers’ assumptions on future recurring non-recoverable revenue expenditure. In calculating the EPRA ‘topped-up’ NIY, the annualised net rent is increased by the total contracted rent from expiry of rent-free periods and future contracted rental uplifts where defined as not in lieu of growth. Overall ‘topped-up’ NIY is calculated by adding any other contracted future uplift to the ‘topped-up’ net annualised rent. The net reversionary yield is calculated by dividing the total estimated rental value (ERV) for the completed property portfolio, as determined by our external valuers, by the gross completed property portfolio valuation. The EPRA vacancy rate is calculated as the ERV of the unrented, lettable space as a proportion of the total rental value of the completed property portfolio. EPRA Vacancy Rate Annualised potential rental value of vacant premises Annualised potential rental value for the completed property portfolio EPRA Vacancy Rate 2019 £m 26 629 2018 £m 21 664 4.1% 3.2% The above is stated for the UK portfolio only. A discussion of significant factors affecting vacancy rates is included within the Strategic Report (pages 32 to 33). 182 FINANCIAL STATEMENTS CONTINUEDBritish Land | Annual Report and Accounts 2019 Table B continued EPRA Cost Ratios (Unaudited) Property operating expenses Administrative expenses Share of joint ventures and funds expenses Less: Performance and management fees (from joint ventures and funds) Net other fees and commissions Ground rent costs and operating expenses de facto included in rents EPRA Costs (including direct vacancy costs) (A) Direct vacancy costs EPRA Costs (excluding direct vacancy costs) (B) Gross Rental Income less ground rent costs and operating expenses de facto included in rents Share of joint ventures and funds (GRI less ground rent costs) Total Gross Rental Income less ground rent costs (C) EPRA Cost Ratio (including direct vacancy costs) (A/C) EPRA Cost Ratio (excluding direct vacancy costs) (B/C) 2019 £m 34 80 11 (8) (2) (9) 106 (13) 93 414 153 567 2018 £m 28 82 10 (8) (7) (2) 103 (12) 91 422 189 611 18.7% 16.4% 16.9% 14.9% Overhead and operating expenses capitalised (including share of joint ventures and funds) 6 5 In the current year, employee costs in relation to staff time on development projects have been capitalised into the base cost of relevant development assets. Table C: Gross rental income Rent receivable Spreading of tenant incentives and guaranteed rent increases Surrender premia Gross rental income 2019 £m 587 (13) 2 576 The current and prior year information is presented on a proportionally consolidated basis, excluding non-controlling interests. Table D: Property related capital expenditure Acquisitions Development Like-for-like portfolio Other Total property related capex 2019 Joint ventures and funds £m 15 91 19 8 133 Group £m 221 183 35 12 451 Total £m 236 274 54 20 584 2018 Joint ventures and funds £m – 52 27 5 84 Group £m 250 132 23 17 422 2018 £m 604 (12) 21 613 Total £m 250 184 50 22 506 The above is presented on a proportionally consolidated basis, excluding non-controlling interests and business combinations. The ‘Other’ category contains amounts owing to tenant incentives of £7m (2017/18: £5m), letting fees of £5m (2017/18: £5m), capitalised staff costs of £6m (2017/18: £5m) and capitalised interest of £3m (2017/18: £7m). 183 British Land | Annual Report and Accounts 2019 Other information Other information (unaudited) Sustainability performance measures Ten year record Shareholder information 186 195 198 199 184 British Land | Annual Report and Accounts 2019 1 Finsbury Avenue Broadening horizons Over 3,300 people have benefitted from our Broadgate construction team’s community activities over the last two years, including local schoolchildren, jobseekers and people affected by homelessness. Eight students from the University of East London have gained six months’ paid work experience at 1 Finsbury Avenue, supported by our construction partners, architects and engineers. Over 60 apprentices and trainees have also developed their skills through our Broadgate construction activity over the last two years, including 20 at 1 Finsbury Avenue. British Land | Annual Report and Accounts 2019 185 UNAUDITED (Data includes Group’s share of Joint Ventures and Funds) Sales Since 1 April 2018 Completed 5 Broadgate Portfolio of Spirit Pubs Cheltenham Gallagher Retail Park Clapham Junction Debenhams Richmond Homebase1 Leeds Westside Retail Park Glasgow B&Q Bath Homebase Bracknell David Lloyd Altrincham Sainsburys Bath Weston Lock Retail Park Southampton David Lloyd Harrow Homebase Hamilton David Lloyd Brentwood Virgin Active Northallerton Sainsburys Lancaster Castle View Clarges, Mayfair2 Aldgate Phase 1 Exchanged Portfolio of Sainsbury’s stores3 Clarges4 Total 1. Exchanged during the year ended 31 March 2018, completed in the period 2. £253m of which exchanged prior to FY19 and completed in the period 3. Exchanged post year end in April 2019 4. £18m of which exchanged post year end 5. BL share of annualised rent topped up for rent frees Purchases Since 1 April 2018 Completed Royal Victoria Place, Tunbridge Wells 184 – 192 Drummond Street 158 – 164 Bishopsgate 6 – 8 Eldon Street Hercules Unit Trust units 37 Sun Street Exchanged Orsman Road, Haggerston Total 1. BL share of annualised rent topped up for rent frees 186 British Land | Annual Report and Accounts 2019 Sector Offices Retail Retail Retail Retail Retail Retail Retail Retail Retail Retail Retail Retail Retail Retail Retail Retail Residential Residential Retail Residential Sector Retail Offices Offices Offices Retail Offices Offices Price (100%) £m Price (BL Share) £m Annual Passing Rent £m5 1,000 123 73 48 45 39 28 27 25 24 18 15 14 10 12 7 5 335 1 500 123 28 48 45 39 28 27 25 12 18 15 14 10 12 3 5 335 – 429 24 2,302 194 24 1,505 18 11 1 2 1 2 2 1 2 1 1 1 1 1 1 – – – – 12 – 58 Price (100%) £m Price (BL Share) £m Annual Passing Rent £m1 92 38 36 27 18 9 92 38 36 14 18 9 32 252 32 239 3 1 2 1 1 – – 8 Portfolio Valuation At 31 March 2019 West End City Offices Regional Local Multi-let Department Stores and Leisure Superstores Solus and Other Retail Residential2 Canada Water Total Standing Investments Developments Group £m JVs & Funds £m 4,066 230 4,296 997 1,613 2,610 323 88 185 3,206 109 303 7,914 7,334 580 – 2,012 2,012 1,767 360 2,127 – 244 – 2,371 19 – 4,402 3,975 427 Total £m 4,066 2,242 6,308 2,764 1,973 4,737 323 332 185 5,577 128 303 12,316 11,309 1,007 Change %1 H2 0.3 0.7 0.5 (6.9) (8.8) (7.8) (3.8) (2.9) (4.6) (7.0) (1.5) (1.0) (3.2) (3.9) 4.6 H1 0.3 1.4 0.7 (4.0) (6.8) (5.2) (3.1) (0.7) (0.2) (4.5) (3.1) 0.3 (1.9) (2.5) 7.2 FY 0.7 1.9 1.1 (10.6) (14.9) (12.5) (6.5) (3.6) (3.7) (11.1) (4.4) (0.8) (4.8) (6.0) 10.8 1. Valuation movement during the period (after taking account of capital expenditure) of properties held at the balance sheet date, including developments (classified by end use), purchases and sales 2. Standalone residential Portfolio Yield & ERV Movements1 At 31 March 2019 West End City Offices Regional Local Multi-let Department Stores and Leisure Superstores Solus and Other Retail Canada Water4 Total NEY % 4.3 4.7 4.4 5.3 5.9 5.6 5.6 5.3 5.6 5.6 3.9 5.0 ERV Movement %2,4 NEY Yield Movement bps3 H1 0.2 0.1 0.2 (0.8) (2.5) (1.6) (2.8) (0.2) (0.1) (1.5) 0.4 (0.8) H2 1.1 1.2 1.1 (1.4) (3.8) (2.5) (1.9) (0.5) (2.1) (2.3) 0.1 (0.8) FY 1.4 1.3 1.4 (2.2) (6.2) (4.0) (4.7) (0.7) (2.2) (3.8) 0.4 (1.6) H1 – 1 1 9 20 14 33 (1) (13) 14 (4) 7 H2 2 – 1 27 27 27 (18) (6) 44 36 – 19 FY 3 – 2 36 48 41 34 (8) 31 37 – 19 1. Excluding developments under construction, assets held for development and residential assets 2. As calculated by IPD 3. Including notional purchaser’s costs 4. Reflects standing investment only British Land | Annual Report and Accounts 2019 187 UNAUDITED CONTINUED Retail Portfolio Valuation – Previous Classification Basis Valuation1 Change %² ERV Movement %3 NEY Yield Movement bps4 At 31 March 2019 Shopping Parks Shopping Centres Superstores Department Stores High Street Leisure Retail £m 2,593 2,115 332 70 169 298 5,577 H1 (5.5) (3.7) (0.7) (24.9) (1.1) 2.0 (4.5) H2 (8.5) (6.3) (2.9) (20.3) (7.8) – (7.0) FY (13.2) (9.8) (3.6) (40.1) (8.8) 1.9 (11.1) H1 (2.1) (0.1) (0.2) (18.4) (0.2) 0.0 (1.5) H2 (2.6) (2.0) (0.5) (8.8) (3.7) 0.0 (2.3) FY (4.6) (2.1) (0.7) (25.6) (3.9) 0.0 (3.8) H1 13 13 (1) 119 (2) 2 14 H2 35 20 (6) (60) 7 1 36 FY 47 34 (8) 147 5 13 37 1. Group’s share of properties in joint ventures and funds including HUT at ownership share 2. Valuation movement during the year (after taking account of capital expenditure) of properties held at the balance sheet date, including developments (classified by end use), purchases and sales 3. As calculated by IPD 4. Including notional purchaser’s costs Gross Rental Income1 Accounting Basis £m West End City Offices Regional Local Multi-let Department Stores and Leisure Superstores Solus and Other Retail Residential2 Canada Water Total 12 months to 31 March 2019 Annualised as at 31 March 2019 Group JVs & Funds 141 9 150 57 98 155 38 5 14 212 5 9 376 – 70 70 90 24 114 – 16 – 130 – – 200 Total 141 79 220 147 122 269 38 21 14 342 5 9 576 Group JVs & Funds 140 7 147 57 90 147 24 5 12 188 4 8 347 – 68 68 86 23 109 – 15 – 124 – – 192 Total 140 75 215 143 113 256 24 20 12 312 4 8 539 1. Gross rental income will differ from annualised rents due to accounting adjustments for fixed & minimum contracted rental uplifts and lease incentives 2. Standalone residential 188 British Land | Annual Report and Accounts 2019 Portfolio Net Yields1,2 At 31 March 2019 West End City Offices Regional Lifestyle Local Lifestyle Multi-let Department Stores & Leisure Superstores Solus & Other Retail Canada Water Total EPRA net initial yield % EPRA topped up net initial yield %3 Overall topped up net initial yield %4 Net equivalent yield % Net reversionary yield % 3.6 4.0 3.8 4.8 5.4 5.1 6.1 5.6 6.0 5.2 3.2 4.5 4.0 4.4 4.1 5.0 5.6 5.2 6.1 5.6 6.2 5.3 3.2 4.7 4.0 4.4 4.2 5.1 5.7 5.3 7.2 5.6 6.2 5.5 3.2 4.8 4.3 4.7 4.4 5.3 5.9 5.6 5.6 5.3 5.6 5.6 3.9 5.0 4.8 5.3 5.0 5.4 5.8 5.6 5.0 5.2 4.6 5.5 4.0 5.2 On a proportionally consolidated basis including the Group’s share of joint ventures and funds 1. Including notional purchaser’s costs 2. Excluding committed developments, assets held for development and residential assets 3. Including rent contracted from expiry of rent-free periods and fixed uplifts not in lieu of rental growth 4. Including fixed/minimum uplifts (excluded from EPRA definition) Total Property Return (as calculated by IPD) 12 months to 31 March 2019 % Capital Return – ERV Growth – Yield Movement1 Income Return Total Property Return Offices Retail Total British Land IPD British Land IPD British Land 1.4 1.4 2 bps 3.4 4.9 2.0 1.2 (10 bps) 3.8 5.8 (11.4) (3.8) 37 bps 5.3 (6.6) (7.3) (3.3) 26 bps 5.0 (2.6) (5.0) (1.6) 19 bps 4.3 (0.9) IPD 0.1 0.2 (1 bps) 4.4 4.6 On a proportionally consolidated basis including the Group’s share of joint ventures and funds 1. Net equivalent yield movement British Land | Annual Report and Accounts 2019 189 UNAUDITED CONTINUED Occupiers Representing over 0.5% of Total Contracted Rent At 31 March 2019 % of total rent Tesco1 Sainsbury’s2 Debenhams3 Government Next Kingfisher Facebook3 Dentsu Aegis Alliance Boots4 Visa M&S Dixons Carphone Arcadia Herbert Smith Freehills Gazprom TJX (TK Maxx) JD Sports Fashion Vodafone SportsDirect Microsoft New Look Virgin Asda 4.8 3.7 3.4 3.0 2.6 2.3 2.0 2.0 1.9 1.7 1.7 1.5 1.5 1.4 1.1 1.1 1.1 1.1 1.0 1.0 1.0 0.9 0.9 Deutsche Bank Homebase Steinhoff Henderson TGI Fridays Reed Smith Lewis Trust (River Island) H&M DFS Furniture Group NEX Grp Plc Restaurant Group Mayer Brown Primark Hutchison Whampoa Ltd David Lloyd Credit Agricole Lendlease Pets at Home BridgeStreet Mimecast Ltd Aramco Wilko Retail % of total rent 0.8 0.8 0.8 0.8 0.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.5 0.5 1. Includes £3.4m at Surrey Quays Shopping Centre 2. Reduces to 1.8% following post year end sale of 12 stores 3. Debenhams reduces to 1.8% and Facebook increases to 3.6% following post year end letting of 10 Brock Street to Facebook 4. Represents current occupation of 10 Triton Street covering 118,000 sq ft of space. Taking into account their pre-let of 310,000 sq ft at 1 Triton Square, percentage of contracted rent would rise to 5.5%. As part of this new letting, Dentsu Aegis have an option to return their existing space at 10 Triton Street in 2021. If this option is exercised, there is an adjustment to the rent free period in respect of the letting at 1 Triton Square to compensate British Land Major Holdings At 31 March 2019 Broadgate Regent’s Place Paddington Central Meadowhall, Sheffield Glasgow Fort Ealing Broadway Drake’s Circus, Plymouth Teesside, Stockton Sainsburys Superstores5 Portman Square BL Share % Sq ft ‘000 Rent (100%) £m pa1,4 Occupancy rate %2,4 Lease length yrs3,4 50 100 100 50 78 100 100 100 51 100 4,133 1,740 958 1,500 510 540 1,082 569 1,457 134 138 77 45 88 22 15 19 16 31 10 96.7 98.7 97.2 98.9 97.0 90.8 96.3 94.3 100.0 100.0 5.5 5.6 5.4 5.9 6.0 4.6 6.9 4.7 8.3 6.5 1. Annualised EPRA contracted rent including 100% of Joint Ventures & Funds 2. Includes accommodation under offer or subject to asset management 3. Weighted average to first break 4. Excludes committed and near term developments 5. Comprises standalone stores. Following post year end sale of 12 Sainsbury’s superstores, BL share percentage increases to 55%, sq ft reduces to 325,000, rent reduces to £8m and lease length increases to 9.9 years 190 British Land | Annual Report and Accounts 2019 Lease Length & Occupancy At 31 March 2019 West End City Offices Regional Local Multi-let Department Stores and Leisure Superstores Solus and Other Retail Canada Water Total Average lease length yrs Occupancy rate % To expiry To break Occupancy Occupancy1,2,3 EPRA 6.8 6.6 6.7 7.2 6.9 7.0 15.3 12.2 11.1 8.0 5.6 7.4 5.7 5.7 5.7 6.0 5.6 5.8 15.3 12.2 10.5 7.0 5.5 6.4 97.2 93.2 95.8 95.7 94.7 95.3 100.0 100.0 100.0 95.9 98.5 95.9 98.3 96.6 97.7 97.0 95.3 96.2 100.0 100.0 100.0 96.7 98.7 97.2 1. Space allocated to Storey is shown as occupied where there is a Storey tenant in place otherwise it is shown as vacant. Total occupancy would rise from 97.2% to 97.5% if Storey space were assumed to be fully let. 2. Includes accommodation under offer or subject to asset management 3. Where occupiers have entered administration or CVA but are still liable for rates, these are treated as occupied. Reflecting units currently occupied but expected to become vacant, then the occupancy rate for Retail would reduce from 96.7% to 96.1%, and total occupancy would reduce from 97.2% to 96.9% Portfolio Weighting At 31 March West End City Offices Regional Lifestyle Local Lifestyle Multi-let Department Stores & Leisure Superstores Solus & Other Retail Residential1 Canada Water Total London Weighting 1. Standalone residential 2018 % 31.0 17.9 48.9 22.1 16.7 38.8 4.3 2.6 2.3 48.0 1.0 2.1 100.0 59% 2019 % 33.0 18.2 51.2 22.4 16.1 38.5 2.6 2.7 1.5 45.3 1.0 2.5 100.0 61% 2019 £m 4,066 2,242 6,308 2,764 1,973 4,737 323 332 185 5,577 128 303 12,316 8,127 British Land | Annual Report and Accounts 2019 191 UNAUDITED CONTINUED Annualised Rent & Estimated Rental Value (ERV) Annualised rent (valuation basis) £m1 ERV £m Average rent £psf At 31 March 2019 West End3 City3 Offices3 Regional Lifestyle Local Lifestyle Multi-let Department Stores & Leisure Superstores Solus & Other Retail Residential4 Canada Water5 Total Group JVs & Funds 139 7 146 58 96 154 21 5 12 192 4 8 351 – 67 67 90 24 114 – 15 – 129 – – 196 Total 139 74 213 148 120 268 21 20 12 321 4 8 547 Total 184 101 285 166 130 296 17 18 9 340 4 10 639 Contracted2 58.6 48.7 54.8 31.0 23.4 27.0 15.9 22.2 20.2 25.3 44.8 17.9 31.3 ERV 67.2 57.6 63.5 33.6 24.5 28.9 12.9 20.6 15.5 26.1 37.9 21.8 34.7 1. Gross rents plus, where rent reviews are outstanding, any increases to ERV (as determined by the Group’s external valuers), less any ground rents payable under head leases, excludes contracted rent subject to rent free and future uplift 2. Annualised rent, plus rent subject to rent free 3. £psf metrics shown for office space only 4. Standalone residential 5. Reflects standing investment only Rent Subject to Open Market Rent Review For period to 31 March At 31 March 2019 West End City Offices Regional Local Multi-let Department Stores and Leisure Superstores Solus and Other Retail Residential Canada Water1 Total 2020 £m 2021 £m 2022 £m 2023 £m 2024 £m 2020-22 £m 2020-24 £m 4 13 17 9 11 20 – 8 – 28 – – 45 15 4 19 19 12 31 – 5 – 36 – – 55 10 9 19 13 5 18 – – – 18 1 – 38 9 – 9 11 17 28 – 2 – 30 – – 39 13 – 13 9 5 14 7 3 – 24 – – 37 29 26 55 41 28 69 – 13 – 82 1 – 138 51 26 77 61 50 111 7 18 – 136 1 – 214 On a proportionally consolidated basis including the Group’s share of joint ventures and funds 1. Reflects standing investment only 192 British Land | Annual Report and Accounts 2019 Rent Subject to Lease Break or Expiry1 For period to 31 March At 31 March 2019 West End City Offices Regional Lifestyle Local Lifestyle Multi-let Department Stores & Leisure Superstores Solus & Other Retail Residential Canada Water Total % of contracted rent 2020 4 15 19 17 15 32 – – 1 33 – 1 53 9.1% 2021 £m 19 10 29 10 10 20 – – – 20 3 1 53 9.1% 2022 £m 22 2 24 12 13 25 – – – 25 – 1 49 8.3% 2023 £m 26 3 29 19 12 31 – 2 – 33 – 1 63 10.9% 2024 £m 15 13 28 20 20 40 – – – 40 – 2 70 12.0% On a proportionally consolidated basis including the Group’s share of joint ventures and funds Recently Completed and Committed Developments At 31 March 2019 1 Finsbury Avenue Total Completed in the Year 100 Liverpool Street 135 Bishopsgate 1 Triton Square3 Plymouth (Leisure) Total Committed Retail Capital Expenditure4 Sector Office Office Office Office Retail BL Share % 100% sq ft ‘000 PC Calendar Year Current Value £m Cost to come £m1 50 50 50 100 100 Q1 2019 Q1 2020 Q3 2019 Q4 2020 Q4 2019 287 287 521 335 366 108 1,330 153 153 240 156 289 29 714 11 11 82 34 122 14 252 53 2020-22 £m 45 27 72 39 38 77 – – 1 78 3 2 155 26.5% ERV £m2 8.2 8.2 19.1 9.7 23.1 3.1 55.0 2020-24 £m 86 43 129 78 70 148 – 2 1 151 3 5 288 49.4% Let & Under Offer £m 4.7 4.7 10.6 8.7 21.8 2.1 43.2 1. From 1 April 2019. Cost to come excludes notional interest as interest is capitalised individually on each development at our capitalisation rate 2. Estimated headline rental value net of rent payable under head leases (excluding tenant incentives) 3. ERV let & under offer of £21.8m represents space taken by Dentsu Aegis. As part of this letting, Dentsu Aegis have an option to return their existing space at 10 Triton Street in 2021. If this option is exercised, there is an adjustment to the rent free period in respect of the letting at 1 Triton Square to compensate British Land 4. Capex committed and underway within our investment portfolio relating to leasing and asset management British Land | Annual Report and Accounts 2019 193 UNAUDITED CONTINUED Near Term Development Pipeline At 31 March 2019 Norton Folgate 1-2 Broadgate Total near term Retail Capex3 Sector Office Office BL Share % 100% sq ft ‘000 Expected Start On Site Current Value £m Cost to Come £m1 100 50 Q3 2019 Q2 2020 335 531 866 62 94 156 206 198 404 78 ERV £m2 20.6 18.8 39.4 Let & under Offer £m Planning Status – Consented – Consented – 1. From 1 April 2019. Cost to come excludes notional interest as interest is capitalised individually on each development at our capitalisation rate 2. Estimated headline rental value net of rent payable under head leases (excluding tenant incentives) 3. Forecast capital commitments within our investment portfolio over the next 12 months relating to leasing and asset enhancement Medium Term Development Pipeline At 31 March 2019 2-3 Finsbury Avenue Gateway Building 5 Kingdom Street1 Meadowhall (Leisure) Ealing – 10-40 The Broadway Aldgate Place Phase 2 Eden Walk Retail & Residential Plymouth, George Street Total Medium Term excl. Canada Water Canada Water – Phase 12,3,4 Sector Office Leisure Office Retail Retail Residential Mixed Use Retail Mixed Use BL Share % 50 100 100 50 100 50 50 100 100 100% Sq ft ‘000 Planning Status 563 Consented 105 Consented 429 Consented 333 Consented 292 Pre-submission 145 Consented 533 Consented 43 Submitted 2,443 1,917 Submitted 1. Planning consent for previous 240,000 sq ft scheme 2. Canada Water site covers 5m sq ft in total based on net area (gross area of 7m sq ft) 3. Phase 1 consists of Phase 1a, 1b, 1c. Detailed planning submitted for Phase 1a (576,000 sq ft), outline planning submitted for total Phase 1 4. On drawdown of the Master Development Agreement, ownership reduces to 80% with LBS owning 20%. LBS ownership will adjust over time depending on level of investment by Southwark 194 British Land | Annual Report and Accounts 2019 SUSTAINABILITY PERFORMANCE MEASURES Sustainability performance measures We report on all assets where we have day-to-day operational or management influence (our managed portfolio) and all developments over £300,000 with planning permission, on-site or completed in the year. The exception is EPC and flood risk data, where we report on all assets under management. As at 31 March 2019, our managed portfolio comprised 73% of our assets under management. Please see the scope column for indicator-specific reporting coverage. Selected data has been independently assured since 2007. Selected data for 2019 has been independently assured by PwC in accordance with ISAE 3000 (Revised) and ISAE 3410. 2020 sustainability strategy performance We report transparently on performance so our stakeholders can fully understand our impacts. Below is an overview of our performance during the reporting period. For detailed information, see our Sustainability Accounts and website britishland.com/sustainability Indicators1 Continued inclusion in three out of four sustainability indices: DJSI Europe, DJSI World, FTSE4Good and GRESB2 Major developments on track to implement Sustainability Brief Performance 2019 4/4 2018 4/4 2019 scope (assets or units) – 100% 100% 16/16 Performance 2019 2018 2019 scope (assets or units) Wellbeing (Customer Orientation) Deliver a WELL certified commercial office to shell and core, and set corporate policy for future developments Develop and pilot retail wellbeing specification Sense of wellbeing for visitors at our places Define and trial a methodology for measuring productivity in offices Research and publish on how development design impacts public health outcomes Pilot interventions to improve local air quality Injury Incidence Rate (RIDDOR) Injury Frequency Rate (RIDDOR) Offices Retail Developments 2020 targets Deliver On track On track Deliver Increase In progress 84% Deliver Completed Deliver Completed 3 In progress 14.17 0.01 0.12 In progress 84% Completed On track Target established 12.88 0.01 0.13 – – – – – – 46/46 58/58 31/34 Community (Right Places) Implement our Local Charter at key assets and major developments British Land employee skills-based volunteering British Land employee volunteering Community programme beneficiaries Futureproofing (Capital Efficiency) Developments on track to achieve BREEAM Excellent for offices and Excellent or Very Good for retail Carbon (Scope 1 and 2) intensity reduction versus 2009 (index scored) Landlord energy intensity reduction versus 2009 (index scored) Electricity purchased from renewable sources Average reduction in embodied carbon emissions versus concept design on major developments Waste diverted from landfill: managed properties and developments Portfolio with green building ratings (% by floor area) Energy Performance Certificates rated F or G (% by floor area) Portfolio at high risk of flood (% by value) High flood risk assets with flood management plans (% by value) Performance 2019 92% 17% 81% 36,358 Performance 2019 92% 64% 44% 96% 10% 99.6% 18% 5% 3% 100% 2018 2019 scope (assets or units) Charter updated 16% 79% 39,798 – – – 2018 2019 scope (assets or units) 92% 54% 40% 97% nr 99% 18% 5% 3% 100% 15/15 70/70 70/70 107/108 2/2 108/116 179/179 2663/2864 178/179 12/12 2020 targets 100% 20% 90% 2020 targets 100% 55% 55% 100% 15% 100% – – – – 1. Sustainability Action Plans have been superseded by Local Charter activities, see ‘Community’. Our Local Charter covers community, wellbeing, skills and opportunity. Futureproofing initiatives are covered through Asset Plans, which include provisions for identifying climate-related risks and opportunities, such as flood risk assessments and audits to identify energy saving opportunities 2. In this financial year we were listed in DJSI 2018 World and Europe, awarded a green star in GRESB 2018 and ranked in the top 96th percentile of FTSE4Good 2018 British Land | Annual Report and Accounts 2019 195 SUSTAINABILITY PERFORMANCE MEASURES CONTINUED Skills and opportunity (Expert People) People supported into employment (cumulative) Strategic suppliers agreed with terms of our Supplier Code of Conduct Prioritised supplier workforce who are apprentices Pilot a Living Wage Zone at a London campus Workforce paid at least Living Wage Foundation rate Group employees Supplier workforce at managed properties Performance 2019 2018 2019 scope (assets or units) 2020 targets 1,700 100% 3% Deliver 100% 1,232 53% 2.4% In progress 100% 66%2 8391 Code Launched 1.2% – 100% 70% – 34/64 178/220 – – 103/103 Developments supply chain spend within 25 miles 66% 71% 5/6 1. Employment figures from 2016-2018 have been restated for accuracy 2. From FY19, these figures exclude the employees of any subsidiary organisations EPRA best practice recommendations on sustainability reporting We have received Gold Awards for sustainability reporting from the European Public Real Estate Association (EPRA), seven years running. For our full EPRA sustainability reporting, methodology and the 2019 PwC assurance statement, please see our Sustainability Accounts 2019: britishland.com/data. Environmental Total electricity consumption (MWh) Total district heating and cooling consumption (MWh) Total fuel consumption (MWh) Building energy intensity (kWh) Offices (per m2) Retail – enclosed (per m2) Retail – open air (per car parking space) Total direct (Scope 1) greenhouse gas emissions (tonnes CO2e) Total indirect (Scope 2) greenhouse gas emissions (tonnes CO2e) Greenhouse gas intensity from building energy consumption (tonnes CO2e) Total water consumption (m³) Building water intensity (m³) Location based Market based Offices (per m²) Retail – enclosed (per m2) Retail – open air (per car parking space) Offices (per FTE) Retail – enclosed (per 10,000 visitors) Retail – open air (per 10,000 visitors) Re-used and recycled Total non-hazardous waste by disposal route (tonnes and %) Total hazardous waste by disposal route (tonnes and %) Sustainably certified assets – Energy Performance Certificates (% by floor area) Incinerated Landfilled Re-used and recycled Incinerated Landfilled A to B C to E F to G Performance 2019 2018 2017 2019 scope (assets or units) 155,608 0 49,878 136.40 149.02 161.06 162,833 0 37,500 145.71 156.48 168.13 172,127 0 39,319 158.70 161.89 150.01 8,956 20,188 1,457 0.044 0.043 0.049 553,282 14.09 nr nr 10,818 (57%) 8,182 (43%) 2 (0%) 5 (44%) 7 (56%) 0 (0%) 22% 73% 5% 6,967 27,301 1,875 0.055 0.056 0.062 616,221 15.56 nr nr 11,207 (56%) 8,887 (44%) 6 (0%) nr nr nr 23% 72% 5% 7,609 34,149 6,630 0.069 0.067 0.064 663,541 14.59 9.47 2.86 12,166 (57%) 9,236 (43%) 35 (0%) nr nr nr 25% 71% 4% 107/108 0/0 60/61 30/30 7/7 33/33 115/116 115/116 115/116 30/30 7/7 33/33 44/73 28/40 – – 77/82 77/82 77/82 77/82 77/82 77/82 2663/2864 2663/2864 2663/2864 196 British Land | Annual Report and Accounts 2019 Social1 Employee diversity – gender Employee gender pay ratio (median remuneration, female to male) Male Female Executive Directors Senior management Middle and non-management Employee training – average hours Employee annual performance review Employee new hires rate Employee turnover – departures rate Employee health and safety Asset health and safety Progress implementing our Local Charter at key assets and major developments Absentee rate Injury frequency rate Lost day rate Work-related fatalities Proportion subject to health and safety review (%) Incidents of non-compliance Implement our Local Charter at key assets and major developments (% progress) Proportion of portfolio (floor area) where Local Charter or other community activity implemented Performance 2019 2018 2017 2019 scope (assets or units) 48% 52% – 87% 74% 13.4 100% 17% 19% 1% 0 3.68 0 100% 0 92% 51% 49% – 89% 69% 14.2 100% 20% 15% 1% 0 0 0 100% 53% 47% nr nr nr 13.2 nr 26% 15% 1% nr nr 0 100% 0 Charter updated nr Target established – – – – – – – – – – – – – 116/116 116/116 83% – – 104/104 1. 2017 and 2018 employee data restated to reflect the integration of Broadgate Estates into British Land For information on our inclusive culture see pages 30 and 112 and britishland.com/inclusive-culture and to read more about our gender pay gap on page 6 and at britishland.com/gender-pay-gap. Governance Composition of the highest governance body Nominating and selecting the highest governance body Process for managing conflicts of interest Annual Report and Accounts 2019 Board’s Executive and Non-Executive Directors pages 68-71. 2018 Board’s Executive and Non-Executive Directors pages 58-61. Tenures of Non-Executive Directors page 108. Average tenure of Non-Executive Directors page 75. Board members with environmental or social competencies page 68-71. Appointment process for new directors pages 86-87. Board procedure for managing conflicts of interest page 76. Appointment process for new Directors pages 74-75. Board procedure for managing conflicts of interest page 66. British Land | Annual Report and Accounts 2019 197 TEN YEAR RECORD The table below summarises the last ten years’ results, cash flows and balance sheets. Income1 Gross rental income Net rental income Net fees and other income Interest expense (net) Administrative expense Underlying Profit Exceptional costs (not included in Underlying Profit)4 Dividends declared Summarised balance sheets Total properties at valuation1,3 Net debt Other assets and liabilities EPRA NAV/Fully diluted adjusted net assets Cash flow movement – Group only Cash generated from operations Other cash flows from operations Net cash inflow from operating activities Cash inflow (outflow) from capital expenditure, investments, acquisitions and disposals Equity dividends paid Cash (outflow) inflow from management of liquid resources and financing Increase (decrease) in cash6 2019 £m 2018 £m 2017 £m 2016 £m 2015 £m 2014 £m 2013 £m 2012 £m 2011 £m 2010 £m 576 532 10 (121) (81) 340 – 298 613 576 15 (128) (83) 380 – 302 643 610 17 (151) (86) 390 – 296 654 620 17 (180) (94) 363 – 287 618 585 17 (201) (88) 313 – 277 597 562 15 (202) (78) 297 – 266 567 541 15 (206) (76) 274 – 234 572 546 17 (218) (76) 269 – 231 541 518 18 (212) (68) 256 – 231 561 545 15 (246) (65) 249 – 225 12,316 (3,521) (146) 13,716 (3,973) (183) 13,940 (4,223) (219) 14,648 (4,765) 191 13,677 (4,918) 276 12,040 (4,890) (123) 10,499 (4,266) (266) 10,337 (4,690) (266) 9,572 (4,173) (298) 8,539 (4,081) (51) 8,649 9,560 9,498 10,074 9,035 7,027 5,967 5,381 5,101 4,407 617 (4) 613 351 2 353 379 (16) 363 341 (47) 294 318 (33) 285 243 (24) 219 197 (7) 190 211 (5) 206 182 28 210 248 (112) 136 187 (298) 346 (304) 470 (295) 230 (235) (111) (228) (660) (159) (202) (203) (547) (212) (240) (139) (39) (154) (365) 137 (404) (9) (538) – (283) 6 20 (34) 607 7 213 (2) 630 77 157 (12) (485) (542) Capital returns (Reduction) growth in net assets2 Total return Total return – pre-exceptional (9.5%) (3.3%) (3.3%) 0.7% (5.7%) 8.9% 8.9% 11.5% 28.6% 17.8% 10.9% 4.5% 4.5% 2.7% 14.2% 24.5% 20.0% 2.7% 14.2% 24.5% 20.0% 5.5% 15.7% 30.1% 9.5% 17.7% 33.5% 9.5% 17.7% 33.5% Per share information7 EPRA net asset value per share Memorandum Dividends declared in the year Dividends paid in the year Diluted earnings Underlying EPRA earnings per share IFRS earnings (loss) per share4 905p 967p 915p 919p 829p 688p 596p 595p 567p 504p 31.0p 30.5p 30.1p 29.6p 29.2p 28.8p 28.4p 28.0p 27.7p 27.3p 27.0p 26.7p 26.4p 26.3p 26.1p 26.0p 26.0p 26.0p 26.0p 27.3p 34.9p (30.0p) 37.4p 48.5p 37.8p 14.7p 34.1p 119.7p 30.6p 167.3p 29.4p 110.2p 30.3p 31.5p 29.7p 53.8p 28.5p 95.2p 28.4p 132.6p 1. Including share of joint ventures and funds 2. Represents movement in diluted EPRA NAV 3. Including surplus over book value of trading and development properties 4. Including restatement in 2016 and exceptional finance costs in 2009: £119 million 5. 2008 restated for IFRS. The UK GAAP accounts shows gross rental income of £620 million and Underlying Profit of £175 million 6. Represents movement in cash and cash equivalents under IFRS and movements in cash under UK GAAP 7. Adjusted for the rights issue of 341 million shares in March 2009 198 British Land | Annual Report and Accounts 2019 SHAREHOLDER INFORMATION Financial calendar 2019/20 Final dividend ex-dividend date Final dividend payment date First quarter ex-dividend date First quarter dividend payment date Half year results Second quarter ex-dividend date Second quarter dividend payment date Third quarter ex-dividend date Third quarter dividend payment date Full year results Final dividend ex-dividend date Final dividend payment date 27 June 2019 2 August 2019 3 October 2019 8 November 2019 13 November 2019 January 2020 February 2020 March 2020 May 2020 May 2020 June 2020 August 2020 If offered, the Board will announce the availability of a Scrip dividend alternative via the Regulatory News Service no later than four business days before each ex-dividend date. Scrip dividend alternatives will not be enhanced. The split between PID and non-PID income for each dividend will be announced at the same time. Analysis of shareholders – 31 March 2019 Number of holdings 2019/20 Balance as at 31 March 20191 % 1–1,000 1,001–5,000 5,001–20,000 20,001–50,000 50,001–Highest Total Holder type Individuals Nominee and institutional investors Total 5,264 2,835 646 251 621 9,617 54.74 29.48 6.72 2.61 6.46 100.00 2,262,808 6,256,773 6,348,133 8,202,600 937,518,758 960,589,072 % 0.24 0.65 0.66 0.85 97.60 100.00 5,836 60.68 10,734,011.00 1.12 3,781 9,617 39.32 949,855,061.00 100.00 960,589,072.00 98.88 100.00 1. Excluding 11,266,245 shares held in treasury Registrars British Land has appointed Equiniti Limited (Equiniti) to administer its shareholder register. Equiniti can be contacted at: Aspect House Spencer Road Lancing, West Sussex BN99 6DA Tel: 0371 384 2143 (UK callers) Tel: +44 (0)121 415 7047 (Overseas callers) Lines are open from 8.30am to 5.30pm Monday to Friday excluding public holidays in England and Wales Website: shareview.co.uk By registering with Shareview, shareholders can: – view your British Land shareholding online – update your details – elect to receive shareholder mailings electronically. Equiniti is also the Registrar for the BLD Property Holdings Limited Stock. Share dealing facilities By registering with Shareview, Equiniti also provides existing and prospective UK shareholders with a share dealing facility for buying and selling British Land shares online or by phone. For more information, contact Equiniti at shareview.co.uk/dealing or call 0845 603 7037 (Monday to Friday excluding public holidays from 8.30am to 4.30pm). Existing British Land shareholders will need the reference number given on your share certificate to register. Similar share dealing facilities are provided by other brokers, banks and financial services. Website and shareholder communications The British Land corporate website contains a wealth of material for shareholders, including the current share price, press releases and information on dividends. The website can be accessed at britishland.com British Land encourages its shareholders to receive shareholder communications electronically. This enables shareholders to receive information quickly and securely as well as in a more environmentally friendly and cost-effective manner. Further information can be obtained from Shareview or the Shareholder Helpline. ShareGift Shareholders with a small number of shares, the value of which makes it uneconomic to sell them, may wish to consider donating their shares to charity. ShareGift is a registered charity (No. 1052686) which collects and sells unwanted shares and uses the proceeds to support a wide range of UK charities. A ShareGift donation form can be obtained from Equiniti. Further information about ShareGift can be obtained from their website: sharegift.org Honorary President In recognition of his work building British Land into the industry leading company it is today, Sir John Ritblat was appointed as Honorary President on his retirement from the Board in December 2006. Registered office The British Land Company PLC York House 45 Seymour Street, London W1H 7LX Telephone: +44 (0)20 7486 4466 Registered number: 621920 Website: britishland.com Dividends As a REIT, British Land pays Property Income Distribution (PID) and non-Property Income Distribution (non-PID) dividends. More information on REITs and PIDs can be found in the Investors section of our website at britishland.com/dividends British Land dividends can be paid directly into your bank or building society account instead of being despatched to you by cheque. More information about the benefits of having dividends paid directly into your bank or building society account, and the mandate form to set this up, can be found in the Investors section of our website at britishland.com/investors/dividends/dividends- direct-to-your-bank British Land | Annual Report and Accounts 2019 199 SHAREHOLDER INFORMATION CONTINUED Scrip Dividend Scheme British Land may offer shareholders the opportunity to participate in the Scrip Dividend Scheme by offering a Scrip Alternative to a particular dividend from time to time. The Scrip Dividend Scheme allows participating shareholders to receive additional shares instead of a cash dividend. For more information please visit the Investors section of our website at britishland.com/ dividends/scrip-dividends-scheme Unsolicited mail British Land is required by law to make its share register available on request to other organisations. This may result in the receipt of unsolicited mail. To limit this, shareholders may register with the Mailing Preference Service. For more information, or to register, visit mpsonline.org.uk Shareholders are also advised to be vigilant of share fraud which includes telephone calls offering free investment advice or offers to buy and sell shares at discounted or highly inflated prices. If it sounds too good to be true, it often is. Further information can be found on the Financial Conduct Authority’s website fca.org.uk/scams or by calling the FCA Consumer Helpline on 0800 111 6768. Tax The Group elected for REIT status on 1 January 2007, paying a £308m conversion charge to HMRC in the same year. As a consequence of the Group’s REIT status, tax is not levied within the corporate group on the qualifying property rental business but is instead deducted from distributions of such income as Property Income Distributions to shareholders. Any income which does not fall within the REIT regime is subject to tax within the Group in the usual way. This includes profits on property trading activity, property related fee income and interest income. We continue to comfortably pass all REIT tests ensuring that our REIT status is maintained. We work proactively and openly to maintain a constructive relationship with HMRC. We discuss matters in real-time with HMRC and disclose all relevant facts and circumstances, particularly where there may be tax uncertainty or the law is unclear. HMRC assigns risk ratings to all large companies. We have a low appetite for tax risk and HMRC considers us to be ‘Low Risk’ (a status we have held since 2007 when the rating was first introduced by HMRC). Further information can be found in our Tax Strategy – ‘Our Approach to Tax’ at britishland.com/governance Forward-looking statements This Annual Report contains certain ‘forward-looking’ statements. Such statements reflect current views, expectations and beliefs on, among other things, our markets, activities, projections, objectives, performance, financial condition and prospects, as well as assumptions about future events. Such ‘forward- looking’ statements can sometimes, but not always, be identified by their reference to a date or point in the future or the use of ‘forward-looking’ terminology, including terms such as ‘believes’, ‘considers’, ‘estimates’, ‘anticipates’, ‘expects’, ‘forecasts’, ‘intends’, ‘continues’, ‘due’, ‘plans’, ‘seeks’, ‘projects’, ‘goal’, ‘outlook’, ‘schedule’, ‘target’, ‘aim’, ‘may’, ‘likely to’, ‘will’, ‘would’, ‘could’, ‘should’ or similar expressions or in each case their negative or other variations or comparable terminology. By their nature, forward-looking statements involve inherent known and unknown risks, assumptions and uncertainties because they relate to future events and depend on circumstances which may or may not occur and may be beyond our ability to control or predict. Forward-looking statements should be regarded with caution as actual outcomes or results, or plans or objectives, may differ materially from those expressed or implied by such statements. Recipients should not place reliance on, and are cautioned about relying on, any forward-looking statements. Important factors that could cause actual results (including the payment of dividends), performance or achievements of British Land to differ materially from any outcomes or results expressed or implied by such forward-looking statements include, among other things: (a) general business and political, social and economic conditions globally, (b) the consequences of the referendum on Britain leaving the EU, (c) industry and market trends (including demand in the property investment market and property price volatility), (d) competition, (e) the behaviour of other market participants, (f) changes in government and other regulation including in relation to the environment, health and safety and taxation (in particular, in respect of British Land’s status as a Real Estate Investment Trust), (g) inflation and consumer confidence, (h) labour relations and work stoppages, (i) natural disasters and adverse weather conditions, (j) terrorism and acts of war, (k) British Land’s overall business strategy, risk appetite and investment choices in its portfolio management, (l) legal or other proceedings against or affecting British Land, (m) reliable and secure IT infrastructure, (n) changes in occupier demand and tenant default, (o) changes in financial and equity markets including interest and exchange rate fluctuations, (p) changes in accounting practices and the interpretation of accounting standards and (q) the availability and cost of finance. The Company’s principal risks are described in greater detail in the section of this Annual Report headed Managing risk in delivering our strategy and principal risks. Forward-looking statements in this Annual Report, or the British Land website or made subsequently, which are attributable to British Land or persons acting on its behalf should therefore be construed in light of all such factors. Information contained in this Annual Report relating to British Land or its share price or the yield on its shares are not guarantees of, and should not be relied upon as an indicator of, future performance, and nothing in this Annual Report should be construed as a profit forecast or profit estimate, or be taken as implying that the earnings of British Land for the current year or future years will necessarily match or exceed the historical or published earnings of British Land. Any forward-looking statements made by or on behalf of British Land speak only as of the date they are made. Such forward- looking statements are expressly qualified in their entirety by the factors referred to above and no representation, assurance, guarantee or warranty is given in relation to them (whether by British Land or any of its associates, directors, officers, employees or advisers), including as to their completeness, accuracy or the basis on which they were prepared. Other than in accordance with our legal and regulatory obligations (including under the UK Financial Conduct Authority’s Listing Rules, Disclosure Guidance and Transparency Rules, and the EU Market Abuse Regulation), British Land does not intend or undertake any obligation to update or revise publicly forward-looking statements to reflect any changes in British Land’s expectations with regard thereto or any changes in information, events, conditions or circumstances on which any such statement is based. This document shall not, under any circumstances, create any implication that there has been no change in the business or affairs of British Land since the date of this document or that the information contained herein is correct as at any time subsequent to this date. Nothing in this document shall constitute, in any jurisdiction, an offer or solicitation to sell or purchase any securities or other financial instruments, nor shall it constitute a recommendation or advice in respect of any securities or other financial instruments or any other matter. 200 British Land | Annual Report and Accounts 2019 Designed and produced by Black Sun Plc Printed in the UK by Pureprint who are a CarbonNeutral® company and are registered to the Environmental Management System ISO 14001 and are Forest Stewardship Council® (FSC) chain-of-custody certified. This report is printed on X-Per which is made from FSC® certified and other controlled material. If you have finished with this document and no longer wish to retain it, please pass it on to other interested readers or dispose of it in your recycled paper waste. Thank you. Head office and registered office York House 45 Seymour Street London W1H 7LX Telephone +44 (0)20 7486 4466 britishland.com info@britishland.com @BritishLandPLC @BritishLandPLC British Land PLC @BritishLandPLC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 9 B R I T I S H L A N D