british land plc investor & analyst event/media/files/b/... · data driven targeting. 3. model...
TRANSCRIPT
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Investor & Analyst Event 18 SEPTEMBER 2019
BRITISH LAND PLC
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WelcomeTim Score, Chairman
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Introduction Chris Grigg, CEO
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Places PeoplePrefer
Our Purpose
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12.45: Welcome & Introduction
13.00: Delivering a Mixed Use Business
• Mixed use at British Land – Darren Richards
• Evolving our customer offer – Mike Wiseman
• Delivering on the ground: Claire Barber, Emma Cariaga, James Lowery, Tim Haddon
13:45: Q&A
14:15: Responding to Long Term Market Trends
• Technology – Sally Jones, Ben Dimson, Jules Barker
• Sustainability – Cressida Curtis, Juliette Morgan
14:45: Break, including BL application demos
15:00: Capital Allocation & Retail
• Capital allocation & retail operational update – Simon Carter
• CVA approach – Brona McKeown
• Long term view on retail – Simon Carter
15:30 Break outs: Storey, Canada Water, London Leasing, Retail market update
17:00: Q&A and Wrap up, followed by drinks
Agenda
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Building a London focused, increasingly mixed use business
March 2010 Current Indicative business split 5+ years
66% 45% 30-35%
Retail Campus-focused Offices
Storey Residential
33% 51%5%
10%
50-55%
• London focused: over 70% of group
• Smaller, more focused Retail
• Meaningful Residential exposure
• Right balance of flexible and core workspace
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Our strategy is delivering- Mixed use is a competitive advantage
- Our strategy is aligned with what our customers need
- The right retail can succeed long term within our business
- We have a structured plan to reshape our business
- We are delivering on the ground in a tough retail market
Our objectives for today are to demonstrate…
1
Our response to long term trends2
We have the depth and breadth of talent to deliver
- Our capabilities have broadened
3
How we deliver value through development
- What we have achieved and how - Further value to come: significant
opportunities and optionality built in
4
Our focus on capital efficiency
- Strong track record of managing capital- Sales, buybacks and developments
5
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Delivering Mixed UseDarren Richards, Head of Real Estate
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£12.3bn(BL share)
A diverse, high quality portfolio
Image to come
Solus Retail (7%)
London Campuses (41%)
Residential & Canada Water (3%)
Regional Retail (19%) incl. Meadowhall (7%)
Local Retail (9%)
Standalone offices (10%)
Retail – London & SE (11%)
68%London & South
East
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Flexible AffordableAttractive to skilled employees
Well connected
Aligned to their brand
Tech enabled Close to complementary
businesses
Well connected Safe and promotes wellbeing
Located in vibrant neighbourhoods
Sustainable and eco friendly
Close to retail, leisure and
dining options
Supported by excellent facilities
and services
Has a range of workspace including collaborative
and quiet
Why mixed use?Occupiers
want space which is…Employees
want space which is…
World class, sustainable and smart buildings Attractive, vibrant and safe public space+
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Long term development potential at our campuses
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Eataly – 135 Bishopsgate
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Exchange Park – Broadgate
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Amphitheatre – Paddington Amphitheatre – Paddington Central
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We have created a distinctive advantage in mixed use • Mixed use campus development
– 1-2 Broadgate, 2-3 Finsbury Avenue, 5 Kingdom Street near & medium term
– 1.3m sq ft committed developments
– Further opportunities Norton Folgate, Ealing, Kingston, Woolwich, Canada Water
• Scale– Control of groundscape eg. Eataly,
Exchange Park
• Operational platform – Expertise across development, planning,
marketing, data and tech, sustainability
– Combined asset management team with dedicated retail and offices function
• Natural partner for complex schemes – SWFs, property specialists, Government Broadgate
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• Taking market share – 1.1m sq ft office leasing in FY19
– Accounting for 8% of the central London leasing market with 2.5% of the stock
• Delivering higher rents– Most recent lettings over £80psf at Broadgate
– vs £72psf for City prime rents and £49psf at Broadgate in 2015
– Attracting a wider mix of occupier
• Improving leasing velocity – Development pipeline 85% pre let or under
offer
– Includes smartly repurposing space (eg. 1 Finsbury Avenue and 135 Bishopsgate)
Significant office leasing success
Attracting a broader range of occupier
1
2
3
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Storey roll out
Current Locations
Forthcoming Locations
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An increasingly diverse range of office occupiersSept 2010 March 2019
£176m rent £237m rent
Banks & Financial Services
Professional & Corporate
TMT
Government
Resources & Manufacturing
Food / Leisure
Retail
Flexible Workspace
Other
Based on gross contracted rent
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A nimble & commercial approach across the business
Image to come
Solus Retail (7%)
London Campuses (41%)
Residential & Canada Water (3%)
Regional Retail (19%) incl. Meadowhall (7%)
Local Retail (9%)
Standalone offices (10%)
Retail – London & SE (11%)
68%London & South
East
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Driving outperformance at Meadowhall
13Consecutive
months
Footfall growth
Q1 LFL sales
+2.6%
22m footfall
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Fort Kinnaird, Edinburgh • 14 deals in 2 years
• Thoughtful approach including cut and carve of larger units – Protects income
– Retailers get smaller, more affordable units
– Recently achieved rents of £70psf on smaller units, double a 10,000 sq ft unit
• Delivering positive footfall & sales growth
Fort Kinnaird: 15m footfall
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Inverness• 50,000 sq ft Homebase returned
– Decision not to split unit – Protects supply & demand tension – Re-let space to The Range at a lower level; reflected in
March valuation
• 99% let inc. deals under offer
• Strong sales growth since Range opened
Inverness: 5m footfall
Orbital, Swindon• 40,000 sq ft Homebase returned
– Different demand supply dynamic – unit split – Lidl signed and two deals close to exchange – Transacting in line with March ERV
• 100% let inc. deals under offer
• Positive LFL sales and footfall for the year to Mar 19
Orbital, Swindon: 5m footfall
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100 Liverpool Street
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Evolving our customer offer
Mike Wiseman, Head of Office Leasing
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Leasing success at our developments
85%Pre-let or under
offer
14.7Average lease
length
<32mthsAverage rent free
1 Finsbury Avenue287,000 sq ftPC’d Q1 2019
135 Bishopsgate335,000 sq ft
Completion Q3 2019
100 Liverpool Sreet521,000 sq ft
Completion Q1 2020
1 Triton Square366,000 sq ft
Completion Q4 2020
97% pre-let / under offer77% pre-let / under offer 75% pre-let / under offer Office space fully let
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The occupational market remains supportive
Supply remains relatively
constrained
Much of the development
pipeline is already committed
Strong demand from occupiers
An unconventional London Office market
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Delivering the best quality buildings
Committed to great design
Focused on product
differentiation
Demonstrating creative re-use
1 Finsbury Avenue, Broadgate
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The office is more than just a place to work
Focus on people,
customers & productivity
Moves between submarkets
more common
Delivered through our
campus strategy
Exchange Park, Broadgate
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Integrating flexibility
Creating spaces at
different price points
Enabling customers to
use space efficiently
Core and flex approach
resonating
4 Kingdom Street, Paddington
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Increasing focus on service as a differentiator
We design, deliver and manage our
spaces
Leveraging our operational
expertise
Integrating technology to
enhance experience
135 Bishopsgate, Broadgate
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Our Customer Commitments
• You can choose from our networkof locations
• You will be in a great place, both inside and out
• You can rely on us to be an active partner, working closely with you to achieve your goals
• You will have the services you need to help your business be successful
• You will be part of a vibrantcommunity
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Delivering Mixed Use Panel Discussion
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Delivering Mixed Use: Panellists
Emma CariagaJoint Head of Canada Water Development
Claire Barber Head of Retail Development
James Lowery Co-Lead of Storey
Tim Haddon Head of Asset Management,
Ealing Broadway & Standalone Portfolio
David WalkerHead of Investor Relations
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Introduction Sally Jones, Head of Strategy & Investments
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Long-term trends driving our strategy
Sustainability (Climate change +
social responsibility)
TechnologyRising consumer expectations
BREXITLow interest rates
Globalisation Global Cities -London
Urbanisation
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Thoughtful approach to technology-led change
Power has shifted to the consumer
Intermediaries have been disrupted
Winners have used tech to deliver great customer experiences
Strengthen the relationship with our customers and consumers
Own and control our data
Leverage significant proptech investment and build partnerships
What we’ve learnt from the tech-led revolution Our three core guiding principles
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Thoughtful approach to technology-led change
Understanding our customers better
Providing our customers with a better experience
Making our buildings more efficient
Campus benefits amplified by technology
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Data & InsightsBen Dimson, Head of Business Development
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Insight at British Land
Be customer oriented, innovating
to understand the needs of our
stakeholders
We create insights from research and data to:
Generate incremental value, for our customers and shareholders
Strengthen decision making, supplementing and
challenging our current approach
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Supporting the leasing lifecycle at Meadowhall
4
Identify optimum centre locations with WiFi data
8
Review performance vs strategy
5
Share catchment knowledge to support marketing activity
2
Data driven targeting
3Model turnover, potential cannibalisation, online sales
7
Provide footfall and sales data to occupiers
Understand catchment and positioning
1
1
ROTHERHAM
£120mTurnover
£34mPotential turnover
Key Opportunity Acorn GroupsSteady NeighbourhoodsModest Means
SHEFFIELD
£219mTurnover
£41mPotential turnover
Key Opportunity Acorn GroupsStudent Life
Mature Money
6Collect sales data through BL:comm
6
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Meadowhall performance
Meadowhall
Footfall growth
Over thirteen consecutive months
Q1 LFL sales
+2.6%
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Supporting development decisions at Canada WaterOptimal space allocation modelling
3
Community and user surveys4
Focus groups to test brand proposition
5
Movement studies
6
Model range of development scenarios
1
1
90%
85%
85%
81%
80%
80%
79%
79%
78%
73%
73%
Business Services
Media/Creative
Technology
Banking/Financial Services
Professional/Corporate Services
Other
Life sciences
Retail & Leisure
Construction/Property
Government
Public Administration/Education
Proportion of workers who use their local F&B services weekly by industry sector:
92%
90%
83%
74%
77%
78%
CXO/ Partner/ Founder
Senior Executive
Management
Experienced (non-manager)
Assistant / Support Staff
Entry Level/ Graduate
Proportion of workers who use their local F&B services weekly by Position:
London office worker benchmarking survey2
2
Future workers based on London worker survey data. Future residents based on price projections and affordability. Future visitors based on CACI gravity model.
Canada Water: Phase 1A
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Smart: Digital PlacemakingJulian Barker, Head of Smart Places
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The HumanSpaces in which vibrant communities can thrive,
with a focus on wellbeing and
connection
The PhysicalGreat places inside
and out, in great locations
The DigitalUsing technology to
enable people to engage seamlessly and optimise their
space
Smart: Digital PlacemakingUsing technology in the built environment to make our places outstanding
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Customer relationships
Strategic differentiator
Financial benefit
British Land
How does digital placemaking support British Land?
Our occupiers
Cost
Brand
Talent
Sustainability
Community
Our society
Wellbeing
Productivity
Our customers
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Home…
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…work
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The physical
The hardware
The data environment
The user experience
What do we need to do to become ‘Smart’?
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The physical
The
hard
war
e
The
data
en
viro
nmen
t
The
user
ex
perie
nce
Case study: 100 Liverpool Street
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7:30
Community, desk booking and building access• Check out daily events on campus app• Post message to community group,
e.g. running club, professional network• Reserve space, e.g. hot-desk, cycle
rack, parking space• Scan app to access building
Visitor management• Guest arrives using digital
access and wayfinding• Front of house prompted by app to
greet by name• Host receives arrival notification
Control the meeting room• Meeting room temperature
adjusts automatically based on number of attendees, and can be adjusted using app
• AI voice assistant sets up AV, reorders refreshments, and can order a taxi
Environment control• Desk / office automatically detects
you and adjusts to your preferred settings, e.g. temperature, light control, desk height
Order lunch• Order lunch for delivery,
paying through the app, earning campus loyalty points
Review sensor dataon workspace utilisation• Use real-time dashboard to find
a free desk or breakout space• Review workspace usage to
identify more productive and cost effective layouts
Meet up with campus running club• Meet campus running club on the
campus square, update and share your ETA through the app
Benefit from automaticbuilding adjustments• Building identifies high meeting room
occupancy• Increases HVAC before CO2 and
temperature rise
8:158:55
9:00
12:00 13:00
15:00 18:00
All day: Building AI automatically adjusts itself to optimise energy performance, comfort etc based on sensor data and analytics
All day: British Land aggregates information from various sources, synthesizes data and insights for commercial decisions and value-add services for customers
All day: Occupiers can view live space utilisation and energy dashboard, to optimise space allocation
A Day in the life of a Smart British Land CampusUse the Smart app, Smart building or Smart campus to…
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Leveraging Smart at British Land
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Introduction to Sustainability Simon Carter, CFO
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SustainabilityCressida Curtis, Head of Corporate Affairs and Sustainability
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54
Major stakeholders
Customers Employees Communities Investors
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55
Current programme: 2019 Performance
FutureproofingCapital efficiency
54% 64% 55% improvement in carbon efficiency vs 200940% 44% 55% improvement in energy efficiency vs 200997% 96% 100% of electricity to come from renewable sources92% 92% 100% new developments on track to achieve BREEAM Excellent / Very Good- 10% 15% reduction capital carbon emissions vs concept (embodied carbon)New target In progress Trial 3 visible interventions to improve local air quality1% 0.4% Zero waste to landfill
Skills and opportunityExpert people
839 1,232 1,700 people supported into employment1.2% 2.4% 3% of BL workforce and priority tier 1 and 2 suppliers to be apprentices Code launched 53% 100% strategic suppliers signed up to new code of conductNew target In progress Pilot a Living Wage Zone at a London campus 100% / 70% 100% / 66% 100% BL and supplier workforce at managed assets paid Living Wage
WellbeingCustomer orientation
On track On track Achieve WELL Certification on 100 Liverpool StreetIn progress In progress Establish and pilot wellbeing specification for retail developments 84% 84% Improve satisfaction scoresAchieved Achieved Define and trial a measurement of office productivityOn track Achieved Research & publish on how development design impacts public health
CommunityRight places
Charter estab. 92% Fully implement Local Charter at staffed assets and major developments16% 17% 20% employee skills-based volunteering79% 81% 90% employee volunteering
FY18 FY19 2020 Target
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44%improvement inenergy intensity
(operational)
64%Improvement in carbon intensity
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
1880
1883
1886
1889
1892
1895
1898
1901
1904
1907
1910
1913
1916
1919
1922
1925
1928
1931
1934
1937
1940
1943
1946
1949
1952
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
Year
Global temperature, January – December vs 20th century average
56
Anom
aly
°C
2019 Performance Highlights: environment
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1,232people intoemployment
2019 Performance Highlights: society
40,000Children supported
to read
57
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Brief for DevelopmentMinimising embodied carbon
Maximising community impact
58
How sustainability creates value
WellbeingImproving resilienceBuilding community
CommunitiesPowering the local economy
Increasing opportunity
Energy AuditsMinimising operational carbon
Reducing cost
Reduced carbon exposure
Reduced BL and customer energy costs
Stronger support from local authorities
and consumers
Customer and consumer loyalty
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Forward thinking
Evolving our approach
Building on areas ofgreatest expertise
Weaving intocustomer offer
Leveraging reach of supply chain
Aligning to UN SDGs
Incorporating science-based accredited targets
Increasing focus on impact
Supporting fulfilmentof societal ambitions
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Sustainability in the built environmentJuliette Morgan, Head of Sustainable Development
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Source: Project Drawdown
Solution Total atmospheric Co2 reductions (GT)
1 Refrigerant management 89.7
2 Wind turbines 84.6
3 Reduced food waste 70.5
4 Plant-rich diet 66.1
5 Tropical Forests 61.2
6 Educating girls 51.5
7 Family planning 51.5
8 Solar farms 36.9
9 Silvopasture 31.2
10 Rooftop solar 24.6
Project Drawdown: CO2 reductions by sector, top 10
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Source: Project Drawdown
54.5 GT potential CO2 reduction from the Cities & Buildings sector by 2050 from these initiatives…
Project Drawdown: CO2 reductions by cities & buildings
DISTRICT HEATING
INSULATION
LED LIGHTING (HOUSEHOLD) HEAT
PUMPS LED LIGHTING (COMMERCIAL)SMART GLASS
WALKABLE CITIES
BUILDING AUTOMATION
SMART THERMOSTATS
LANDFILL METHANE
BIKE INFRASTRUCTURE
WATER DISTRIBUTION
GREEN ROOFS
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Decarbonising materials
• Key benefits of building with wood – Trees absorb and sequester carbon; dry wood is
50% carbon which remains stored in timber construction materials
– Producing these materials generates fewer greenhouse gas emissions than alternatives like cement or steel
• Today’s high performance products are highly fire resistant
• Timber products can be prefabricated, reducing construction costs
• Building with wood could reduce annual global Co2 emissions by 14% to 31%
Orsman Road, Haggerston
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Sustainability at our Campuses – Broadgate
tonnes recycled10,000
Zero waste to landfill since 2013
renewable electricity sourced from renewable sources certified
through REGO certificates
100%M&E monitoring and support minimises downtime, leaks and risk of contamination
24/7
of green roofs, supporting nature in the city
17,500sq ftof rainwater harvested, saving mains water, cutting bills and
reducing urban flood risks
2.8m litresof BREEAM certified green
buildings
1.6m sq ft
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Reuse of structure + façade elements
Emissions avoided equivalent to gas & electricity emission free operation for
26 years
Vital Statistics
BREEAM outstanding
20,000 tons carbon offset
50% reduction in embodied carbon
35% reduction in operational energy
65% reduction inwater use
80% responsiblysourced materials
All timber FSC certified
98% build waste diversion
In buildings: reduce, reuse and recycle – 1 Triton Square
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• All new stone sourced from Europe rather than China
• As much existing stone retained as possible
• Decisions to reduce water use in planting
• Retaining trees even where inconvenient
• Lower carbon materials selected
• Edible planting to include local community
Regent’s Place
Public realm: Regent’s Place landscaping & air quality
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Circular fit out – Storey fitted space
• Furniture contributes 30% of a building’s GHG emissions over its life – Because furniture is replaced multiple times
• “Circular” office furniture can save almost 25% of a building’s GHG emissions
• 338 Euston Road trial – 246 items from the previous tenant were
remanufactured and incorporated into the new offices
– 2,980 kg of waste avoided
– 12,145 kg Co2 GHG emissions saved
– £72,000 saved
338 Euston Road, Regent’s Place
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• Our café and event space at 17-19 Triton St will use low impact materials– Natural and recycled wood products
– Vintage furniture
– Plants and natural light
– Sustainable and upcycled kitchen and tableware
– Recycled paint, crushed glass and recycled yoghurt pot materials.
• Local community resource – Lending library with books and publications from
Knowledge Quarter partners
– Community wall to display work from visitors and share information about Regent’s Place Community Fund and partners
– Flexible space for yoga, fitness, talks, exhibitions or pop ups
Eden Space, 338 Euston Road
Sustainable fit out: Eden space
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2
Already at Storey Club…
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In summary
Neighbourhood, asset and interiors level
Reducing carbon footprint and delivering social benefits
An approach not a department
It drives us and our customers
Commitment and curiosity to keep impacting in this area
123
45
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Capital Allocation
Simon Carter, CFO
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(1,600)
(1,200)
(800)
(400)
-
400
FY16 FY17
£m
Sales Purchases
FY18 FY19
Net disposals of over £3bn of assets since 2015
39 Victoria Street- Sale price
£139m- 4.3% NIY- IRR 22%
Debenhams, Oxford St.- Sale price
£400m- 2.9% NIY- IRR 13%
Leadenhall- Sale price
£1.15bn (£575m at share)
- 3.4% NIY- IRR 25%
5 Broadgate- Sale price £1bn
(£500m at share)
- 4.0% NIY- IRR 18%
Clarges Residential - Total sold
£383m over 2 years
- Delivered £200m profits to date
Retail sales totalling £2.2bn• 50 superstores ~ £730m• 7 department stores ~ £610m• 13 multi-let centres ~ £440m• 61 other assets (including gyms & pubs) ~ £370m
1 Sheldon Square- Purchase price
£210m
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5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
20
22
24
26
28
30
32
34
36
FY15 FY16 FY17 FY18 FY19LTV Debt to Net Rents
£4.9bn £4.8bn
£4.2bn£4.0bn
£3.5bn
Net Debt
LTV
(%)
Debt to N
et Rents (x)
Sales proceeds used to de-lever…
1 Calculated as the ratio of net debt to net rents (proportionally consolidated)
1
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…and recycled into value accretive developments…
1 Finsbury Avenue 287,000 sq ftPC’d Q1 2019
Recently Completed & Committed Developments
100 Liverpool Street 521,000 sq ft
Completion Q1 20201-2 Broadgate531,000 sq ft
135 Bishopsgate335,000 sq ft
Completion Q3 2019
1 Triton Square366,000 sq ft
Completion Q4 2020
Near term pipeline
Norton Folgate335,000 sq ft
• ERV of £63m• 85% pre-let or under offer • 6% yield on cost
• ERV of £39m• Both schemes consented• 6% yield on cost
Delivered £1.7bn profits since 2010, c.£300m to come
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7.4m sq ftMedium term pipeline
opportunities
Located at mixed use assets: - 2-3 Finsbury Avenue, 5 Kingdom Street,
Gateway Building, Ealing, Eden Walk- £263m book value- £5m current rent roll- c.£75m potential ERV - 3 out of 5 schemes already consented
Standalone:- Meadowhall Leisure, Aldgate Place- £26m book value- Flexibility over progression options- Both schemes consented
Canada Water- Masterplan and detailed planning on first three
buildings submitted; decision expected 30th September 2019
- £303m book value- £8m current rent roll
…with further medium-term opportunities
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Proceeds also recycled into value accretive buybacks
Compelling arbitrageLocked in 33p NAV uplift
Attractive Income Return6% implied look through yield
Execute on a leverage neutral basis
Potential diseconomies of scale
Portfolio weightings unchangedOpportunity cost
Considerations
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Retail Operational Update
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Retailers are experiencing a perfect storm
Business Rates Brexit uncertainty Winners and Losers
Rising wage costs
Devaluation of currency
Growth of online
Store Closure Programmes,
CVAs/Administrations
Valuation declines
Rentalpressures
Landlord Impacts
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+2%vs previous passing
rent1
Assets to be developed80k sq ft£0.7m headline rent25% below passing rent2.4 years average lease length7 mth average incentive
Rates mitigation75k sq ft£0.2m headline rent9 mths average lease length
Temporary lettings90k sq ft£1.6m headline rent23% below passing rent1 year average lease lengthNo incentive given
97%Retail occupancy
Commercialisation & car park income45k sq ft£0.6m headline rent 3 years average lease length4 mths average incentive
Retail leasing overview (5 months to August-19)
Long term new lettings210k sq ft£4.0m headline rent18% ahead of passing rent3% ahead of ERVs7.4 years average lease length7 mths average incentive
1 Excludes assets to be developed, rates mitigation and commercialisation & car park income
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3.2 0.3 -0.9-0.2
-1.4
-2.4-3.1 -3.2
-4.4
Q1 FY20FY16 FY18FY17 FY19
0.0
British Land Footfall movement vs Benchmark1
% YoY
Continuing to outperform key operational metrics…
BL Footfall Benchmark Outperformance
420 bps230 bps340 bps240 bps
460 bps
1 ShopperTrak UK National Index
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2.4
-1.6 -1.5
1.1
-0.2
-2.2-2.9 -3.1
British Land LFL sales movement vs Benchmark1
% YoY BL LFL Sales Benchmark Outperformance
0.0
520 bps
160 bps130 bps220 bps
260 bps
Q1 FY20FY16 FY18FY17 FY19
Continuing to outperform key operational metrics…
-4.1
1 BRC KPMG In-Store LFL Non-Food Index
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CVA Approach
Brona McKeown, General Counsel and Company Secretary
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1986
Insolvency Act introduces CVAs
A history of CVAs
2009
JJB “Landlord” CVA• reduces lease payments but leaves
other creditors unaffected• discounts Landlord vote by 75%
3-4 Retailer “Landlord CVAs” per year
2013-2017 March 2018
CVAs which affect more than rent appear
Seek legal advice as more adverse terms
emerge
June 2018
House of Fraser
BL CVA cross business committee forms and determines strategy
July 2018September 2018
BL engages with insolvency practitioners
Red Flags launched via BPF
November 2018
BL and group of landlords launch legal challenge of
Regis CVA
February 2019
Technical structure of
Landlord Steering
Committee takes shape
On Arcadia, SteerCo of Landlords via Advisor got:• access to better financial
business information• concessions and 20% upside on
sale for all landlords
May 2019
Arcadia CVA
June 2019
Monsoon CVA
September 2019
Debenhams CVA challenged in CourtOutcome awaited
December 2019
Regis challenge in court
Key: Macro events BL actions
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Red Flags (November 2018) Effect Of Landlord Pushback Over Last 12 Months
1 Moritorium against landlords enforcing all tenant covenants
Now generally limited to pre-CVA breach or non-payment of contracted rent
2 Very short time for landlord break rights Some improvement but still a challenge on every CVA to extend time to break and get recurring right
3 Tenant break rights Still far too extensive on a “just in case” basis
4 Tenant removing obligation to give guarantee on assignment Now usually dropped or limited to rent concession period
5 Removing upwards only rent reviewsNow usually reverts to CVA rent or ERV if higher. Have recently seen rent revert to pre-CVA levels at end of a CVA but too early to see if others follow
6 Dilapidations compromised across all unitsfor a flat rate regardless of condition
Recent CVA did not compromise dilapidations on occupied stores at all.Have recently seen dilapidations only compromised when landlord serves a break
7 Landlords’ claims against compensation fund discounted by 75% Largely gone
8 Compensation fund limited to the first 3 years’ profit (or less)
Most recent CVAs have shown more meaningful share of future upside but more to do
9 CVA rental discounts for whole term of leases Recent CVAs have generally not attempted this
10 Rental discounts survive termination of the CVA Now usually not attempted
11 Landlord votes on CVA discounted by 75% Precedent broken recently by discount of 25% but still should not be discounted at all
Now generally not attempted or usually conceded
Improves on negotiation but still always attempted
Insisted on by tenants every time
Improving trend
The Changing CVA Landscape
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Longer Term View
Simon Carter, CFO
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Occupancy Cost Ratio
0%2%4%6%8%
10%12%14%16%18%20%
BL UK Peers
Occupancy cost ratio defined as the sum of total rent, service charge, rates, insurance as a proportion of retailer sales (net of VAT). Peers include Landsec, Hammerson and intu.Rent to sales ratio defined as total rent as a proportion of retailer sales (net of VAT). Peers include Landsec and Hammerson. Both metrics based on all stores, including MSUs and anchors.
Rent to Sales Ratio
0%
5%
10%
15%
BL UK Peers
Our portfolio is relatively affordable to our occupiers
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Long term drivers of trading densities
TotalRetail sales
growth
Online penetration
PhysicalRetail salestrajectory
+ Shrinkage of floorspace = Sales per sq ft
growth
10yr view
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Total Retail Sales growth (pa)
Online penetration
Implied long run physical sales growth (pa)
Optimistic
4.5%
50% 35%
Current
3.3%10yr historic
CAGR
19%
2.5%10yr historic
CAGR
-2% 2%
Pessimistic
2.5%3.3%
Historic growth
4.3%
CACI
2.6%
Euromonitor Passport
4.2%
Oxford Economics
35% 32%
Extrapolated Historic growth
CACI
We expect online to absorb the majority of retail sales growth…
Sources: ONS (historic), Euromonitor Passport (data to 2023), Oxford Economics (data to 2029), CACI (data to 2026). Figures all nominal and represent total retail sales (includes food and groceries, excludes fuel)
10yr view
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…however with shrinking floorspace, industry trading densities likely to grow
Pessimistic Optimistic
10yr view
Source: JLL (data to 2026). Figures all nominal and represent total retail sales (includes food and groceries, excludes fuel)
Implied long run physical sales growth (pa)
-2% 2%
Shrinkage of Floorspace (pa)
Industry sales per sq. ft growth (pa)
-2%
-1% +4%
-1%-1%
JLL store closures prediction
-1.5%
JLL floorspace decrease prediction
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Industry sales per sq. ft growth (pa)
British Land historic LfLsales outperformance (pa)
-1% +4%
+190bpsFY16-FY19
outperformance
…and we expect to continue to outperform
Pessimistic Optimistic
Implied British Land portfolio sales per sq. ft (pa) +1% +6%
10yr view
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Expect physical sales
per store to grow in our
portfolio
Short term outlook remains tough, but we are positioned to outperform over the longer term
Value of fulfilment
Value of Click & Collect/returns
2/3rds of click and collect customers go on to make a
purchase in store
BL’s affordable position
Occupancy cost 14%
Careful asset selection
Reduce Retail to third of portfolio
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Shares are trading at c.40% discount to NNNAV1
Discount applied pro-rata to Offices and Retail
Offices trade at NNNAV; discount attributed to Retail
Discount to GAV 26% 58%
Implied Retail net initial yield 7.0% 12.2%
Implied Retail capital value (psf) £310 £180
1 EPRA NNNAV is the EPRA Net Asset Value adjusted to reflect the fair value of debt and derivatives and to include deferred tax on revaluations. Analysis based on 3 mth VWAP of 518p as at 12th September 2019
Retail capital values
Replacement cost psf
£200
March ‘09 capital value psf
£265
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Wrap up Chris Grigg, CEO
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Our strategy is delivering- Mixed use space attracting a broader mix of
occupier…
- …achieving higher rents and faster leasing velocity
- Success across new and refurbished space
- Outperformance in a tough retail market:
driving 190 bps sales and 320 bps footfall
- Clear long term plan to refocus the business
Today we have demonstrated…
1
Our response to long term trends
- Clarity of purpose- Leading in smart buildings- Thoughtful in sustainability
2
Our depth and breadth of talent to deliver
- Depth of property expertise- Breadth of other skill sets
3
How we deliver value through development
- £1.7bn profit delivered to date; c.£300m profits to come
- Developments 85% pre let or under offer- 7.4m sq ft further opportunities
4
Our focus on capital efficiency
- Locked in significant returns via sales- Strong balance sheet, to exploit
opportunities
5
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Break outs
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Break out 1:Retail marketupdate
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A few of the winners…
Online pure player with a slick platform
Fast, value or aspirational fashion with point of difference
Aspirational brand aggregators
Differentiators in growth sectors
Convenience value players with good networks
Companies with strong omnichannel offer & quality stores benefiting from consolidation
The retail landscape
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Robust demand from successful leisure and F&B operators
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Our key selection criteria
Rental growth potential
The right characteristics to drive income from rents and commercialisation
Development potential
Potential to grow and/or reconfigure the asset to meet future requirements
Mixed-use potential
Potential to create a true mixed-use community including retail, leisure, office and residential uses
Fulfilment potential
Potential to become a last-mile fulfilment hub, considering potential to develop and quality of local infrastructure
Population trends
Large population in catchment, with growth potential
Quality of demographics
The right number of the right type of demographic groups
Economic health Above average income and employment levels in the catchment
CompetitionQuantum of retail space in the local area; strong competitive position relative to potential competitors
Critical MassRight size scheme – large enough for draw, but small enough to drive demand:supply tension
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Our structured approach: retail portfolio scorecard
ValuationOperational
outperformance to June 19
Key Scorecard Attributes
As at March 2019
Footfall vs Benchmark1 LfL Sales2 Occupancy Catchment &
DemographicCompetitive
PositionAppropriate
SizeDevelopment
PotentialAlignment to
strategy
Retail –London & SE
£1.3bn +300bps +190bps 97%
Regional Retail £2.3bn +260bps +180bps 97%
Local Retail £1.1bn +260bps +260bps 97%
Solus Retail £0.8bn n/a n/a 100% n/a n/a
1 Footfall based on a 2yr average versus ShopperTrak UK National Index2 LfL Sales based on 2yr average versus BRC KPMG In-Store LFL Non-Food Index
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Break out 2:London leasing
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Driving value through developments
1 Finsbury Avenue287,000 sq ftPC’d Q1 2019
135 Bishopsgate335,000 sq ft
Completion Q3 2019
100 Liverpool Street521,000 sq ft
Completion Q1 2020
1 Triton Square366,000 sq ft
Completion Q4 202097% pre-let / under offer77% pre-let / under offer 75% pre-let / under offer Office space fully let
Office space fully let34,000 sq ft retail, leisure and
affordable workspace available
2019
Committed Pipeline – £63m ERV
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Driving value through developments2020 onwards
Norton Folgate335,000 sq ft
£206m cost to comeEnabling / demolition
Underway
1-2 Broadgate531,000 sq ft
£198m cost to comeExpected start Q2 2020
5 Kingdom Street429,000 sq ft
2-3 Finsbury Avenue563,000 sq ft
Gateway Building
105,000 sq ft
Near term pipeline – £39m ERV Medium term pipeline – excl. Canada Water
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Break out 3:Storey
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Building out Storey167,000 sq ft across 8 buildingsOperational at Broadgate, Paddington Central and Regent’s Place as well as standalone buildings
Appold Studios, Broadgate7,000 sq ft
“We had outgrown the co-working space stage, but we realised finding space for a scale-up was not going to be easy. Working with Storey was the perfect solution for us”
CEO and Co-Founder, Rotageek
338 Euston Road, Regent’s Place23,000 sq ft
2 Kingdom Street, Paddington Central26,000 sq ft
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Building out Storey135,000 sq ft committed pipelineIncludes space at our recently completed 1FA development demonstrating the key role of Storey at our campuses
1FA, 73,000 sq ftLaunching October 2019
19 Wells Street, Fitzrovia 21,000 sq ftLaunching September 2019
6 Orsman, Road, Haggerston40,000 sq ftLaunching early 2020
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Building out StoreyHow British Land supports Storey’s operating platform
Leasing and Asset Management
Finance and Legal
Development
HR and Other Support Services
Group Technology
Proposition & Operating Model
Landlord Services
Select and plan space
Fit out and Furnish
Channel and pricing strategy
Marketing & leasing
Technology
Account management
Storey and FM services
Customer onboarding
Personalisation
Technology installation
Operational stats
• c.30% premium to traditional lettings
• Stabilised portfolio 81%let or under offer
• 24 months average lease length
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Break out 4:Canada Water
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Canada WaterAcquisition of 50% of Surrey Quays Shopping Centre ~ 23 acres
Conditional agreement to acquire the Printworks – 14.5 acres
Acquisition of remaining 50% of Surrey Quays Shopping Centre
2010 2011 2012 2013 2014
The Masterplan
53 acres
5mDevelopable area
3k homes
2m sq ft Workspace
1m sq ft Retail & leisure
Workspace2 million sq ft
Residential3,000 homes 35% affordable (70% social rent; 30% intermediate)
Retail & Leisure1 million sq ft
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Canada WaterAcquisition of Surrey Quays Leisure Park ~ 8.5 acres Acquisition of the Dock Offices
2014 2015 2016 2017 2018
A transformational first phase
1200homes
1.5m sq ft Offices & Educational
150k sq ft Retail & leisure
First Developments• Public realm:
Dockfront West, Dock, Office Courtyard, Retail village
• Plots: A1, A2, K1, leisure centre, modular campus
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Canada WaterMDA signed with Southwark Council; Masterplan and detailed planning on first three buildings submitted
Earliest start on site
2018 2019 2020 2021 2021
A rich history
Acquisition of Rotherhithe Police Station
A healthy place of green and blue Plans shaped by the community
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DisclaimerThis presentation and its notes (together, the "Presentation") may contain or incorporate by reference certain “forward-looking” statements. Such statements reflect current views, expectations and beliefs of British Land on, among other things, our markets, activities, projections, strategy, plans, objectives, performance, financial condition and prospects, and appear in a number of places throughout this presentation. Such ‘forward-looking’ statements can sometimes, but not always, be identified by their reference to a date or point in the future, the future tense, or the use of ‘forward-looking’ terminology, including terms such as ‘believes’, ‘considers’, ‘estimates’, ‘anticipates’, ‘expects’, ‘forecasts’, ‘intends’, ‘continues’, ‘potential’, ‘possible’, ‘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. All statements of opinion and/or belief contained in this presentation and all views expressed represent British Land's own current assessment and interpretation of information available to them as at the date this presentation.By their nature, forward-looking statements involve inherent known and unknown risks, assumptions and uncertainties because they relate to future events and circumstances which may or may not occur and may be beyond our ability to control, predict or estimate. There can be no assurance that such statements will prove to be accurate. Forward-looking statements are not guarantees of future performance and hence may prove to be erroneous. Actual outcomes and results may differ materially from any outcomes or results expressed in or implied by such forward-looking statements. These forward-looking statements include all matters that are not historical fact. Forward-looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Even if results and the development of the industry in which British Land operates are consistent with the forward-looking statements contained in the presentation, those results or developments may not be indicative of results or developments in subsequent periods. Any forward-looking statements made orally or in writing by or on behalf of British Land speak only as of the date they are made. For further details of risks, assumptions and uncertainties that may impact British Land (which shall expressly qualify all oral and all written forward-looking statements made on or after the date of this presentation), please read the Strategic Report section, “Managing risk in delivering our strategy” and the "Principal Risks " on pages 54 to 61 of British Land's most recent Annual Report and Accounts which Annual Report and Accounts have not been updated since the date of their publication.Other than in accordance with our legal and regulatory obligations (including under the UK Financial Conduct Authority’s Listing Rules and the Disclosure Guidance and Transparency Rules, and the EU Market Abuse Regulation), British Land does not 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 events, conditions, circumstances or other information on which any such statement is based. Important factors that could cause actual results, performance or achievements of British Land to differ materially from any outcomes or results expressed or implied by such forward-looking statements are set out in those sections of British Land's Annual Report and Accounts stated above. Information contained in this presentation 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. Nothing in this presentation 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.This presentation is published solely for information purposes and for use at the British Land Investor & Analyst Day 2019. This presentation is not to be reproduced or distributed, in whole or in part, by any person other than British Land. The information, statements and opinions contained in this presentation do not constitute or form part of an offer or invitation to sell or issue, or the solicitation of an offer to subscribe for or buy, or any recommendation or advice in respect of, any security or financial instrument, nor a solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of the securities referred to in this presentation in any jurisdiction in contravention of applicable law. No part of this presentation, nor the fact of its distribution, shall form the basis of or be relied on for any purpose, including in connection with any contract or engagement or investment decision in any jurisdiction, and recipients are cautioned against relying on this presentation. No representation or warranty, either express or implied, is given (whether by British Land or any of its associates, directors, officers, employees or advisers) in relation to the accuracy, completeness, fairness or reliability of the information contained herein, including as to the completeness or accuracy of any forward-looking statements or the basis on which they were prepared, or that the objectives of British Land will be achieved, and liability or responsibility (including of British Land, its shareholders, advisers or representatives) howsoever arising in connection with this presentation is therefore expressly disclaimed (including in respect of any error, omission or misstatement, or for any loss, howsoever arising, from the use of this presentation). The information contained in the presentation does not purport to be comprehensive and has not been subject to independent verification.Certain of the information contained in this presentation has been obtained from published sources prepared by other parties. Certain other information has been extracted from unpublished sources prepared by other parties which have been made available to British Land. British Land has not carried out an independent investigation to verify the accuracy and completeness of such third party information. No responsibility is accepted by British Land or any of associates, directors, officers, employees or advisers for the accuracy or completeness of such information. The distribution of this presentation in jurisdictions other than the UK may be restricted by law and regulation and therefore any persons who are subject to the laws of any jurisdiction other than the UK should inform themselves about, and observe, any applicable requirements. The information disclosed may not be the same as that which would have been disclosed if this presentation had been prepared in accordance with the laws of jurisdictions outside the UK. All opinions expressed in this presentation are subject to change without notice and may differ from opinions expressed elsewhere. This presentation has been presented in £, £msand £bns. Certain totals and change movements are impacted by the effect of rounding.