THIS DOCUMENT AND ANY ACCOMPANYING DOCUMENTS ARE IMPORTANT AND REQUIRE YOUR IMMEDIATE ATTENTION. LR 13.3.1(4) If you are in any doubt as to the action you should take, you are recommended to seek immediately your own personal financial advice from your stockbroker, bank manager, solicitor, accountant, fund manager or other appropriate independent financial adviser, who is authorised under the Financial Services and Markets Act 2000 if you are in the United Kingdom or, if not, from another appropriately authorised independent financial adviser.
If you sell or have sold or otherwise transferred all of your Existing Shares (other than ex-rights) held in certificated form before 4 March 2009 (the Ex-Rights LR 13.3.1(6) Date), please send this document, together with any Provisional Allotment Letter, if and when received, as soon as possible to the purchaser or transferee or to the stockbroker, bank or other agent through whom the sale or transfer was effected for delivery to the purchaser or the transferee, except that such documents should not be sent to any jurisdiction where to do so might constitute a violation of local securities laws or regulations, including but not limited to the United States, the other Restricted Territories or the Excluded Territory. If you sell or have sold or otherwise transferred only part of your holding of Existing Shares (other than ex-rights) held in certificated form before the Ex-Rights Date, please consult the stockbroker, bank or other agent through whom the sale or transfer was effected and refer to the instructions regarding split applications set out in Part III of this document and in the Provisional Allotment Letter. If you sell or have sold or otherwise transferred all or some of your Existing Shares (other than ex-rights) held in uncertificated form before the Ex- Rights Dates, a claim transaction will automatically be generated by Euroclear UK which, on settlement, will transfer the appropriate number of Nil Paid Rights to the purchaser or transferee. The distribution of this document, the Provisional Allotment Letter and the transfer of Nil Paid Rights, Fully Paid Rights and New Shares into jurisdictions other than the UK may be restricted by law and therefore persons into whose possession this document comes should inform themselves about and observe any such restrictions. Any failure to comply with any such restrictions may constitute a violation of the securities laws or regulations of such jurisdictions. In particular, subject to certain exceptions, this document, the Provisional Allotment Letter and any other related documents should not be distributed, forwarded to or transmitted in or into the United States, the other Restricted Territories or the Excluded Territory. This document, which comprises a prospectus relating to the Rights Issue prepared in accordance with the Prospectus Rules of the Financial Services Authority (the FSA) made under Section 73A of the Financial Services and Markets Act 2000 (the FSMA), has been approved by the FSA in accordance with Section 87A of the FSMA and made available to the public in accordance with Rule 3.2 of the Prospectus Rules. Pursuant to Section 87I of the FSMA, the Company has requested that the FSA provide a certificate of approval and a copy of this document to the relevant competent authority in the Republic of Ireland. The Existing Shares are listed and admitted to trading on the London Stock Exchange’s main market for listed securities. Application will be made to the AIII, 4.7 Financial Services Authority and to the London Stock Exchange for the New Shares to be admitted to the Official List of the FSA and to trading on the main AIII, 6.1 market for listed securities of the London Stock Exchange, respectively. It is expected that Admission will become effective and that dealings on the London Stock Exchange in the New Shares (nil paid) will commence at 8.00 a.m. (London time) on 4 March 2009. AIII, 6.2 The British Land Company PLC (incorporated in England and Wales under the Companies Act 1948 with registered number 621920) AI, 5.1.1 AI, 5.1.2 Proposed 2 for 3 Rights Issue of up to 340,873,589 New Shares at 225 pence per New Share AIII, 4.1 AIII, 4.2 Morgan Stanley & Co. Morgan Stanley UBS Investment Bank AIII, 4.4 International plc Securities Limited Joint Sponsor, Joint Bookrunner AIII, 5.3.1 Joint Sponsor and Joint Bookrunner Underwriter and Underwriter
Your attention is drawn to the letter from your Chairman which is set out on pages 35 to 43 of this document. You should read the whole of this AIII, 5.1.3 document and any parts of documents incorporated herein by reference. Shareholders and any other persons contemplating a purchase of Nil Paid Rights, Fully Paid Rights or New Shares should review the risk factors set out on pages 11 to 20 of this document for a discussion of certain factors that should be considered when deciding on what action to take in relation to the Rights Issue and deciding whether or not to purchase Nil Paid Rights, Fully Paid Rights or New Shares. The Nil Paid Rights, the Fully Paid Rights and the New Shares have not been and will not be registered under the US Securities Act or under any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, taken up, resold, transferred or delivered, directly or indirectly, within the United States except pursuant to an applicable exemption from the registration requirements of the US Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no public offer in the United States. The Nil Paid Rights, the Fully Paid Rights and the New Shares will not be registered under the securities laws of the Excluded Territory or any Restricted Territory and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within such jurisdictions except pursuant to an applicable exemption from and in compliance with any applicable securities laws. There will be no public offer in the Excluded Territory or any of the Restricted Territories. Morgan Stanley & Co. International plc, Morgan Stanley Securities Limited and UBS Investment Bank are acting for the Company and no one else in connection with the Rights Issue and will not regard any other person (whether or not a recipient of this document) as a client in relation to the Rights Issue and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients or for providing advice in relation to the Rights Issue or any matters referred to in this document. Apart from any responsibilities and liabilities, if any, which may be imposed on Morgan Stanley & Co. International plc, Morgan Stanley Securities Limited and/or UBS Investment Bank by the FSMA, each of Morgan Stanley & Co. International plc, Morgan Stanley Securities Limited and UBS Investment Bank accept no responsibility whatsoever and make no representation or warranty express or implied, for the contents of this document, including its accuracy, completeness or verification or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company, the Nil Paid Rights, the Fully Paid Rights, the New Shares or the Rights Issue. Morgan Stanley & Co. International plc, Morgan Stanley Securities Limited and UBS Investment Bank accordingly disclaim to the fullest extent permitted by law all and any responsibility and liability whether arising in tort, contract or otherwise (save as referred to above) which they might otherwise have in respect of this document or any such statement. Subject to the passing of the Resolutions, it is expected that Qualifying Non-CREST Shareholders other than those with registered addresses in the Excluded Territory or, subject to certain exceptions, the United States or the other Restricted Territories will be sent a Provisional Allotment Letter on 3 March 2009. It is expected that Qualifying CREST Shareholders other than those with registered addresses in the Excluded Territory or, subject to certain exceptions, the United States or the other Restricted Territories will receive a credit to their appropriate stock accounts in CREST in respect of the Nil Paid Rights to which they are entitled on 4 March 2009. The Nil Paid Rights so credited are expected to be enabled for settlement by Euroclear UK as soon as practicable after Admission. The Joint Bookrunners and MSSL may, in accordance with applicable legal and regulatory provisions and subject to the Underwriting Agreement, engage in transactions in relation to the Nil Paid Rights, the Fully Paid Rights, the Ordinary Shares and/or related instruments for their own account for the purpose of hedging their underwriting exposure or otherwise. Except as required by applicable law or regulation, the Joint Bookrunners and MSSL do not propose to make any public disclosure in relation to such transactions. The latest time and date for acceptance and payment in full for the New Shares by holders of the Nil Paid Rights is expected to be 11.00 a.m. on 18 March 2009. The procedures for delivery of the Nil Paid Rights, acceptance and payment are set out in Part III of this document and, for Qualifying Non-CREST Shareholders other than those with registered addresses in the Excluded Territory or, subject to certain exceptions, the United States or the other Restricted Territories, also in the Provisional Allotment Letter. Qualifying CREST Shareholders other than those with registered addresses in the Excluded Territory or, subject to certain exceptions, the United States or the other Restricted Territories should refer to paragraph 2.2 of Part III of this document. The Nil Paid Rights, the Fully Paid Rights and the New Shares have not been approved or disapproved by the US Securities and Exchange Commission, any state securities commission in the United States or any US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the Nil Paid Rights, the Fully Paid Rights or the New Shares or the accuracy or adequacy of this document. Any representation to the contrary is a criminal offence. This document does not constitute an offer of Nil Paid Rights, Fully Paid Rights or New Shares to any person with a registered address, or who is located, in the Excluded Territory or, subject to certain exceptions, the United States or the other Restricted Territories or in any other jurisdiction in which such an offer or solicitation is unlawful. The Bank Underwriters may arrange for the offer in the United States of New Shares not taken up in the Rights Issue only to persons reasonably believed to be “qualified institutional buyers” (QIBs) within the meaning of Rule 144A under the US Securities Act in reliance on an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act. The New Shares, the Nil Paid Rights and the Fully Paid Rights offered outside the United States are being offered in reliance on Regulation S under the US Securities Act. Prospective investors are hereby notified that sellers of the Nil Paid Rights, the Fully Paid Rights or the New Shares may be relying on the exemption from the registration requirements of section 5 of the US Securities Act provided by Rule 144A thereunder. In addition, until 40 days after the commencement of the Rights Issue, an offer, sale or transfer of the Nil Paid Rights, the Fully Paid Rights or the New Shares within the United States by a dealer (whether or not participating in the Rights Issue) may violate the registration requirements of the US Securities Act. All Overseas Shareholders and any person (including, without limitation, a nominee or trustee) who has a contractual or legal obligation to forward this document or any Provisional Allotment Letter, if and when received, or other document to a jurisdiction outside the United Kingdom should read paragraph 2.5 of Part III of this document. The Bank Underwriters may also arrange for the offer in Canada of New Shares not taken up in the Rights Issue only to persons confirmed as “accredited investors” within the meaning of National Instrument 45-106 in reliance on an exemption from, or in a transaction not subject to, the prospectus filing and dealer registration requirements of Canadian securities laws. NOTICE TO NEW HAMPSHIRE RESIDENTS: NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
2 Notice to all Investors
Any reproduction or distribution of this document, in whole or in part, and any disclosure of its contents or use of any information contained in this document for any purpose other than considering an investment in the Nil Paid Rights, the Fully Paid Rights or the New Shares is prohibited. By accepting delivery of this document, each offeree of the Nil Paid Rights, the Fully Paid Rights and/or the New Shares agrees to the foregoing.
The distribution of this document and/or the Provisional Allotment Letters and/or the transfer of the Nil Paid Rights, the Fully Paid Rights and/or the New Shares into jurisdictions other than the UK may be restricted by law. Persons into whose possession these documents come should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. In particular, such documents should not be distributed, forwarded to or transmitted in or into the United States, the other Restricted Territories or the Excluded Territory. The Nil Paid Rights, the Fully Paid Rights and the New Shares are not transferable, except in accordance with, and the distribution of this document is subject to, the restrictions set out in paragraph 2.5 of Part III of this document. No action has been taken by British Land, the Joint Bookrunners or by the Bank Underwriters that would permit an offer of the New Shares or rights thereto or possession or distribution of this document or any other offering or publicity material or the Provisional Allotment Letters, the Nil Paid Rights, or the Fully Paid Rights in any jurisdiction where action for that purpose is required, other than in the United Kingdom and the Republic of Ireland.
No person has been authorised to give any information or make any representations other than those contained in this document and, if given or made, such information or representations must not be relied upon as having been authorised by British Land, the Joint Bookrunners or by the Bank Underwriters. Neither the delivery of this document nor any acquisition or sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of British Land since the date of this document or that the information in this document is correct as at any time subsequent to its date.
Without limitation, the contents of the websites of the Group do not form part of this document.
Capitalised terms have the meanings ascribed to them in Part XI of this document.
3 Table of Contents
Page No. Summary ...... 5
Risk Factors ...... 11
Rights Issue Statistics ...... 21
Expected Timetable of Principal Events ...... 22
Important Information ...... 23
Where to Find Help ...... 32
Directors, Company Secretary, Registered Office and Advisers...... 33
Part I: Letter from the Chairman of British Land ...... 35
Part II: Some Questions and Answers about the Rights Issue ...... 44
Part III: Terms and Conditions of the Rights Issue ...... 50
Part IV: Information on British Land ...... 73
Part V: Operating and Financial Review ...... 92
Part VI: Financial Information...... 114
Part VII: Certain Taxation and ERISA Considerations ...... 119
Part VIII: Additional Information ...... 130
Part IX: Valuation Report ...... 170
Part X: Documentation Incorporated by Reference ...... 184
Part XI: Definitions ...... 185
4 Summary
The following summary information should be read as an introduction to the more detailed information S87A(5)FSMA appearing elsewhere in this document. Any investment decision relating to the Rights Issue should be based PR 2.1.7 on the consideration of the document as a whole and not solely on this summarised information. Where a PR 2.2.10 claim relating to the information contained in this document is brought before a court in a member state of the European Economic Area, the claimant may, under the national legislation of that member state where the claim is brought, be required to bear the costs of translating this document before legal proceedings are initiated. Civil liability attaches to those persons who are responsible for this summary, including any translation of this summary, but only if this summary is misleading, inaccurate or inconsistent when read together with other parts of this document.
1. BACKGROUND TO AND REASONS FOR THE RIGHTS ISSUE AIII, 3.4
On 12 February 2009, the Board announced a rights issue to raise approximately £740 million net of expenses AIII, 8.1 by the issue of up to 340,873,589 New Shares (representing approximately 67 per cent. of the existing issued share capital and 40 per cent. of the enlarged issue share capital immediately following completion of the Rights Issue) through a 2 for 3 rights issue at 225 pence per New Share. The Issue Price represents a 40 per cent. discount to the theoretical ex-rights price based on the closing middle-market share price on 11 February 2009 (being the last business day before the announcement of the terms of the Rights Issue), adjusted for the dividend of 9.375 pence for the three months to 31 December 2008, which will not be paid on the New Shares.
The net proceeds of the Rights Issue will support the Company’s balance sheet leverage ratios and avoid placing undue risk on covenants, thereby facilitating access to the Company’s significant debt facilities. This should ensure the Company is able to maximise its competitive position.
The Board’s objective in making any real estate acquisitions would be to increase the Company’s earnings and, ultimately, net asset value per share through a combination of active asset management and re-pricing of assets acquired at a significant discount to long-term fair value. The Board believes that the current dislocation in asset pricing and likelihood of distressed sales will generate opportunities to acquire quality assets at yields that would be accretive to earnings, offering the further potential for strong asset value growth as the market recovers.
2. CURRENT TRADING AND PROSPECTS AI, 12.1
The Company’s unaudited key performance indicators for the three months ended 31 December 2008 and its AI, 12.2 latest property valuation as at 31 December 2008 show (in summary) that:
• The Company’s property valuation as at 31 December 2008 was £10.2 billion, 13.3 per cent. lower than at 30 September 2008 and 21.7 per cent. lower than at 31 March 2008;
• The Company’s EPRA NAV per share was 718 pence, down 31 per cent. as at 31 December 2008;
• The Company’s underlying profit on ordinary activities before taxation was £63 million for the three months ended 31 December 2008 or 13 per cent. lower than for the three months ended 31 December 2007, mainly due to the accounting treatment of reducing interest capitalised on developments;
• The Company’s loss on ordinary activities before taxation was £1,614 million for the three months ended 31 December 2008;
• The Company’s like-for-like rental income growth was 3.8 per cent. for the nine months ended 31 December 2008 compared to 31 December 2007, ahead of the IPD benchmark;
• The Company’s property portfolio (including accommodation subject to asset management incentives and under offer) as at 31 December 2008 was 96 per cent. let with an average lease length of 13 years and only 4 per cent. of total rents are up for renewal through 30 March 2011;
• The Company’s debt (including share of funds and joint ventures) was 100 per cent. fixed at 5.2 per cent. with 12 years average maturity as at 31 December 2008; and
• The Company had £2.4 billion undrawn committed credit facilities as at 31 December 2008.
5 Summary
Financial turmoil and market stress continues to adversely affect the property market, resulting in challenging conditions with few transactions. The IPD benchmark net equivalent yield is currently 8.2 per cent., some 450 bps over the 10-year gilt. While there are initial signs of renewed investor interest in property at current pricing levels particularly for prime properties, the lack of credit availability continues to inhibit activity. Against this background, the Company expects that property values in the UK will decline further until the market stabilises with prime properties stabilising first and the gap between primary and secondary property yields will widen.
3. RECENT DEVELOPMENTS On 11 February 2009, the Company entered into a 50:50 joint venture shareholders’ agreement with LSPG Trust No 1 (LSPG), itself a joint venture between London & Stamford Limited and its joint venture partner, which establishes MSC Property Intermediate Holdings Limited (MSC) as a joint venture company.
Under the transaction LSPG acquired a 50 per cent. stake in MSC for £587.7 million, at a net initial yield of 6.75 per cent., consisting of £170 million in cash with MSC continuing to benefit from the existing third party debt issued by the Meadowhall securitisation. The transaction valued Meadowhall at £1.175 billion.
4. PRINCIPAL TERMS OF THE RIGHTS ISSUE AIII, 4.1 AIII, 4.4 The Rights Issue is being made to all Qualifying Shareholders. Pursuant to the Rights Issue, the Company is AIII, 8.1 proposing to offer up to 340,873,589 New Shares by way of rights to Qualifying Shareholders other than Shareholders with a registered address, or resident, in the Excluded Territory or, subject to certain exceptions as set out in paragraph 2.5 of Part III of this document, the United States or one of the other Restricted Territories, at 225 pence per New Share, payable in full on acceptance by no later than 11.00 a.m. on 18 March 2009. The Rights Issue is expected to raise up to approximately £740 million, net of expenses. The Rights Issue will be on the basis of 2 New Shares for every 3 Existing Shares held at the close of business on the Record Date. The Issue Price represents a 40 per cent. discount to the theoretical ex-rights price based on the closing middle-market share price of 483.25 pence per Ordinary Share on 11 February 2009 (being the last business day before the announcement of the terms of the Rights Issue), adjusted for the dividend of 9.375 pence for the three months to 31 December 2008, which will not be paid on the New Shares.
The Rights Issue is fully underwritten by the Underwriters pursuant to the Underwriting Agreement. The Rights Issue is conditional, inter alia, on:
(i) the Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms;
(ii) Admission (nil paid) occurring by no later than 8.00 a.m. on 4 March 2009 (or such later time and/or date as the Joint Sponsors and Euro Lights (acting by a majority in number) and the Company may agree); and
(iii) the passing, without amendment (or with such amendments as the Company, the Joint Sponsors and Euro Lights may agree) of the Resolutions.
As at 11 February 2009 (being the latest practicable date prior to the publication of this document), GIC held approximately 38,965,331 Ordinary Shares (representing approximately 7.62 per cent. of the issued share capital of the Company) and is the largest Shareholder of the Company.
Pursuant to the GICRE Irrevocable Undertaking, Euro Lights, an affiliate of GIC Real Estate Pte Ltd., has irrevocably undertaken to procure the voting in favour of the Resolutions and the taking up of entitlements under the Rights Issue in respect of 36,705,979 Ordinary Shares (representing approximately 7.18 per cent. of the issued share capital of the Company) held by GIC in relation to the operations carried on by GICRE. The remaining 2,259,352 Ordinary Shares held by GIC (representing approximately 0.44 per cent. of the issued share capital of the Company) are held in relation to operations other than those carried on by GICRE and, accordingly, are not the subject of the GICRE Irrevocable Undertaking.
It is expected that Admission (nil paid) will occur and that dealings in the New Shares (nil paid) will commence on the London Stock Exchange at 8.00 a.m. on 4 March 2009.
The latest time and date for acceptance and payment in full under the Rights Issue is expected to be 11.00 a.m. on 18 March 2009.
6 Summary
5. SELECTED FINANCIAL INFORMATION ON THE COMPANY AI, 3.1 CESR 21-26 The data for the nine-month periods ended 31 December 2007 and 2008 and the financial years ended AI, 3.2 31 March 2006, 2007 and 2008 set out below have been extracted without material adjustment from, and should be read together with, the Company’s unaudited interim condensed consolidated financial statements AI, 20.5 for the nine months ended 31 December 2008 and its audited consolidated financial statements for the financial years ended 31 March 2007 and 2008, which are incorporated by reference into this document. AI, 20.4.3
As of and for the nine As of and for the financial AI, 20.4.3 months ended 31 December year ended 31 March AI, 3.1 (1) (1) (2) 2007 2008 2006 2007 2008 AI, 3.2 (£ millions, except per share (£ millions, except per share data, AI, 20.4.1 data, percentages and ratios) percentages and ratios) Key income statement data AI, 20.7.1 Gross rental and related income ...... 486 420 690 649 645 Net rental and related income...... 425 366 589 561 561 (Loss)/profit on ordinary activities before taxation ...... (1,361) (2,941) 1,498 1,440 (1,609) (Loss)/profit for the year after taxation attributable to shareholders of the Company...... (1,320) (2,899) 1,184 2,453 (1,563) Underlying profit on ordinary activities before taxation(3) ...... 215 207 228 257 284 Key balance sheet data Total assets ...... 14,205 9,297 13,512 16,380 12,648 Total equity attributable to shareholders of the Company ...... 7,090 3,392 6,016 8,747 6,790 Other financial data IFRS diluted earnings/(loss) per share . . . . . (255)p (567)p 227p 470p (303)p Underlying diluted earnings per share . . . . . 40p 39p 36p 43p 53p Dividend per share(4) ...... 23.5p 26.875p 16.10p 17.40p 32.25p EPRA NAV per share(5) ...... 1401p 718p 1,486p 1,682p 1,344p EPRA NNNAV per share(6) ...... 1437p 861p 1,139p 1,683p 1,438p
Notes:
(1) Unaudited.
(2) Restated as described in footnote 1 to the Group’s audited financial statements for the year ended 31 March 2007, which are incorporated by reference into this document.
(3) Underlying profits on ordinary activities before taxation is a non-GAAP measure that consists of EPRA earnings measures with additional adjustments. See the paragraph “Non-GAAP financial measures” in the “Important Information” section of this document.
(4) Dividend per share refers to the amount of dividends paid by the Company during the applicable financial period.
(5) EPRA NAV per share refers to the EPRA NAV divided by the diluted number of shares at the period end, where EPRA NAV refers to the balance sheet net assets excluding the mark to market on effective cash flow hedges and related debt adjustments, deferred taxation on revaluations and diluting for the effect of those shares potentially issuable under employee share schemes. See the paragraph “Non-GAAP financial measures” in the “Important Information” section of this document.
(6) EPRA NNNAV per share refers to the EPRA NAV (as defined in note (2) above) adjusted to reflect the fair value of debt and derivatives and to include deferred taxation on revaluations. See the paragraph “Non-GAAP financial measures” in the “Important Information” section of this document.
6. THE PORTFOLIO AI, 8.1 The Company’s portfolio focuses primarily on out-of-town retail properties and Central London offices which offer attractive risk-adjusted growth prospects. The portfolio includes directly held properties, properties held through investment funds and properties held through joint ventures. As at 31 December 2008, the Company has invested 49.5 per cent. in out-of-town retail properties, including 104 retail warehouses, 103 superstores
7 Summary and Meadowhall Shopping Centre. A further 38.3 per cent. was invested in Central London offices and office developments, including Broadgate.
An analysis of the Company’s portfolio valuation by sector as at 31 December 2008 is set forth below.
Change(2) Group Funds/JVs(1) Total Portfolio 3 months 9 months (£ million) (£ million) (£ million) (%) (%) (%) Retail Retail warehouses ...... 1,467 1,105 2,572 25.3 (14.1) (22.6) Superstores ...... 113 984 1,097 10.8 (9.7) (14.3) Shopping centres(3) ...... 1,476 311 1,787 17.6 (12.3) (18.4) Department stores ...... 440 96 536 5.3 (16.2) (24.0) High street...... 26 – 26 0.2 (14.7) (21.7) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– All retail ...... 3,522 2,496 6,018 59.2 (13.0) (20.2) Offices City of London ...... 2,904 – 2,904 28.6 (13.8) (24.3) West End ...... 997 – 997 9.8 (12.9) (21.0) Provincial(4) ...... 16 8 24 0.2 (17.1) (23.1) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– All Offices ...... 3,917 8 3,925 38.6 (13.6) (23.6) Other Industrial, distribution, leisure, other ...... 212 16 228 2.2 (16.5) (27.6) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total ...... 7,651 2,520 10,171 100.0 (13.3) (21.7) –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Notes:
(1) Company’s share of properties held through investment funds and joint ventures.
(2) Change in value for three months and nine months to 31 December 2008 includes valuation movement in developments, purchases and sales, net of capital expenditure.
(3) Includes Meadowhall shopping centre as a wholly owned property. The Company has entered into a transaction to transfer the Meadowhall shopping centre to a newly formed joint venture. See paragraph 17.1(a) of Part VIII of this document.
(4) Includes office properties located outside of London.
7. SUMMARY OF RISK FACTORS AI, 4 AIII, 2 Shareholders should carefully consider the following key risks: CESR 27
Risks related to British Land’s business AI, 4 • Global market turmoil, weakening economic conditions in the United Kingdom and Europe and the continued impact of the credit crisis have reduced and may continue to reduce the value of the Company’s property portfolio.
• The current global economic downturn and serious dislocation of the financial markets exposes the AI, 9.2.3 Company to counterparty credit risks. AI, 6.3
• Failure by the Company or the investment funds and joint ventures in which it has an interest to comply with the financial covenants governing indebtedness could result in an event of default.
• The global economic downturn and serious dislocation of the financial markets exposes the Company to significant liquidity risks.
• Downsizing, high levels of write-downs, reduced output and reduced demand for office space by the financial services industries may decrease tenant demand for properties in the Company’s office portfolio.
8 Summary
• Events which damage or diminish London’s status as a global financial and business centre could affect the Company’s ability to let vacant space and reduce the value of the Company’s properties located in the City of London and the West End.
• An adverse change in competitive dynamics in the retail property market could affect the Company’s ability to let vacant space and decrease property valuations.
• A default by a major tenant could result in a significant loss of letting income, void costs, a reduction in asset value and increased bad debts.
• Decreased investor demand may prevent the Company from strategically adjusting its property portfolio.
• Property valuation is inherently subjective and uncertain.
• The Company owns and operates a significant portion of its property portfolio through investment funds and joint ventures, which may inhibit the Company’s ability to make sales and purchases from these entities as they are not controlled by the Company.
• The Company’s property portfolio may expose the Company to environmental liabilities and costs. AI, 8.2
• If the Company fails to accurately assess a development opportunity or tenant demand for a development decreases, a substantial proportion of the development could remain vacant after completion.
• The unavailability or insolvency of contractors, sub-contractors and other service providers may cause cost overruns, programme delays and the acceptance of riskier contractor covenants.
• The construction of the Company’s developments may be subject to delays or disruptions and is subject to other risks that are beyond its control, including risks related to the global economic downturn, which could result in increased construction-related costs and/or a decrease in the value of the development.
• The Company’s development projects are subject to the hazards and risks normally associated with the construction and development of commercial real estate, any of which could result in increased costs and/or damage to persons or property.
• The departure of key personnel or the failure to attract and retain skilled personnel could adversely affect the Company’s business.
• The Company may incur losses as a result of fluctuations in the foreign currency exchange rates between AI, 9.2.3 the pound and other foreign currencies for which it has not, or not effectively, hedged its risk.
• The expiration of interest rate swaps, entering into certain transactions for which hedging is not AI,9.2.3 available on commercially reasonable terms, or at all, or the inaccurate hedging of interest rate exposure may expose the Company to market interest rate risk.
• If the Company suffers losses for which it is uninsured, it may be forced to obtain additional financing to repair or rebuild the damaged asset or it could lose the value of the damaged asset altogether.
Risks related to tax and regulation AI, 9.2.3 • The Company faces certain risks relating to its REIT status, including changes to tax legislation, which may affect the Company and impose potential limits on the Company’s flexibility in implementing its strategy.
• If for any reason the assets of the Company are deemed to be plan assets for purposes of ERISA, both the Company and fiduciaries causing Plans to acquire or hold the Company’s ordinary shares could be adversely affected.
9 Summary
Risks related to the Rights Issue and the New Shares AIII, 2 • British Land’s share price may fluctuate.
• British Land’s ability to continue to pay dividends on the Ordinary Shares will depend on the availability of distributable reserves.
• As a result of the Company’s regulation under the REIT regime, the Company’s Articles of Association contain certain onerous provisions to which a Shareholder whose Ordinary Shares become part of a substantial shareholding may become exposed. This may deter acquisitions of larger stakes in the Company.
• An active trading market in the Nil Paid Rights or Fully Paid Rights may not develop.
• Shareholders who do not acquire New Shares in the Rights Issue will experience dilution in their AIII, 9.1 ownership of British Land. AIII, 9.2
• Shareholders outside the United Kingdom may not be able to acquire New Shares in the Rights Issue or for future issues of shares.
• The ability of Overseas Shareholders to bring actions or enforce judgments against British Land or the Directors may be limited.
10 Risk Factors
An investment in the Ordinary Shares involves certain risks. Shareholders should carefully consider the risks AI, 4 set forth below and all of the information set forth in this prospectus prior to making any investment decision AIII, 2 with respect to the Ordinary Shares. The risks described below could have a material adverse effect on the CESR 27 Company’s business, financial condition, results of operations, future prospects and the price of the Ordinary Shares and it is possible that Shareholders could lose all or part of their investment in the Ordinary Shares. In addition, the risks below are not the only risks to which the Company may be subject. The Company may be unaware of certain risks or believe certain risks to be immaterial which later prove to be material. Shareholders should read this section in conjunction with the Letter from the Chairman of British Land contained in Part I of this document.
RISKS RELATED TO BRITISH LAND’S BUSINESS
Global market turmoil, weakening economic conditions in the United Kingdom and Europe and the continued impact of the credit crisis have reduced and may continue to reduce the value of the Company’s property portfolio Global market turmoil, weakening economic conditions in the United Kingdom and Europe and, in particular, the continued impact of the credit crisis have reduced and may continue to reduce the value of the Company’s property portfolio and may reduce liquidity in the commercial real estate market. A substantial decrease in value of the Company’s property portfolio could decrease headroom on its financial covenants. Moreover, a lack of liquidity in commercial real estate may prevent the Company from relieving this pressure or capturing trends in occupational demand and rental growth or disposing of lower growth or riskier assets, thereby adversely affecting the Company’s net asset value. As a result, the Company may be unable to sell a particular property or, alternatively, might be forced to sell that property at less than the value stated in the valuation of the Company’s property portfolio, which could have a material adverse effect on its business, financial condition, results of operations, future prospects or the price of the Ordinary Shares.
The current global economic downturn and serious dislocation of the financial markets exposes the Company to counterparty credit risks The current global economic downturn and serious dislocation of financial markets around the world has AI, 6.3, 9.2.3 caused a number of the world’s largest financial and other corporate institutions significant operational and financial difficulties. Such difficulties could inhibit the capability of a counterparty of the Company to honour its pre-existing lending arrangements or to provide access to deposits. If the Company is unable to access funding available under its existing credit facilities, or is unable to access cash on deposit with financial institutions, it may be unable to meet its financial obligations (including interest payments, loan repayments, operating expenses, development costs and dividends) when they fall due and to replace funds needed to finance its operations. In addition, if a counterparty forcibly closes favourable positions on hedged transactions, the Company could face increased credit exposure and incur costs of re-arranging the credit transaction, including on less favourable terms, such as an incremental change in its financing rate. Actions by counterparties who fail to fulfil their obligations to the Company may impact the Company’s cash flow and liquidity, which could have a material adverse effect on its business, financial condition, results of operations, future prospects or the price of the Ordinary Shares.
Failure by the Company or the investment funds and joint ventures in which it has an interest to comply with the financial covenants governing indebtedness could result in an event of default The Company and the investment funds (including unit trusts) and joint ventures in which it has an interest AI, 6.3 have a substantial amount of outstanding secured and unsecured indebtedness. The secured debt consists primarily of securitisations, loan notes and debentures and its unsecured debt consists of revolving credit facilities and bonds issued in private placements. The terms of the secured debt contain financial covenants that may limit the discretion of the Company and the investment funds and joint ventures through which it holds certain property interests in operating their respective businesses. The secured and unsecured indebtedness contain financial covenants in relation to income and asset coverage ratios as well as ratios on the amount of net unsecured indebtedness. Although the Company does not believe any such event will occur within the next 12 months, if the Company or any investment funds or joint ventures in which it has an interest is unable to comply with applicable financial covenants, including as a result of events outside of its control, such as the current economic downturn proving to be more severe than the Company expects or a
11 Risk Factors change of control at the relevant borrower entity, it could lead to the acceleration of the related debt and the acceleration of debt under any other debt instruments containing cross-acceleration or cross-default provisions. If the debt owed by the Company or any investment funds or joint ventures in which it has an interest were to be accelerated or cross-accelerated, the Company may not be able to refinance or otherwise repay its indebtedness, which could have a material adverse effect on its business, financial condition, results of operations, future prospects or the price of the Ordinary Shares.
The global economic downturn and serious dislocation of the financial markets exposes the Company to significant liquidity risks As a result of the recent global economic downturn, demand for commercial real estate has decreased AI, 9.2.3 significantly and may continue to decrease, in part due to a significant reduction in the availability of new financing (including securitisation of real estate assets). Some lenders in the market have taken opportunities, where possible, to negotiate a reduction in their exposure under existing lines.
The Company has available significant committed credit facilities. Although the Company does not believe any such event will occur within the next 12 months, continuing global economic turmoil could inhibit the Company’s ability to draw on these facilities or to rollover existing borrowings if the Company were unable to comply with applicable financial covenants or to meet its financial obligations when they fall due. Such turmoil could also affect the Company’s ability to refinance its obligations or obtain new financing. For further discussion of the Company’s financial covenants and the maturity of its facilities, see paragraphs 3.2 and 5 of Part V and paragraphs 17.2 and 17.3 of Part VIII of this document.
Market disruption clauses in the Company’s credit facilities include provisions under which no new advances nor any rollover of existing advances shall be made by the lenders if adequate and fair means do not exist for ascertaining the interest rate applicable to advances by reason of circumstances affecting the London interbank market generally, if LIBOR would not accurately reflect the cost to the lenders of funding, or if deposits are not available to majority lenders in the ordinary course of business. There is an obligation in such circumstances for the relevant lenders and the Company to enter into negotiations in good faith with a view to agreeing an alternative basis for calculating the rate of interest applicable to future advances, although there can be no certainty as to the outcome of such negotiations.
If any of the foregoing circumstances were to arise, this could have a material adverse effect on the Company’s business, financial condition, results of operations, future prospects or the price of the ordinary shares.
Downsizing, high levels of write-downs, reduced output and reduced demand for office space by the financial services industries may decrease tenant demand for properties in the Company’s office portfolio The deterioration of the economy has caused considerable downsizing, high levels of write-downs, reduced AI, 6.3 output and an unwillingness to spend by the financial services industries, which could result in a decrease in tenant demand for existing and future properties in the Company’s office portfolio. Such a decrease in tenant demand could increase vacant space and exert pressure on the Company to provide rental incentives to tenants resulting in a decrease in the rental income, ERV, rental growth and property values of the Company’s office portfolio, which could have a material adverse effect on its business, financial condition, results of operations, future prospects or the price of the Ordinary Shares.
Events which damage or diminish London’s status as a global financial and business centre could affect the Company’s ability to let vacant space and reduce the value of the Company’s properties located in the City of London and the West End A significant proportion of the Company’s property portfolio consists of prime commercial office buildings in London. As at 31 December 2008, the Company’s office portfolio comprised 9.8 per cent. prime assets in the West End of London and 28.5 per cent. prime assets in the City of London. As a result of this concentration, the value of the Company’s current and future office portfolio may be adversely affected by events which damage or diminish London’s status as a global financial and business centre. If London’s status as a global financial and business centre were damaged or diminished, tenant demand for commercial office space in London could decrease. The resulting increase in vacancies in the market could reduce the ability of the Company to let vacant space and cause property values in the City of London and the West End to decrease, which could have a material adverse effect on its business, financial condition, results of operations, future prospects or the price of the Ordinary Shares.
12 Risk Factors
An adverse change in competitive dynamics in the retail property market could affect the Company’s ability to let vacant space and decrease property valuations AI, 6.5 The current global market turmoil and weakening economic conditions in the United Kingdom and Europe with the accompanying general decline in retail sales, increased competition in the retail market and increased online purchasing may adversely impact consumer businesses and decrease the demand for retail property in a market with significant retail stock availability, resulting in difficulties letting vacant space, the need for rental incentives to attract tenants, an outward shift in yields and a decrease in property valuations, which could have a material adverse effect on the Company’s business, financial condition, results of operations, future prospects or the price of the Ordinary Shares.
A default by a major tenant could result in a significant loss of letting income, void costs, a reduction in asset value and increased bad debts The Company derives a significant portion of its revenue directly or indirectly from rent received from its major retail tenants, including anchor tenants, and major office tenants. Major retail tenants and major office tenants generally pay a significant portion of the total rents at a property and, in some cases, contribute to the success of securing other tenants by attracting significant numbers of customers to the property. As at 31 December 2008, the Company’s top 20 tenants account for 50.1 per cent. of its rental income with three tenants each accounting for more than 5 per cent. of its rental income. A downturn in business, bankruptcy or insolvency could force a major retail tenant or major office tenant to default on its rental obligations and/or vacate the premises. Such a default, in particular by one of the Company’s top 20 tenants, could result in a loss of rental income, void costs, an increase in bad debts, and decrease the value of the property. Moreover, such a default may prevent the Company from increasing rents or result in lease terminations by, or reductions in rent for, other tenants under the conditions of their leases. Any of the above impacts of a default by a major retail tenant or major office tenant could have a material adverse effect on the Company’s business, financial condition, results of operations, future prospects or the price of the Ordinary Shares. Under current market conditions, the risk of such defaults is increased.
Decreased investor demand may prevent the Company from strategically adjusting its property portfolio Some investors may be reluctant to purchase property in the current market due to the general view that AI, 6.3 property values will continue to decrease, the increased cost or unavailability of debt financing and concern AI, 9.2.3 that the economic downturn will adversely affect occupational demand and rental growth. The resulting lack of liquidity in commercial real estate may inhibit the Company’s ability to strategically adjust the market and sector mix of its property portfolio.
Property valuation is inherently subjective and uncertain The Company’s wholly owned property portfolio has been valued by Knight Frank as at 31 December 2008 on the basis of “Market Value” in accordance with the Valuation Standards, Sixth Edition published by the RICS (the Red Book), defined as the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. In addition, the properties held through investment funds and joint ventures in which the Company has an interest have been valued by Knight Frank and CBRE as at 31 December 2008 also on the basis of “Market Value” in accordance with the Red Book.
In determining Market Value, Knight Frank and CBRE are required to make certain assumptions. Such assumptions may prove to be inaccurate. This is particularly so in periods of volatility or when there is limited real estate transactional data against which property valuations can be benchmarked, as has been the case during the preceding 18-month period. In addition, the valuations of the Company’s wholly owned properties and the properties of investment funds and joint ventures in which the Company has an interest speak only as of their valuation date, and market volatility since that date may cause further significant declines in the value of the Company’s properties since such date. There can also be no assurance that these valuations will be reflected in the actual transaction prices, even where any such transactions occur shortly after the relevant valuation date, or that the estimated yield and annual rental income will prove to be attainable.
In addition, the current global economic downturn, the serious dislocation of the world’s financial markets and unprecedented levels of illiquidity have created a significant degree of uncertainty in markets, including real estate markets. In this environment, it is possible that real estate prices and values could decrease
13 Risk Factors significantly or continue to be subject to heightened volatility. The current illiquidity in financial markets means that it may be very difficult in the short term to achieve the sale of properties at prices reflected in the valuations of the Company’s wholly owned properties and the properties of investment funds and joint ventures in which the Company has an interest. In addition, the value of the Company’s properties can be affected by other factors outside the Company’s control, including declining demand for office and retail estate, changes in general economic conditions, changing local supply and the attractiveness of real estate to other investment choices. Failure to achieve successful sales of properties in the future at acceptable prices could have an adverse effect on the Company’s business, financial condition, results of operations, future prospects or the price of the Ordinary Shares.
The Company owns and operates a significant portion of its property portfolio through investment AI, 9.2.3 funds and joint ventures, which may inhibit the Company’s ability to make sales and purchases from these entities as they are not controlled by the Company A significant portion (24.8 per cent. as at 31 December 2008) of the Company’s property portfolio is owned and operated through joint venture entities, the majority of which are 50 per cent. owned by the Company, or is held in investment funds, in which the Company holds a minority interest.
Because the Company must obtain the consent of its joint venture partners prior to the sale or purchase of property by a joint venture, the Company is unable to exercise control over which properties the joint venture sells or purchases. Similarly, the Company does not have control over which properties are purchased or sold by the investment funds in which it holds a minority interest. Since the interests of joint venture partners, co- investors in investment funds and third-party fund managers may not be aligned with those of the Company, the Company could be prevented from selling or purchasing properties in accordance with the Company’s strategy. Such actions could inhibit the Company’s ability to implement its strategy through sales or purchases of property that adjust the market and sector mix of its property portfolio to capture trends in customer demand and increase rental growth while disposing of lower growth or riskier properties.
If the Company is not able to implement its strategy effectively, it could face lower growth in rental income or suffer vacant space on lease expiration or lower property values, which would decrease the value of the investment funds and joint ventures in which the Company has an interest. In addition, if properties held by its investment funds or joint ventures in which the Company has an interest are sold due to their dissolution, less than their anticipated value may be realised, which could have a material adverse effect on its business, financial condition, results of operations, future prospects or the price of the Ordinary Shares.
The Company’s property portfolio may expose the Company to environmental liabilities and costs In the ordinary course of business and in connection with future acquisitions, the Company may become AI, 8.2 responsible for certain environmental clean-up liabilities or costs. As the owner of real property, the Company is subject to environmental regulations that can impose liability for cleaning up contaminated land, watercourses or groundwater on the person causing or knowingly permitting the contamination. If the Company owns or acquires contaminated land, it could also be liable to third parties for harm caused to them or their property as a result of the contamination. If the Company is found to be in violation of environmental regulations, it could face reputational damage, regulatory compliance penalties, reduced letting income and reduced asset valuation, which could have a material adverse effect on the Company’s business, financial condition, results of operations, future prospects or the price of the Ordinary Shares.
If the Company fails to accurately assess a development opportunity or tenant demand for a development decreases, a substantial proportion of the development could remain vacant after completion The Company uses its development programme to create new properties that target incremental return on investment. As at 31 December 2008, the Company had committed capital expenditures of approximately £230 million relating to the three projects currently committed and under development, which represented approximately 4 per cent. of the Company’s total portfolio value at 31 December 2008. The Company’s development programme involves a higher degree of risk than its standing investment properties and requires that the Company accurately assess the development opportunity, including the return on investment, transport and other infrastructure attributes of the location, quality of specification, configuration and flexibility of accommodation, and timing and delivery of the completed property. Inaccurate assessment of a development opportunity or a decrease in tenant demand due to competition from other commercial real
14 Risk Factors estate properties or adverse market conditions, could result in a substantial proportion of the development remaining vacant after completion and exert pressure on the Company to provide rental incentives to tenants. Such vacancies and rental incentives to tenants would affect the level of rental income, achieved, rental growth and the value of the development property, which could have a material adverse effect on its business, financial condition, results of operations, future prospects or the price of the Ordinary Shares.
The unavailability or insolvency of contractors, sub-contractors and other service providers may cause cost overruns, programme delays and the acceptance of riskier contractor covenants The Company’s strategy for development of prime commercial real estate requires that it hire skilled third- party contractors to provide construction, engineering and various other services for the properties it is developing. There is a limited selection of high-quality contractors operating in the Company’s key markets. As a result, the Company may be unable to retain skilled contractors on financially and contractually efficient terms due to a high level of demand for the most reputable contractors. Furthermore, the Company may hire a contractor that subsequently becomes insolvent, causing cost overruns, programme delays and the acceptance of riskier contractor covenants. The unavailability of high-quality contractors or the insolvency of a contractor currently working on one or more of the Company’s development projects could have a material adverse effect on the Company’s business, financial condition, results of operations, future prospects or the price of the Ordinary Shares. The risk of contractor unavailability or insolvency is heightened in current market conditions. The risk of such insolvency similarly increases the risk of the Company being unable to recover costs in relation to any future latent defects subject to repair covenants given by the Company to tenants, to the extent that such costs are not otherwise covered by latent defect insurance.
The construction of the Company’s developments may be subject to delays or disruptions and is subject to other risks that are beyond its control, including risks related to the global economic downturn, which could result in increased construction-related costs and/or a decrease in the value of the development The Company depends on skilled third party contractors for the timely construction of its developments in accordance with international standards of quality and safety. The process of construction may be delayed or disrupted by a number of factors, such as inclement weather or acts of nature, industrial accidents and defective building methods or materials. Any of these factors, alone or in combination, could delay or disrupt the construction process by halting the construction process or damaging materials or the development itself. In addition, the costs of construction depend primarily on the costs of materials and labour, which may be subject to significant unforeseen increases.
The Company may not be able to recover for cost overruns under its insurance policies or from the responsible contractor or sub-contractor or may incur holding costs and the development may decrease in value, any of which could have a material adverse effect on its business, financial condition, results of operations, future prospects or the price of the Ordinary Shares.
The Company’s development projects are subject to the hazards and risks normally associated with the construction and development of commercial real estate, any of which could result in increased costs and/or damage to persons or property The Company’s development projects are subject to the hazards and risks normally associated with the construction and development of commercial real estate, including personal injury and property damage. The occurrence of any of these events could result in significant increased operating costs, reputational damage, fines, legal fees, or criminal prosecution of the Company, and its directors or management, all of which could have a material adverse effect on the Company’s business, financial condition, results of operations, future prospects or the price of the Ordinary Shares.
The departure of key personnel or the failure to attract and retain skilled personnel could adversely affect the Company’s business The Company’s business model requires a relatively small staff of key skilled professionals to manage a relatively large property portfolio. The departure of key skilled professionals could cause disruption to the management structure and relationships, an increase in costs associated with staff replacement, lost business relationships or reputational damage, which could have a material adverse effect on the Company’s business, financial condition and results of operations.
15 Risk Factors
The Company may incur losses as a result of fluctuations in the foreign currency exchange rates between the pound and other foreign currencies for which it has not, or not effectively, hedged its risk The Company’s European investments are valued in euro. The Company reports its financial results in sterling AI, 9.2.3 and must translate the valuations of its European properties from euro to sterling. This exposure is hedged by matching the value of the foreign assets with borrowings in foreign currencies. The Company also engages overseas suppliers and contractors and purchases materials from overseas, particularly in relation to its development projects. If such contracts are denominated in foreign currencies and not hedged into sterling, or if contracts for materials and services required are to be sourced overseas and have not yet been entered into, the Company could be exposed to fluctuations in foreign currency exchange rates between the pound and the euro. To the extent that the Company does not hedge its exposure to foreign currency exchange rate fluctuations, or to the extent that such hedging is inaccurate or otherwise ineffective, such exposure could have a material adverse effect on the Company’s business, financial condition, results of operations, future prospects or the price of the Ordinary Shares.
The expiration of interest rate swaps, entering into certain transactions for which hedging is not AI, 9.2.3 available on commercially reasonable terms, or at all, or the inaccurate hedging of interest rate exposure may expose the Company to market interest rate risk As at 31 December 2008, the Company has hedged substantially all of its current interest rate exposure. However, the Company may be exposed to market interest rate risk when the interest rate swaps that the Company entered into in connection with its financing arrangements expire, if the Company requires financing and cannot hedge its interest rate exposure on commercially reasonable terms, or at all, or if it has inaccurately or ineffectively hedged its market interest rate exposure. To the extent that the Company does not hedge its exposure to interest rate fluctuations, or to the extent that such hedging is inaccurate or otherwise ineffective, the Company may incur higher than expected interest rate expenses, which could have a material adverse effect on the Company’s business, financial condition, results of operations, future prospects or the price of Ordinary Shares.
If the Company suffers losses for which it is uninsured, it may be forced to obtain additional financing to repair or rebuild the damaged asset or it could lose the value of the damaged asset altogether The Company does not have insurance coverage for certain types of catastrophic losses, which are not insurable or for which economically reasonable insurance is unavailable. In addition, there can be no guarantee that the Company’s current insurance coverage will not be cancelled or become unavailable on economically reasonable terms in the future. If the Company were to suffer damage to an asset for which it was uninsured, it may be forced to obtain additional financing, to repair or rebuild the damaged asset or lose the value of the damaged asset altogether, which could have a material adverse effect on the Company’s business, financial condition, results of operations, future prospects or the price of the Ordinary Shares.
RISKS RELATED TO TAX AND REGULATION
The Company faces certain risks relating to its REIT status, including changes to tax legislation, which may affect the Company and impose potential limits on the Company’s flexibility in implementing its strategy The Company and relevant members of its group for tax purposes (the REIT Group) converted to REIT status AI, 9.2.3 in the United Kingdom with effect from 1 January 2007. Very broadly, the REIT Group is exempt from UK tax on income and gains derived from its qualifying UK investment property rental business. However, in order to qualify for this regime and benefit from the tax exemption, the REIT Group has to meet certain conditions on an ongoing basis. These include various tests relating to the structure and ownership of the Company, the nature of the REIT Group’s business, the percentage of profits derived from, and assets involved in, the REIT Group’s property rental business, interest cover, and the level of distributions to Shareholders. In the event that the REIT Group fails to meet the requirements necessary to maintain REIT status, the REIT Group may lose the benefit of the REIT regime and the corresponding tax benefits, which could have a material adverse effect on the Company’s business, financial condition, results of operations, future prospects or the price of the Ordinary Shares. If as a result the REIT Group is required to leave the REIT regime within ten years of joining, HMRC has wide powers to direct how it is to be taxed (before and after it leaves the REIT regime) and to determine the date on which the REIT Group is treated as leaving the REIT regime.
16 Risk Factors
Prospective investors should note that there is no guarantee that the REIT Group will continue to maintain REIT status. The REIT Group could lose its status as a REIT as a result of, among other matters, the actions of third parties (for example, in the event of a successful takeover by a company that is not a REIT) or due to a breach of the “close company” condition for REIT status if it is unable to remedy the breach within a specified period.
The constraints surrounding REIT status could limit the Company’s flexibility in implementing its strategy, which could also have a material adverse effect on its business, financial condition, results of operations, future prospects or the price of the Ordinary Shares. For example, the Company is required to distribute a minimum of 90 per cent. of the REIT Group’s tax-exempt income profits from the REIT Group’s property rental business to its shareholders, and this requirement (combined with the impact of the timing of recognition of income and expenses) could impact on the REIT Group’s resources available to fund acquisitions and capital expenditure. The REIT Group must also meet tests in relation to the percentage of profits derived from, and assets involved in, the property rental business, which may also restrict flexibility.
Further, any change (including a change in interpretation) in the legislative provisions relating to REITs or in tax legislation more generally, either in the United Kingdom or in other countries in which the Company operates, could have a material adverse effect on the Company’s business, financial condition, results of operations, future prospects or the price of the Ordinary Shares. Changes to tax legislation could include the imposition of new taxes or increases in tax rates in the United Kingdom or elsewhere. All of these matters could have a material adverse effect on the Company’s business, financial condition, results of operations, future prospects or the price of the Ordinary Shares. In particular, an increase in the rates of stamp duty land tax could have a material impact on the price at which UK land can be sold, and therefore on asset values.
The Company operates in jurisdictions in certain European countries through its investment funds and certain joint ventures. As a result, the Company must manage foreign regulatory requirements and tax regimes in each of these jurisdictions, each of which may differ substantially from the regulatory requirements and tax regime in the United Kingdom. If the Company does not effectively manage these foreign regulatory requirements and tax regimes, it may incur unexpected tax and regulatory costs and the loss of distributable profits, which could have a material adverse effect on the Company’s business, financial condition, results of operations, future prospects or the price of the Ordinary Shares.
If for any reason the assets of the Company are deemed to be plan assets for purposes of ERISA, both the Company and fiduciaries causing Plans to acquire or hold the Company’s ordinary shares could be adversely affected In an effort to prevent the Company’s assets from being treated as plan assets for purposes of the United States Employee Retirement Income Security Act of 1974, as amended (ERISA), purchasers of New Shares, by their purchase of New Shares, will be deemed to represent and warrant that they are not and for so long as they hold any ordinary shares will not be, and will not be acting on behalf of, Benefit Plan Investors, including (1) any employee benefit plan (as defined in Section 3(3) of ERISA), that is subject to part 4 of Title I of ERISA, (2) any plan to which Section 4975(e)(1) of the United States Internal Revenue Code of 1986, as amended (the Code) applies, and (3) any entity whose underlying assets include plan assets by reason of a plan’s investment in the entity. However, notwithstanding such deemed representations and warranties, there can be no assurance that the Company’s underlying assets will not be treated as plan assets for purposes of ERISA. Investors are advised to consult their own legal counsel with regard to this issue.
If for any reason the assets of the Company are deemed to be plan assets for purposes of ERISA, both the Company and fiduciaries causing Plans to acquire or hold the Company’s ordinary shares could be adversely affected. With regard to the Company itself, although the reach of ERISA outside the United States is uncertain (i) certain transactions that the Company might enter into, or may have entered into, in the ordinary course of its business might constitute non-exempt “prohibited transactions” under ERISA or Section 4975 of the Code, which generally require rescission of prohibited transactions; (ii) various providers of fiduciary or other services to the Company, and any other parties with authority or control with respect to the Company, could be deemed to be Plan fiduciaries or otherwise Parties in Interest or Disqualified Persons by virtue of their provision of such service; and (iii) the payment of certain of the fees by the Company might be considered to be a non-exempt “prohibited transaction” under Section 406 of ERISA or Section 4975 of the Code. With regard to fiduciaries causing Plans to invest in the Company’s ordinary shares, (i) the underlying assets of the Company could be subject to ERISA’s reporting and disclosure requirements, in which case a Plan
17 Risk Factors fiduciary would be required to report the Plan’s share of each of the Company’s assets as an asset of the Plan; (ii) a fiduciary causing a Plan to make an investment in the equity of the Company could be deemed to have delegated its responsibility to manage the assets of the Plan and could be held responsible under ERISA for investment decisions made by the Company, and (iii) it is not clear that Section 404(b) of ERISA, which generally prohibits Plan fiduciaries from maintaining the indicia of ownership of assets of Plans subject to Title I of ERISA outside the jurisdiction of the district courts of the United States, would be satisfied in all instances. For further discussion, see “Certain ERISA Considerations” of Part VII of this document.
RISKS RELATED TO THE RIGHTS ISSUE AND THE NEW SHARES AIII, 2
British Land’s share price may fluctuate The market price of the Ordinary Shares could be subject to significant fluctuations due to a change in AI, 9.2.3 sentiment in the market regarding the Ordinary Shares. The fluctuations could result from national and global economic and financial conditions, the market’s response to the Rights Issue, the plans and proposals of the UK, US and other governments with respect to the current global financial crisis, market perceptions as to when the Company will be able to pay dividends on the Ordinary Shares and various other facts and events, including liquidity of financial markets, regulatory changes affecting the Company’s operations, variations in the Company’s operating results, business developments of the Company and/or its competitors. Stock markets have recently experienced significant price and volume fluctuations that have affected the market prices for the Company’s securities. Furthermore, the operating results and prospects from time to time may be below the expectations of market analysts and investors. Any of these events could result in a decline in the market price of the New Shares and/or the Ordinary Shares.
British Land’s ability to continue to pay dividends on the Ordinary Shares will depend on the AI, 9.2.3 availability of distributable reserves British Land’s ability to pay dividends is limited under UK company law, which limits a company to only paying cash dividends to the extent that it has distributable reserves and cash available for this purpose. As a holding company, British Land’s ability to pay dividends in the future is affected by a number of factors, principally its ability to receive sufficient dividends from subsidiaries. The payment of dividends to British Land by its subsidiaries is, in turn, subject to restrictions, including certain regulatory requirements and the existence of sufficient distributable reserves and cash in British Land’s subsidiaries. The ability of these subsidiaries to pay dividends and British Land’s ability to receive distributions from its investments in other entities are subject to applicable local laws and regulatory requirements and other restrictions, including, but not limited to, applicable tax laws and covenants in some of British Land’s debt facilities. These laws and restrictions could limit the payment of future dividends and distributions to British Land by its subsidiaries, which could restrict British Land’s ability to fund other operations or to pay a dividend to holders of the Existing Shares or the New Shares.
As a result of the Company’s regulation under the REIT regime, the Company’s Articles of Association contain certain onerous provisions to which a Shareholder whose Ordinary Shares become part of a substantial shareholding may become exposed. This may deter acquisitions of larger stakes in the Company The REIT Group may become subject to an additional tax charge if it pays a dividend to, or in respect of, a person who is a company beneficially entitled, directly or indirectly, to 10 per cent. or more of the Company’s dividends or share capital or that controls, directly or indirectly, 10 per cent. or more of the voting rights of the Company. For these purposes, a “company” includes bodies corporate and certain entities which are deemed to be bodies corporate for tax purposes by certain overseas jurisdictions or under an international agreement. The tax charge will not be incurred if the Company has taken reasonable steps to prevent the possibility of paying dividends to such a person. HMRC guidance describes certain actions that might be taken to demonstrate such “reasonable steps”. One of these actions is to include certain restrictive provisions in the Company’s Articles of Association to address this requirement. When it entered the REIT regime, the Company amended its Articles of Association in a way which made them consistent with the provisions described in the HMRC guidance.
Broadly, the Company’s Articles of Association include provisions which: (i) provide the Directors with powers to identify those persons whose interest in the Company may cause the tax charge described above to arise (a Substantial Shareholder); (ii) allow the Directors to withhold the payment of dividends on shares that
18 Risk Factors form part of the shareholding by virtue of which a person is a Substantial Shareholder (a Substantial Shareholding), unless certain conditions are met; (iii) allow dividends to be paid on shares that form part of a Substantial Shareholding where rights to dividends on the shares forming part of the Substantial Shareholding have been disposed of; (iv) seek to ensure that if a dividend is paid on shares that form part of a Substantial Shareholding and arrangements of the kind referred to in (iii) are not implemented, the Substantial Shareholder concerned does not become beneficially entitled to that dividend; (v) allow the Directors to require the disposal of shares forming part of a Substantial Shareholding if certain conditions are met; and (vi) require, in certain circumstances, a Substantial Shareholder to pay the tax charge. A Shareholder whose Ordinary Shares become part of a Substantial Shareholding may be exposed to some or all of these provisions, and the existence of these provisions may also deter acquisitions of larger stakes in the Company.
An active trading market in the Nil Paid Rights or Fully Paid Rights may not develop An active trading market in the Nil Paid Rights or Fully Paid Rights may not develop on the London Stock Exchange during the trading period. In addition, because the trading price of the Nil Paid Rights and the Fully Paid Rights depends on the trading price of the Ordinary Shares, the Nil Paid Rights and the Fully Paid Rights price may be volatile and subject to the same risks as noted elsewhere herein.
Shareholders who do not acquire New Shares in the Rights Issue will experience dilution in their AIII, 9.1, 9.2 ownership of British Land If Shareholders, including Shareholders in the United States and other jurisdictions where their participation is restricted for legal, regulatory and other reasons, do not take up the offer of New Shares under the Rights Issue, their proportionate ownership and voting interests in British Land will be reduced and the percentage that their shares will represent of the total share capital of the Company will be reduced accordingly. Even if a Shareholder elects to sell his unexercised Nil Paid Rights, or such Nil Paid Rights are sold on his behalf, the consideration he receives may not be sufficient to compensate him fully for the dilution of his percentage ownership of the Company’s share capital that may be caused as a result of the Rights Issue.
Shareholders outside the United Kingdom may not be able to acquire New Shares in the Rights Issue or for future issues of shares In the case of an allotment of Ordinary Shares for cash, Shareholders have certain statutory pre-emption rights unless those rights are disapplied by a special resolution of the Shareholders at a general meeting and such an issue could dilute the interests of the then-existing Shareholders. Securities laws of certain jurisdictions may restrict British Land’s ability to allow participation by Shareholders in the Rights Issue. In particular, holders of Ordinary Shares who are located in the United States may not be able to exercise their pre-emption rights unless a registration statement under the US Securities Act is effective with respect to such rights or an exemption from the registration requirements is available thereunder. The Rights Issue will not be registered under the US Securities Act. Securities laws of certain other jurisdictions may restrict British Land’s ability to allow participation by Shareholders in such jurisdictions in any future issue of shares carried out by the Company. Qualifying Shareholders who have a registered address in or who are resident in, or who are citizens of, countries other than the United Kingdom should consult their professional advisers as to whether they require any governmental or other consents or need to observe any other formalities to enable them to take up their Nil Paid Rights or to acquire Fully Paid Rights or New Shares.
The ability of Overseas Shareholders to bring actions or enforce judgments against British Land or the Directors may be limited The ability of an Overseas Shareholder to bring an action against British Land may be limited under law. British Land is a public limited company incorporated in England. The rights of holders of Shares are governed by English law and by British Land’s Memorandum and Articles of Association. These rights differ from the rights of shareholders in typical US corporations and some other non-UK corporations.
An Overseas Shareholder may not be able to enforce a judgment against some or all of the Directors and executive officers. The majority of the Directors and executive officers are residents of the United Kingdom. Consequently, it may not be possible for an Overseas Shareholder to effect service of process upon the Directors and executive officers within the Overseas Shareholder’s country of residence or to enforce against the Directors and executive officers judgments of courts of the Overseas Shareholder’s country of residence based on civil liabilities under that country’s securities laws. There can be no assurance that an Overseas Shareholder will be able to enforce any judgments in civil and commercial matters or any judgments under
19 Risk Factors the securities laws of countries other than the United Kingdom against the Directors or executive officers who are residents of the United Kingdom or countries other than those in which judgment is made. In addition, English or other courts may not impose civil liability on the Directors or executive officers in any original action based solely on foreign securities laws brought against British Land or the Directors in a court of competent jurisdiction in England or other countries.
20 Rights Issue Statistics
Issue Price per New Share ...... 225 pence AIII, 5.3.1 Basis of Rights Issue...... 2 New Shares for every 3 Existing Shares AIII, 5.1.2 Number of Ordinary Shares in issue at the date of this document ...... 511,310,383 Number of New Shares to be issued by the Company(1) . . . . . up to 340,873,589 Number of Ordinary Shares in issue immediately following . completion of the Rights Issue(1) ...... up to 852,183,972 New Shares as a percentage of enlarged issued share capital of the Company immediately following completion of the . . Rights Issue(1) ...... up to 40 per cent. AIII, 8.1 Number of Ordinary Shares subject to the GICRE Irrevocable Undertaking...... 36,705,979 Estimated net proceeds receivable by the Company after expenses...... up to £740 million Estimated expenses of the Rights Issue ...... £27 million Note:
(1) Assuming no exercise of any outstanding options between 11 February 2009, being the latest practicable date prior to the publication of this document, and the Record Date.
21 Expected Timetable of Principal Events
Each of the times and dates in the table below is indicative only and may be subject to change.
Record Date for entitlement under the Rights Issue for Qualifying close of business AIII, 5.1.3 CREST Shareholders and Qualifying Non-CREST Shareholders ...... on 27 February 2009 Latest time and date for receipt of General Meeting forms of proxy . . . . . 10.00 a.m. on 1 March 2009 General Meeting ...... 10.00 a.m. on 3 March 2009 Despatch of Provisional Allotment Letters (to Qualifying non-CREST Shareholders only) ...... 3 March 2009 Dealings in New Shares, nil paid, commence on the London Stock Exchange ...... 8.00 a.m. on 4 March 2009 Existing Shares marked “ex” by the London Stock Exchange ...... 8.00 a.m. on 4 March 2009 Nil Paid Rights credited to stock accounts in CREST (Qualifying CREST Shareholders only)(1) ...... 8.00 a.m. on 4 March 2009 Nil Paid Rights and Fully Paid Rights enabled in CREST ...... by 8.00 a.m. on 4 March 2009 Recommended latest time for requesting withdrawal of Nil Paid Rights and Fully Paid Rights from CREST (i.e. if your Nil Paid Rights and Fully Paid Rights are in CREST and you wish to convert them to certificated form) ...... 4.30 p.m. on 12 March 2009 Latest time for depositing renounced Provisional Allotment Letters, nil or fully paid, into CREST or for dematerialising Nil Paid Rights or Fully Paid Rights into a CREST stock account (i.e. if your Nil Paid Rights and Fully Paid Rights are represented by a Provisional Allotment Letter and you wish to convert them to uncertificated form)...... 3.00 p.m. on 13 March 2009 Latest time and date for splitting Provisional Allotment Letters, AIII, 5.2.3(g) nil or fully paid ...... 3.00 p.m. on 16 March 2009 Latest time and date for acceptance, payment in full and registration of LR13.3(1)(9)(a) renunciation of Provisional Allotment Letters...... 11.00 a.m. on 18 March 2009 (9)(h) Dealings in New Shares, fully paid, commence on the AIII, 4.7 London Stock Exchange ...... 8.00 a.m. on 19 March 2009 New Shares credited to CREST stock accounts ...... 19 March 2009 Despatch of definitive share certificates for the New Shares in certificated form ...... by no later than 26 March 2009
Notes: (1) Subject to certain restrictions relating to Shareholders with registered addresses outside the United Kingdom, details of which are set out in paragraph 2.5 of Part III of this document. (2) The times and dates set out in the expected timetable of principal events above and mentioned throughout this document may be adjusted by British Land in consultation with the Joint Sponsors and Euro Lights, in which event details of the new times and dates will be notified to the FSA, the London Stock Exchange and, where appropriate, Qualifying Shareholders. (3) References to times in this timetable are to London (GMT) times. (4) If you have any queries on the procedure for acceptance and payment, you should contact the Shareholder Helpline on 0871 384 2983* (from inside the United Kingdom) or +44 121 415 0146 (from outside the United Kingdom). This Shareholder Helpline is available from 8.30 a.m. to 5.30 p.m. Monday to Friday (except bank holidays). Please note that for legal reasons, the Shareholder Helpline is only able to provide information contained in this document and information relating to British Land’s register of members and is unable to give advice on the merits of the Rights Issue, or provide financial, tax or investment advice. * Calls to this number are charged at 8 pence per minute if calling from a BT landline. Other telephone providers’ charges may vary.
22 Important Information
Presentation of financial information The Company publishes its financial statements in pounds sterling (£ or sterling). References to “pence” and “p” represent pence in the United Kingdom. Reference to “$” are to US dollars. The abbreviation “€” represents the euro, the European single currency.
The financial information presented in a number of tables in this document has been rounded to the nearest whole number or the nearest decimal. Therefore, the sum of the numbers in a column may not conform exactly to the total figure given for that column. In addition, certain percentages presented in the tables in this document reflect calculations based upon the underlying information prior to rounding, and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the rounded numbers.
Sources of information Statements in this document relating to (i) the value of the properties wholly owned by the Company as at 31 December 2008 have been extracted without material adjustment from the valuation report prepared by Knight Frank, which is included in Part IX of this document, and (ii) the value of properties held through AI, 23.1 investment funds and joint ventures in which the Company has an interest as at 31 December 2008 have been extracted without material adjustment from valuations of such properties prepared by Knight Frank and AIII, 10.4 CBRE. The Company confirms that this information has been accurately reproduced and, so far as the Company is aware and is able to ascertain from information published by these third parties, no facts have been omitted which would render reproduced information inaccurate or misleading. Such information has not been audited.
Financial information, unless otherwise stated, has been extracted from the audited consolidated financial statements of the Company and its subsidiaries for the years ended 31 March 2007 and 2008 or from the unaudited interim condensed consolidated financial statements of the Company and its subsidiaries for the nine months ended 31 December 2008, all of which are incorporated by reference in this document. Where information has been extracted from the audited consolidated financial statements for the years ended AI, 20.4.1 31 March 2007 or 2008, the information is audited unless otherwise stated. Where the information has been extracted from the interim condensed consolidated financial statements for the three or nine months ended AI, 20.4.3 31 December 2008, the information is unaudited.
International Financial Reporting Standards As required by the Companies Act and Article 4 of the European Union IAS Regulation, the consolidated financial statements of the Group are prepared in accordance with IFRS issued by the IASB and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB as adopted by the European Union. The consolidated financial statements of the Group also comply with IFRS as issued by the IASB.
Non-GAAP financial measures This document, including the Company’s consolidated financial statements incorporated by reference herein, provides data regarding the Company’s “underlying (loss)/profit on ordinary activities before taxation”, “underlying earnings per share”, “EPRA earnings (loss) per share”, “EPRA NAV”, “EPRA NAV per share”, “EPRA NNNAV” and “EPRA NNNAV per share”. These are “non-GAAP financial measures” within the meaning of Regulation G under the US Securities Act and are EPRA earnings measures with additional adjustments as noted in the Company’s consolidated financial statements for the relevant financial period. The EPRA measures are designed to aid comparability between property companies following implementation of IFRS and to assist in understanding reported figures compared to previous accounting practices. For the reconciliation of underlying (loss)/profit on ordinary activities before taxation to (loss)/profit on ordinary activities before taxation, see the Company’s consolidated income statements for the relevant financial period, which are incorporated by reference in this document. For the reconciliation of (i) underlying earnings per share and EPRA earnings (loss) per share to earnings per share and (ii) EPRA NAV and EPRA NAV per share to NAV, see note 1 to the Company’s unaudited interim consolidated income statement for the nine months ended 31 December 2008 , note 2 to the Company’s audited consolidated financial statements for the
23 Important Information year ended 31 March 2007 and note 2 to the Company’s audited consolidated financial statements for the year ended 31 March 2008, all of which are incorporated by reference in this document. For the reconciliation of EPRA NNNAV to EPRA NAV, see Table A to the Company’s unaudited interim condensed consolidated financial statements for the nine months ended 31 December 2008, Table A to the Company’s audited consolidated financial statements for the year ended 31 March 2007 and Table A to the Company’s audited consolidated financial statements for the year ended 31 March 2008, all of which are incorporated by reference in this document.
Forward-looking statements This document contains or incorporates by reference “forward-looking statements”, within the meaning of Section 27A of the US Securities Act and Section 21E of the US Exchange Act, regarding the belief or current expectations of the Company, the Company’s Directors and other members of its senior management about the Company’s businesses and the transactions described in this document, including statements relating to possible future write-downs or movements in property prices and the Company’s capital and financial planning projections. Generally, words such as “may”, “could”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “plan”, “seek”, “continue” or similar expressions identify forward-looking statements.
These forward-looking statements are not guarantees of future performance. Rather, they are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors, many of which are outside the control of the Company and are difficult to predict, that may cause actual results to differ materially from any future results or developments expressed or implied from the forward-looking statements.
These statements are further qualified by the risk factors disclosed in this document that could cause actual results to differ materially from those in the forward-looking statements. See “Risk Factors”.
These forward-looking statements speak only as at the date of this document. Except as required by the FSA, the London Stock Exchange, the Part VI Rules or applicable law, the Company does not have any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, further events or otherwise. Except as required by the FSA, the London Stock Exchange, the Prospectus Directive, the Listing Rules, the Transparency Rules or applicable law, the Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Foreign currency exchange rate information Fluctuations in the exchange rate between the pound sterling and the US dollar will affect the US dollar amounts received by holders of the Ordinary Shares on conversion of payments paid in pounds sterling on the Ordinary Shares.
The table below sets out period-end, average, high and low exchange rates of US dollars per pound sterling for each year indicated. Yearly averages are computed using the noon buying rate for pounds sterling in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York for each last business day of each month during the period indicated.
US dollars per £1.00 Year Period end Average High Low 2004 ...... 1.9160 1.8356 1.9482 1.7544 2005 ...... 1.7188 1.8147 1.9292 1.7138 2006 ...... 1.9586 1.8582 1.9794 1.7256 2007 ...... 1.9843 2.0073 2.1104 1.9235 2008 ...... 1.4619 1.8424 2.0311 1.4395 2009 (to 11 February)...... 1.4773 1.4519 1.5373 1.3501
Notice to investors in the United States Subject to certain exceptions, neither this document nor the Provisional Allotment Letter constitutes, or will constitute, or forms part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or acquire, Nil Paid Rights, Fully Paid Rights or New Shares to any Shareholder with a registered address in, or who is located in, the United States. If you are in the United States, you may not exercise your Nil Paid
24 Important Information
Rights or Fully Paid Rights and/or acquire any New Shares offered hereby unless you are a QIB. Notwithstanding the foregoing, the Company reserves the right to deliver the Nil Paid Rights to, and the Fully Paid Rights and the New Shares may be offered to and acquired by, a limited number of Shareholders in the United States reasonably believed to be QIBs, in offerings exempt from or in a transaction not subject to, the registration requirements of the US Securities Act. The Nil Paid Rights, the Fully Paid Rights and the New Shares being offered outside the United States are being offered in reliance on Regulation S. If you are a QIB, in order to exercise your Nil Paid Rights or Fully Paid Rights and/or acquire any New Shares upon exercise thereof, you must sign and deliver an investor letter.
If you sign such an investor letter, you will be, amongst other things:
• representing that you and any account for which you are acquiring the Nil Paid Rights, the Fully Paid Rights or the New Shares are a QIB;
• agreeing not to reoffer, sell, pledge or otherwise transfer the Nil Paid Rights, the Fully Paid Rights or the New Shares, except:
• in an offshore transaction in accordance with Rule 904 of Regulation S under the US Securities Act; or
• with respect to the New Shares only, pursuant to Rule 144 under the US Securities Act (if available),
and, in each case, in compliance with any applicable securities law of any state or other jurisdiction of the United States; and
• agreeing that for so long as the New Shares are restricted securities not to deposit the New Shares into any unrestricted American depositary receipt facility, unless they have been registered pursuant to an effective registration statement under the US Securities Act.
No representation has been, or will be, made by the Company, the Joint Bookrunners or the Bank Underwriters as to the availability of Rule 144 under the US Securities Act or any other exemption under the US Securities Act or any state securities laws for the reoffer, pledge or transfer of the New Shares.
Any envelope containing a Provisional Allotment Letter and post-marked from the United States will not be valid unless it contains a duly executed investor letter in the appropriate form as described above. Similarly, any Provisional Allotment Letter in which the exercising holder requests New Shares to be issued in registered form and gives an address in the United States will not be valid unless it contains a duly executed investor letter.
The payment paid in respect of Provisional Allotment Letters that do not meet the foregoing criteria will be returned without interest.
Any person in the United States who obtains a copy of this document and who is not a QIB is required to disregard it.
Available information If, at any time, the Group is neither subject to Section 13 or Section 15(d) of the US Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder, the Group will furnish, upon request, to any holder or beneficial holder of the New Shares, or any prospective purchaser designated by any such holder or beneficial owner, the information required to be delivered pursuant to Rule 144A(d)(4) under the US Securities Act. In such cases, the Group will also furnish to each such owner all notices of general Shareholders’ meetings and other reports and communications that the Group generally makes available to Shareholders.
Notice to European Economic Area investors In relation to each member state of the European Economic Area which has implemented the Prospectus Directive (each, a relevant member state), with effect from and including the date on which the Prospectus Directive was implemented in that relevant member state (the relevant implementation date) no New Shares, Nil Paid Rights or Fully Paid Rights have been offered or will be offered pursuant to the Rights Issue to the
25 Important Information public in that relevant member state prior to the publication of a prospectus in relation to the New Shares, Nil Paid Rights and Fully Paid Rights which has been approved by the competent authority in that relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in the relevant member state, all in accordance with the Prospectus Directive, except that with effect from and including the relevant implementation date, offers of New Shares, Nil Paid Rights or Fully Paid Rights may be made to the public in that relevant member state at any time:
(a) to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;
(b) to any legal entity which has two or more of: (i) an average of at least 250 employees during the last financial year; (ii) a total balance sheet of more than €43 million; and (iii) an annual turnover of more than €50 million, as shown in its last annual or consolidated accounts; or
(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of New Shares, Nil Paid Rights or Fully Paid Rights shall result in a requirement for the publication by the Company, Joint Bookrunners or the Bank Underwriters of a prospectus pursuant to Article 3 of the Prospectus Directive.
For this purpose, the expression “an offer of any New Shares, Nil Paid Rights or Fully Paid Rights to the public” in relation to any New Shares, Nil Paid Rights and Fully Paid Rights in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the Rights Issue and any New Shares, Nil Paid Rights and Fully Paid Rights to be offered so as to enable an investor to decide to acquire any New Shares, Nil Paid Rights or Fully Paid Rights, as the same may be varied in that relevant member state by any measure implementing the Prospectus Directive in that relevant member state.
In the case of any New Shares, Nil Paid Rights or Fully Paid Rights being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, such financial intermediary will also be deemed to have represented, acknowledged and agreed that the New Shares, Nil Paid Rights and Fully Paid Rights acquired by it in the Rights Issue have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to persons in circumstances which may give rise to an offer of any New Shares, Nil Paid Rights or Fully Paid Rights to the public other than their offer or resale in a relevant member state to qualified investors as so defined or in circumstances in which the prior consent of the Company and each of the Bank Underwriters has been obtained to each such proposed offer or resale.
Notice to investors in Canada The distribution of securities offered in Canada pursuant to this document is being made in each of the Provinces of Canada (individually, a Canadian Jurisdiction and collectively, the Canadian Jurisdictions) only to those persons where and to whom they may be lawfully offered for sale and as part of an international rights offering. The securities offered by this document will be distributed under exemptions from the prospectus and registration requirements of applicable securities laws in each of the Canadian Jurisdictions. The offering of the securities hereunder and pursuant to this document does not constitute a general offer to the public or the general solicitation from the public of offers to acquire the securities offered hereunder and under no circumstances is to be construed as an advertisement of the securities referred to in this document. Any certificates representing the securities offered pursuant to this document may bear legends required or desirable under applicable securities laws or policies.
The distribution of the securities hereunder in Canada is being made on a private placement basis only and is exempt from the requirement that British Land prepare and file a prospectus with the relevant Canadian securities regulatory authorities. Accordingly, any resale of the securities must be made in accordance with applicable Canadian securities laws, which may require resales to be made in accordance with prospectus and dealer registration requirements or exemptions from the prospectus and dealer registration requirements. These resale restrictions may in some circumstances apply to resales of the securities outside Canada. Canadian readers are advised to seek legal advice prior to any resale of the securities offered hereby.
British Land is not a “reporting issuer”, as such term is defined under applicable Canadian securities laws, in any province or territory of Canada in which the securities will be offered. Canadian investors are advised that British Land is not required to file a prospectus or similar document with any securities regulatory
26 Important Information authority in Canada qualifying the resale of the securities to the public in any province or territory of Canada. Canadian investors are further advised that British Land currently does not intend to file a prospectus or similar document with any securities regulatory authority in Canada qualifying the resale of the securities to the public in any province or territory of Canada in connection with this offering.
By its receipt of this document, each Canadian investor confirms that it has expressly requested that all documents evidencing or relating in any way to the sale of the securities described herein (including for greater certainty any purchase confirmation or any notice) be drawn up in the English language only. Par la réception de ce document, chaque investisseur canadien confirme paries présentes qu’il a expressément exige que tous les documents faisant foi ou se rapportant de quelque manière que ce soit a la vente des valeurs mobilières décrites aux présentes (incluant, pour plus de certitude, toute confirmation d’achat ou tout avis) soient rédiges en anglais seulement.
The offering in the Canadian Jurisdictions is being made solely by this document and no person has been authorised to give any information or to make any representation other than as provided for herein.
Any discussion of taxation and related matters contained within this prospectus does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase the securities and, in particular, does not address Canadian tax considerations. Canadian investors should consult with their own legal and tax advisers with respect to the tax consequences of an investment in the securities in their particular circumstances and with respect to the eligibility of the securities for investment by such investor under relevant Canadian legislation and regulations.
British Land is formed under the laws of England and Wales. All of the directors and officers of British Land, as well as certain of the experts named herein, may be located outside Canada and, as a result, it may not be possible for purchasers to effect service of process within Canada upon British Land or such persons. All or a substantial portion of the assets of British Land and such other persons may be located outside Canada and, as a result, it may not be possible for purchasers to satisfy or collect a judgement in Canada against British Land, its directors and officers or such persons or to enforce a judgement obtained in Canadian courts against British Land or such persons outside Canada.
Each Canadian investor who purchases securities hereunder will be deemed to have represented to British Land, the Joint Bookrunners, MSSL and any dealer who sells securities to such purchaser that:
(a) the offer and sale of the securities was made exclusively through the final version of the Canadian Offering Memorandum (as defined below) and was not made through an advertisement of the securities in any printed media of general and regular paid circulation, radio, television or telecommunications, including electronic display, or any other form of advertising in Canada;
(b) such purchaser has reviewed and acknowledges the applicable resale restrictions;
(c) such purchaser has reviewed and acknowledges the representations required to be made by all purchasers of the securities as set forth in this document and hereby makes such representations;
(d) where required by law, such purchaser is purchasing as principal, or is deemed to be purchasing as principal in accordance with applicable securities laws of the province in which such purchaser is resident, for its own account and not as agent for the benefit of another person; and
(e) such purchaser, or any ultimate purchaser for which such purchaser is acting as agent, is entitled under applicable Canadian securities laws to purchase the securities without the benefit of a prospectus qualified under such securities laws, and without limiting the generality of the foregoing:
(i) in the case of a purchaser resident in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Prince Edward Island, and Nova Scotia, such purchaser is an “accredited investor” as defined in Section 1.1 of National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106);
(ii) in the case of a purchaser resident in Ontario, such purchaser:
27 Important Information
(1) is an “accredited investor”, other than an individual, as defined in Section 1.1 of NI 45-106, and is purchasing the securities from a dealer registered as an international dealer in Ontario within the meaning of Section 98(4) of the Regulation to the Securities Act (Ontario); or
(2) is an “accredited investor”, including an individual, as defined in Section 1.1 of NI 45-106, and is purchasing the securities from a registered investment dealer or limited market dealer registered in Ontario within the meaning of Section 98(5) and Section 98(6) of the Regulation to the Securities Act (Ontario), respectively;
(iii) in the case of a purchaser resident in Newfoundland and Labrador, such purchaser:
(1) is an “accredited investor”, other than an individual, as defined in Section 1.1 of NI 45-106, and is a person to which a dealer registered as an international dealer in Newfoundland and Labrador may sell; or
(2) is an “accredited investor”, including an individual, as defined in Section 1.1 of NI 45-106, who is purchasing the securities from a registered investment dealer in Newfoundland and Labrador within the meaning of Section 86 of the Regulation to the Securities Act (Newfoundland and Labrador); and
(f) such purchaser is not a person created or used solely to purchase or hold the securities as an “accredited investor” as described in paragraph (m) of the definition of “accredited investor” in Section 1.1 of NI 45-106.
In addition, each resident of Ontario who purchases the securities will be deemed to have represented to British Land, the Joint Bookrunners, MSSL and each dealer from whom a purchase confirmation was received, that such purchaser:
(a) has been notified by British Land:
(i) that British Land may be required to provide certain personal information (personal information) pertaining to the purchaser as required to be disclosed in Schedule I of Form 45-106F1 under NI 45-106 (including its name, address, telephone number and the number and value of any securities purchased), which Form 45-106F1 may be required to be filed by British Land under NI 45-106;
(ii) that such personal information may be delivered to the Ontario Securities Commission (the OSC) in accordance with NI 45-106;
(iii) that such personal information is collected indirectly by the OSC under the authority granted to it under the securities legislation of Ontario;
(iv) that such personal information is collected for the purposes of the administration and enforcement of the securities legislation of Ontario; and
(v) that the public official in Ontario who can answer questions about the OSC’s indirect collection of such personal information is the Administrative Assistant to the Director of Corporate Finance at the OSC, Suite 1903, Box 55, 20 Queen Street West, Toronto, Ontario M5H 3S8, Telephone: (416) 593-8086; and
(b) has authorised the indirect collection of the personal information by the OSC.
Furthermore, the purchaser acknowledges that its name, address, telephone number and other specified information, including the number of securities it has purchased and the aggregate purchase price paid by the purchaser, may be disclosed to other Canadian securities regulatory authorities and may become available to the public in accordance with the requirements of applicable Canadian laws. By purchasing the securities, the purchaser consents to the disclosure of such information.
28 Important Information
Notice to Canadian investors who are not currently shareholders of British Land This Prospectus constitutes a Canadian offering memorandum for those Canadian investors who are not currently shareholders of British Land (and this document is referred to in this notice to Canadian investors as the Canadian Offering Memorandum). As such, the Canadian Offering Memorandum constitutes an offering of the securities described herein only in those Canadian Jurisdictions and to those persons where and to whom they may be lawfully offered for sale, and therein only by persons permitted to sell such securities. This Canadian Offering Memorandum is not, and under no circumstances is to be construed as, an advertisement or a public offering of the securities referred to in this document in Canada. No securities commission or similar authority in Canada has reviewed or in any way passed upon this Canadian Offering Memorandum or the merits of the securities described herein and any representation to the contrary is an offence.
This Canadian Offering Memorandum is for the confidential use of only those persons to whom it is delivered by the Joint Bookrunners or MSSL in connection with the offering of the securities in the applicable Canadian Jurisdictions. The Bank Underwriters reserve the right to reject all or part of any offer to purchase the securities hereunder for any reason or allocate to any purchaser less than all of the securities which it has acquired.
Securities legislation in certain of the Canadian provinces provides purchasers of securities pursuant to an offering memorandum (such as this Canadian Offering Memorandum) with a remedy for damages or rescission, or both, in addition to any other rights they may have at law, where the offering memorandum and any amendment to it contains a “Misrepresentation”. Where used herein, “Misrepresentation” means an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make any statement not misleading in light of the circumstances in which it was made. These remedies, or notice with respect to these remedies, must be exercised or delivered, as the case may be, by the purchaser within the time limits prescribed by applicable securities legislation.
Ontario Section 130.1 of the Securities Act (Ontario) provides that every purchaser of securities pursuant to an offering memorandum (such as this Canadian Offering Memorandum) shall have a statutory right of action for damages or rescission against the issuer and any selling security holder in the event that the offering memorandum contains a Misrepresentation. A purchaser who purchases securities offered by the offering memorandum during the period of distribution has, without regard to whether the purchaser relied upon the Misrepresentation, a right of action for damages or, alternatively, while still the owner of the securities, for rescission against the issuer and any selling security holder provided that:
(a) if the purchaser exercises its right of rescission, it shall cease to have a right of action for damages as against the issuer and the selling security holders, if any;
(b) the issuer and the selling security holders, if any, will not be liable if they prove that the purchaser purchased the securities with knowledge of the Misrepresentation;
(c) the issuer and the selling security holders, if any, will not be liable for all or any portion of damages that it proves do not represent the depreciation in value of the securities as a result of the Misrepresentation relied upon; and
(d) in no case shall the amount recoverable exceed the price at which the securities were offered.
Section 138 of the Securities Act (Ontario) provides that no action shall be commenced to enforce these rights more than:
(a) in the case of an action for rescission, 180 days after the date of the transaction that gave rise to the cause of action; or
(b) in the case of an action for damages, the earlier of:
(i) 180 days after the date that the purchaser first had knowledge of the facts giving rise to the cause of action; or
29 Important Information
(ii) three years after the date of the transaction that gave rise to the cause of action.
This Canadian Offering Memorandum is being delivered in reliance on the exemption from the prospectus requirements contained under Section 2.3 of NI 45-106 (the accredited investor exemption). The rights referred to in Section 130.1 of the Securities Act (Ontario) do not apply in respect of an offering memorandum (such as this Canadian Offering Memorandum) delivered to a prospective purchaser in connection with a distribution made in reliance on the accredited investor exemption if the prospective purchaser is:
(a) a Canadian financial institution or a Schedule III bank (each as defined in NI 45-106);
(b) the Business Development Bank of Canada incorporated under the Business Development Bank of Canada Act (Canada); or
(c) a subsidiary of any person referred to in paragraphs (a) and (b), if the person owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary.
This Canadian Offering Memorandum may contain “forward-looking information” (FLI) as such term is defined under Section 1.1 of the Securities Act (Ontario). FLI is disclosure regarding possible events, conditions or results of operations that is based on assumptions about future economic conditions and courses of action, and includes future-oriented financial information (FOFI) with respect to prospective results of operations, financial position or cash flows that is presented either as a forecast or a projection. FOFI is FLI about prospective results of operations, financial position or cash flows, based on assumptions about future economic conditions and courses of action, and presented in the format of a historical balance sheet, income statement or cash flow statement. Similarly, a financial outlook is FLI about prospective results of operations, financial position or cash flows that is based on assumptions about future economic conditions and courses of action that is not presented in the format of a historical balance sheet, income statement or cash flow statement. Without limitation, FLI presented under the heading “Current trading and prospects” may be considered FOFI and information presented under the heading “Current trading and prospects” may be considered a financial outlook, as such terms are defined above.
Upon receipt of this Canadian Offering Memorandum, each Canadian investor hereby acknowledges and agrees that: (a) any FLI contained herein (other than information constituting FOFI) should not be considered material for the purposes of and may not have been prepared and/or may not be presented consistent with National Instrument 51-102 Continuous Disclosure Requirements; and (b) that the investor will not receive any additional information updating such FLI during any period that British Land is not a “reporting issuer” in any province or territory of Canada, other than as required under applicable securities laws in England and Wales and/or as expressly agreed to by contract. Canadian investors should refer to the section entitled “Forward-looking statements” contained within this Canadian Offering Memorandum and should consult with their own legal and financial advisers for additional information.
Notice to Australian investors This document is not a disclosure document under Chapter 6D of the Corporations Act 2001 (Cth) (the Australian Corporations Act), has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly:
(i) the offer of the Nil Paid Rights, Fully Paid Rights and New Shares in Australia may only be made to persons who are “sophisticated investors” (within the meaning of section 708(8) of the Australian Corporations Act) or to “professional investors” (within the meaning of section 708(11) of the Australian Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708(8) of the Australian Corporations Act, so that it is lawful to offer, or invite applications for, the Nil Paid Rights, Fully Paid Rights and New Shares without disclosure to persons under Chapter 6D of the Australian Corporations Act; and
(ii) this document and the Provisional Allotment Letter may only be made available in Australia to persons as set forth in clause (i) above.
30 Important Information
If you acquire Nil Paid Rights, Fully Paid Rights or New Shares, then you (i) represent and warrant that you are a person to whom an offer of securities can be made without a disclosure document in accordance with subsections 708(8) or (11) of the Corporations Act and (ii) agree not to sell or offer for sale any Nil Paid Rights, Fully Paid Rights and New Shares in Australia within 12 months after their issue to the offeree or invitee under this document, except in circumstances where disclosure to investors under Chapter 6D would not be required under the Australian Corporations Act.
No person receiving a copy of this document and/or a Provisional Allotment Letter and/or receiving a credit of Nil Paid Rights to a stock account in CREST with a bank or financial institution in Australia may treat the same as constituting an invitation or offer to him nor should he in any event use the Provisional Allotment Letter or deal in Nil Paid Rights or Fully Paid Rights in CREST unless such an invitation or offer could lawfully be made to him or the Provisional Allotment Letter could lawfully be used or dealt with without contravention of any registration or other legal requirements. In such circumstances, this document and the Provisional Allotment Letter are to be treated as received for information only and should not be copied or redistributed.
Notice to Chinese investors The Nil Paid Rights, Fully Paid Rights and New Shares are not being offered or sold and may not be offered or sold, directly or indirectly, in the People’s Republic of China (for such purposes, not including the Hong Kong and Macau Special Administrative Regions or Taiwan), except as permitted by the securities laws of the People’s Republic of China.
Notice to Japanese investors The Rights Issue of New Shares offered hereby has not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law). Accordingly, the Nil Paid Rights, Fully Paid Rights and New Shares will not, directly or indirectly, be offered or sold in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organised under the laws of Japan) or to others for re- offering or resale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except pursuant to an exception from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and other relevant laws and regulations of Japan.
Notice to Singaporean investors This document has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this document and any other document or material in connection with the offer or sale, or invitation for acquisition, of the Nil Paid Rights, Fully Paid Rights or New Shares may not be circulated or distributed, nor may the Nil Paid Rights, Fully Paid Rights or New Shares be offered or sold, or be made the subject of an invitation for acquisition, whether directly or indirectly, to persons in Singapore other than (i) holders of Existing Shares pursuant to Section 273(1)(cd) of the Securities and Futures Act, Chapter 289 of Singapore or (ii) otherwise pursuant to, and in accordance with, the conditions of an exemption under any provision of Subdivision (4) of Division 1 of Part XIII of the Securities and Futures Act, Chapter 289 of Singapore.
Notice to Swiss investors This document is being communicated to a small number of selected investors only in or from Switzerland. Each copy of this document is addressed to a specifically named recipient and may not be passed on to third parties. The Nil Paid Rights, Fully Paid Rights or New Shares are not being offered to the public in or from Switzerland, and neither this Prospectus, not any other offering material in relation to the Nil Paid Rights, Fully Paid Rights or New Shares may be distributed in connection with any such public offering.
31 Where To Find Help
Part II of this document answers some of the questions most often asked by shareholders about rights issues. If you have further questions, please telephone the Shareholder Helpline on the numbers set out below. This helpline is available from 8.30 a.m. to 5.30 p.m. Monday to Friday (except bank holidays) and will remain open until 10 April 2009. Calls to this number are charged at 8 pence per minute if calling from a BT landline. Other telephone providers’ charges may vary.
Shareholder Helpline
0871 384 2983 (from inside the United Kingdom) or
+ 44 121 415 0146 (from outside the United Kingdom)
Please note that, for legal reasons, the Shareholder Helpline will only be able to provide information contained in this document and information relating to the Company’s register of members and will be unable to give advice on the merits of the Rights Issue or to provide financial, tax or investment advice.
32 Directors, Company Secretary, Registered Office and Advisers
Directors Chris Gibson-Smith Chairman AI, 1.1 Chris Grigg Chief Executive AIII, 1.1 Andrew Jones Head of Retail Graham Roberts Finance Director Tim Roberts Head of Offices Clive Cowdery Non-Executive Director John Gildersleeve Non-Executive Director Aubrey Adams Non-Executive Director Kate Swann Non-Executive Director Robert Swannell Senior Independent Non-Executive Director Lord Turnbull Non-Executive Director
Each of the Directors’ business addresses is the Company’s registered address at:
York House 45 Seymour Street London W1H 7LX
Secretary AI, 14.1 Anthony Braine
Registered office AI, 5.1.4 York House 45 Seymour Street London W1H 7LX
Telephone: 020 7486 4466, or, when dialling from outside the United Kingdom, +44 20 7486 4466 Registered in England No. 621920
33 Directors, Company Secretary, Registered Office and Advisers
Joint Sponsor and Joint Bookrunner Joint Sponsor, Joint Bookrunner and Morgan Stanley & Co. International plc Underwriter 25 Cabot Square UBS Investment Bank AIII,10.1 Canary Wharf 1 Finsbury Avenue AIII, 5.4.1 London E14 4QA London EC2M 2PP AIII, 5.4.3
Underwriter Morgan Stanley Securities Limited 25 Cabot Square Canary Wharf London E14 4QA
Legal Advisers to the Company Legal Advisers to the Joint Sponsors, Joint Bookrunners as to English and US law and Bank Underwriters as to English and US law Freshfields Bruckhaus Deringer LLP Linklaters LLP AI,2.1 65 Fleet Street One Silk Street London EC4Y 1HS London EC2Y 8HQ
Auditors Deloitte 2 New Street Square London EC4A 3BZ
Receiving Agent Registrars AIII, 10.1 Equiniti Limited Equiniti Limited Aspect House Aspect House AIII, 5.4.2 Spencer Road Spencer Road AIII, 4.3 Lancing Lancing AIII, 5.4.2 West Sussex BN99 6DA West Sussex BN99 6DA AIII, 10.1
34 Part I: Letter from the Chairman of British Land
12 February 2009
Dear Shareholder, LR 13.3.1(1) LR 13.3.1(3)
PROPOSED 2 FOR 3 RIGHTS ISSUE AT 225 PENCE PER NEW SHARE 1. INTRODUCTION On 12 February 2009, the Board announced a rights issue to raise approximately £740 million net of expenses AIII, 8.1 by the issue of up to 340,873,589 New Shares (representing approximately 67 per cent. of the existing issued share capital and 40 per cent. of the enlarged issued share capital immediately following completion of the Rights Issue) through a 2 for 3 Rights Issue at 225 pence per New Share.
As more fully described in paragraph 4 below, the net proceeds of the Rights Issue will support the Company’s AIII, 3.4 balance sheet leverage ratios and avoid placing undue risk on covenants, thereby facilitating access to the Company’s significant debt facilities. This should ensure the Company is able to maximise its competitive position.
In advance of the General Meeting on 3 March 2009 covered by a separate Circular, I am writing to provide you with further details about the Rights Issue, which has been fully underwritten by Morgan Stanley Securities Limited, UBS Investment Bank and Euro Lights.
Paragraph 15 of this Part I sets out the actions to be taken by Qualifying Non-CREST Shareholders (i.e. holders of Ordinary Shares who hold their Shares in certificated form) and Qualifying CREST Shareholders.
The purpose of this letter is to set out the background to, and the reasons for, the Rights Issue and explain LR 13.3.1(2) why the Directors believe it is in the best interests of the Company and the Shareholders as a whole.
2. BACKGROUND TO AND REASONS FOR THE RIGHTS ISSUE
Market background AIII, 3.4 The extreme turmoil that continues to affect global capital markets has had a significant impact on the pricing AI, 6.3 and liquidity of all asset classes. The real estate sector, with its large dependency on credit, is being particularly hard hit, with transaction volumes across all asset classes markedly lower and asset values declining as the availability of debt has reduced.
Although initially starting as a banking issue, the negative consequences of the credit crunch for the broader economy have become increasingly clear over the last few months, as the impact of credit scarcity and adjustments to consumer and corporate budgets is felt. The UK gross domestic product contracted by 1.5 per cent. in the fourth quarter of 2008, the second consecutive quarter of negative growth, confirming that the UK economy is now in recession. The Board believes that an economic recession in the United Kingdom will put downward pressure on rents, occupancy levels and property values. As the global financial system continues to deleverage, with access to debt increasingly restricted, this is likely to induce the prospect of extensive covenant breaches and refinancing difficulties across the real estate market.
These market conditions inevitably carry substantial risks for real estate investors, with many landlords likely to face major financial stress. However, these factors are likely to produce opportunities for companies that are well capitalised and have access to debt to acquire real estate from distressed sellers at yields which the Board believes will be attractive relative to historical long-term fair values.
35 Part I: Letter from the Chairman of British Land
The Company’s competitive position The Company is a market leader in UK real estate and the second largest property company quoted on the AI, 6.5 London Stock Exchange by market capitalisation. The Company has a long history of value creation for shareholders and is strongly positioned for today’s challenging real estate environment. The high quality of the Company’s portfolio, its strong cash flow and continuing demand for the Company’s product from a broad range of tenants should help to mitigate the effects of current market conditions.
The Company’s prime property assets generate secure, long-term contracted rental income. The Company’s cash flow security is unparalleled among its peers, with an occupancy level of 96 per cent., lease lengths averaging 13 years and a wide spread of market standard tenant covenants across a broad diversity of industries as at 31 December 2008 at which date no single tenant accounted for more than 7.25 per cent. of total rents. The top ten office tenants include major international banks, law firms and HM Government, accounting for 23.3 per cent. of the rent roll, and the top ten retail tenants include the largest food operators, department stores and fashion/homeware retailers, accounting for 26.4 per cent. of the rent roll, in each case as at 31 December 2008.
The security of the Company’s income is matched by a debt structure with some of the lowest costs and longest maturities in the sector. The Company’s borrowings are fixed at an average interest rate of 5.2 per cent. with a weighted average maturity of 12.2 years as at 31 December 2008. In addition, the Company has a further £2.4 billion of undrawn committed bank facilities, with no significant refinancing due in the next five years. As at 31 December 2008, the Company’s loan to value ratio is 54 per cent., having absorbed a 32 per cent. fall in asset values since the market peak in 2007.
The Company is well placed to be a successful acquirer of real estate The Board believes that there will be considerable opportunities for shareholder value creation emerging in an increasingly distressed UK real estate market. The Company is well placed to take advantage of these opportunities, given the combination of its experienced and creative management team, balance sheet strength and significant debt capacity.
Strong and proven management team The Company’s core expertise is in real estate investment and asset management. The Company’s management team has demonstrated its ability to act in advance of market cycles in both property and finance, reinforcing the firm foundations and operating characteristics on which the Company’s business has been built. Over the three years to 31 December 2008, the Company has sold a total £5.7 billion of assets and reduced net debt by £1.3 billion. Initially, the sales were aimed at capturing the extraordinary value implied by yields available in the market. From September 2007, the sales were also targeted at reducing leverage in anticipation of weakness in yields caused by credit rationing and later the threat and reality of recession.
During the three years to 31 December 2008, the Company’s debt was refinanced and £5.1 billion of new debt facilities were secured in order to take advantage of attractive investment opportunities.
The Company’s experienced and well-resourced management team has a strong track record of sourcing deals and value creation across all major asset classes, based on a highly disciplined investment approach. The Company has considerable expertise in acquiring and developing real estate, both directly and through investment funds and joint ventures, and it has an innovative approach to financial structuring and investment. The combination of these factors, together with a proven ability to evaluate and think laterally, are a source of competitive advantage in accessing the best deal flow and maximising the opportunities that current markets present.
Balance sheet strength and debt capacity The Company’s balance sheet is underpinned by long term cashflow from tenants with an average unexpired term of 13 years and providing an interest cover of approximately two times.
Competition for distressed real estate acquisitions is limited at present due to a lack of debt finance available to many of the Company’s competitors, which the Company believes may be unable to access new credit on commercially reasonable terms. Accordingly, the size and terms of the Company’s committed bank facilities represents a significant opportunity to enable the Company to take advantage of market conditions. Current
36 Part I: Letter from the Chairman of British Land bank facilities amount to approximately £3.1 billion, with an average margin of 0.48 per cent. over LIBOR, including undrawn lines of approximately £2.4 billion as at 31 December 2008. Of these £3.1 billion facilities, only £300 million expire in the next two years and £1.0 billion are for a term of more than five years.
3. RECENT DEVELOPMENTS The Company has taken a number of steps to maintain its leverage ratios despite falling property values. These include the sales referred to earlier, as well as the establishment of a joint venture with Sainsbury’s announced in March 2008, which has allowed the Company to move certain debt off its balance sheet. Further, on 11 February 2009, the Company continued this course of action by entering into a 50:50 joint venture shareholders’ agreement with LSPG, itself a joint venture between London & Stamford Limited and its joint venture partner, which establishes MSC as a joint venture company.
Under the transaction LSPG acquired a 50 per cent. stake in MSC of £587.7 million, at a net initial yield of 6.75 per cent., consisting of £170 million in cash with MSC continuing to benefit from the existing third party debt issued by the Meadowhall securitisation. The transaction valued Meadowhall at £1.175 billion.
The Company continues to consider other steps available to maximise its financial flexibility including further sales of assets to, or joint venture arrangements with, third party investors.
4. RATIONALE FOR THE RIGHTS ISSUE AIII, 3.4 The net proceeds of the Rights Issue will support the Company’s balance sheet leverage ratios and avoid placing undue risk on covenants, thereby facilitating access to the Company’s significant debt facilities. This should ensure the Company is able to maximise its competitive position.
The Board’s objective in making any real estate acquisitions would be to increase the Company’s earnings and, ultimately, NAV per share through a combination of active asset management and re-pricing of assets acquired at a significant discount to long-term fair value. The Board believes that the current dislocation in asset pricing and likelihood of distressed sales will generate opportunities to acquire quality assets at yields that would be accretive to earnings, offering the further potential for strong asset value growth as the market recovers.
The Company has a strong track record of expertise in UK commercial property across multiple sectors as well as European out-of-town retail. As such, the specific criteria for potential acquisitions are likely to remain flexible as to asset type, location and profile. However, management will maintain a disciplined approach to assessing risk-adjusted return projections, taking account of pricing income, customer and vacancy risks, likely pricing development and repositioning opportunities.
The Company’s preference will continue to be for higher quality income producing assets in more liquid sub- sectors, with upside potential from active management and typical lot sizes of at least £50 million. In line with the Company’s track record of innovative, sophisticated transaction structuring, the Company would also be open to accessing opportunities via debt investment or other corporate structures.
Although the Board remains very mindful of the significant risks inherent in current markets, the Board is confident in the Company’s prospects, the strength of its underlying cash flows and its ability, through prudent and disciplined investment, to generate significant additional shareholder value.
5. PRINCIPAL TERMS OF THE RIGHTS ISSUE Pursuant to the Rights Issue the Company is proposing to offer up to 340,873,589 New Shares by way of a rights issue to Qualifying Shareholders other than to Shareholders with a registered address, or resident in, the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories at 225 pence per New Share, payable in full on acceptance by no later than 11.00 a.m. on 18 March 2009. The Rights Issue is expected to raise up to approximately £740 million, net of expenses. The Issue Price of 225 pence per New Share represents a 53 per cent. discount to the closing middle-market share price on 11 February 2009, a 49 per cent. discount to the closing middle-market share price on 6 February 2009 (being the last trading day before the announcement of the transfer of the Meadowhall shopping centre to a newly formed joint venture) and a 40 per cent. discount to the theoretical ex-rights price based on the closing middle-market share price on 11 February 2009. Both closing middle-market share prices are adjusted
37 Part I: Letter from the Chairman of British Land for the dividend of 9.375 pence for the three months ended 31 December 2008, which will not be paid on the New Shares.
The Rights Issue will be made on the basis of:
2 New Shares at 225 pence per New Share for every 3 Existing Shares held by Qualifying Shareholders at the close of business on the Record Date.
Entitlements to New Shares will be rounded down to the nearest whole number and fractional entitlements LR 13.3.1(9)(f),(g) will not be allotted to Shareholders but will be aggregated and issued into the market with the net proceeds ultimately accruing for the benefit of the Company. Holdings of Existing Shares in certificated and uncertificated form will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue.
The Rights Issue is fully underwritten by the Underwriters pursuant to the Underwriting Agreement. The AIII, 5.4.3 principal terms of the Underwriting Agreement are summarised in paragraph 17.4 of Part VIII of this document.
The Rights Issue will result in up to 340,873,589 New Shares being issued (representing approximately 67 per cent. of the existing issued share capital and 40 per cent. of the enlarged issued share capital immediately following completion of the Rights Issue).
The Rights Issue is conditional, inter alia, upon: AIII, 5.1.1, 5.2.3(g) (i) the Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms;
(ii) Admission (nil paid) occurring by no later than 8.00 a.m. on 4 March 2009 (or such later time and/or date as the Joint Sponsors and Euro Lights (acting by a majority in number) and the Company may agree); and
(iii) the passing, without amendment (or with such amendments as the Company, the Joint Sponsors and Euro Lights may agree) of the Resolutions.
The New Shares, when issued and fully paid, will rank pari passu in all respects with the existing issued LR Ordinary Shares, including the right to receive dividends or distributions made, paid or declared after the date 13.3.1(9)(b),(c) of this document save in respect of the third quarter dividend of 9.375 pence per share for the financial year ending 31 March 2009 which will only be payable to Shareholders of Ordinary Shares, excluding the New Shares, on the register at the close of business on 27 February 2009. AIII, 6.1 LR Application will be made to the Financial Services Authority and to the London Stock Exchange for the New 13.3.1(9)(a),(h) Shares to be admitted to the Official List and to trading on the London Stock Exchange. It is expected that Admission will occur and that dealings in the New Shares (nil paid) on the London Stock Exchange will commence at 8.00 a.m. on 4 March 2009.
Some questions and answers, together with details of further terms and conditions of the Rights Issue, including the procedure for acceptance and payment and the procedure in respect of rights not taken up, are set out in Parts II and III of this document and, where relevant, will also be set out in the Provisional Allotment Letter.
Overseas Shareholders should refer to paragraph 2.5 of Part III of this document for further information on their ability to participate in the Rights Issue.
6. STRUCTURE OF THE RIGHTS ISSUE The Rights Issue has been structured in a way that is expected to have the effect of realising distributable reserves approximately equal to the net proceeds of the Rights Issue less the par value of the New Shares issued by the Company. The Company and the Newco Subscriber have agreed to subscribe for ordinary shares in Newco. Payments from Qualifying Shareholders and renouncees taking up New Shares under the Rights
38 Part I: Letter from the Chairman of British Land
Issue shall be made to an account with the Receiving Agent, the funds in which will be used to subscribe for redeemable preference shares in Newco after the deduction of commissions and expenses.
The Company will allot and issue the New Shares to those persons entitled thereto in consideration of the Newco Subscriber transferring its holdings of ordinary shares and redeemable preference shares in Newco to the Company. Accordingly, instead of receiving cash as consideration for the issue of the New Shares, at the conclusion of the Rights Issue the Company will own the entire issued share capital of Newco whose only asset will be its cash reserves, which will represent an amount equivalent to the net proceeds of the Rights Issue. The Company will be able to utilise this amount by redeeming the redeemable preference shares it holds in Newco and, during any interim period prior to redemption, by procuring that Newco lends the amount to the Company (or one of the Company’s subsidiaries).
7. DIVIDENDS AND DIVIDEND POLICY AI, 20.7 The Directors intend to maintain a dividend policy which meets the REIT status requirement that the Company distributes a minimum of 90 per cent. of its tax-exempt income profits from its property rental business, and which also takes into account the profitability of the business, underlying growth in earnings of the Company, its capital requirements and cash flows. See “Risks Related to Tax and Regulation” under the heading “Risk Factors” of this document.
In November 2006, the Company announced a move to a quarterly dividend cycle, which mirrors the Company’s rental cash inflows. Dividends are paid in the form of either a property income distribution (PID) pursuant to applicable REIT requirements and/or a non-PID element (Non-PID). See paragraph 2 of “UK Taxation” under Part VII of this document.
The final quarterly dividend payable in respect of the year to 31 March 2009 will be declared at the time of preliminary announcement of results for the year to 31 March 2009. The amount of the dividend is expected to be set by reference to the third quarter dividend of 9.375 pence per share, adjusted to take account of the effects of the Rights Issue and to maintain the same level of annualised pro forma dividend cover as before the Rights Issue.
The following table shows the amounts of dividends paid or payable by the Company for each of the financial years ended 31 March 2007 and 2008 and the financial year ending 2009:
For the financial year ended/ending 31 March 2007 2008 2009 pence per share November ...... – 8.75 9.375 February ...... 5.60 8.75 9.375 May ...... 6.50 8.75 9.375(1) August...... 8.25 8.75 –––––––– –––––––– Total per share ...... 20.35 35.0 –––––––– –––––––– (1) The third quarter dividend of 9.375 pence per share will only be payable to Shareholders of Ordinary Shares, excluding the New Shares, on the register at close of business on 27 February 2009. Shareholders of New Shares will not receive payments in respect of the third quarter dividend and will be entitled to receive future dividend payments per Ordinary Share as adjusted, as set out above, beginning with the final quarterly dividend payable in respect of the year to 31 March 2009.
39 Part I: Letter from the Chairman of British Land
The following table shows the amounts of dividends paid or payable in PID or Non-PID form by the Company for the financial year ended 31 March 2008 and the financial year ending 2009:
For the financial year ended/ending 31 March 2008 2009 PID(1) Non-PID PID(1) Non-PID pence per share November ...... 4.25 4.5 6.7 2.675 February ...... 4.25 4.5 2.0 7.375 May ...... 4.25 4.5 9.375 0 August...... 8.75 0 –––––––– –––––––– Total ...... 21.5 13.5 –––––––– –––––––– Note: (1) Gross amount. PIDs are currently required to be paid net of tax withheld at source at the (current) rate of 20 per cent., subject to certain exceptions. See paragraph 2.1(d) of “UK Taxation” under Part VII of this document.
8. GOVERNANCE AND MANAGEMENT Throughout the financial year ended 31 March 2008, the Company complied with all of the provisions of the Combined Code issued by the Financial Reporting Council in June 2006. Chris Gibson-Smith performed the role of interim Executive Chairman (combining the roles of Chairman and Chief Executive) from 17 October 2008, following the resignation of Stephen Hester, until 12 January 2009 when Chris Grigg took up his appointment as the Company’s new Chief Executive. Although the Combined Code recommends that the roles of Chairman and Chief Executive should not be exercised by the same individual, the Board does not consider Chris Gibson- Smith’s performance of both roles on an interim basis to have constituted a breach of the Combined Code.
9. CURRENT TRADING AND PROSPECTS AI, 12.1 AI, 12.2 The Company’s unaudited key performance indicators for the three months ended 31 December 2008 and its latest property valuation as at 31 December 2008 are as follows:
• Financial indicators
• The Company’s property valuation as at 31 December 2008 was £10.2 billion, 13.3 per cent. lower than at 30 September 2008 and 21.7 per cent lower than at 31 March 2008:
– The outward equivalent yield shift in the Company’s portfolio was 85bps for the three months ended 31 December 2008, reflecting a shift of 75bps for the offices sector and 87bps for the retail sector.
– The portfolio gross top-up initial yield (excluding purchaser’s cost) was 7.0 per cent. at 31 December 2008 and the net equivalent yield was 6.9 per cent. at 31 December 2008, 142bps higher since 31 March 2008.
• The Company’s EPRA NAV per share was 861 pence, down 31 per cent. for the three months ended 31 December 2008:
– EPRA NNNAV per share was 861 pence as at 31 December 2008, reflecting the Company’s valuable debt structure.
– IFRS net assets were £3.4 billion as at 31 December 2008.
– Properties owned or managed by the Company were £13.7 billion as at 31 December 2008.
• The Company’s underlying profit on ordinary activities before taxation was £63 million for the three months ended 31 December 2008, or 13 per cent. lower than for the three months ended 31 December 2007, mainly due to the accounting treatment of reducing interest capitalised on developments.
• The Company’s loss on ordinary activities before taxation was £1,614 million for the three months ended 31 December 2008.
40 Part I: Letter from the Chairman of British Land
• The Company’s underlying earnings per share were 12 pence for the three months ended 31 December 2008, 14 per cent. lower than for the three months ended 31 December 2007.
• The dividend per share for the three months ended 31 December 2008 (and payable on 15 May 2009) was up 7 per cent. from 8.75 pence to 9.375 pence, in addition to dividends of 18.75 pence per share paid or payable in respect of the first half of the financial year.
• Business indicators
• The Company achieved £169 million and £890 million of gross property sales during the three months and nine months, respectively, ended 31 December 2008.
• The Company contracted for £4.5 million per year of additional rent (as reflected in the Company’s share of increases in headline rents (before any tenant incentives)) from 660,000 sq ft of new lettings and renewals and settled 50 rent reviews during three months ended 31 December 2008, overall ahead of ERV.
• The Company’s like-for-like rental income growth was 3.8 per cent. for the nine months ended 31 December 2008 compared to 31 December 2007, ahead of the IPD benchmark.
• Balance sheet and cash flow indicators
• The Company’s property portfolio (including accommodation subject to asset management incentives and under offer) as at 31 December 2008 was 96 per cent. let with an average lease length of 13 years and only 4 per cent. of total rents are up for renewal before 30 March 2011.
• The Company’s debt (including share of funds and joint ventures) was 100 per cent. fixed at 5.2 per cent. with 12 years average maturity as at 31 December 2008.
• The Company had £2.4 billion undrawn committed credit facilities as at 31 December 2008.
Financial turmoil and market stress continues to adversely affect the property market, resulting in challenging conditions with few transactions. The IPD benchmark net equivalent yield is currently 8.2 per cent., some 450 bps over the 10-year gilt. While there are initial signs of renewed investor interest in property at current pricing levels particularly for prime properties, the lack of credit availability continues to inhibit activity. Against this background, British Land expects that property values in the UK will decline further until the market stabilises, with prime properties stabilising first, and the gap between primary and secondary property yields will widen.
10. FURTHER INFORMATION Your attention is drawn to the further information set out in Parts II to VIII of this document. Shareholders should read the whole of this document and not rely solely on the information set out in this letter. In addition, Shareholders should consider the risk factors set out on pages 11 to 20 of this document.
11. OVERSEAS SHAREHOLDERS The attention of Overseas Shareholders who have registered addresses outside the United Kingdom, or who are citizens or residents of or located in countries other than the United Kingdom, is drawn to the information in paragraph 2.5 of Part III of this document.
New Shares will be provisionally allotted (nil paid) to all Shareholders on the register at the Record Date, including Overseas Shareholders. However, Provisional Allotment Letters will only be sent to Qualifying Non- CREST Shareholders other than those with a registered address, or who are resident or located (as applicable), in the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories and the CREST stock accounts of Qualifying CREST Shareholders other than those with a registered address, or who are resident or located (as applicable), in the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories will be credited.
Notwithstanding any other provision of this document or the Provisional Allotment Letter, British Land reserves the right to permit any Shareholder on the register at the Record Date to take up his rights if British
41 Part I: Letter from the Chairman of British Land
Land in its sole and absolute discretion is satisfied that the transaction in question will not violate applicable laws.
The provisions of paragraph 2.3(a) of Part III of this document will apply generally to Overseas Shareholders who cannot or do not take up the New Shares provisionally allotted to them.
12. UK AND US TAXATION Certain information about UK and US taxation in relation to the Rights Issue is set out in Part VII of this document. If you are in any doubt about your tax position, or may be subject to tax in a jurisdiction other than the UK, you are strongly recommended to consult your own professional advisers.
13. GENERAL MEETING LR 13.8.1 On 12 February 2009, Shareholders of record on the record date of the General Meeting were sent a letter LR 13.8.2 containing the Notice. The General Meeting will be held on 3 March 2009 at York House, 45 Seymour Street, London, W1H 7LX at 10.00 a.m. The General Meeting is being held for the purpose of considering and, if LR 13.8.3 thought fit, passing four resolutions. The first two resolutions are to increase the Company’s authorised ordinary share capital and to grant Directors authority to allot Ordinary Shares in connection with the Rights Issue and in respect of the enlarged share capital of the Company following the issue of New Shares. The third resolution empowers the Directors to allot the Ordinary Shares otherwise than in accordance with section 89 of the Companies Act for the purposes of the authority conferred under the first two resolutions. The fourth resolution enables the Company to offer Shareholders a scrip dividend alternative. A form of proxy was enclosed with the Notice. To be effective, forms of proxy must be completed and received by the Receiving Agent’s office at Aspect House, Spencer Road, Lancing BN99 6LU by 10.00 a.m. on 1 March 2009.
14. ACTION TO BE TAKEN IN RESPECT OF THE RIGHTS ISSUE You are not required to take any action at present in relation to the Rights Issue. If the Resolutions are passed, it is intended that:
(i) if you are a Qualifying Non-CREST Shareholder other than a Shareholder with a registered address, or who is resident or located (as applicable), in the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories, you will be sent a Provisional Allotment Letter giving you details of your Nil Paid Rights by post on or about 3 March 2009; and
(ii) if you are a Qualifying CREST Shareholder other than a Shareholder with a registered address, or who is resident or located (as applicable), in the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories, you will not be sent a Provisional Allotment Letter. Instead, you will receive a credit to your appropriate stock accounts in CREST in respect of the Nil Paid Rights as soon as practicable after 8.00 a.m. on 4 March 2009.
If you sell or have sold or otherwise transferred all of your Ordinary Shares held (other than ex-rights) in certificated form before 27 February 2009, please forward this document and any Provisional Allotment Letter, if and when received, at once to the purchaser or transferee or the bank, stockbroker or other agent through whom the sale or transfer was effected for delivery to the purchaser or transferee, except that such documents should not be sent to any jurisdiction where to do so might constitute a violation of local securities laws or regulations, including, but not limited to, the United States, the other Restricted Territories and the Excluded Territory.
If you sell or have sold or otherwise transferred all or some of your Ordinary Shares (other than ex-rights) held in uncertificated form before the Ex-Rights Date, a claim transaction will automatically be generated by Euroclear UK which, on settlement, will transfer the appropriate number of Nil Paid Rights to the purchaser or transferee.
If you sell or have sold or otherwise transferred only part of your holding of Existing Shares (other than ex-rights) held in certificated form before the Ex-Rights Date, you should refer to the instruction regarding split applications in Part III of this document and in the Provisional Allotment Letter.
42 Part I: Letter from the Chairman of British Land
The latest time and date for acceptance and payment in full in respect of the Rights Issue is expected to be 11.00 a.m. on 18 March 2009, unless otherwise announced by the Company. The procedure for acceptance and payment is set out in Part III of this document and, in respect of Qualifying Non-CREST Shareholders other than Shareholders with a registered address, or resident in, the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories only, in the Provisional Allotment Letter.
For Qualifying Non-CREST Shareholders other than Shareholders with a registered address, or resident in, the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories, the New Shares will be issued in certificated form and will be represented by definitive share certificates, which are expected to be despatched by no later than 26 March 2009 to the registered address of the person(s) entitled to them.
For Qualifying CREST Shareholders other than Shareholders with a registered address, or resident in, the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories, the Registrars will instruct CREST to credit the stock accounts of such Qualifying CREST Shareholders with their entitlements to New Shares. It is expected that this will take place by 8.00 a.m. on 19 March 2009.
Qualifying CREST Shareholders who are CREST sponsored members should refer to their CREST sponsor regarding the action to be taken in connection with this document and the Rights Issue.
If you are in any doubt as to the action you should take, you should immediately seek your own financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the FSMA or, if you are outside the United Kingdom, by another appropriately authorised independent financial adviser.
15. DIRECTORS’ INTENTIONS Each of the Directors intends to take up in full his or her rights to acquire New Shares under the Rights Issue AIII, 5.2.2 in respect of his or her direct registered holdings and in respect of his or her Shares held in schemes which AIII, 3.3 permit Directors to acquire the associated rights.
Chris Grigg, who took up his appointment as the Company’s new Chief Executive on 12 January 2009, intends to purchase Shares with a value equal to £800,000 in the market. These Shares will be purchased ex- rights. Alternatively, Mr. Grigg may acquire rights in the market, and take up those rights to fulfil the £800,000 investment commitment. This acquisition will fulfil Mr. Grigg’s commitment to purchase Shares for the purposes of the CIP (as described in paragraph 13.2(e) of Part VIII of this document). The Company will recommend that the Trustee make a conditional award to Chris Grigg under the CIP over an equivalent number of Shares, as calculated under the rules of the CIP.
Yours sincerely
Chris Gibson-Smith Chairman
43 Part II: Some Questions and Answers about the Rights Issue
The questions and answers set out in this Part II are intended to be in general terms only and, as such, you should read Part III of this document for full details of what action you should take. If you are in any doubt as to what action you should take, you are recommended to seek immediately your own financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser, duly authorised under the FSMA if you are resident in the United Kingdom or, if not, from another appropriately authorised independent financial adviser.
This Part II deals with general questions relating to the Rights Issue and more specific questions relating to Ordinary Shares held by persons resident in the United Kingdom who hold their Ordinary Shares in certificated form only. If you are an Overseas Shareholder, you should read paragraph 2.5 of Part III of this document and you should take professional advice as to whether you are eligible and/or you need to observe any formalities to enable you to take up your rights. If you hold your Ordinary Shares in uncertificated form (that is, through CREST) you should read Part III of this document for full details of what action you should take. If you are a CREST sponsored member, you should also consult your CREST sponsor. If you do not know whether your Ordinary Shares are in certificated or uncertificated form, please call the Shareholder Helpline on 0871 384 2983 (from inside the United Kingdom), calls to this number are charged at 8 pence per minute if calling from a BT landline, other telephone providers’ cost may vary, or +44 121 415 0146 (from outside the United Kingdom). For legal reasons, the Shareholder Helpline will be unable to give advice on the merits of the Rights Issue or to provide financial, tax or investment advice.
1. WHAT IS A RIGHTS ISSUE? A rights issue is a way for companies to raise money. Companies do this by giving their existing shareholders a right to buy further shares in proportion to their existing shareholdings.
The offer under this Rights Issue is New Shares at a price of 225 pence per New Share. If you are a Qualifying Shareholder, other than a Shareholder with a registered address in the Excluded Territory or, subject to certain exceptions, in the United States or the other Restricted Territories, you will be entitled to buy New Shares under the Rights Issue. If you hold your Existing Shares in certificated form, your entitlement will be set out in your Provisional Allotment Letter.
New Shares are being offered to Qualifying Shareholders in the Rights Issue at a discount to the share price on the last dealing day before the details of the Rights Issue were announced on 12 February 2009. The Issue Price of 225 pence per New Share represents a 40 per cent. discount to the theoretical ex-rights price based on the closing middle-market share price quotation as derived from the London Stock Exchange’s Daily Official List of 483.25 pence per Ordinary Share on 11 February 2009 (being the last business day prior to the date of announcement of the terms of the Rights Issue), adjusted for the dividend of 9.375 pence for the three months to 31 December 2008, which will not be paid on the New Shares. Because of this discount and while the market value of the Existing Shares exceeds the Issue Price, the right to buy the New Shares is potentially valuable.
The Rights Issue is on the basis of 2 New Shares for every 3 Existing Shares held by Qualifying Shareholders on the Record Date.
If you are a Qualifying Shareholder other than a Shareholder with a registered address, or who is resident, in the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories and you do not want to buy the New Shares to which you are entitled, you can instead sell or transfer your rights (called Nil Paid Rights) to those New Shares and receive the net proceeds, if any, of the sale or transfer in cash. This is referred to as dealing “nil paid”.
2. I HOLD MY EXISTING SHARES IN CERTIFICATED FORM. HOW DO I KNOW IF I AM ABLE TO ACQUIRE NEW SHARES UNDER THE RIGHTS ISSUE? If you receive a Provisional Allotment Letter and are not a holder with a registered address in the Excluded Territory, or subject to certain exceptions, in the United States or the other Restricted Territories, then you should be eligible to able to acquire New Shares under the Rights Issue (as long as you have not sold all of
44 Part II: Some Questions and Answers about the Rights Issue your Existing Shares before 8.00 a.m. on 4 March 2009 (the time when the Existing Shares are expected to be marked “ex-rights” by the London Stock Exchange)).
3. I HOLD MY EXISTING SHARES IN CERTIFICATED FORM. WHAT DO I NEED TO DO IN RELATION TO THE RIGHTS ISSUE? Subject to Shareholders approving the Resolutions at the General Meeting to be held on 3 March 2009, if you hold your Existing Shares in certificated form and do not have a registered address in the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories, you will be sent a Provisional Allotment Letter that shows:
• how many Existing Shares you held at the close of business on 27 February 2009 (the Record Date for the Rights Issue);
• how many New Shares you are entitled to buy; and
• how much you need to pay if you want to take up your right to buy all the New Shares provisionally allotted to you in full.
If you have a registered address in the Excluded Territory or, subject to certain exceptions, in the United States or one of the other Restricted Territories, you will not receive a Provisional Allotment Letter.
4. I AM A QUALIFYING SHAREHOLDER WITH A REGISTERED ADDRESS IN THE UNITED KINGDOM AND I HOLD MY EXISTING SHARES IN CERTIFICATED FORM. WHAT ARE MY CHOICES AND WHAT SHOULD I DO WITH THE PROVISIONAL ALLOTMENT LETTER?
(a) If you want to take up all of your rights If you want to take up all of your rights to acquire the New Shares to which you are entitled, all you need to do is send the Provisional Allotment Letter, together with your cheque or banker’s draft for the full amount, payable to “Equiniti Limited re: The British Land Company PLC – Rights Issue” and crossed “A/C payee only”, by post or by hand (during normal business hours) to Equiniti, to arrive by no later than 11.00 a.m. on 18 March 2009. Within the United Kingdom only, you can use the reply- paid envelope which will be enclosed with the Provisional Allotment Letter. Full instructions are set out in Part III of this document and will be set out in the Provisional Allotment Letter.
Please note third-party cheques will not be accepted other than building society cheques or banker’s drafts.
If payment is made by building society cheque (not being drawn on an account of the applicant) or a banker’s draft, the building society or bank must endorse on the cheque or draft the applicant’s name and the number of an account held in the applicant’s name at the building society or bank, such endorsement being validated by a stamp and an authorised signature.
A definitive share certificate will then be sent to you for the New Shares that you take up. Your definitive share certificate for New Shares is expected to be despatched to you by no later than 26 March 2009. You will need your Provisional Allotment Letter to be returned to you if you want to deal in your Fully Paid Rights. Your Provisional Allotment Letter will not be returned to you unless you tick the appropriate box on the Provisional Allotment Letter.
(b) If you do not want to take up your rights at all If you do not want to take up your rights, you do not need to do anything. If you do not return your Provisional Allotment Letter acquiring the New Shares to which you are entitled by 11.00 a.m. on 18 March 2009, we have made arrangements under which the Bank Underwriters will try to find investors to take up your rights and the rights of others who have not taken them up. If the Bank Underwriters do find investors who agree to pay a premium above the Issue Price and the related expenses of procuring those investors (including any applicable brokerage and commissions and amounts in respect of value added tax), you will be sent a cheque for your share of the amount of that premium provided that this is £5.00 or more. Cheques are expected to be despatched on or around
45 Part II: Some Questions and Answers about the Rights Issue
26 March 2009 and will be sent to your existing address appearing on British Land’s register of members (or to the first-named holder if you hold your Existing Shares jointly). If the Bank Underwriters cannot find investors who agree to pay a premium over the Issue Price and related expenses so that your entitlement would be £5.00 or more, you will not receive any payment, and any amounts of less than £5.00 will be aggregated and will ultimately accrue for the benefit of the Company. Alternatively, if you do not want to take up your rights, you can sell or transfer your Nil Paid Rights (see paragraph 4(d) below).
(c) If you want to take up some but not all of your rights If you want to take up some but not all of your rights and wish to sell some or all of those you do not want to take up, you should first apply to have your Provisional Allotment Letter split by completing Form X on the Provisional Allotment Letter, and returning it by post or by hand (during normal business hours) to Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA, to be received by 3.00 p.m. on 16 March 2009, together with a covering letter stating the number of split Provisional Allotment Letters required and the number of Nil Paid Rights to be comprised in each split Provisional Allotment Letter. You should then deliver the split Provisional Allotment Letter representing the New Shares that you wish to accept together with your cheque or banker’s draft to Equiniti Limited (see paragraph 4(a) above) to be received by 11.00 a.m. on 18 March 2009.
Alternatively, if you only want to take up some of your rights (but not sell some or all of the rest), you should complete Form X on the Provisional Allotment Letter and return it with a cheque or banker’s draft together with an accompanying letter indicating the number of Nil Paid Rights that you wish to take up, in accordance with the provisions set out in the Provisional Allotment Letter.
Further details are set out in Part III of this document and will be set out in the Provisional Allotment Letter.
(d) If you want to sell all of your rights If you want to sell all of your rights, you should complete and sign Form X on the Provisional Allotment Letter (if it is not already marked “Original Duly Renounced”) and pass the entire letter to your stockbroker, bank manager or other appropriate financial adviser or to the transferee (provided they are not in the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories).
The latest time and date for selling all of your rights is 11.00 a.m. on 18 March 2009. Please ensure, however, that you allow enough time so as to enable the person acquiring your rights to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 18 March 2009.
5. I ACQUIRED MY EXISTING SHARES PRIOR TO THE RECORD DATE AND HOLD MY EXISTING SHARES IN CERTIFICATED FORM. WHAT IF I DO NOT RECEIVE A PROVISIONAL ALLOTMENT LETTER? If Shareholders approve the Resolutions at the General Meeting to be held on 3 March 2009, and if you do not receive a Provisional Allotment Letter but hold your Existing Shares in certificated form, this probably means that you are not able to acquire new shares under the Rights Issue. Some Non-CREST Shareholders, however, will not receive a Provisional Allotment Letter but may still be eligible to acquire new shares under the Rights Issue, namely:
• Qualifying CREST Shareholders who held their Existing Shares in uncertificated form on 27 February 2009 (the Record Date for the Rights Issue) and who have converted them to certificated form;
• Shareholders who bought Existing Shares before 27 February 2009 and who hold such Shares in certificated form but were not registered as the holders of those Shares at the close of business on 27 February 2009; and
• certain Overseas Shareholders.
If you do not receive a Provisional Allotment Letter but think that you should have received one, please contact the Shareholder Helpline on 0871 384 2983 (from inside the United Kingdom), calls to this number
46 Part II: Some Questions and Answers about the Rights Issue are charged at 8 pence per minute if calling from a BT landline, other telephone providers’ costs may vary, or +44 121 415 0146 (from outside the United Kingdom) between 8.30 a.m. and 5.30 p.m. on any London business day. For legal reasons, the Shareholder Helpline will only be able to provide information contained in this document (and in addition information relating to British Land’s register of members) and will be unable to give advice on the merits of the Rights Issue or to provide financial, tax or investment advice.
6. IF I BUY SHARES AFTER THE RECORD DATE WILL I BE ELIGIBLE TO PARTICIPATE IN THE RIGHTS ISSUE? If you bought Shares after the Record Date but prior to 8.00 a.m. on 4 March 2009 (the time when the Existing Shares are expected to start trading ex-rights on the London Stock Exchange), you may be eligible to participate in the Rights Issue.
If you are in any doubt, please consult your stockbroker, bank or other appropriate financial adviser, or whoever arranged your share purchase, to ensure you claim your entitlement.
If you buy Shares at or after 8.00 a.m. on 4 March 2009, you will not be eligible to participate in the Rights Issue in respect of those Shares.
7. I HOLD MY EXISTING SHARES IN CERTIFICATED FORM. IF I TAKE UP MY RIGHTS, WHEN WILL I RECEIVE THE CERTIFICATE REPRESENTING MY NEW SHARES? If you take up your rights under the Rights Issue, share certificates for the New Shares are expected to be posted by no later than 26 March 2009.
8. WHAT IF THE NUMBER OF NEW SHARES TO WHICH I AM ENTITLED IS NOT A WHOLE NUMBER: AM I ENTITLED TO FRACTIONS OF NEW SHARES? Your entitlement to New Shares will be calculated at the Record Date (other than in the case of those who bought shares after the Record Date but prior to 8.00 a.m. on 4 March 2009 who are eligible to participate in the Rights Issue). If the result is not a whole number, you will not receive a New Share in respect of the fraction of a New Share and your entitlement will be rounded down to the nearest whole number. The rights to the New Shares representing the aggregated fractions that would otherwise be allotted to Shareholders will be placed in the market nil paid, and the net amounts paid by placees of such rights and by persons who take up such rights will be aggregated and will ultimately accrue for the benefit of the Company.
9. WILL I BE TAXED IF I TAKE UP OR SELL MY RIGHTS OR IF MY RIGHTS ARE SOLD ON MY BEHALF? The following comments are by way of general guidance and assume you hold your Ordinary Shares as an investment.
If you are resident in the UK for tax purposes, you should not have to pay UK tax when you take up your rights, although the Rights Issue will affect the amount of UK tax you may pay when you subsequently sell your Ordinary Shares. However, if you sell your rights, you may (in certain circumstances) be subject to tax on any proceeds that you receive.
Further information for Qualifying Shareholders who are resident in the UK for tax purposes is contained in Part VII of this document. Qualifying Shareholders who are in any doubt about their tax position, or who may be subject to tax in a jurisdiction other than the UK, are strongly recommended to consult their own professional advisers. Please note that the Shareholder helpline will not be able to assist you with taxation issues.
10. I UNDERSTAND THAT THERE IS A PERIOD WHEN THERE IS TRADING IN THE NIL PAID RIGHTS. WHAT DOES THIS MEAN? If you do not want to buy the New Shares being offered to you under the Rights Issue, you can instead sell or transfer your rights (called Nil Paid Rights) to those New Shares and receive the net proceeds of the sale or transfer in cash. This is referred to as dealing “nil paid”. This means that, during the Rights Issue offer
47 Part II: Some Questions and Answers about the Rights Issue period (i.e. between 4 March 2009 and 18 March 2009), you can either purchase Ordinary Shares (which will not carry any entitlement to participate in the Rights Issue) or you can trade in the Nil Paid Rights.
11. I HOLD MY EXISTING SHARES IN CERTIFICATED FORM. WHAT IF I WANT TO SELL THE NEW SHARES FOR WHICH I HAVE PAID? Provided the New Shares have been paid for and you have requested the return of the receipted Provisional Allotment Letter, you can transfer the Fully Paid Rights by completing Form X (the form of renunciation) on the receipted Provisional Allotment Letter in accordance with the instructions set out in the Provisional Allotment Letter until 11.00 a.m. on 18 March 2009. After that time, you will be able to sell your New Shares in the normal way. The share certificate relating to your New Shares is expected to be despatched to you by no later than 26 March 2009. Pending despatch of the share certificate, instruments of transfer will be certified by the Registrar against the register.
Further details are set out in Part III of this document.
12. WHAT IF I HOLD OPTIONS AND AWARDS UNDER BRITISH LAND’S EMPLOYEE SHARE PLANS? Options and conditional awards granted under the LTIP, the Sharesave Scheme, the FMPP and the MSP will be adjusted in accordance with the rules of those plans to compensate for the effect of the Rights Issue. Such adjustments will be subject to approval by HM Revenue & Customs, where appropriate. Participants will be contacted separately with further information on how their options and conditional awards will be affected by the Rights Issue.
Participants in the SIP and holders of Bonus Shares under the MSP (see paragraph 13.2 of Part VIII of this document) will be able to instruct the plan trustee in relation to the rights attaching to their Shares, in accordance with the rules of those plans. Participants will be contacted separately about their rights.
13. WHAT SHOULD I DO IF I LIVE OUTSIDE THE UNITED KINGDOM? Whilst you have an entitlement to participate in the Rights Issue, your ability to take up rights to New Shares may be affected by the laws of the country in which you live and you should take professional advice as to whether you require any governmental or other consents or need to observe any other formalities to enable you to take up your rights. Shareholders with registered addresses in the Excluded Territory, the United States or the other Restricted Territories are, subject to certain exceptions, not able to acquire New Shares under the Rights Issue. Your attention is drawn to the information in paragraph 2.5 of Part III of this document.
British Land has made arrangements under which the Bank Underwriters will try to find investors to take up your rights and those of other Shareholders who have not taken up their rights. If the Bank Underwriters do find investors who agree to pay a premium above the Issue Price and the related expenses of procuring those investors (including any applicable brokerage and commissions and amounts in respect of value added tax), you will be sent a cheque for your share of the amount of that premium provided that this is £5.00 or more. Cheques are expected to be despatched on or around 26 March 2009 and will be sent to your address appearing on British Land’s register of members (or to the first-named holder if you hold your Shares jointly). If the Bank Underwriters cannot find investors who agree to pay a premium over the Issue Price and related expenses so that your entitlement would be £5.00 or more, you will not receive any payment, and any amounts of less than £5.00 will be aggregated and will ultimately accrue for the benefit of the Company.
14. WILL THE RIGHTS ISSUE AFFECT THE FUTURE DIVIDENDS BRITISH LAND PAYS? Following completion of the Rights Issue, future dividend payments per Ordinary Share will be adjusted to take account of the effects of the Rights Issue beginning with the final quarterly dividend payable in respect of the year ending 31 March 2009. The adjustment will take account of the discount in the Issue Price to the share price at close of business on 11 February 2009, being the day prior to the announcement of the terms of the Rights Issue. The third quarter dividend of 9.375 pence per share in respect of the financial year ending 31 March 2009 will only be payable to Shareholders of Ordinary Shares, excluding the New Shares, on the register at close of business on 27 February 2009.
48 Part II: Some Questions and Answers about the Rights Issue
For more information in relation to British Land’s dividend policy, see paragraph 7 of Part I of this document.
15. HOW DO I TRANSFER MY RIGHTS INTO THE CREST SYSTEM? If you are a Qualifying non-CREST Shareholder but are a CREST member and want your New Shares to be in uncertificated form, you should complete Form X and the CREST Deposit Form (both on the Provisional Allotment Letter), and ensure they are delivered to CCSS to be received by 3.00 p.m. on 13 March 2009 at the latest. CREST sponsored members should arrange for their CREST sponsors to do this.
If you have transferred your rights into the CREST system, you should refer to paragraph 2.2 of Part III for details on how to pay for the New Shares.
16. WHAT SHOULD I DO IF I THINK MY HOLDING OF SHARES IS INCORRECT? If you have bought or sold Shares shortly before 27 February 2009, your transaction may not be entered on the register of members in time to appear on the register at the Record Date. If you are concerned about the figure in the Provisional Allotment Letter or otherwise concerned that your holding of Shares is incorrect, please contact the Shareholder Helpline on 0871 384 2983 (from inside the United Kingdom) or +44 121 415 0146 (from outside the United Kingdom). Calls cost 8 pence per minute from a BT landline, other telephone providers’ charges may vary. For legal reasons, the Shareholder Helpline will only be able to provide information contained in this document (and, in addition, information relating to British Land’s register of members) and will be unable to give advice on the merits of the Rights Issue or to provide legal, financial, tax or investment advice.
49 Part III: Terms and Conditions of the Rights Issue
1. INTRODUCTION
The Company is proposing to raise proceeds of approximately £740 million (net of expenses) by way of a AIII, 4.4 rights issue of up to 340,873,589 New Shares. Subject to the fulfilment of the conditions of the Underwriting Agreement, the New Shares will be offered under the Rights Issue by way of rights at 225 pence per New AIII, 5.1.2 Share, payable in full on acceptance by Qualifying Shareholders able to acquire New Shares, on the basis of: AIII, 5.2.1 AIII, 5.1.6 2 New Shares for every 3 Existing Shares AIII, 5.3.1 held by Qualifying Shareholders on the Record Date (and so in proportion for any other number of Existing Shares then held) and otherwise on the terms and conditions as set out in this document and, in the case of Qualifying Non-CREST Shareholders other than to Shareholders with a registered address, or located, in the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories, the PALs.
The Issue Price of 225 pence per New Share represents a 40 per cent. discount to the theoretical ex-rights price based on the closing middle-market share price of an Ordinary Share as derived from the London Stock Exchange Daily Official List of 483.25 pence per Existing Share on 11 February 2009 (being the last business day prior to the date of announcement of the terms of the Rights Issue), adjusted for the dividend of 9.375 pence for the three months to 31 December 2008, which will not be paid on the New Shares.
Qualifying Shareholders who do not take up their entitlements to New Shares will have their proportionate AIII, 9.1, 9.2 shareholdings in British Land diluted by approximately 40 per cent. Those Qualifying Shareholders who take up all the New Shares provisionally allotted to them in full will, subject to fractions, have the same proportionate voting and distribution rights as held by them on the Record Date.
The Nil Paid Rights are entitlements to acquire the New Shares subject to payment of the Issue Price. The Fully Paid Rights are entitlements to receive the New Shares, for which payment has already been made.
Holdings of Existing Shares in certificated and uncertificated form will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue. Entitlements to New Shares will be rounded down to the next lowest whole number and fractions of New Shares will not be allotted to Qualifying Shareholders. Such fractions will be aggregated and, if possible, Nil Paid Rights in respect of such New Shares will be placed as soon as practicable after the commencement of dealings in the New Shares, nil paid. The net amounts paid by placees and by persons who take up rights to such New Shares (after deduction of expenses) will be aggregated and will ultimately accrue for the benefit of British Land.
The attention of Overseas Shareholders or any person (including, without limitation, custodians, nominees and trustees) who has a contractual or other legal obligation to forward this document into a jurisdiction other than the United Kingdom is drawn to paragraph 2.5 below. The offer of New Shares under the Rights Issue will not be made into certain territories. Subject to the provisions of paragraph 2.5 below, Shareholders with a registered address in the United States, any other Restricted Territory or an Excluded Territory are not being sent this document and will not be sent Provisional Allotment Letters.
Applications will be made to the Financial Services Authority and to the London Stock Exchange for the New AIII, 6.1 Shares (nil paid and fully paid) to be admitted to the Official List and to trading on the London Stock Exchange’s main market for listed securities, respectively. It is expected that Admission will become effective on 4 March 2009 and that dealings in the New Shares, nil paid, will commence on the London Stock Exchange by 8.00 a.m. on that date. The New Shares and the Existing Shares are in registered form and can AIII, 4.3 be held in certificated or uncertificated form via CREST.
The Existing Shares are already admitted to CREST. No further application for admission to CREST is required for the New Shares and all of the New Shares when issued and fully paid may be held and transferred by means of CREST.
50 Part III: Terms and Conditions of the Rights Issue
Applications will be made for the Nil Paid Rights and the Fully Paid Rights to be admitted to CREST. Euroclear UK requires the Company to confirm to it that certain conditions (imposed by the CREST Manual) have been satisfied before Euroclear UK will admit any security to CREST. It is expected that these conditions will be satisfied, in respect of the Nil Paid Rights and the Fully Paid Rights, on Admission. As soon as practicable after satisfaction of the conditions, the Company will confirm this to Euroclear UK.
The ISIN for the New Shares will be the same as that of the Existing Shares, being GB0001367019. The ISIN AIII, 4.1 for the Nil Paid Rights is GB00B4W92R30 and for the Fully Paid Rights is GB00B4W92W82.
None of the New Shares is being made available to the public other than pursuant to the Rights Issue. AIII, 5.1.1,
The Rights Issue is fully underwritten by the Underwriters and is conditional, inter alia, upon: 5.2.3(g)
(i) the Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms;
(ii) Admission (nil paid) occurring by no later than 8.00 a.m. on 4 March 2009 (or such later time and/or date as the Joint Sponsors and Euro Lights (acting by a majority in number) and the Company may agree); and
(iii) the passing, without amendment (or with such amendments as the Company, the Joint Sponsors and Euro Lights may agree) of the Resolutions.
The Underwriting Agreement may be terminated by the Underwriters prior to Admission (nil paid) upon the AIII, 5.1.4 occurrence of certain specified events, in which case the Rights Issue will not proceed. The Underwriting Agreement is not capable of termination following Admission (nil paid). The Bank Underwriters may arrange sub-underwriting for some, all or none of the New Shares. A summary of certain terms and conditions of the Underwriting Agreement is contained in paragraph 17.4 of Part VIII of this document.
The Joint Bookrunners and MSSL may, in accordance with applicable legal and regulatory provisions and subject to the Underwriting Agreement, engage in transactions in relation to the Nil Paid Rights, the Fully Paid Rights, the Ordinary Shares and/or related instruments for their own account for the purpose of hedging their underwriting exposure or otherwise. Except as required by applicable law or regulation, the Joint Bookrunners and MSSL do not propose to make any public disclosure in relation to such transactions.
In addition, the Company reserves the right to decide not to proceed with the Rights Issue at any time prior to Admission and commencement of dealings in the New Shares (nil paid).
Subject, inter alia, to the conditions referred to above being satisfied (other than the condition relating to Admission) and save as provided in paragraph 2.5 below, it is intended that:
(i) Provisional Allotment Letters in respect of Nil Paid Rights will be despatched to Qualifying Non-CREST Shareholders, other than to Shareholders with a registered address, or resident, in the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories on 3 March 2009;
(ii) the Receiving Agent will instruct Euroclear UK to credit the appropriate stock accounts of Qualifying CREST Shareholders, other than to Shareholders with a registered address, or resident, in the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories with such Shareholders’ entitlements to Nil Paid Rights with effect from 8.00 a.m. on 4 March 2009;
(iii) the Nil Paid Rights and the Fully Paid Rights will be enabled for settlement by Euroclear UK as soon as practicable after the Company has confirmed to Euroclear UK that all the conditions for admission of such rights to CREST have been satisfied, which is expected to be by 8.00 a.m. on 4 March 2009;
(iv) New Shares will be credited to the relevant Qualifying CREST Shareholders who validly take up their rights by no later than 19 March 2009; and
(v) share certificates for the New Shares will be despatched to relevant Qualifying Non-CREST Shareholders AIII, 5.2.1 by no later than 26 March 2009.
51 Part III: Terms and Conditions of the Rights Issue
The offer will be made to Qualifying Non-CREST Shareholders other than to Shareholders with a registered address, or resident in, the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories by way of the Provisional Allotment Letter (as described in step (i) above) and to Qualifying CREST Shareholders other than to Shareholders with a registered address, or resident, in the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories by way of the enablement of the Nil Paid Rights and the Fully Paid Rights (as described in step (iii) above) (such Shareholders’ stock accounts having been credited as described in step (ii) above).
The New Shares will, when issued and fully paid, rank pari passu in all respects with the Existing Shares, including the right to receive all dividends or other distributions made, paid or declared after the date of this document save in respect of the third quarter dividend of 9.375 pence per share for the financial year ending 31 March 2009 which will only be payable to Shareholders of Ordinary Shares, excluding the New Shares, on the register at close of business on 27 February 2009.
All documents, including Provisional Allotment Letters (which constitute temporary documents of title) and cheques and certificates posted to, by or from Qualifying Shareholders and/or their transferees or renouncees (or their agents, as appropriate) will be posted at their own risk.
Shareholders taking up their rights by completing a Provisional Allotment Letter or by sending a Many-To- Many (MTM) instruction to Euroclear UK will be deemed to have given the representations and warranties set out in paragraph 2.6 of this Part III, unless the requirement is waived by British Land.
2. ACTION TO BE TAKEN The action to be taken in respect of the New Shares depends on whether, at the relevant time, the Nil Paid Rights or the Fully Paid Rights in respect of which action is to be taken are in certificated form (that is, are represented by Provisional Allotment Letters) or are in uncertificated form (that is, are in CREST).
If you are a Qualifying Non-CREST Shareholder other than a Shareholder with a registered address, or who is located in, the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories, please refer to paragraph 2.1 and paragraphs 2.3, 2.4 and 2.5 to 2.8 below.
If you are a Qualifying CREST Shareholder other than a Shareholder with a registered address, or who is AIII, 5.2.1 located in, the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories, please refer to paragraph 2.2 and paragraphs 2.3, 2.4 and 2.5 to 2.8 below and to the CREST Manual for further information on the CREST procedures referred to below.
If you are a Qualifying CREST Shareholder or a Qualifying Non-CREST Shareholder with a registered address in an Excluded Territory, the United States or any other Restricted Territory, please refer to paragraph 2.5 below.
If you are a Qualifying CREST Shareholder or a Qualifying Non-CREST Shareholder holding Ordinary Shares on behalf of, or for the amount or benefit of any person on a non-discretionary basis who is in the United States or any state of the United States, please refer to paragraph 2.5 below.
CREST sponsored members should refer to their CREST sponsors, as only their CREST sponsors will be able to take the necessary actions specified below to take up the entitlements or otherwise to deal with the Nil Paid Rights or Fully Paid Rights of CREST sponsored members.
All enquiries in relation to the Provisional Allotment Letters should be addressed to the Shareholder Helpline on 0871 384 2983 (from inside the United Kingdom), calls to this number are charged at 8 pence per minute from a BT landline, other telephone providers’ costs may vary, or +44 121 415 0146 (from outside the United Kingdom) between 8.30 a.m. and 5.30 p.m. Monday to Friday (except bank holidays). For legal reasons, the Shareholder Helpline will not be able to provide advice on the merits of the Rights Issue or to provide financial, tax or investment advice.
52 Part III: Terms and Conditions of the Rights Issue
2.1 Action to be taken by Qualifying Non-CREST Shareholders in relation to the Nil Paid Rights represented by Provisional Allotment Letters (a) General Provisional Allotment Letters are expected to be despatched to Qualifying Non-CREST Shareholders on 3 March 2009. Each Provisional Allotment Letter will set out:
(i) the holding at the Record Date of Existing Shares in certificated form on which a Qualifying Non- CREST Shareholder’s entitlement to New Shares has been based;
(ii) the aggregate number and cost of New Shares in certificated form which have been provisionally allotted to that Qualifying Non-CREST Shareholder;
(iii) the procedures to be followed if a Qualifying Non-CREST Shareholder wishes to dispose of all or part of his entitlement or to convert all or part of his entitlement into uncertificated form; and
(iv) instructions regarding acceptance and payment, consolidation, splitting and registration of renunciation.
On the basis that Provisional Allotment Letters are posted on 3 March 2009, and that dealings in Nil Paid Rights commence on 4 March 2009, the latest time and date for acceptance and payment in full will be 11.00 a.m. on 18 March 2009.
If the Rights Issue is delayed so that Provisional Allotment Letters cannot be despatched on 3 March 2009, the expected timetable, as set out at the front of this document, will be adjusted accordingly and the revised dates will be set out in the Provisional Allotment Letters and announced through a Regulatory Information Service. All references in this Part III should be read as being subject to such adjustment.
(b) Procedure for acceptance and payment (i) Qualifying Non-CREST Shareholders who wish to accept in full Holders of Provisional Allotment Letters who wish to take up all of their entitlements must return the Provisional Allotment Letter, together with a cheque or banker’s draft in pounds sterling, made payable to “Equiniti Limited – re: The British Land Company PLC – Rights Issue” and crossed “A/C payee only”, for the full amount payable on acceptance, in accordance with the instructions printed on the Provisional Allotment Letter, by post or by hand (during normal business hours only) to Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA, so as to arrive as soon as possible and in any event so as to be received by not later than 11.00 a.m. on 18 March 2009. A reply-paid envelope will be enclosed with the Provisional Allotment Letter for this purpose and for use in the United Kingdom only. If you post your Provisional Allotment Letter within the United Kingdom by first-class post, it is recommended that you allow at least four days for delivery.
(ii) Qualifying Non-CREST Shareholders who wish to accept in part AIII, 5.1.5 Holders of Provisional Allotment Letters who wish to take up some but not all of their Nil Paid Rights and wish to sell some or all of those rights which they do not want to take up should first apply for split Provisional Allotment Letters by completing Form X on the Provisional Allotment Letter and returning it, together with a covering letter stating the number of split Provisional Allotment Letters required and the number of Nil Paid Rights or Fully Paid Rights (if appropriate) to be comprised in each split Provisional Allotment Letter, by post or by hand (during normal business hours only) to Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA by 3.00 p.m. on 16 March 2009, the last date and time for splitting Nil Paid Rights or Fully Paid Rights. The Provisional Allotment Letter will then be cancelled and exchanged for the split Provisional Allotment Letters required. Such holders of Provisional Allotment Letters should then deliver the split Provisional Allotment Letter representing the rights they wish to take up together with a cheque or banker’s draft in pounds sterling for this number of rights, payable to “Equiniti Limited – re: The British Land Company PLC – Rights Issue” and crossed “A/C payee only” by 11.00 a.m. on 18 March 2009, the last date and time for acceptance. The further split
53 Part III: Terms and Conditions of the Rights Issue
Provisional Allotment Letters (representing the New Shares the Shareholder does not wish to take up) will be required in order to sell those rights not being taken up.
Alternatively, Qualifying Non-CREST Shareholders who wish to take up some of their rights, without selling or transferring the remainder, should complete Form X on the original Provisional Allotment Letter and return it, together with a covering letter confirming the number of rights to be taken up and a cheque or banker’s draft in pounds sterling to pay for this number of Shares, by post or by hand (during normal business hours only) to Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA. In this case, the Provisional Allotment Letter and payment must be received by Equiniti by 3.00 p.m. on 16 March 2009, the last date and time for splitting Nil Paid Rights.
(iii) Company’s discretion as to validity of acceptances If payment is not received in full by 11.00 a.m. on 18 March 2009, the provisional allotment will be deemed to have been declined and will lapse. The Company may elect, with the agreement of the Joint Bookrunners, but shall not be obliged, to treat as valid Provisional Allotment Letters and accompanying remittances for the full amount due which are received through the post prior to 5.00 p.m. on 18 March 2009.
The Company may also (in its sole discretion) treat a Provisional Allotment Letter as valid and binding on the person(s) by whom or on whose behalf it is lodged even if it is not completed in accordance with the relevant instructions or is not accompanied by a valid power of attorney where required.
The Company reserves the right to treat as invalid any acceptance or purported acceptance of the New Shares that appears to the Company to have been executed in, despatched from or that provided an address for delivery of definitive share certificates for New Shares in the United States, any other Restricted Territory, or an Excluded Territory unless the Company is satisfied that such action would not result in the contravention of any registration or other legal requirement in any jurisdiction.
A Qualifying Non-CREST Shareholder who makes a valid acceptance and payment in accordance with this paragraph 2.1 is deemed to request that the New Shares to which they will become entitled be issued to them on the terms set out in this document and subject to the Memorandum and Articles of Association.
(iv) Payments All payments must be in pounds sterling and made by cheque or banker’s draft made payable to “Equiniti Limited – re: The British Land Company PLC – Rights Issue” and crossed “A/C payee only”. Cheques or banker’s drafts must be drawn on a bank or building society or branch of a bank or building society in the United Kingdom or Channel Islands which is either a settlement member of the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or which has arranged for its cheques and banker’s drafts to be cleared through the facilities provided by any of those companies or committees and must bear the appropriate sort code in the top right- hand corner. Third party cheques will not be accepted with the exception of building society cheques or banker’s drafts where the building society or bank has confirmed the name of the account holder by stamping or endorsing the cheque or draft to such effect. The account name should be the same as that shown on the application. Post-dated cheques will not be accepted. Cheques or banker’s drafts will be presented for payment upon receipt. The Company reserves the right to instruct Equiniti Limited to seek special clearance of cheques and banker’s drafts to allow the Company to obtain value for remittances at the earliest opportunity. No interest will be paid on payments made before they are due. It is a term of the Rights Issue that cheques shall be honoured on first presentation and the Company may elect to treat as invalid acceptances in respect of which cheques are not so honoured. All documents, cheques and banker’s drafts sent through the post will be sent at the risk of the sender. Payments via CHAPS, BACS or electronic transfer will not be accepted.
54 Part III: Terms and Conditions of the Rights Issue
For technical reasons, the Company will allot and issue the New Shares to those persons entitled thereto in consideration of the Newco Subscriber transferring its holding of redeemable preference shares and ordinary shares in Newco to the Company. Accordingly, instead of receiving cash as consideration for the issue of the New Shares, at the conclusion of the Rights Issue the Company will own the entire issued ordinary and redeemable preference share capital of Newco whose only assets will be its cash reserves, which will represent an amount equivalent to the net proceeds of the Rights Issue. The Company will be able to utilise this amount equivalent to the Rights Issue proceeds by exercising its right of redemption over the redeemable preference shares it holds in Newco and, during any interim period prior to redemption, by procuring that Newco lends the amount to the Company (or one of the Company’s subsidiaries).
Accordingly, by taking up New Shares in the Rights Issue and submitting a valid payment in respect thereof, a Qualifying Shareholder or renouncee instructs Equiniti Limited to (i) hold such payments on such Qualifying Shareholder’s or renouncee’s behalf on a non-interest bearing basis until the allotment of New Shares to such Qualifying Shareholder or renouncee, and (ii) following such allotment, to apply such payment (after deduction of certain agreed fees, costs and expenses) on behalf of the Newco Subscriber solely for the purposes of acquiring shares in Newco.
If the New Shares have already been allotted to a Qualifying Non-CREST Shareholder prior to any payment not being so honoured upon first presentation or such acceptances being treated as invalid, the Company may (in its absolute discretion as to manner, timing and terms) make arrangements for the sale of such New Shares on behalf of such Qualifying Non-CREST Shareholder and hold the proceeds of sale (net of the Company’s reasonable estimate of any loss it has suffered as a result of the same and of the expenses of the sale, including, without limitation, any stamp duty or SDRT payable on the transfer of such New Shares, and of all amounts payable by such Qualifying Non-CREST Shareholder pursuant to the terms of the Rights Issue in respect of the acquisition of such New Shares) on behalf of such Qualifying Non-CREST Shareholder. Neither the Company nor the Joint Bookrunners nor any other person shall be responsible for, or have any liability for, any loss, expense or damage suffered by such Qualifying Non-CREST Shareholder as a result.
(v) Holders of Provisional Allotment Letters who wish to take up any of their entitlements must make the representations and warranties set out in paragraph 2.6 below.
(c) Money Laundering Regulations It is a term of the Rights Issue that, to ensure compliance with the Money Laundering Regulations, the Company’s registrars, Equiniti Limited, may require verification of the identity of the person by whom or on whose behalf a Provisional Allotment Letter is lodged with payment (which requirements are referred to below as the verification of identity requirements). The person(s) (the acceptor) who, by lodging a Provisional Allotment Letter with payment, as described above, accept(s) the allotment of the New Shares (the relevant shares) comprised in such Provisional Allotment Letter (being the provisional allottee or, in the case of renunciation, the person named in such Provisional Allotment Letter) shall thereby be deemed to agree to provide the Company’s registrars and/or the Company with such information and other evidence as they or either of them may require to satisfy the verification of identity requirements.
If the Registrars determine that the verification of identity requirements apply to an acceptance of an allotment and the verification of identity requirements have not been satisfied (which the Registrars shall in their absolute discretion determine) by 11.00 a.m. on 18 March 2009, the Company may, in its absolute discretion, and without prejudice to any other rights of the Company, treat the acceptance as invalid or may confirm the allotment of the relevant shares to the acceptor but (notwithstanding any other term of the Rights Issue) such shares will not be issued to him or registered in his name until the verification of identity requirements have been satisfied (which the Registrars shall in their absolute discretion determine). If the acceptance is not treated as invalid and the verification of identity requirements are not satisfied within such period, being not less than seven days after a request for evidence of identity is despatched to the acceptor, as the Company may in its absolute discretion allow, the Company will be entitled to make arrangements (in its absolute discretion as to manner, timing and terms) to place the relevant shares (and for that purpose the Company will be expressly authorised to
55 Part III: Terms and Conditions of the Rights Issue
act as agent of the acceptor). Any proceeds of sale (net of expenses) of the relevant shares which shall be issued to and registered in the name of the purchaser(s) or an amount equivalent to the original payment, whichever is the lower, will be held by the Company on trust for the acceptor, subject to the requirements of the Money Laundering Regulations. The Registrars are entitled in their absolute discretion to determine whether the verification of identity requirements apply to any acceptor and whether such requirements have been satisfied. Neither the Company nor the Registrars will be liable to any person for any loss suffered or incurred as a result of the exercise of any such discretion or as a result of any sale of relevant shares.
Return of a Provisional Allotment Letter with the appropriate remittance will constitute a warranty from the acceptor that the Money Laundering Regulations will not be breached by acceptance of such remittance. If the verification of identity requirements apply, failure to provide the necessary evidence of identity may result in your acceptance being treated as invalid or in delays in the despatch of a receipted fully paid Provisional Allotment Letter or a share certificate.
The verification of identity requirements will not usually apply:
(i) if the acceptor is an organisation required to comply with the Money Laundering Directive 2005/60/EC of the European Parliament and of the EC Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing; or
(ii) if the acceptor is a regulated UK broker or intermediary acting as agent and is itself subject to the Money Laundering Regulations; or
(iii) if the acceptor (not being an acceptor who delivers his acceptance in person) makes payment by way of a cheque drawn on an account in the name of such acceptor; or
(iv) if the aggregate acquisition price for the relevant shares is less than €15,000.
Where the verification of identity requirements apply, please note the following as this will assist in satisfying the requirements. Satisfaction of the verification of identity requirements may be facilitated in the following ways:
(i) if payment is made by cheque or banker’s draft in pounds sterling drawn on a branch in the United Kingdom of a bank or building society and bears a UK bank sort code number in the top right- hand corner, the following applies. Cheques should be made payable to “Equiniti Limited – re: The British Land Company PLC – Rights Issue” and crossed “A/C payee only”. Third party cheques will not be accepted with the exception of building society cheques or banker’s drafts where the building society or bank has confirmed the name of the account holder by stamping or endorsing the building society cheque/banker’s draft to such effect. The account name should be the same as that shown on the application;
(ii) if the Provisional Allotment Letter is lodged with payment by an agent which is an organisation of the kind referred to in (i) above or which is subject to anti money-laundering regulation in a country which is a member of the Financial Action Task Force (the non-European Union members of which are Argentina, Australia, Brazil, Canada, Hong Kong, Iceland, Japan, Mexico, New Zealand, Norway, the Russian Federation, Singapore, South Africa, Switzerland, Turkey, the United States of America and, by virtue of their membership of the Gulf Co-operation Council, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE), the agent should provide written confirmation with the Provisional Allotment Letter that it has that status and a written assurance that it has obtained and recorded evidence of the identity of the persons for whom it acts and that it will on demand make such evidence available to the Registrars or the relevant authority; or
(iii) if a Provisional Allotment Letter is lodged by hand by the acceptor in person, he should ensure that he has with him evidence of identity bearing his photograph (for example, his passport) and evidence of his address.
56 Part III: Terms and Conditions of the Rights Issue
In order to confirm the acceptability of any written assurance referred to in (ii) above or any other case, the acceptor should contact the Registrars.
(d) Dealings in Nil Paid Rights Assuming the Rights Issue becomes unconditional, dealings on the London Stock Exchange in the Nil AIII, 5.2.4 Paid Rights are expected to commence at 8.00 a.m. on 4 March 2009. A transfer of Nil Paid Rights can AIII, 5.1.10 be made by renunciation of the Provisional Allotment Letter in accordance with the instructions printed on it and delivery of the letter to the transferee. The latest time and date for registration of renunciation of Provisional Allotment Letters is expected to be 11.00 a.m. on 18 March 2009.
(e) Dealings in Fully Paid Rights After acceptance of the provisional allotment and payment in full in accordance with the provisions set out in this document and the Provisional Allotment Letter, the Fully Paid Rights may be transferred by renunciation of the relevant Provisional Allotment Letter and delivering it, by post or by hand (during normal business hours) to Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA, by not later than 11.00 a.m. on 18 March 2009. To do this, Qualifying Non-CREST Shareholders will need to have their fully paid Provisional Allotment Letters returned to them after acceptance has been effected by Equiniti Limited. However, fully paid Provisional Allotment Letters will not be returned to Qualifying Non-CREST Shareholders unless their return is requested by ticking the appropriate box on the Provisional Allotment Letter. After 18 March 2009, the New Shares will be in registered form and transferable in the usual way (see paragraph 2.1(j) below).
(f) Renunciation and splitting of Provisional Allotment Letters Qualifying Non-CREST Shareholders who wish to transfer all of their Nil Paid Rights or, after AIII, 5.1.10 acceptance of the provisional allotment and payment in full, Fully Paid Rights comprised in a Provisional Allotment Letter may (save as required by the laws of certain overseas jurisdictions) renounce such allotment by completing and signing Form X on the Provisional Allotment Letter (if it is not already marked “Original Duly Renounced”) and passing the entire Provisional Allotment Letter to their stockbroker or bank or other appropriate financial adviser or to the transferee. Once a Provisional Allotment Letter has been renounced, the letter will become a negotiable instrument in bearer form and the Nil Paid Rights or Fully Paid Rights (as appropriate) comprised in the PAL may be transferred by delivery of the PAL to the transferee. The latest time and date for registration of renunciation of Provisional Allotment Letters, fully paid, is 11.00 a.m. on 18 March 2009.
If a holder of a Provisional Allotment Letter wishes to have only some of the New Shares registered in his name and to transfer the remainder, or wishes to transfer all the Nil Paid Rights or (if appropriate) Fully Paid Rights but to different persons, he may have the Provisional Allotment Letter split, for which purpose he or his agent must complete and sign Form X on the Provisional Allotment Letter. The Provisional Allotment Letter must then be delivered by post or by hand (during normal business hours only) to Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA, by not later than 3.00 p.m. on 16 March 2009, to be cancelled and exchanged for the number of split Provisional Allotment Letters required. The number of split Provisional Allotment Letters required and the number of Nil Paid Rights or (as appropriate) Fully Paid Rights to be comprised in each split letter should be stated in an accompanying letter. Form X on split Provisional Allotment Letters will be marked “Original Duly Renounced” before issue.
The Company reserves the right to refuse to register any renunciation in favour of any person in respect of which the Company believes such renunciation may violate applicable legal or regulatory requirements, including (without limitation) any renunciation in the name of any person with an address outside the United Kingdom.
Alternatively, Qualifying Non-CREST Shareholders who wish to take up some of their rights, without AIII, 5.1.5 transferring the remainder, should complete Form X on the original Provisional Allotment Letter and return it, together with a covering letter confirming the number of rights to be taken up and a cheque or banker’s draft in pounds sterling to pay for this number of New Shares, by post or by hand (during normal business hours only) to Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA. In this case, the Provisional Allotment Letter and payment must be received by the Receiving Agent by 11.00 a.m. on 18 March 2009.
57 Part III: Terms and Conditions of the Rights Issue
(g) Registration in names of Qualifying Shareholders A Qualifying Shareholder who wishes to have all the New Shares to which he is entitled registered in his name must accept and make payment for such allotment in accordance with the provisions set out in this document and the Provisional Allotment Letter but need take no further action. A share certificate is expected to be sent to such Qualifying Shareholders by no later than 26 March 2009.
(h) Registration in names of persons other than Qualifying Shareholders originally entitled In order to register Fully Paid Rights in certificated form in the name of someone other than the Qualifying Shareholders(s) originally entitled, the renouncee or his agent(s) must complete Form Y on the Provisional Allotment Letter (unless the renouncee is a CREST member who wishes to hold such New Shares in uncertificated form, in which case Form X and the CREST Deposit Form must be completed (see paragraph 2.2 below)) and deliver the entire Provisional Allotment Letter, when fully paid, by post or by hand (during normal business hours) to Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA, by not later than the latest time for registration of renunciations, which is expected to be 11.00 a.m. on 18 March 2009. Registration cannot be effected unless and until the New Shares comprised in a Provisional Allotment Letter are fully paid.
The New Shares comprised in several renounced Provisional Allotment Letters may be registered in the name of one holder (or joint holders) if Form Y on the Provisional Allotment Letter is completed on one Provisional Allotment Letter (the Principal Letter) and all the Provisional Allotment Letters are delivered in one batch. Details of each Provisional Allotment Letter (including the Principal Letter) should be listed in a separate letter.
(i) Deposit of Nil Paid Rights or Fully Paid Rights into CREST The Nil Paid Rights or Fully Paid Rights represented by the Provisional Allotment Letter may be converted into uncertificated form, that is, deposited into CREST (whether such conversion arises as a result of a renunciation of those rights or otherwise). Similarly, Nil Paid Rights or Fully Paid Rights held in CREST may be converted into certificated form, that is, withdrawn from CREST. Subject as provided in the next following paragraph or in the Provisional Allotment Letter, normal CREST procedures and timings apply in relation to any such conversion. You are recommended to refer to the CREST Manual for details of such procedures.
The procedure for depositing the Nil Paid Rights represented by the Provisional Allotment Letter into CREST, whether such rights are to be converted into uncertificated form in the name(s) of the person(s) whose name(s) and address appear on page 1 of the Provisional Allotment Letter or in the name of a person or persons to whom the Provisional Allotment Letter has been renounced, is as follows: Form X and the CREST Deposit Form (both on the Provisional Allotment Letter) will need to be completed and the Provisional Allotment Letter deposited with the CREST Courier and Sorting Service (CCSS). In addition, the normal CREST Stock Deposit procedures will need to be carried out, except that (a) it will not be necessary to complete and lodge a separate CREST Transfer Form (prescribed under the Stock Transfer Act 1963) with the CCSS and (b) only the whole of the Nil Paid Rights or the Fully Paid Rights represented by the Provisional Allotment Letter may be deposited into CREST. If you wish to deposit some only of the Nil Paid Rights or the Fully Paid Rights represented by the Provisional Allotment Letter into CREST, you must first apply for split Provisional Allotment Letters by following the instructions in paragraph 2.1(b) above. If the rights represented by more than one Provisional Allotment Letter are to be deposited, the CREST Deposit Form on each Provisional Allotment Letter must be completed and deposited. The consolidation procedure described in paragraph 2.1(h) must not be used.
A holder of the Nil Paid Rights (or, if appropriate, the Fully Paid Rights) represented by a Provisional Allotment Letter who is proposing to convert those rights into uncertificated form (whether following a renunciation of such rights or otherwise) is recommended to ensure that the conversion procedures are implemented in sufficient time to enable the person holding or acquiring the Nil Paid Rights (or, if appropriate, the Fully Paid Rights) in CREST following the conversion to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 18 March 2009. In particular, having regard to processing times in CREST and on the part of the Receiving Agent, the latest recommended time for depositing a renounced Provisional Allotment Letter (with Form X and the CREST Deposit Form on the Provisional Allotment Letter duly completed) with the CCSS in order to enable the person acquiring the Nil Paid Rights (or, if appropriate, the Fully Paid Rights) in CREST as a result of the
58 Part III: Terms and Conditions of the Rights Issue
conversion to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 18 March 2009 is 3.00 p.m. on 13 March 2009.
When Form X and the CREST Deposit Form (on the Provisional Allotment Letter) have been completed, the title to the Nil Paid Rights or the Fully Paid Rights represented by the Provisional Allotment Letters will cease to be renounceable or transferable by delivery, and, for the avoidance of doubt, any entries in Form Y will not subsequently be recognised or acted upon by Equiniti. All renunciations or transfers of Nil Paid Rights or Fully Paid Rights must be effected through the CREST system once such Nil Paid Rights or Fully Paid Rights have been deposited into CREST.
CREST sponsored members should contact their CREST sponsor as only their CREST sponsor will be able to take the necessary action to take up the entitlement or otherwise to deal with the Nil Paid Rights or Fully Paid Rights of the CREST sponsored member.
(j) Issue of New Shares in definitive form Definitive share certificates in respect of the New Shares to be held in certificated form are expected to AIII, 4.3 be despatched by post by 26 March 2009 at the risk of the persons entitled thereto to Qualifying Non- AIII, 5.1.8 CREST Shareholders (or their transferees who hold Fully Paid Rights in certificated form), or in the case of joint holdings, to the first-named Shareholders, at their registered address (unless lodging agent details have been completed on the Provisional Allotment Letter). After despatch of the definitive share certificates, Provisional Allotment Letters will cease to be valid for any purpose whatsoever. Pending despatch of definitive share certificates, instruments of transfer of the New Shares will be certified by the Receiving Agent against the register.
2.2 Action to be taken by Qualifying CREST Shareholders in relation to Nil Paid Rights and Fully Paid Rights in CREST (a) General It is expected that each Qualifying CREST Shareholder not being a Shareholder with a registered AIII. 5.1.6 address, or resident in, the Excluded Territory or, subject to certain exceptions, the United States or one AIII, 5.2.4 of the other Restricted Territories, will receive a credit to his stock account in CREST of his entitlement to Nil Paid Rights on 4 March 2009. It is expected that such rights will be enabled by 8.00 a.m. on 4 March 2009. The CREST stock account to be credited will be an account under the participant ID and member account ID that apply to the Existing Shares in uncertificated form held at the close of business on the Record Date by such Qualifying CREST Shareholder in respect of which the Nil Paid Rights are provisionally allotted.
The Nil Paid Rights will constitute a separate security for the purposes of CREST and can accordingly be transferred, in whole or in part, by means of CREST in the same manner as any other security that is admitted to CREST.
If, for any reason, it is impracticable to credit the stock accounts of such Qualifying CREST Shareholders, or to enable the Nil Paid Rights by 8.00 a.m. on 4 March 2009, Provisional Allotment Letters shall, unless the Company determines otherwise, be sent out in substitution for the Nil Paid Rights which have not been so credited and the expected timetable as set out in this document will be adjusted as appropriate. References to dates and times in this document should be read as subject to any such adjustment. The Company will make an appropriate announcement to a Regulatory Information Service giving details of any revised dates but Qualifying CREST Shareholders may not receive any further written communication.
CREST members who wish to take up their entitlements in respect of or otherwise to transfer Nil Paid Rights or Fully Paid Rights held by them in CREST should refer to the CREST Manual for further information on the CREST procedures referred to below. If you are a CREST sponsored member, you should consult your CREST sponsor if you wish to take up your entitlement as only your CREST sponsor will be able to take the necessary action to take up your entitlements or otherwise to deal with your Nil Paid Rights or Fully Paid Rights.
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(b) Procedure for acceptance and payment AIII, 5.1.3 AIII, 5.1.8 (i) MTM instructions AIII, 5.1.10 CREST members who wish to take up all or some of their entitlement in respect of Nil Paid Rights in CREST must send (or, if they are CREST sponsored members, procure that their CREST sponsor sends) an MTM instruction to Euroclear UK that, on its settlement, will have the following effect:
(A) the crediting of a stock account of the Receiving Agent under the participant ID and member account ID specified below, with the number of Nil Paid Rights to be taken up;
(B) the creation of a settlement bank payment obligation (as this term is defined in the CREST Manual), in accordance with the RTGS payment mechanism (as this term is defined in the CREST Manual), in favour of the RTGS settlement bank of the Receiving Agent in pounds sterling in respect of the full amount payable on acceptance in respect of the Nil Paid Rights referred to in paragraph 2.2(b)(i)(A) above; and
(C) the crediting of a stock account of the accepting CREST member (being an account under the same participant ID and member account ID as the account from which the Nil Paid Rights are to be debited on settlement of the MTM instruction) of the corresponding number of Fully Paid Rights to which the CREST member is entitled on taking up his Nil Paid Rights referred to in paragraph 2.2(b)(i)(A) above.
(ii) Contents of MTM instructions The MTM instruction must be properly authenticated in accordance with Euroclear UK’s specifications and must contain, in addition to the other information that is required for settlement in CREST, the following details:
(A) the number of Nil Paid Rights to which the acceptance relates;
(B) the participant ID of the accepting CREST member;
(C) the member account ID of the accepting CREST member from which the Nil Paid Rights are to be debited;
(D) the participant ID of the Receiving Agent, in its capacity as a CREST receiving agent. This is 6RA50;
(E) the member account ID of the Receiving Agent, in its capacity as a CREST receiving agent. This is RA967401;
(F) the number of Fully Paid Rights that the CREST member is expecting to receive on settlement of the MTM instruction. This must be the same as the number of Nil Paid Rights to which the acceptance relates;
(G) the amount payable by means of the CREST assured payment arrangements on settlement of the MTM instruction. This must be the full amount payable on acceptance in respect of the number of Nil Paid Rights referred to in paragraph 2.2(b)(ii)(A) above;
(H) the intended settlement date. This must be on or before 11.00 a.m. on 18 March 2009;
(I) the Nil Paid Rights ISIN number, which is GB00B4W92R30;
(J) the Fully Paid Rights ISIN number, which is GB00B4W92W82;
(K) the Corporate Action Number for the Rights Issue. This will be available by viewing the relevant corporate action details in CREST; and
(L) a contact name and telephone number in the shared note field.
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(iii) Valid acceptance An MTM instruction complying with each of the requirements as to authentication and contents set out in paragraph 2.2(b)(ii) above will constitute a valid acceptance where either:
(A) the MTM instruction settles by not later than 11.00 a.m. on 18 March 2009; or
(B) at the discretion of the Company:
(I) the MTM instruction is received by Euroclear UK by not later than 11.00 a.m. on 18 March 2009; and
(II) a number of Nil Paid Rights at least equal to the number of Nil Paid Rights inserted in the MTM instruction is credited to the CREST stock member account of the accepting CREST member specified in the MTM instruction at 11.00 a.m. on 18 March 2009.
An MTM instruction will be treated as having been received by Euroclear UK for these purposes at the time at which the instruction is processed by the Network Providers’ Communications Host (as this term is defined in the CREST Manual) at Euroclear UK of the network provider used by the CREST member (or by the CREST sponsored member’s CREST sponsor). This will be conclusively determined by the input time stamp applied to the MTM instruction by the Network Providers’ Communications Host.
(iv) Representations, warranties and undertakings of CREST members A CREST member or CREST sponsored member who makes a valid acceptance in accordance with this paragraph 2.2(b) represents, warrants and undertakes to the Company and the Joint Bookrunners that he has taken (or procured to be taken), and will take (or will procure to be taken), whatever action is required to be taken by him or by his CREST sponsor (as appropriate) to ensure that the MTM instruction concerned is capable of settlement at 11.00 a.m. on 18 March 2009. In particular, the CREST member or CREST sponsored member represents, warrants and undertakes that, at 11.00 a.m. on 18 March 2009 (or until such later time and date as the Company may determine), there will be sufficient Headroom within the Cap (as those terms are defined in the CREST Manual) in respect of the cash memorandum account to be debited with the amount payable on acceptance to permit the MTM instruction to settle. CREST sponsored members should contact their CREST sponsor if they are in any doubt. CREST members or CREST sponsored members taking up entitlements must make the representations and warranties set out in paragraph 2.6 below.
If there is insufficient Headroom within the Cap (as those terms are defined in the CREST Manual) in respect of the cash memorandum account of a CREST member or CREST sponsored member for such amount to be debited or the CREST member’s or CREST sponsored member’s acceptance is otherwise treated as invalid and New Shares have already been allotted to such CREST member or CREST sponsored member, the Company may (in its absolute discretion as to the manner, timing and terms) make arrangements for the sale of such New Shares on behalf of that CREST member or CREST sponsored member and hold the proceeds of sale (net of the Company’s reasonable estimate of any loss that it has suffered as a result of the acceptance being treated as invalid and of the expenses of sale, including, without limitation, any stamp duty or SDRT payable on the transfer of such New Shares, and of all amounts payable by the CREST member or CREST sponsored member pursuant to the Rights Issue in respect of the acquisition of such New Shares) on behalf of such CREST member or CREST sponsored member. Neither the Company nor any other person shall be responsible for, or have any liability for, any loss, expense or damage suffered by such CREST member or CREST sponsored member as a result.
(v) CREST procedures and timings CREST members and CREST sponsors (on behalf of CREST sponsored members) should note that Euroclear UK does not make available special procedures in CREST for any particular corporate action. Normal system timings and limitations will therefore apply in relation to the input of an
61 Part III: Terms and Conditions of the Rights Issue
MTM instruction and its settlement in connection with the Rights Issue. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST sponsored member, to procure that his CREST sponsor takes) the action necessary to ensure that a valid acceptance is received as stated above by 11.00 a.m. on 18 March 2009. In connection with this, CREST members and (where applicable) CREST sponsors are referred in particular to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.
(vi) CREST member’s undertaking to pay A CREST member or CREST sponsored member who makes a valid acceptance in accordance with the procedures set out in this paragraph 2.2(b) (a) undertakes to pay to the Receiving Agent, or procure the payment to the Receiving Agent of, the amount payable in pounds sterling on acceptance in accordance with the above procedures or in such other manner as the Receiving Agent may require (it being acknowledged that, where payment is made by means of the CREST RTGS payment mechanism, the creation of an RTGS payment obligation in pounds sterling in favour of the Receiving Agent’s RTGS settlement bank (as defined in the CREST Manual) in accordance with the RTGS payment mechanism shall, to the extent of the obligation so created, discharge in full the obligation of the CREST member (or CREST sponsored member) to pay the amount payable on acceptance) and (b) requests that the Fully Paid Rights and/or New Shares to which he will become entitled be issued to him on the terms set out in this document and subject to the Memorandum and Articles of Association of the Company. Such payment will be held in accordance with the terms of paragraph 2.1(b)(iv) above.
If the payment obligations of the relevant CREST member or CREST sponsored member in relation to such New Shares are not discharged in full and such New Shares have already been allotted to the CREST member or CREST sponsored member, the Company may (in its absolute discretion as to manner, timing and terms) make arrangements for the sale of such Shares on behalf of the CREST member or CREST sponsored member and hold the proceeds of sale (net of the Company’s reasonable estimate of any loss it has suffered as a result of the same and of the expenses of the sale, including, without limitation, any stamp duty or SDRT payable on the transfer of such New Shares, and of all amounts payable by such CREST member or CREST sponsored member pursuant to the terms of the Rights Issue in respect of the acquisition of such New Shares) or an amount equal to the original payment of the CREST member or CREST sponsored member on behalf of such CREST member or CREST sponsored member. Neither the Company nor the Joint Bookrunners nor any other person shall be responsible for, or have any liability for, any loss, expense or damage suffered by the CREST member or CREST sponsored member as a result.
(vii) Company’s discretion as to rejection and validity of acceptances The Company may agree in its absolute sole discretion to:
(A) reject any acceptance constituted by an MTM instruction, which is otherwise valid, in the event of breach of any of the representations, warranties and undertakings set out or referred to in this paragraph 2.2(b). Where an acceptance is made as described in this paragraph 2.2(b), which is otherwise valid, and the MTM instruction concerned fails to settle by 11.00 a.m. on 18 March 2009 (or by such later time and date as the Company and the Joint Bookrunners have determined), each of the Company and the Joint Bookrunners shall be entitled to assume, for the purposes of its right to reject an acceptance contained in this paragraph 2.2(b), that there has been a breach of the representations, warranties and undertakings set out or referred to in this paragraph 2.2(b) unless the Company is aware of any reason outside the control of the CREST member or CREST sponsor (as appropriate) for the failure to settle;
(B) treat as valid (and binding on the CREST member or CREST sponsored member concerned) an acceptance which does not comply in all respects with the requirements as to validity set out or referred to in this paragraph 2.2(b);
(C) accept an alternative properly authenticated dematerialised instruction from a CREST member or (where applicable) a CREST sponsor as constituting a valid acceptance in
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substitution for, or in addition to, an MTM instruction and subject to such further terms and conditions as the Company and the Joint Bookrunners may determine;
(D) treat a properly authenticated dematerialised instruction (in this paragraph 2.2(b)(vii)(D) (the first instruction) as not constituting a valid acceptance if, at the time at which the Receiving Agent receives a properly authenticated dematerialised instruction giving details of the first instruction, either the Company or the Receiving Agent has received actual notice from Euroclear UK of any of the matters specified in Regulation 35(5)(a) of the Regulations in relation to the first instruction. These matters include notice that any information contained in the first instruction was incorrect or notice of lack of authority to send the first instruction; and
(E) accept an alternative instruction or notification from a CREST member or CREST sponsored member or (where applicable) a CREST sponsor, or extend the time for acceptance and/or settlement of an MTM instruction or any alternative instruction or notification, if, for reasons or due to circumstances outside the control of any CREST member or CREST sponsored member or (where applicable) CREST sponsor, the CREST member or CREST sponsored member is unable validly to take up all or part of his Nil Paid Rights by means of the above procedures. In normal circumstances, this discretion is only likely to be exercised in the event of any interruption, failure or breakdown of CREST (or of any part of CREST) or on the part of facilities and/or systems operated by the Receiving Agent in connection with CREST.
(c) Money Laundering Regulations If you hold your Nil Paid Rights in CREST and apply to take up all or part of your entitlement as agent for one or more persons and you are not a UK or EU regulated person or institution (e.g. a UK financial institution), then, irrespective of the value of the application, Equiniti is entitled to take reasonable measures to establish the identity of the person or persons (or the ultimate controller of such person or persons) on whose behalf you are making the application. You must therefore contact Equiniti before sending any MTM instruction or other instruction so that appropriate measures may be taken.
Submission of an MTM instruction which constitutes, or which may on its settlement constitute, a valid acceptance as described above constitutes a warranty and undertaking by the applicant to provide promptly to the Receiving Agent any information the Receiving Agent may specify as being required for the purposes of the verification of the identity requirements in the Money Laundering Regulations or the FSMA. Pending the provision of such information and other evidence as Equiniti may require to satisfy the verification of identity requirements, the Receiving Agent, having consulted with the Company, may take, or omit to take, such action as it may determine to prevent or delay settlement of the MTM instruction. If such information and other evidence of identity has not been provided within a reasonable time, then the Receiving Agent will not permit the MTM instruction concerned to proceed to settlement but without prejudice to the right of the Company and/or the Joint Bookrunners to take proceedings to recover any loss suffered by any of them as a result of failure by the applicant to provide such information and other evidence.
(d) Dealings in Nil Paid Rights in CREST AIII, 5.2.4 Assuming the Rights Issue becomes unconditional, dealings in the Nil Paid Rights on the London Stock AIII, 5.1.10 Exchange are expected to commence at 8.00 a.m. on 4 March 2009. A transfer (in whole or in part) of Nil Paid Rights can be made by means of CREST in the same manner as any other security that is admitted to CREST. The Nil Paid Rights are expected to be disabled in CREST after the close of CREST business on 18 March 2009.
(e) Dealings in Fully Paid Rights in CREST AIII, 5.1.10 After acceptance of the provisional allotment and payment in full in accordance with the provisions set AIII, 4.3 out in this document, the Fully Paid Rights may be transferred by means of CREST in the same manner as any other security that is admitted to CREST. The last time for settlement of any transfer of Fully Paid Rights in CREST is expected to be 11.00 a.m. on 18 March 2009. The Fully Paid Rights are expected to be disabled in CREST after the close of CREST business on 18 March 2009. After 18 March 2009, the
63 Part III: Terms and Conditions of the Rights Issue
New Shares will be registered in the name(s) of the person(s) entitled to them in the Company’s register of members and will be transferable in the usual way (see paragraph 2.2(g) below).
(f) Withdrawal of Nil Paid Rights or Fully Paid Rights from CREST Nil Paid Rights or Fully Paid Rights held in CREST may be converted into certificated form, that is, withdrawn from CREST. Normal CREST procedures (including timings) apply in relation to any such conversion.
The recommended latest time for receipt by Euroclear UK of a properly authenticated dematerialised instruction requesting withdrawal of Nil Paid Rights or, if appropriate, Fully Paid Rights from CREST is 4.30 p.m. on 12 March 2009, so as to enable the person acquiring or (as appropriate) holding the Nil Paid Rights or, if appropriate, Fully Paid Rights following the conversion to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 18 March 2009. You are recommended to refer to the CREST Manual for details of such procedures.
(g) Issue of New Shares in CREST Fully Paid Rights in CREST are expected to be disabled in CREST after the close of CREST business on 18 March 2009 (the latest date for settlement of transfers of Fully Paid Rights in CREST). New Shares (in definitive form) will be issued in uncertificated form to those persons registered as holding Fully Paid Rights in CREST at the close of business on the date on which the Fully Paid Rights are disabled. The Receiving Agent will instruct Euroclear UK to credit the appropriate stock accounts of those persons (under the same participant ID and member account ID that applied to the Fully Paid Rights held by those persons) with their entitlements to New Shares with effect from the next business day (expected to be 19 March 2009).
(h) Right to allot/issue in certificated form Despite any other provision of this document, the Company reserves the right to allot and/or issue any Nil Paid Rights, Fully Paid Rights or New Shares in certificated form. In normal circumstances, this right is only likely to be exercised in the event of an interruption, failure or breakdown of CREST (or of any part of CREST) or on the part of the facilities and/or systems operated by the Receiving Agent in connection with CREST.
2.3 Procedure in respect of rights not taken up (whether certificated or in CREST) and withdrawal (a) Procedure in respect of New Shares not taken up If an entitlement to New Shares is not validly taken up by 11.00 a.m. on 18 March 2009, in accordance with the procedure laid down for acceptance and payment, then the entitlement will lapse. The Bank Underwriters will use reasonable endeavours to procure, by not later than 5.00 p.m. on the second business day after 18 March 2009, acquirers for all of those New Shares not taken up at a price per New Share which is at least equal to the aggregate of the Issue Price and the expenses of procuring such acquirers (including any applicable commissions and amounts in respect of value added tax).
Notwithstanding the above, the Bank Underwriters may cease to endeavour to procure any such acquirers if, in their opinion, it is unlikely that any such acquirers can be procured at such a price and by such a time. If and to the extent that acquirers for New Shares cannot be procured on the basis outlined above, the relevant New Shares will be acquired by the Underwriters or sub-underwriters (if any) at the Issue Price pursuant to the terms of the Underwriting Agreement.
Any premium over the aggregate of the Issue Price and the expenses of procuring acquirers (including any applicable brokerage and commissions and amounts in respect of value added tax) shall be paid (subject as provided in this paragraph 2.3):
(i) where the Nil Paid Rights were, at the time they were not taken up, represented by a Provisional Allotment Letter, to the person whose name and address appeared on the Provisional Allotment Letter;
64 Part III: Terms and Conditions of the Rights Issue
(ii) where the Nil Paid Rights were, at the time they were not taken up, in uncertificated form, to the person registered as the holder of those Nil Paid Rights at the time of their disablement in CREST; and
(iii) where an entitlement to New Shares was not taken up by an Overseas Shareholder, to that Overseas Shareholder.
New Shares for which acquirers are procured on this basis will be reallotted to the acquirers and the aggregate of any premiums (being the amount paid by the acquirers after deducting the Issue Price and the expenses of procuring the acquirers, including any applicable brokerage and commissions and amounts in respect of value added tax), if any, will be paid (without interest) to those persons entitled (as referred to above) pro rata to the relevant provisional allotments not taken up, save that amounts of less than £5.00 per holding will not be so paid but will be aggregated and will ultimately accrue for the benefit of the Company. Cheques for the amounts due will be sent by post, at the risk of the person(s) entitled, to their registered addresses (the registered address of the first-named in the case of joint holders), provided that, where any entitlement concerned was held in CREST, the amount due will, unless the Company (in its absolute discretion) otherwise determines, be satisfied by the Company procuring the creation of an assured payment obligation in favour of the relevant CREST member’s (or CREST sponsored member’s) RTGS settlement bank in respect of the cash amount concerned in accordance with the RTGS payment mechanism.
Any transactions undertaken pursuant to this paragraph 2.3 or paragraph 2.5(a) below shall be deemed to have been undertaken at the request of the persons entitled to the rights not taken up or other entitlements and neither the Company nor the Bank Underwriters nor any other person procuring acquirers shall be responsible for any loss, expense or damage (whether actual or alleged) arising from the terms or timing of any such acquisition, any decision not to endeavour to procure acquirers or the failure to procure acquirers on the basis so described. The Bank Underwriters will be entitled to retain any brokerage fees, commissions or other benefits received in connection with these arrangements.
(b) Withdrawal rights AIII, 5.1.7 Persons who have the right to withdraw their acceptances under Section 87Q(4) of the FSMA after a supplementary prospectus (if any) has been published and who wish to exercise such right of withdrawal must do so by lodging a written notice of withdrawal (which shall not include a notice sent by facsimile or any other form of electronic communication), which must include the full name and address of the person wishing to exercise such statutory withdrawal rights and, if such person is a CREST member, the participant ID and the member account ID of such CREST member, with Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA so as to be sent no later than two business days after the date on which the supplementary prospectus was published, withdrawal being effective as at posting of the written notice of withdrawal. Notice of withdrawal given by any other means or which is deposited with or received by Equiniti after the expiry of such period will not constitute a valid withdrawal. Furthermore, based on advice received by the Company as to the effect of statutory withdrawal rights where the allotment contract is fully performed, the Company will not permit the exercise of withdrawal rights after payment by the relevant Shareholder of its acquisition in full and the allotment of the New Shares to such Shareholder becoming unconditional. In such circumstances, Shareholders are advised to consult their professional advisers including their legal advisers as this may be a matter of law.
Provisional allotments of entitlements to New Shares which are the subject of a valid withdrawal notice will be deemed to be declined. Such entitlements to New Shares will be subject to the provisions of paragraph 2.3(a) above as if the entitlement had not been validly taken up.
2.4 Taxation The information contained in Part VII of this document is intended only as a general guide to certain tax considerations in the United Kingdom and the United States. Persons who are in any doubt about their tax position or who may be subject to tax in a jurisdiction other than the UK are strongly recommended to consult their own professional advisers.
65 Part III: Terms and Conditions of the Rights Issue
2.5 Overseas shareholders This document has been approved by the FSA, being the competent authority in the United Kingdom. The Company intends to request that the FSA provides a certificate of approval and a copy of this document to the relevant competent authority in the Republic of Ireland, pursuant to the passporting provision of the FSMA. It is expected that Shareholders in each member state of the European Economic Area will be able to participate in the Rights Issue.
The making of the proposed offer of New Shares to persons located or resident in, or who are citizens of, or who have a registered address in countries other than the United Kingdom may be affected by the law or regulatory requirements of the relevant jurisdiction. Any Shareholder who is in any doubt as to his position should consult an appropriate professional adviser without delay.
(a) General Whilst persons who have registered addresses outside the United Kingdom, or who are resident or located in, or citizens of, countries other than the United Kingdom are entitled to participate in the Rights Issue, the ability of those persons to take up their Rights may be affected by the laws of the relevant jurisdiction. Those persons should consult their professional advisers as to whether they require any governmental or other consents or need to observe any other formalities to enable them to take up their rights.
It is also the responsibility of any person (including, without limitation, custodians, nominees and trustees) outside the United Kingdom wishing to take up rights under the Rights Issue to satisfy himself as to the full observance of the laws of any relevant territory in connection therewith, including the obtaining of any governmental or other consents which may be required, the compliance with other necessary formalities and the payment of any issue, transfer or other taxes due in such territories. The comments set out in this paragraph 2.5 are intended as a general guide only and any Overseas Shareholder who is in doubt as to his position should consult his professional adviser without delay.
Receipt of this document and/or Provisional Allotment Letter or the crediting of Nil Paid Rights to a stock account in CREST will not constitute an offer in those jurisdictions in which it would be illegal to make an offer and, in those circumstances, this document and/or a Provisional Allotment Letter must be treated as received for information only and should not be copied or redistributed.
New Shares will be provisionally allotted (nil paid) to all Shareholders on the register at the Record Date, including Overseas Shareholders. However, Provisional Allotment Letters will not be sent to Shareholders with registered addresses in the United States, any of the other Restricted Territories or the Excluded Territory or their agent or intermediary, except where the Company is satisfied that such action would not result in the contravention of any registration or other legal requirement in any jurisdiction.
No person receiving a copy of this document and/or a Provisional Allotment Letter and/or receiving a credit of Nil Paid Rights to a stock account in CREST with a bank or financial institution in any territory other than the United Kingdom may treat the same as constituting an invitation or offer to him nor should he in any event use the Provisional Allotment Letter or deal in Nil Paid Rights or Fully Paid Rights in CREST unless, in the relevant territory, such an invitation or offer could lawfully be made to him or the Provisional Allotment Letter could lawfully be used or dealt with without contravention of any registration or other legal requirements. In such circumstances, this document and the Provisional Allotment Letter are to be treated as received for information only and should not be copied or redistributed.
Persons (including, without limitation, custodians, nominees and trustees) receiving a copy of this document and/or a Provisional Allotment Letter or whose stock account is credited with Nil Paid Rights or Fully Paid Rights should not, in connection with the Rights Issue, distribute or send the same or transfer Nil Paid Rights or Fully Paid Rights in or into any jurisdiction where to do so would or might contravene local security laws or regulations. If a Provisional Allotment Letter or a credit of Nil Paid Rights or Fully Paid Rights is received by any person in any such territory, or by his agent or nominee, he must not seek to take up the rights referred to in the Provisional Allotment Letter or in this document or renounce the Provisional Allotment Letter or transfer the Nil Paid Rights or Fully Paid Rights unless the Company determines that such actions would not violate applicable legal or regulatory requirements. Any person (including, without limitation, custodians, nominees and trustees) who does forward this
66 Part III: Terms and Conditions of the Rights Issue
document or a Provisional Allotment Letter or transfer Nil Paid Rights or Fully Paid Rights into any such territories (whether pursuant to a contractual or legal obligation or otherwise) should draw the recipient’s attention to the contents of this paragraph 2.5.
Subject to paragraphs 2.5(b), 2.5(c), 2.5(d) and 2.6 below, any person (including, without limitation, agents, nominees and trustees) outside the United Kingdom wishing to take up his rights under the Rights Issue must satisfy himself as to full observance of the applicable laws of any relevant territory, including obtaining any requisite governmental or other consents, observing any other requisite formalities and paying any issue, transfer or other taxes due in such territories. The comments set out in this paragraph 2.5 are intended as a general guide only and any Overseas Shareholders who are in any doubt as to their position should consult their professional advisers without delay.
The Company reserves the right to treat as invalid and will not be bound to allot or issue any New Shares in respect of any acceptance or purported acceptance of the offer of New Shares which:
(i) appears to the Company or its agents to have been executed, effected or despatched from the United States, any other Restricted Territory or an Excluded Territory unless the Company is satisfied that such action would not result in the contravention of any registration or other legal requirement; or
(ii) in the case of a Provisional Allotment Letter, provides an address for delivery of the share certificates in or, in the case of a credit of New Shares in CREST, to a CREST member or CREST sponsored member whose registered address would be in the United States, any other Restricted Territory or an Excluded Territory or any other jurisdiction outside the United Kingdom in which it would be unlawful to deliver such share certificates or make such a credit unless the Company is satisfied that such action would not result in the contravention of any registration or other legal requirement.
The attention of Overseas Shareholders with registered addresses in the United States, any other Restricted Territory or the Excluded Territory is drawn to paragraphs 2.5(b) to 2.5(e) below.
The provisions of paragraph 2.3(a) above will apply to Overseas Shareholders who do not take up New Shares provisionally allotted to them or are unable to take up New Shares provisionally allotted to them because such action would result in a contravention of applicable law or regulatory requirements. Accordingly, such Shareholders will be treated as Shareholders that have not taken up their entitlement for the purposes of paragraph 2.3(a) above and the entitlement will lapse. The Bank Underwriters will use reasonable endeavours to procure acquirers for the relevant New Shares. The net proceeds of such sales (after deduction of expenses) will be paid to the relevant Shareholders pro-rated to their holdings of Existing Shares at the Record Date as soon as practicable after receipt, except that (i) individual amounts of less than £5.00 per holding will not be distributed but will be aggregated and will ultimately accrue for the benefit of the Company and (ii) amounts in respect of fractions will not be distributed but will be aggregated and will ultimately accrue for the benefit of the Company. None of the Company, the Bank Underwriters or any other person shall be responsible or have any liability whatsoever for any loss or damage (actual or alleged) arising from the terms or the timing of the acquisition or the procuring of it or any failure to procure acquirers.
Despite any other provision of this document or the Provisional Allotment Letter, the Company reserves the right to permit any Shareholder to take up his rights if the Company in its sole and absolute discretion is satisfied that the transaction in question is exempt from or not subject to the legislation or regulations giving rise to the restrictions in question.
Those Shareholders who wish, and are permitted, to take up their entitlement should note that payments must be made as described in paragraphs 2.1(b) (Qualifying Non-CREST Shareholders) and 2.2(b) (Qualifying CREST Shareholders) above.
Overseas Shareholders should note that all acquisition monies must be in pounds sterling by cheque or banker’s draft and should be drawn on a bank in the United Kingdom, made payable to “Equiniti Limited – re: The British Land Company PLC – Rights Issue” and crossed “A/C payee only”.
67 Part III: Terms and Conditions of the Rights Issue
(b) United States The Nil Paid Rights, the Fully Paid Rights and the New Shares have not been and will not be registered under the US Securities Act or under any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within the United States except pursuant to an applicable exemption from the registration requirements of the US Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States.
Prospective investors are hereby notified that sellers of the Nil Paid Rights, the Fully Paid Rights or the New Shares may be relying on the exemption from the registration requirements of section 5 of the US Securities Act provided by Rule 144A thereunder.
Accordingly, the Company is not extending the Rights Issue into the United States unless an exemption from the registration requirements of the US Securities Act is available and, subject to certain exceptions, none of this document and the Provisional Allotment Letter constitutes or will constitute an offer or an invitation to apply for or an offer or an invitation to acquire any Nil Paid Rights, Fully Paid Rights or New Shares in the United States. Subject to certain exceptions, neither this document nor a Provisional Allotment Letter will be sent to any Shareholder with a registered address in the United States. Subject to certain exceptions, Provisional Allotment Letters or renunciations thereof sent from or post-marked in the United States will be deemed to be invalid and all persons acquiring New Shares and wishing to hold such New Shares in registered form must provide an address for registration of the New Shares outside the United States.
Subject to certain exceptions, any person who acquires Nil Paid Rights, Fully Paid Rights or New Shares will be deemed to have declared, warranted and agreed, by accepting delivery of this document or the Provisional Allotment Letters, taking up their entitlement or accepting delivery of the Nil Paid Rights, the Fully Paid Rights or the New Shares, that they are not, and that at the time of acquiring the Nil Paid Rights, the Fully Paid Rights or the New Shares they will not be, in the United States or acting on a non- discretionary basis for a person located within the United States.
The Company reserves the right to treat as invalid any Provisional Allotment Letter (or renunciation thereof) that appears to the Company or its agents to have been executed in or despatched from the United States, or that provides an address in the United States for the acceptance or renunciation of the Rights Issue, or which does not make the warranty set out in the Provisional Allotment Letter to the effect that the person accepting and/or renouncing the Provisional Allotment Letter does not have a registered address and is not otherwise located in the United States and is not acquiring the Nil Paid Rights, the Fully Paid Rights or the New Shares with a view to the offer, sale, resale, transfer, delivery or distribution, directly or indirectly, of any such Nil Paid Rights, Fully Paid Rights or New Shares in the United States or where the Company believes acceptance of such Provisional Allotment Letter may infringe applicable legal or regulatory requirements. The Company will not be bound to allot (on a non- provisional basis) or issue any Nil Paid Rights, Fully Paid Rights or New Shares to any person with an address in, or who is otherwise located in, the United States in whose favour a Provisional Allotment Letter or any Nil Paid Rights, Fully Paid Rights or New Shares may be transferred or renounced. In addition, the Company and the Joint Bookrunners reserve the right to reject any MTM instruction sent by or on behalf of any CREST member with a registered address in the United States in respect of the Nil Paid Rights.
In addition, until 40 days after the commencement of the Rights Issue, an offer, sale or transfer of the Nil Paid Rights, the Fully Paid Rights or the New Shares within the United States by a dealer (whether or not participating in the Rights Issue) may violate the registration requirements of the US Securities Act.
The provisions of paragraph 2.3 above will apply to any rights not taken up. Accordingly, subject to certain exceptions Shareholders with a registered address in the United States will be treated as unexercising holders and the Bank Underwriters will endeavour to procure on behalf of such unexercising holders acquirers for the New Shares.
68 Part III: Terms and Conditions of the Rights Issue
(c) South Africa Due to restrictions under the securities laws of South Africa, and subject to certain exceptions, no Provisional Allotment Letters in relation to the New Shares will be sent to Shareholders with registered addresses in South Africa and their entitlements will be sold if possible in accordance with the provisions of paragraph 2.3(a) above. The Provisional Allotment Letters, the Nil Paid Rights, the Fully Paid Rights and the New Shares may not be transferred or sold to, or renounced or delivered in, South Africa. No offer of New Shares is being made by virtue of this document or the Provisional Allotment Letters into South Africa.
(d) Overseas territories other than the United States and the Excluded Territory Provisional Allotment Letters will be posted to Qualifying Non-CREST Shareholders other than to Shareholders with a registered address, or resident, in the Excluded Territory or the United States or one of the other Restricted Territories and Nil Paid Rights will be credited to the CREST stock accounts of Qualifying CREST Shareholders other than to Shareholders with a registered address, or resident, in the Excluded Territory or the United States or one of the other Restricted Territories. Such Qualifying Shareholders may, subject to the laws of the relevant jurisdictions, accept their rights under the Rights Issue in accordance with the instructions set out in this document and, if relevant, the Provisional Allotment Letter. In cases where Overseas Shareholders do not take up Nil Paid Rights, their entitlements will be sold if possible in accordance with the provisions of paragraph 2.3(a) above.
Qualifying Shareholders who have registered addresses in or who are resident in, or who are citizens of, all countries other than the United Kingdom should consult their professional advisers as to whether they require any governmental or other consents or need to observe any other formalities to enable them to take up their rights.
(i) Canada This document constitutes an offering of the Nil Paid Rights, Fully Paid Rights and New Shares only in those Canadian jurisdictions and to those persons where and to whom they may be lawfully offered for sale, and therein only by persons permitted to sell such securities. This Prospectus is not, and under no circumstances is to be construed as, an advertisement or a public offering of the Nil Paid Rights, Fully Paid Rights and New Shares in Canada. No securities commission or similar authority in Canada has reviewed or in any way passed upon this Prospectus or the merits of the securities described herein and any representation to the contrary is an offence. Specifically, Qualifying Non-CREST Shareholders and Qualifying Crest Shareholders in Canada must also be “accredited investors” as such term is defined under Canadian securities laws in order to accept their rights under the Rights Issue.
(ii) Australia This document is not a disclosure document under Chapter 6D of the Corporations Act 2001 (Cth) (the Australian Corporations Act), has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly:
(i) the offer of the Nil Paid Rights, Fully Paid Rights and New Shares in Australia may only be made to persons who are “sophisticated investors” (within the meaning of section 708(8) of the Australian Corporations Act) or to “professional investors” (within the meaning of section 708(11) of the Australian Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708(8) of the Australian Corporations Act, so that it is lawful to offer, or invite applications for, the Nil Paid Rights, Fully Paid Rights and New Shares without disclosure to persons under Chapter 6D of the Australian Corporations Act; and
(ii) this document and the Provisional Allotment Letter may only be made available in Australia to persons as set forth in clause (i) above.
If you acquire Nil Paid Rights, Fully Paid Rights or New Shares, then you (i) represent and warrant that you are a person to whom an offer of securities can be made without a disclosure document in
69 Part III: Terms and Conditions of the Rights Issue
accordance with subsections 708(8) or (11) of the Corporations Act and (ii) agree not to sell or offer for sale any Nil Paid Rights, Fully Paid Rights and New Shares in Australia within 12 months after their issue to the offeree or invitee under this document, except in circumstances where disclosure to investors under Chapter 6D would not be required under the Australian Corporations Act.
No person receiving a copy of this document and/or a Provisional Allotment Letter and/or receiving a credit of Nil Paid Rights to a stock account in CREST with a bank or financial institution in Australia may treat the same as constituting an invitation or offer to him nor should he in any event use the Provisional Allotment Letter or deal in Nil Paid Rights or Fully Paid Rights in CREST unless such an invitation or offer could lawfully be made to him or the Provisional Allotment Letter could lawfully be used or dealt with without contravention of any registration or other legal requirements. In such circumstances, this document and the Provisional Allotment Letter are to be treated as received for information only and should not be copied or redistributed.
(iii) People’s Republic of China The Nil Paid Rights, Fully Paid Rights and New Shares are not being offered or sold and may not be offered or sold, directly or indirectly, in the People’s Republic of China (for such purposes, not including the Hong Kong and Macau Special Administrative Regions or Taiwan), except as permitted by the securities laws of the People’s Republic of China.
(iv) Japan The Rights Issue of New Shares offered hereby has not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law). Accordingly, each Bank Underwriter has represented, warranted and agreed that the New Shares which it acquires will be acquired by it as principal and that, in connection with the offering made hereby, it will not, directly or indirectly, offer or sell any Nil Paid Rights, Fully Paid Rights or New Shares in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organised under the laws of Japan) or to others for re-offering or resale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except pursuant to an exception from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and other relevant laws and regulations of Japan.
(v) Switzerland This document is being communicated in or from Switzerland to a small number of selected investors only. Each copy of this document is addressed to a specifically named recipient and may not be passed on to third parties. The Nil Paid Rights, Fully Paid Rights and New Shares are not being offered to the public in or from Switzerland, and neither this Prospectus, nor any other offering material in relation to the Nil Paid Rights, Fully Paid Rights or New Shares, may be distributed in connection with any such public offering.
(e) Waiver The provisions of this paragraph 2.5 and of any other terms of the Rights Issue relating to Overseas Shareholders may be waived, varied or modified as regards specific Shareholders or on a general basis by the Company in its absolute discretion. Subject to this, the provisions of this paragraph 2.5 supersede any terms of the Rights Issue inconsistent herewith. References in this paragraph 2.5 to Shareholders shall include references to the person or persons executing a Provisional Allotment Letter and, in the event of more than one person executing a Provisional Allotment Letter, the provisions of this paragraph 2.5 shall apply to them jointly and to each of them.
2.6 Representations and warranties (i) Qualifying Non-CREST Shareholders Any person accepting and/or renouncing a Provisional Allotment Letter or requesting registration of the New Shares comprised therein represents and warrants to the Company and the Joint
70 Part III: Terms and Conditions of the Rights Issue
Bookrunners that, except where proof has been provided to the Company’s satisfaction that such person’s use of the Provisional Allotment Letter will not result in the contravention of any applicable regulatory or legal requirement in any jurisdiction, (a) such person is not accepting and/or renouncing the Provisional Allotment Letter, or requesting registration of the relevant New Shares, from within the United States, any other Restricted Territory or the Excluded Territory; (b) such person is not in any territory in which it is unlawful to make or accept an offer to acquire New Shares or to use the Provisional Allotment Letter in any manner in which such person has used or will use it; (c) such person is not accepting on a non-discretionary basis for a person located within the United States, any other Restricted Territory or the Excluded Territory or any territory referred to in (b) above at the time the instruction to accept or renounce was given; (d) such person is not acquiring New Shares with a view to the offer, sale, resale, transfer, delivery or distribution, directly or indirectly, of any such New Shares into the United States, any other Restricted Territory or the Excluded Territory or any territory referred to in (b) above; and (e) he is not and for so long as he holds any Ordinary Shares will not be, and will not be acting on behalf of, Benefit Plan Investors as defined in the regulations under ERISA. The Company may treat as invalid any acceptance or purported acceptance of the allotment of New Shares comprised in, or renunciation or purported renunciation of, a Provisional Allotment Letter if it (a) appears to the Company to have been executed in or despatched from the United States, any other Restricted Territory or the Excluded Territory or otherwise in a manner which may involve a breach of the laws of any jurisdiction or if it believes the same may violate any applicable legal or regulatory requirement; (b) provides an address in the United States, any other Restricted Territory or the Excluded Territory for delivery of definitive share certificates for New Shares (or any jurisdiction outside the United Kingdom in which it would be unlawful to deliver such certificates); or (c) purports to exclude the warranty required by this paragraph 2.6.
(ii) Qualifying CREST Shareholders A CREST member or CREST sponsored member who makes a valid acceptance in accordance with the procedures set out in this Part III represents and warrants to the Company and the Joint Bookrunners that, except where proof has been provided to the Company’s satisfaction that such person’s acceptance will not result in the contravention of any applicable regulatory or legal requirement in any jurisdiction, (a) he is not within the United States, any other Restricted Territory or the Excluded Territory; (b) he is not in any territory in which it is unlawful to make or accept an offer to acquire New Shares; (c) he is not accepting on a non-discretionary basis for a person located within the United States, any other Restricted Territory or the Excluded Territory or any territory referred to in (b) above at the time the instruction to accept was given; and (d) he is not acquiring New Shares with a view to the offer, sale, resale, transfer, delivery or distribution, directly or indirectly, of any such New Shares into the United States, any other Restricted Territory or the Excluded Territory or any territory referred to in (b) above; and (e) he is not and for so long as he holds any Ordinary Shares will not be, and will not be acting on behalf of, Benefit Plan Investors as defined in the regulations under ERISA.
2.7 Times and Dates The Company shall, in its discretion and after consultation with its financial and legal advisers, be entitled to amend the dates that Provisional Allotment Letters are despatched or dealings in Nil Paid Rights commence or amend or extend the latest date for acceptance under the Rights Issue and all related dates set out in this document and in such circumstances shall notify the Financial Services Authority, and make an announcement via a Regulatory Information Service approved by the Financial Services Authority and, if appropriate, to Shareholders but Qualifying Shareholders may not receive any further written communication.
If a supplementary prospectus is published by the Company after Admission and two or fewer business days prior to the date specified as the latest date for acceptance and payment in full under the Rights Issue (or such later date as may be agreed between the Joint Sponsors and Euro Lights (acting by majority in number) and the Company), the latest date for acceptance under the Rights Issue shall be extended to the date that is three business days after the date of publication of such supplementary prospectus.
71 Part III: Terms and Conditions of the Rights Issue
If a supplementary prospectus is published by the Company after Admission and earlier than two business days prior to the date specified as the latest date for acceptance and payment in full under the Rights Issue, the Joint Sponsors and Euro Lights (acting by a majority in number and in good faith), and with the consent of the Company (such consent not to be unreasonably withheld or delayed) may give notice to the Company of the postponement of such date for a period not exceeding two business days. In either case, all dates referable to the latest date for acceptance and payment in full shall be extended mutatis mutandis.
2.8 Governing Law AIII, 4.2 The terms and conditions of the Rights Issue and any non-contractual obligations arising out of or in relation to the Rights Issue as set out in this document and the Provisional Allotment Letter shall be governed by, and construed in accordance with, English law.
2.9 Jurisdiction The courts of England and Wales are to have exclusive jurisdiction to settle any dispute which may arise out of or in connection with the Rights Issue, this document or the Provisional Allotment Letter and any non-contractual obligations arising out of or in relation to the Rights Issue. By accepting rights under the Rights Issue in accordance with the instructions set out in this document and, in the case of Qualifying Non-CREST Shareholders, other than those with a registered address, or resident or located, in the Excluded Territory or, subject to certain exceptions, the United States or one of the other Restricted Territories Shareholders only, the Provisional Allotment Letter, Qualifying Shareholders irrevocably submit to the jurisdiction of the courts of England and Wales and waive any objection to proceedings in any such court on the ground of venue or on the ground that proceedings have been brought in an inconvenient forum.
72 Part IV: Information on British Land
1. INTRODUCTION AND HISTORICAL OVERVIEW AI, 6.1.1 AI, 6.2 The Company is a major UK property company, investing primarily in prime, modern properties with a portfolio value of £10.2 billion as at 31 December 2008. The Company’s key business areas include corporate and retail property investment, office properties, third-party capital fund management and property development.
British Land was incorporated in 1959 and registered as a public company in 1981, while it can trace its AI, 5.1.5 origins back to the foundation of the British Land Company in 1856 as a freehold land society aimed at enfranchising purchasers at a time when owning property was a requirement to vote in elections.
The modern-day British Land came about as a result of a reverse takeover of the British Land Company by Union Property (London) Holdings Limited in March 1970.
From 1970 onwards, British Land achieved substantial growth by expanding from retail into office property and diversifying its operations geographically. In recent times British Land has focussed on delivering superior long-term growth in shareholder value by creating well financed exceptional long-term investments with strong covenants, long lease profiles and good growth potential.
The Company has utilised joint venture partnerships allowing the Company to combine its expertise in property management with access to off-market properties, including with Tesco in 2007 and Sainsbury in 2008.
Other significant moves in 1993 and 1994 related to the Company’s growing interest in elements of the Broadgate Estate in London EC2. In 1993 British Land acquired control of a 50 per cent. shareholding in Broadgate Properties and control of Broadgate Estates Limited. In 1996 the remaining interest in Broadgate Properties was acquired.
In late 1998 the Company purchased 100 Liverpool Street and 155 & 175 Bishopsgate, which added to its holdings on the estate at an opportune time. To fund its expanded range of activities, the Company undertook its first securitisation transaction in 1999, raising £1.54 billion in what was its largest financing transaction in the United Kingdom at the time.
In 1999 the Company acquired Meadowhall Shopping Centre near Sheffield.
In 2001 BL Davidson, a joint venture with the Davidson family, was created to hold Asda Property Holdings, which has a portfolio of retail warehouses and Central London offices. Additional retail properties were added through sale-leaseback transactions with Homebase, Debenhams and House of Fraser.
The acquisition of Pillar Property, which specialised in developing and investing in retail warehousing, was made in 2005. Pillar also held a stake in the Hercules Unit Trust, which owns large retail shopping parks, the smaller park fund known as Hercules Income Fund and the PREF fund.
In January 2007, the Company converted to REIT status.
2. OBJECTIVES AND STRATEGY The Company’s primary objective is to produce superior, sustained and secure long-term shareholder returns from its chosen real estate activities and their financing. The Company’s strategy aims to deliver returns through the high occupancy and rental growth which results from successfully building its business around customer needs. The Company seeks to implement its strategy through: (i) property sales and purchases that adjust the market and sector mix of its property portfolio to capture trends in customer demand; (ii) recycling capital within its selected markets to improve the appeal and growth prospects of its portfolio; and (iii) new development in areas with high demand for quality properties to create more value. In addition, the Company actively manages its property assets to meet the needs and specifications of its customers in order to maintain prospects for rental growth and high occupancy rates.
73 Part IV: Information on British Land
The Company engages in financial management, partnerships and investment transactions to complement its property-based strategies and capture and translate property returns most efficiently for its shareholders. In executing these strategies, the Company applies certain key principles, including:
• a focus on areas where the Company has or can build competitive advantage;
• clarity that its business success will come from serving customers well;
• a bias to high-quality assets, with long lease profiles and favourable demand and supply characteristics;
• strong integrated risk management skills, including blending leasing, development, asset and liability risk into a single attractive and secure growth proposition for shareholders;
• a confident, entrepreneurial, performance-driven culture;
• particular regard for long-term income and cash flow growth; and
• an appreciation of the importance of sustainability to its customers and other stakeholders in the built environment in which the Company operates.
3. OVERVIEW
The Company directly owns and manages the majority of its properties, with the balance held through AI, 8.1 investment funds and joint ventures. As at 31 December 2008, the Company’s property portfolio, including its share of properties held through investment funds and joint ventures, includes £6.0 billion in retail properties, £3.9 billion in office properties and £0.2 billion in other properties.
3.1 The Portfolio The Company’s portfolio focuses primarily on out-of-town retail properties and Central London offices which offer attractive risk-adjusted growth prospects. The portfolio includes directly held properties, properties held through investment funds and properties held through joint ventures. As at 31 December 2008, the Company has invested 49.5 per cent. in out-of-town retail properties, including 104 retail warehouses, 103 superstores and Meadowhall Shopping Centre. A further 38.3 per cent. was invested in Central London offices and office developments, including Broadgate.
An analysis of the Company’s portfolio valuation by sector as at 31 December 2008 is set forth below.
Change(2) Group Funds/JVs(1) Total Portfolio 3 months 9 months (£ million) (£ million) (£ million) (%) (%) (%) Retail Retail warehouses . . . . . 1,467 1,105 2,572 25.3 (14.1) (22.6) Superstores ...... 113 984 1,097 10.8 (9.7) (14.3) Shopping centres(3) . . . . . 1,476 311 1,787 17.6 (12.3) (18.4) Department stores . . . . . 440 96 536 5.3 (16.2) (24.0) High Street ...... 26 – 26 0.2 (14.7) (21.7) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– All retail ...... 3,522 2,496 6,018 59.2 (13.0) (20.2) Offices City of London ...... 2,904 – 2,904 28.6 (13.8) (24.3) West End ...... 997 – 997 9.8 (12.9) (21.0) Provincial(4) ...... 16 8 24 0.2 (17.1) (23.1) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– All Offices ...... 3,917 8 3,925 38.6 (13.6) (23.6) Other Industrial, distribution, leisure, other ...... 212 16 228 2.2 (16.5) (27.6) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total ...... 7,651 2,520 10,171 100.0 (13.3) (21.7) –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
74 Part IV: Information on British Land
Notes:
(1) Company’s share of properties held through investment funds and joint ventures.
(2) Change in value for three months and nine months to 31 December 2008 includes valuation movement in developments, purchases and sales, net of capital expenditure.
(3) Includes Meadowhall shopping centre as a wholly owned property. The Company has entered into a transaction to transfer the Meadowhall shopping centre to a newly formed joint venture. See paragraph 17.1(a) of Part VIII of this document.
(4) Includes office properties located outside of London.
3.2 Portfolio Statistics The Company’s property portfolio is characterised by high occupancy rates and long leases as shown in the following table, which sets forth the average occupancy rates and remaining lease length by sector:
As at 31 December 2008(1) Average lease term Occupancy rate Underlying Underlying excluding including completed completed To expiry To first break developments(2) developments(2) Overall (years) (years) (%) (%) (%) Retail Retail warehouses ...... 13.0 11.7 98.1 98.1 97.2 Superstores ...... 18.4 18.4 100.0 100.0 100.0 Shopping centres ...... 12.5 11.8 96.5 96.5 93.8 Department stores ...... 30.5 28.6 100.0 100.0 100.0 High Street ...... 7.5 5.5 82.3 82.3 82.3 –––––––– –––––––– –––––––– –––––––– –––––––– All retail ...... 16.0 15.0 98.0 98.0 96.8 Offices City of London ...... 11.4 9.3 99.5 92.5 90.9 West End ...... 12.2 9.6 99.1 99.1 97.6 –––––––– –––––––– –––––––– –––––––– –––––––– All Offices ...... 11.6 9.4 99.4 94.1 92.5 Other Industrial, distribution, leisure, other ...... 22.9 22.6 94.1 94.1 93.6 –––––––– –––––––– –––––––– –––––––– –––––––– Total ...... 14.6 13.2 98.4 96.4 95.1 –––––––– –––––––– –––––––– –––––––– ––––––––
Notes:
(1) Includes the Company’s share of properties held through investment funds and joint ventures.
(2) Underlying occupancy rate (as a percentage of ERV) including accommodation subject to asset management and under offer.
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Only 4 per cent. of the Company’s total rents are due for renewal prior to 31 March 2011. The following table sets forth the total rents subject to first-break or expiry for the periods indicated:
1 October 2008 to 1 October 2008 to 31 March 2011(1) 31 March 2013(1) (£ million) (£ million) Retail Retail warehouses ...... 3 11 Superstores ...... – – Shopping centres ...... 11 20 Department stores ...... – – High Street ...... 2 3 –––––––––– –––––––––– All retail ...... 16 34 Offices City of London ...... 9 11 West End ...... 2 10 –––––––––– –––––––––– All Offices ...... 11 21 Other Industrial, distribution, leisure, other ...... 1 2 Total ...... 28 57 –––––––––– –––––––––– Percent of total ERV ...... 4% 8% –––––––––– –––––––––– Note:
(1) Unaudited.
The Company’s rental arrangements with tenants provide strong cash flow resilience. As at 31 December 2008, 97 per cent. of total rents generated in the United Kingdom are subject to upward-only reviews and less than one per cent. are related to the tenant’s turnover.
The following table provides information about the yields of the Company’s property portfolio by sector:
As at 31 December 2008(1),(2) Top-up initial Reversionary Net equivalent Initial yield(3) yield(3) (4) yield(3) yield(5) (%) (%) (%) (%) Retail Retail warehouses ...... 6.6 6.9 7.5 7.0 Superstores ...... 6.2 6.2 6.5 6.1 Shopping centres ...... 6.3 7.0 7.3 6.6 Department stores ...... 7.0 8.1 8.1 8.0 High Street ...... 4.0 4.6 8.6 7.1 –––––––––– –––––––––– –––––––––– –––––––––– All retail ...... 6.4 6.9 7.3 6.8 Offices City of London ...... 6.4 7.2 7.4 7.1 West End ...... 6.1 6.6 6.7 6.7 –––––––––– –––––––––– –––––––––– –––––––––– All Offices ...... 6.3 7.0 7.2 7.0 Other Industrial, distribution, leisure, other ...... 8.7 9.7 10.4 10.1 –––––––––– –––––––––– –––––––––– –––––––––– Total ...... 6.4 7.0 7.3 6.9 –––––––––– –––––––––– –––––––––– ––––––––––
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Notes:
(1) Unaudited.
(2) Includes the Company’s share of properties held through investment funds and joint ventures and excludes properties under development.
(3) Gross yield to British Land (without notional purchaser’s costs).
(4) Adding back rent frees and contracted rental uplifts.
(5) After purchaser’s costs.
3.3 Sector and Asset Selection The Company regularly reviews the prospects and expected performance of each asset in its portfolio in the context of current market conditions as part of its ongoing strategy of concentrating on markets, sectors and properties with positive medium-term supply/demand characteristics in order to capture trends in customer demand and rental growth and dispose of lower growth or riskier assets.
The Company recycles capital within selected markets to refine its focus on assets with greater potential rental growth and opportunities to improve rental growth through asset management. The Company generally considers selling assets for which it can no longer significantly improve rental growth.
3.4 Funds and Joint Ventures AI, 6.1.1 The Company’s net investment in investment funds and joint ventures was £973 million as at AI, 5.2.2 31 December 2008 and £1,532 million as at 31 March 2008 (£1,610 million as at 31 March 2007). This investment is principally in three active funds and 14 active joint ventures, which funds and joint ventures held retail, office and development properties valued at £5.7 billion as at 31 December 2008 and £6.9 billion as at 31 March 2008 (£7.0 billion as at 31 March 2007). The funds and joint ventures were financed by £3.4 billion as at 31 December 2008, and £3.3 billion as at 31 March 2008 (£3.1 billion as at 31 March 2007) of external debt, all of which is without recourse to the Company and the other investors in the funds and joint ventures.
(a) Funds The investment funds in which the Company has interests provide it with exposure to properties in its key sectors. The Company also acts as property adviser to the funds and receives performance and management fees in that capacity.
An analysis of the properties held by investment funds in which the Company had interests as at 31 December 2008 is set forth below.
Portfolio British Land Portfolio valuation Rent(1) share (£ million) (£ million) (%) HUT ...... Retail warehouse and 1,917 114 36.27 shopping parks PREF ...... European retail parks 570 37 35.23 HIF ...... Retail warehouses 89 7 26.12
Note:
(1) Annualised net rents.
(i) HUT Hercules Unit Trust (HUT) was established in 2000 as a Jersey-based closed-ended property unit trust with a fixed life to September 2010, subject to extension with consent of unitholders. In 2008, the unitholders approved proposals for the extension of the trust to 2020. HUT’s aim is to acquire and own retail warehouse and shopping park investment properties throughout the United
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Kingdom, with a view to providing an annual total return on the portfolio in excess of the IPD Retail Warehouse Quarterly Universe over the life of the trust.
The Company is HUT’s property adviser, and Schroder Property Managers (Jersey) Ltd is the fund manager. As property adviser, the Company is paid an annual base fee (calculated as a percentage of the aggregate trust value of HUT) and, provided certain conditions are met, an annual performance fee (calculated on the performance of HUT against an independent property benchmark for the relevant year). The Company’s appointment as property advisor for HUT is to continue for the life of HUT subject to the fund manager’s right to terminate the property adviser agreement in certain limited circumstances, including where the members of the Group cease to hold at least 10 per cent. of the HUT units in issue, the unitholders of HUT pass an extraordinary resolution requiring the termination of the property adviser agreement on 12-months’ notice or the unitholders of HUT pass an ordinary resolution requiring the termination of the property adviser agreement where certain performance targets are not met over any three-year period. As property adviser, the Company is required to actively identify investment opportunities falling within the investment objectives and strategy of HUT. Upon identification of a suitable investment opportunity for HUT, the Company must present the investment opportunity to HUT, and all Group companies are required to refrain from competing with HUT for the investment should HUT choose to pursue it. Furthermore, any Group company deciding to dispose of an investment falling within the investment objectives and strategy of HUT, must provide HUT with a right of first refusal to acquire such investment.
As at 31 December 2008, the Company’s net investment in HUT was £353 million.
(ii) PREF Pillar Retail Europark Fund (PREF) was created in March 2004 as a Luxembourg-based closed- ended Fonds Commun de Placement to invest in out-of-town retail parks in the Eurozone, in particular in Belgium, France, Italy, Luxembourg, the Netherlands, Portugal and Spain and in Switzerland.
PREF’s property advisor is PREF Management Company S.A. and its investment manager is BL European Fund Management LLP, both of which are subsidiaries of the Company.
As at 31 December 2008, the Company’s net investment in PREF was £101 million.
(iii) HIF Hercules Income Fund (HIF) was established in September 2004 as a Jersey-based closed-ended property unit trust with a fixed life of ten years, subject to extension with unitholder consent. Its objective is to target smaller retail park assets, with an emphasis on a high distributable yield.
The Company is the property adviser, and Pillar Property Management (Jersey) Ltd is the fund manager. As at 31 December 2008, the Company’s net investment in HIF was £20 million.
(b) Joint Ventures The Company’s joint ventures with other commercial real estate developers, investors and occupiers provide the Company with access to desirable properties and enable the Company to create further opportunities to deliver capital value. Separate entities are formed for this purpose, controlled on a 50:50 voting basis by a board carrying equal representation from each partner. The joint ventures have been able to raise finance on the strength of their assets, usually with no support from the partners, thereby significantly lowering the initial equity investments and enhancing returns on capital. The enterprise is shared by the partners, over a specific agreed lifetime for the venture.
Although some of the joint ventures have different year-ends from the Company, the accounting periods recognised are aligned to the Company’s March year-end using management accounts, to assist the requirements of quarterly reporting.
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The Company has entered into a transaction to transfer the Meadowhall shopping centre to a newly formed 50:50 joint venture with LSPG. For further discussion, see paragraph 4.1(a)(iii) of Part IV of this document and paragraph 17.1(a) of Part VIII of this document.
Summary details of the principal joint ventures in which the Company has a 50 per cent. economic and voting share (except as otherwise noted) as at 31 December 2008 are set forth below.
Portfolio British Land Joint venture partner valuation Rent(1) share (£ million) (£ million) (£ million) (%) BLT Properties Ltd ...... Tesco PLC 266 16 50 One retail park, eight Tesco superstores Tesco BL Holdings Ltd ...... Tesco PLC 509 33 50 Two retail parks, two shopping centres each anchored by Tesco, five Tesco superstores Tesco British Land Property Partnership . . . Tesco PLC 98 7 50 District shopping centre anchored by Tesco Tesco Aqua Limited Partnership(2) ...... Tesco PLC 543 30 50 21 Tesco superstores The Scottish Retail Property Limited Partnership ...... Land Securities PLC 191 14 50 Shopping centre in Aberdeen BL Fraser Ltd(3) ...... House of Fraser 192 14 50 12 department stores (Stores) Limited BL Sainsbury Superstores Ltd ...... J Sainsbury plc 990 62 50 38 Sainsbury superstores, One Waitrose superstore
Note:
(1) Annualised net rents.
(2) 50:50 regarding voting matters but Tesco is a limited partner
3.5 Development Programme As part of the Company’s strategy, the Company develops commercial properties under its development programme. As development involves higher risk than standing investment properties, the Company analyses the potential risks and rewards of each development project prior to making a commitment. The Company takes into account relevant business cycles and how they may affect the project, as well as the potential ways in which the project may further the Company’s strategic objectives.
Important elements of development projects that are taken into account include the transport and other infrastructure attributes of the location, quality of specification, configuration and flexibility of accommodation, and timing of delivery into market demand. Emphasis is also placed on working with talented architects and design teams to create well-designed, flexible and sustainable buildings that enhance their location and that offer the best opportunity to realise premium rents, sustained rental growth and enhanced investment returns.
The Building Research Establishment Environmental Assessment Method (BREEAM) evaluates a broad range of the environmental impacts of new buildings. All of the Company’s London office developments have target or provisional BREEAM ratings of Excellent, which is the top of the scale.
The Company’s current committed development projects include the London office developments AI, 6.1.2 Ropemaker, London EC2 and Osnaburgh Street, Regent’s Place, London NW1, and its 2.2 million square feet retail scheme (held through a joint venture with a group of wealthy private individuals as well as Copsica – one of Spain’s largest privately-owned construction companies) in Puerto Venecia, Zaragoza, Spain. The Company’s major development prospects include the North East Quadrant at Regent’s Place, NW1 estate; the Broadgate 2020 master planning exercise; the proposed mixed-used development for the area situated around the Meadowhall Shopping Centre in Sheffield; and the development of a 47-storey City office tower at Leadenhall, London EC3. These developments will be progressed as and when the Company determines that market conditions are such that appropriate risk
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adjusted returns may be realised. For further details of these and other committed developments and development prospects, see paragraph 5 below.
4. PORTFOLIO ALLOCATION Below is a description of selected major properties in the Company’s portfolio.
4.1 Retail Portfolio The Company’s retail portfolio had a total value of £6.0 billion as at 31 December 2008 with properties positioned to reflect customer demand, allocated 83 per cent. to out-of-town locations and 17 per cent. to in-town locations. The Company’s retail portfolio had an occupancy of 97 per cent., an average lease length of 15.0 years unexpired to break (16.0 years to expiry), and 13 per cent. reversionary income as at 31 December 2008. ERV has grown 0.9 per cent. in the nine months to 31 December 2008 (flat three months to 31 December 2008).
The Company has good relationships with many of the larger UK retailers and aims to provide them with the right space in the locations they prefer. The Company continues to reshape its retail portfolio and recycles capital into assets with the best prospects to enhance retailer mix and drive rental growth.
The Company’s two largest retail customers, Tesco and Sainsbury’s, each accounted for approximately six per cent. of the Company’s total rental income (including the Company’s share of properties held through investment funds and joint ventures) as at 31 December 2008.
(a) Out-of-town retail As at 31 December 2008, the Company’s wholly owned out-of-town retail properties were valued at £2.9 billion and the Company’s share of out-of-town retail properties held through investment funds and joint ventures was valued at £2.1 billion. The Company’s out-of-town portfolio consists of retail warehouses, superstores, the shopping centre and retail park at Murcia, Spain and Meadowhall. It includes of 209 retail schemes, including 103 superstores and the Meadowhall shopping centre, and comprises a total of approximately 23 million square feet. The Company’s out-of-town retail portfolio has a weighted average lease term to break of 13 years (and 14 years to expiry).
The Company’s out-of-town retail portfolio has an emphasis on retail parks with open A1 planning use. Such use classification permits a wide range of retail operations, from food to fashion, and enables the Company to be flexible in offering asset management initiatives to deliver the size and configuration of trading space required. For example, there has been increasing retailer demand for smaller units in out- of-town shopping parks and the Company has been active in changing unit sizes and providing new formats for customer services, perfecting the tenant mix, and including new and varied catering outlets.
(i) Retail warehouse portfolio The Company’s retail warehouse portfolio consists of 104 retail warehouse properties. As at 31 December 2008, the Company’s wholly owned retail warehouses were valued at £1.5 billion and the Company’s share of retail warehouses held through joint ventures and investment funds was valued at £1.1 billion. The retail warehouses have a total floor area of 14 million square feet with 84 per cent. rated for open A1 or Open Restricted use. The retail warehouses are predominantly freehold and consist of 80 retail parks and 24 individual warehouses.
As at 31 December 2008, the Company’s share of total net annual rent passing was £161 million per year, with an average rent equalling £19 per square foot and a weighted average lease term to expiry of 13.0 years (11.7 years to first break).
The Company’s retail warehouse portfolio is primarily divided among the following properties:
(A) Teesside shopping park, Stockton-on-Tees The Company owns 100 per cent. of the Teesside shopping park. This freehold property is located at the intersection of the A66 and A19 trunk roads between Stockton-on-Tees and
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Middlesbrough and comprises: an initial phase of 342,000 square feet of predominantly open A1 retail space arranged in 33 units on a site of 47 acres; a second phase consisting of an 8.1 acre site located on the park’s principal access comprising two retail units totalling 42,000 square feet and four restaurant units totalling 14,930 square feet; a standalone 8,000 square foot retail unit and the reversionary interest in the adjoining unit; plus a 27-acre site that may be considered for future development. Key tenants include Marks & Spencer, Currys, PC World, Boots, TK Maxx, New Look, Next Arcadia and Borders.
(B) The Kingston Centre, Kingston, Milton Keynes The Company owns 50 per cent. of the Kingston Centre as part of its joint venture Tesco British Land Holdings.
The Kingston Centre occupies a freehold 35-acre site, close to junctions 13 and 14 of the M1 motorway and provides a total of 247,000 square feet of open A1 retail space. The Kingston Centre includes a 140,600 square foot Tesco Extra superstore; eight retail warehouses totalling 92,900 square feet, let to tenants including Boots, Mothercare, Next, Marks & Spencer and Mamas & Papas; a covered shopping mall with 12 units totalling a further 9,200 square feet; a drive-thru McDonalds; a pub; a car showroom; and stand-alone units let to Domino’s Pizza and Carphone Warehouse.
(C) New Mersey shopping park, Speke (HUT) The Company owns 18.1 per cent. of the New Mersey shopping park through its interest on HUT.
This property consists of a freehold part open A1/part-restricted planning consent shopping park of 481,000 square feet in 31 units and two restaurants.
Key tenants include Boots, Borders, B&Q, Mothercare, Gap, Next, Marks & Spencer, River Island and New Look.
(D) Glasgow Fort shopping park, Glasgow (HUT) The Company owns 36.3 per cent. of the Glasgow Fort shopping park through its interest in HUT.
This property consists of a long leasehold open A1 park of 387,500 square feet in 60 units (plus kiosks).
Key tenants include Boots, Zara, Oasis, River Island, Next, Top Shop, Starbucks, Argos, Mamas & Papas and New Look.
(E) Parkgate shopping park, Rotherham (HUT) The Company owns 36.3 per cent. of the Parkgate shopping park through its interest in HUT.
This property consists of a freehold open A1 park of 561,500 square feet. There are a total of 40 retail units and a 95,000 square foot Morrisons foodstore.
Key tenants include Next, Matalan, Marks & Spencer, Boots, TKMaxx, Bhs, New Look, Arcadia, WH Smith, Homebase, Argos and River Island.
(F) Fort Kinnaird shopping park, Edinburgh (HUT) The Company owns 18.1 per cent. of the Fort Kinnard shopping park through its interest in HUT.
This property consists of a long leasehold open A1 shopping park of 548,000 square feet in 49 units, four food outlets, two leisure outlets and factory and office space of 91,000 square feet.
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Key tenants include Borders, HMV, Marks & Spencer, Next, H&M and New Look.
(G) Homebase DIY stores The portfolio of stand-alone Homebase stores comprises 10 properties, which are located mainly in the South East of England and wholly owned by the Company. The majority of the Homebase properties are let on 20-year leases from December 2000, and the floor area totals 368,000 square feet.
(H) Nueva Condomina shopping centre, Murcia, Spain The Company owns 32 per cent. of the Nueva Condomina shopping centre, consisting of 17.5 per cent. directly held by the Company and 14.5 per cent. held through its interest in PREF.
The property comprises a prime regional two-storey shopping centre and retail park, together with a multiplex cinema and hypermarket, totalling 1.1 million square feet. Tenants include the Inditex brands, Primark, H&M, FNAC, and an Eroski hypermarket.
(ii) Superstores portfolio
The Company is the largest non-operator owner of UK superstores. As at 31 December 2008, the AI, 6.5 Company’s superstores portfolio consists of 103 superstore properties located across the United Kingdom. As at December 2008, the Company’s wholly owned superstores were valued at £0.1 billion and the Company’s share of superstores held through joint ventures and investment funds was valued at £1.0 billion. As at 31 December 2008, the Company’s investment in superstores represents 10.8 per cent. of the total portfolio. The superstores have a combined site area of 555 acres, a total floor area of 6.1 million square feet and an average store size of 59,000 square feet, with 87 per cent. of the total floor area contained in stores larger than 40,000 square feet.
Key tenants include Sainsbury’s (41 stores), Somerfield (25 stores), Tesco (35 stores), Marks & Spencer (1 store), and Waitrose (one store). The Company wholly owns 29 stores, and has an interest in an additional 74 stores through its 50:50 joint ventures with Tesco and Sainsbury’s.
As at 31 December 2008, the Company’s share of the total net annual rent passing is £68 million per year, the average rent is £20.81 per square foot and the weighted average lease term to break (and expiry) is 18.4 years.
As at 31 December 2008, the Company had funded three further extensions for properties in its Tesco joint venture totalling 20,500 square feet and it currently has a further three store extensions under negotiation. In total, the Company has enlarged its superstore portfolio by 770,000 square feet during its involvement in this sector.
(iii) Meadowhall, Sheffield As at 31 December 2008, the Company owned 100 per cent. of the freehold interest in the Meadowhall property. The Company has entered into a transaction to transfer the Meadowhall shopping centre to a newly formed 50:50 joint venture with LSPG. For further discussion, see paragraph 17.1(a) of Part VIII of this document. As at 31 December 2008, the total gross annual contracted rent was £78 million per year, the average rent was £58.47 per square foot and the weighted average lease term to break is 12.0 years (12.7 years to expiry).
As at 31 December 2008, the shopping centre was valued at £1.25 billion. It consists of 1.5 million square feet of retail and leisure, including 212 shop units, ten anchor stores, an 11-screen Vue Cinema, 24 speciality kiosks, 23 mall kiosks and 34 restaurants and cafes (including the Oasis food court) with seating for approximately 3,300 people.
Key tenants include Debenhams, House of Fraser, Marks & Spencer, Next, Primark, Bhs, Boots, H&M, Sports World and WH Smith.
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Meadowhall remains one of the largest and most successful shopping centres in the UK – a prime super regional centre in a densely populated catchment area. Meadowhall has approximately 24 million visitors per year – 800,000 per week at peak time. Meadowhall has reported a 1.5 per cent. increase in footfall for the calendar year ended 31 December 2008. The property has direct access to junction 34 of M1 motorway, free parking for over 12,000 vehicles and on-site transport interchange with bus, train and supertram services.
The two-level, fully enclosed mall with transport links continues to attract both retailers and their customers.
The Company completed a major refurbishment programme during the financial year ended 31 March 2008 and the reconfiguration of the ex-Sainsbury’s space to create the new Gallery mall is also complete. This reconfiguration has created two new MSUs totalling 140,000 square feet let to Next and Primark and an additional 12 shop units, all of which are let. Elsewhere in the Meadowhall property, Top Shop have recently upsized from 17,000 square feet to over 40,000 square feet and deals have recently concluded with Hollister and Yo! Sushi.
(iv) Giltbrook retail park, Nottingham The Company completed the Giltbrook retail park, a 250,000 square foot mixed-use scheme of retail and industrial space, in September 2008. As at 31 December 2008, the retail space was fully let or under offer at rents above those projected at the time of acquisition. Tenants include Laura Ashley, Carpetright, CSL, Starbucks, BHS, Next, Comet and Frankie & Benny’s.
(b) In-Town retail As at 31 December 2008, the Company’s wholly owned in-town retail portfolio was valued at £0.7 billion and the Company’s share of in-town retail properties held through joint ventures and investment funds was valued at £0.3 billion. The Company’s in-town retail portfolio consists of six shopping centres totalling 2.4 million square feet; 31 department stores totalling 4.8 million square feet; and 4 high street shops, located within major towns and cities in the United Kingdom.
The in-town retail portfolio is predominantly freehold. As at 31 December 2008, the Company’s share of total net annual rent passing is £70 million per year. The weighted average lease term including breaks was 21.2 years (to expiry 22.6 years) as at 31 December 2008.
(i) Shopping centres The Company’s in-town shopping centres are located within large catchment populations, well anchored and generally the dominant retail scheme in the area. They are of sufficient size to enable proactive asset management, including through the development of new income generating customer facilities and possible future development. Key tenants include Argos, Asda, Debenhams, Miss Selfridge, New Look, Next, Primark, River Island, Tesco, TKMaxx and Top Shop.
(A) Eastgate shopping centre, Basildon The Eastgate centre provides the prime retail offer for Basildon town centre comprising 700,000 square feet of retail space on two trading levels, 127,000 square feet of offices and a 2,000 space multi-storey car park. The centre is anchored by Asda and Debenhams.
A comprehensive refurbishment of the centre was completed in January 2008 to provide a contemporary shopping environment, including new and expanded customer facilities.
(B) Bon Accord-St Nicholas centre, Aberdeen Bon Accord-St Nicholas is held by the Scottish Retail Property Limited Partnership, a joint venture with Land Securities plc.
Anchored by John Lewis, the centre provides a key shopping area in Aberdeen, with over 80 retail units, leisure and office facilities. New Look have recently relocated within the
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shopping centre upsizing to a 55,000 square foot store, and a new 54,000 square foot store for Next is under construction with completion due in 2009. Lettings have also been conducted with Top Shop and River Island to replace the former Woolworths and Disney units in the Bon Accord Centre. The shopping centre has also let units to Oasis, Coast, Warehouse and Karen Millen.
(C) St. Stephen’s, Hull This recently developed scheme consists of a Tesco superstore of 150,000 square feet, a covered street providing approximately 310,000 square feet of retail accommodation in 33 units and kiosks, plus leisure uses totalling 100,000 square feet, including a seven-screen cinema. In addition, there is a 128-bedroom, three-star hotel and car parking for around 1,500 cars.
Key tenants include H&M, Zara, Next, River Island, New Look, Top Shop, Oasis and TKMaxx.
(ii) Department stores The Company invests in 31 department stores of which 19 are owned directly and 12 are owned within the BL Fraser joint venture.
Of those owned directly, 18 are subject to leaseback to Debenhams for a minimum of 25 years unexpired. In total, department stores leased to Debenhams comprise 2.7 million square feet in locations, including the flagship store in London’s Oxford Street (366,700 square feet); Market Street, Manchester (466,000 square feet) and St. David’s, Cardiff (140,000 square feet). As at 31 December 2008, the total net annual rent passing was £26 million. The leases provide for minimum 2.5 per cent. per annum rental increases and five-yearly open market reviews from 2019 onwards.
The 12 stores within the BL Fraser joint venture comprise a total of approximately 1.6 million square feet in locations including Cardiff, Guildford and Leeds. All are let on leases to House of Fraser with approximately 30.5 years unexpired. As at 31 December 2008, the Company’s share of aggregate rent passing of approximately £7 million per annum remains subject to open market review in 2009, when a minimum increase based on three per cent. per annum applies, and five- yearly reviews thereafter.
Separately but on similar lease terms, the Company owns the 510,000 square foot House of Fraser store in Corporation Street, Birmingham.
(iii) High Street shops The Company’s high street portfolio includes four high street shops located in prime high street positions throughout the United Kingdom.
4.2 Office portfolio As at 31 December 2008, the Company’s wholly owned office portfolio was valued at £3.9 billion and the Company’s share of office properties held through joint ventures and investment funds was valued at £8 million. The Company’s offices portfolio comprises properties located in London, with a concentration on prime assets in the City and West End of London and a particular emphasis on the Broadgate and Regent’s Place developments. ERV has declined 6.5 per cent. in the nine months to 31 December 2008 (declined 2.6 per cent. three months to 31 December 2008).
The Company’s customer focus is on providing the right accommodation to meet the requirements of London’s financial and business services sector. The Company builds on this by offering high-quality property management, from estate services through to development of new accommodation. The Company’s proactive asset management aims to tailor its offerings to customers’ changing needs.
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As at 31 December 2008, the Company’s office portfolio:
• included 4.4 million square feet in the City;
• included 1.4 million square feet in the West End;
• included investments over 92 per cent. occupied;
• a weighted average lease term of over 9.4 years to first break (11.6 years to expiry);
• was valued on the basis of a net equivalent yield of 7.0 per cent.;
• provided 15 per cent. reversionary income of which 78 per cent. is contracted through rent-frees and minimum uplifts);
• provided an average office contracted rent of £45.90 per square foot, against an average headline ERV of £46.50 per square foot; and
• included its investment in the Canary Wharf office estate through its shareholding in Songbird Estates plc.
As at 31 December 2008, more than 90 per cent. of the Company’s office vacancy space by unit related to new “Grade A” space.
The Company’s two largest office tenants are UBS and RBS, accounting for approximately 7 per cent. and 4 per cent., respectively, of the Company’s total rental income as at 31 December 2008.
The Company’s primary office development projects located at Broadgate and Regent’s Place are described below.
(a) Broadgate, London EC2 Broadgate is a prime City of London office estate, consisting of 16 office buildings, including the recently completed 201 Bishopsgate and The Broadgate Tower. With the completion of these buildings the estate has increased to 4.4 million square feet of Grade A office, retail and leisure accomodation. Approximately 30,000 employees of Broadgate’s tenants are based at Broadgate.
Excluding 175 Bishopsgate which was sold by the Company in May 2007, the Broadgate estate was valued at £2.5 billion as at 31 December 2008.
As at 31 December 2008, the passing rent at Broadgate was £159 million per year, with an average rent of £47.50 per square foot and a weighted average lease term (including breaks) of 9.4 years, to expiry 11.4 years.
The development of Broadgate has taken place in phases, with the most recent buildings, 201 Bishopsgate and The Broadgate Tower, being completed by the Company in March and August 2008, respectively. The office buildings, designed by leading architects, are all structurally independent, ranging in size from 81,000 square feet to 410,000 square feet and accommodate typical office floor plates ranging from 8,150 square feet to 56,000 square feet.
Broadgate has a wide range of retail outlets and public transport facilities. The estate is served by Liverpool Street Station, one of the City’s major transport interchanges, which provides mainline train services and four underground lines, as well as a bus station and taxi services.
Key tenants include ABN AMRO Holdings, Ambac, Ashurst, Bank of Scotland, Baring Investment Services, Calyon, Close Brothers, Deutsche Bank, F&C Management, Framlington Group, Henderson Administration, Herbert Smith, ICAP, KBW, Legg Mason, Mayer Brown International, Mitsubishi Securities, Norinchukin, RCM (UK) Ltd, Reed Smith Richards Butler, Royal Bank of Scotland, Sempra, Société Générale, Sumitomo Trust, Tullet Prebon, UBS and Western Asset Management.
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The following properties are wholly owned by the Company and comprise the Broadgate development.
(i) 1-3 Finsbury Avenue – 480,000 square feet This property is centred around the landscaped Finsbury Avenue Square and comprises of the UBS campus headquarters at Broadgate together with 1-2 Broadgate, 6 Broadgate and 100 Liverpool Street.
(ii) 1-3 Broadgate – 370,000 square feet Part of the UBS campus and ICAP’s London headquarters, this building accommodates state-of-the- art trading platforms and incorporates Broadgate Circle retail and leisure facilities. On 28 November 2008, the Company completed the surrender of the headlease interest previously held by Lehman Brothers Limited and consequently entered into direct contractual arrangements with the previous sub-tenants UBS, ICAP, KBW and Mike Corby Holdings who occupy substantially all of the space included within the Lehman Brothers Limited lease.
(iii) 4 Broadgate – 170,000 square feet This building served as Henderson’s headquarters until recently when Henderson relocated to 201 Bishopsgate. This relocation has unlocked the building’s potential for a redevelopment or extensive refurbishment as part of the Broadgate 2020 master planning exercise. Short-term lettings on part have been arranged with Bourne Financial and Broadgate Estates, pending a decision to proceed further with the building’s redevelopment.
(iv) 6 Broadgate – 263,000 square feet This property is located next to Broadgate Circle and is multi-let to include Mitsubishi and UBS. Approximately 60,000 square feet of office space on the ground and first floors are vacant following the surrender of the Lehman Brothers Limited lease.
(v) 100 Liverpool Street – 383,000 square feet This property is occupied by UBS and is located adjacent to Liverpool Street Station and the main entrance to Broadgate.
(vi) 135 Bishopsgate – 340,000 square feet This property is let to National Westminster Bank and comprises part of the RBS City campus headquarters with state-of-the-art dealing floors.
(vii) 155 Bishopsgate – 400,000 square feet This property is multi-let to a number of major financial institutions, including Bank of Scotland, Baring Asset Management, Framlington, Sempra, Sumitomo and Tullet Prebon.
(viii) 199 Bishopsgate – 146,000 square feet This property is let to ABN AMRO as part of their London headquarters with 11 floors fronting onto Bishopsgate.
(ix) Exchange House – 385,000 square feet This ten-storey building is multi-let to legal and financial institutions including Herbert Smith, Société Générale and F&C Asset Management.
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(x) Broadwalk House – 290,000 square feet This property is located at the northern entrance to the Broadgate estate and adjacent to the new 201 Bishopsgate and The Broadgate Tower. Principal occupiers include Ashurst and Calyon.
(xi) 1 Appold Street – 250,000 square feet This property is let to Deutsche Bank on seven floors, with a Holmes Place health club at basement level. The building has dual aspect onto Exchange Square and Appold Street.
(xii) 10 Exchange Square – 162,000 square feet This property was completed in 2004 and overlooks Exchange Square. It is multi-let to tenants including Herbert Smith, Close Brothers, Western Asset Management and Legg Mason.
(xiii) 201 Bishopsgate – 419,000 square feet This property reached practical completion in April 2008. As at 31 December 2008, the offices were let to tenants, Mayer Brown International, Henderson and Landesbank Baden-Württemberg and the Company had reached agreement to let 15,000 square feet to Alpari UK Ltd leaving 49,000 square feet of offices to let.
(xiv) The Broadgate Tower, London EC2 – 400,000 square feet The Broadgate Tower, a 35-storey tower designed by architects Skidmore Owings & Merrill, provides 400,000 square feet of office accommodation designed to meet the needs of both financial and professional tenants. The Broadgate Tower reached practical completion in August 2008.
The development has pre-let approximately 168,000 square feet to Reed Smith Richards Butler LLP as at 31 December 2008 and a further 24,000 square feet is under offer to Regus.
(b) Regent’s Place, London NW1 Valued at £581 million as at 31 December 2008, Regent’s Place is mainly freehold, 100 per cent. owned by the Company, and comprises one million square feet of office, retail and leisure accommodation in five buildings, with 4.9 acres for further development at Osnaburgh Street and the North-East Quadrant, on a 13-acre site in the West End of London.
Tenants include Abbey, Atos Origin, Balfour Beatty, British Telecom, Capital One, Elexon, General Medical Council, HM Government, Hachette Livre UK Limited, JP Morgan Chase Bank and Regus.
As at 31 December 2008, annual rent passing is £38 million per year, with an average rent £39.90 per square foot and a weighted average lease term including breaks of 10.0 years, to expiry 12.9 years.
Two further phases of development will double the size of the estate from one million square feet to two million square feet. The first phase, at Osnaburgh Street, is under construction to include two office buildings totalling 380,000 square feet, plus 151 residential units. Completion is expected during the third quarter of 2009. For further discussion, see paragraph 5.1(b) of Part IV of this document. The second phase, consisting of the development of the North East Quadrant, is currently considered a development prospect. For further discussion, see paragraph 5.2(a) of Part IV of this document.
The following properties are wholly owned by the Company and comprise the Regent’s Place development.
(i) Euston Tower At 36 storeys, this West End landmark building provides 330,000 square feet of offices let to HM Government on a recently restructured lease until 2022, with ground floor retail units.
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(ii) 2-3 Triton Square This major headquarters building of 200,000 square feet is let in its entirety to Abbey on leases to 2022.
(iii) 1, 4 & 7 Triton Square A six-storey building of 217,000 square feet providing a mix of office, retail and leisure space. The 185,600 square feet of offices are let to Atos Origin, JP Morgan and London & Capital on leases with expiries between 2017 and 2022 and some leases subject to break options in 2012.
(iv) 350 Euston Road This striking building contains 121,000 square feet of office space that are let to the General Medical Council, Elexon, Balfour Beatty, Capital One Bank and Networking People Limited for terms generally in excess of nine years unexpired.
(v) 338 Euston Road This 17-storey building provides 111,000 square feet of offices. The major tenant is Hachette Livre UK Limited, occupying 59,100 square feet on eight floors. The other tenants are Regus, Grant Thornton and British Telecom. The building has recently undergone a £12 million refurbishment of the entrance hall, lift lobbies, toilets and 20,000 square feet of offices, of which 12,700 square feet has been let at £60 per square foot as at 31 December 2008.
5. DEVELOPMENT PROGRAMME The Company’s development programme consists of committed projects where construction is underway and development prospects.
5.1 Committed Projects AI, 6.1.2 (a) Ropemaker, London EC2 Work is under way and progressing on schedule for this 586,000 square foot office development, situated on a prominent City, 1.2-acre site close to Moorgate and Liverpool Street. The 20-storey building, designed by Arup Associates for both professional and financial services occupiers, provides two trading floors of over 42,800 square feet at the lower level and a total of 556,000 square feet of new office accommodation.
Work is progressing on site and practical completion is scheduled for the summer of 2009.
As at 31 December 2008, the Company had placed all contracts for the Ropemaker development.
(b) Osnaburgh Street, Regent’s Place, London NW1 Construction has commenced and is progressing on schedule on three new buildings (Regent’s Place One & Two and One Osnaburgh Street) over a 2.5-acre site on the west side of Regent’s Place in the West End of London. The 490,000 square foot mixed-use development will comprise 380,000 square feet of offices and 110,000 square feet of residential accommodation. Designed by Terry Farrell and Partners, the development will significantly extend and enhance Regent’s Place, already a successful 13-acre West End office campus. The development will include a community theatre and additional retail provision around the new public square. Work is progressing on site with practical completion scheduled for the autumn of 2009.
As at 31 December 2008, the Company had placed contracts for approximately 94 per cent. of the Osnaburgh Street development and tendered a further 4 per cent.
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(c) Puerto Venecia, Zaragoza, Spain At Puerto Venecia, Zaragoza, Spain, the Company’s 2.2 million square foot retail scheme development (held through a 50:50 joint venture with a group of wealthy private individuals, as well as Copsica – one of Spain’s largest privately-owned construction companies) will provide one of the largest retail and leisure destinations in Europe. Infrastructure works are complete and development continues with completion of the retail park element (900,000 square feet) and the opening of the majority of the retail units having occurred during 2008. As at the end of 2008, sales to owner occupier retailers and signed leases for lettings were entered into in respect of approximately 88 per cent. of the retail park, with the latest lettings at rental levels among the highest achieved in Spain. Tenants include Leroy Merlin, Conforama, PC City, Porcelanosa, Menaje del Hogar and Casa, with Media Markt scheduled to open in April 2009.
The target opening date for the covered shopping and leisure centre (1,230,000 square feet), anchored principally by a 420,000 square foot El Corte Inglés, is the second half of 2010. Groundworks commenced in the third quarter of 2008 and above groundworks are due to commence imminently. The joint venture has signed a significant second anchor with Primark taking 67,000 square feet (their largest unit signing to date in Spain). Recently signed international tenants include Desigual, Converse, Esprit and Mango, with further lettings to be announced shortly.
5.2 Development Prospects (a) North East Quadrant, Regent’s Place, London NW1 At the Regent’s Place estate, the next phase of development will be the North East Quadrant. A resolution to grant planning consent was received in April 2008 for the North East Quadrant to provide a 501,000 square foot mixed-use scheme, comprising 379,000 feet of offices and 122,000 square feet of residential accommodation. The design incorporates three glass elements of eight, ten, and 16 storeys, with floor-to-ceiling glazed external cladding, linked by two atria. The office element has been designed by Wilkinson Eyre, with the apartments by Munkenbeck and Marshall. The development will complete the Regent’s Place Estate, and will double its size to approximately two million square feet of office, retail and residential accommodation, providing accommodation for 14,000 workers and residents.
(b) 4 Broadgate, London EC2 As part of its Broadgate 2020 master planning exercise, the Company has identified the opportunity to redevelop 4 Broadgate. As part of the letting of 201 Bishopsgate to Henderson Group plc, the Company has accepted a surrender of Henderson’s lease at 4 Broadgate to facilitate this future development. A planning application for a new building will be submitted in due course.
(c) The Leadenhall Building, London EC3 At Leadenhall, the demolition of the existing building has been completed in parallel with foundation piling as preparation for the construction of a new 47-storey City office tower designed by Rogers Stirk Harbour + Partners. British Land is currently reviewing the proposed building design and value engineering the project to reduce building costs, as well as assessing the delivery of offices into the market at a time of improved demand.
(d) Colmore Row, Birmingham Following the purchase of this site in 2007, a planning application was submitted in April 2008 for a landmark 35-storey tower to provide 284,000 square feet of office space in central Birmingham’s prime office location. Detailed planning consent for the Colmore Row development was secured in December 2008.
(e) Meadowhall additional land – The Lower Don Valley, Sheffield The Company continues to work with Sheffield City Council for the master planning of approximately 60 acres of land the Company owns adjacent to Meadowhall shopping centre in Sheffield. The proposed mixed-use development is set to transform the area situated around the Meadowhall Shopping Centre. The site is expected to provide approximately 2.2 million square feet of residential, office and mixed-use accommodation and will include a new riverside park. A resolution to grant outline planning permission
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was secured in December 2008 from Sheffield City Council. The Company intends to bring forward development on a phased basis.
The Company’s proposals for the area adjacent the Meadowhall shopping centre have attracted interest from potential commercial occupiers and are expected to boost the economic activity of the area.
(f) Euston Station The Company and Network Rail are working together to prepare a master plan for the proposed redevelopment of the area around and including Euston Station. The 15 acre site has potential for more than three million square feet of mixed-use development, including office, retail, residential and a new landmark station interchange, intended to realise the site’s commercial potential and assist with the on- going regeneration of the area. Allies and Morrison is the masterplan architect, with Foreign Office Architects working closely with Allies and Morrison on the integration of the station design within the masterplan. Proposals are being progressed with a view to submitting an outline planning application in 2010 or 2011.
(g) Canada Water At Canada Water, in joint venture with Canada Quays Limited, the Company has entered into a Development Agreement with the London Borough of Southwark for the development of a major mixed- use scheme, which includes master planning of 40 acres of the Rotherhithe Peninsula. Outline consent for the first phase, comprising 828 residential units, was secured in May 2007. A conditional sale of the first phase was agreed with Barratt Homes in December 2007. The sale of the first parcel completed in March 2008 and construction has commenced.
(h) Theale Working with Countryside Properties, the Company secured residential planning consent for 350 units at Theale in September 2007 following a planning inquiry.
(i) New Century Park, Coventry This site remains substantially let to Ericsson but has potential for 582,000 square feet of business space together with a further 12 acres of residential development land. Development will be brought forward on a phased basis. The site is held in a joint venture with Goodman Real Estate (UK) Limited.
6. PORTFOLIO VALUATION
6.1 Overview The Company’s wholly owned property portfolio has been valued by Knight Frank on the basis of CESR 128 “Market Value” in accordance with the Red Book, an internationally recognised basis defined as the CESR 130(i) estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.
The valuation reflects usual deductions in respect of purchaser’s costs and, in particular, full liability for UK stamp duty land tax as applicable at the valuation date.
The properties have been valued individually and not as part of a portfolio. CESR 130(v)
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The following table sets forth a break-down of Knight Frank’s valuation of the Company’s wholly owned properties as at 31 December 2008:
Long Part freehold/ Short Total Freehold leasehold part leasehold leasehold value (£ million) (£ million) (£ million) (£ million) (£ million) Held as investments/ owner-occupied ...... 6,850 275 – 3 7,128 Held for development . . . . 162 – – – 162 In the course of development ...... 359 – – – 359 –––––– –––––– –––––– –––––– –––––– Total value ...... 7,371 275 – 3 7,649 –––––– –––––– –––––– –––––– ––––––
Knight Frank’s valuation report of the Company’s wholly owned properties is included in Part IX of this document.
The properties held through investment funds and joint ventures in which the Company has an interest have been valued by Knight Frank and CBRE. The valuations for these indirectly held properties are expressed to have been prepared on the basis of “Market Value” in accordance with the Red Book. The valuation for the properties held through investment funds as at 31 December 2008 is set forth in paragraph 3.3(a) above. The valuation for the Company’s properties held through joint ventures as at 31 December 2008 is set forth in paragraph 3.3(b) above.
6.2 Company Portfolio Valuation Procedures and Assumptions The properties in the Company’s property portfolio were inspected during the last 12 months.
The valuations for the Company’s wholly owned and indirectly held properties are expressed to have been prepared in accordance with the Red Book.
The valuation of the Company’s wholly owned properties is included in Part IX of this document.
7. COMPETITION AI, 6.2 AI, 6.5 The Company competes in the investment and occupier sectors of the property market. The property market in the United Kingdom and particularly in London is considered developed and fragmented so that the Company does not compete directly with individual firms for tenants and purchasers. The Company also competes with other real estate developers and financial institutions in the well-developed market for access to financing.
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The following discussion and analysis should be read in conjunction with the Company’s financial statements described in Part VI below. In addition, the following discussion and analysis contains certain forward-looking statements that reflect the CESR 27 plans, estimates and beliefs of the Company. The actual results of the Company may differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this document, including under the heading “Risk Factors”.
1. BUSINESS PERFORMANCE AND OPERATING AND FINANCIAL REVIEW
1.1 Overview of Business The Company is a major UK property company, investing in prime, modern properties with a portfolio AI, 9.1 value of £10.2 billion as at 31 December 2008. The Company’s key business areas include corporate and AI, 9.2 retail property investment, third-party capital fund management and property development. CESR 32 The Company directly owns and manages the majority of its properties, with the balance held through investment funds and joint ventures. As at 31 December 2008, the Company’s property portfolio, including its share of properties held through investment funds and joint ventures, includes £6.0 billion in retail properties, £3.9 billion in office properties and £0.2 billion in other properties.
1.2 KEY FACTORS AFFECTING OPERATING AND FINANCIAL RESULTS
(a) Movements in Property Prices At each balance sheet date, the market value of the Company’s property portfolio is assessed by external CESR 28 independent valuers on an open-market basis. The valuation of investment and development properties is published and reflected in the Company’s balance sheet. The Company recognises the resulting upward or downward movement in the value of the Company’s wholly owned properties from the previous valuation date on its income statement under “net valuation movement”. Under “net valuation movement”, the Company also recognises profits and losses arising on the disposal of wholly owned properties. The profit or loss on a disposal is recognised as the difference between the sales proceeds and the carrying amount of the property at the commencement of the accounting period plus any additions during the period. Therefore, to the extent that a revaluation gain has been recognised with respect to a particular property, the recognised gain may reduce the profit on the eventual sale of that property. Property values are affected by a number of macroeconomic and sector-specific factors, including, among AI, 9.2.1 others, GDP growth rates, business and consumer confidence levels, demand for business products and AI, 6.3 services, levels of corporate profitability, government building and infrastructure initiatives, the general AI, 9.2.3 availability and cost of credit, and interest rates. In the current economic and financial crisis, values AI, 9.2.2 across all asset classes have been significantly impacted, including commercial real estate. As a result, this CESR 30 crisis has had a detrimental effect on the value of the Company’s portfolio valuation. The following table shows the amounts the Company recorded for its wholly owned properties under net valuation movements for the periods indicated:
For the nine months ended For the financial year ended 31 March 31 December 2006 2007 2008 2007(1) 2008(1) (£ millions) (£ millions) (£ millions) (£ millions) (£ millions) Revaluation of properties ...... 1,201 1,053 (1,588) (1,342) (2,356) Gains (losses) on property disposals ...... 165 115 26 32 (78) Other revaluations and gains...... 4 (1) – – (57) –––––––– –––––––– –––––––– –––––––– –––––––– Net valuation movement ...... 1,370 1,167 (1,562) (1,310) (2,491) –––––––– –––––––– –––––––– –––––––– –––––––– Note:
(1) Unaudited.
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The Company recognises net valuation movements, including profits and losses on disposals, on investment properties held through investment funds and joint ventures under “funds and joint ventures” in the Company’s income statement. The following table shows the amounts recorded for net valuation movements in investment funds and joint ventures for the periods indicated: For the nine months ended For the financial year ended 31 March 31 December 2006 2007 2008 2007(1) 2008(1) (£ millions) (£ millions) (£ millions) (£ millions) (£ millions) Net valuation movement (including profits and losses on disposals) ...... 378 257 (354) (288) (616) –––––––– –––––––– –––––––– –––––––– ––––––––
Note:
(1) Unaudited.
(b) Sales and Purchases of Investment Properties The Company’s sales and purchases of property may have a significant effect on its financial and CESR 29 operating results. The Company may engage in a number of property sales and purchases in a given financial period in connection with (i) its regular reviews of the prospects and expected performance of each asset in its portfolio in the context of current market conditions as part of its ongoing strategy of concentrating on markets, sectors and properties with positive medium-term supply/demand characteristics in order to capture trends in customer demand and rental growth and dispose of lower growth or riskier assets and (ii) its strategy of recycling capital within selected markets to refine the Company’s focus on assets with greater potential rental growth and opportunities to improve rental growth through asset management. In addition, the Company generally considers selling assets for which it can no longer significantly improve rental growth. As a result, the Company may, in certain circumstances, find it beneficial to sell a property at a loss compared to its last valuation notwithstanding that this may have a negative effect on its income statement.
(i) Sales The following tables give an overview of the Company’s most significant sales of properties for the periods indicated:
For the financial year ended 31 March 2006(1) Price British Land share Gain/(Loss)(2) (£ millions) (£ millions) (%) Offices: Plantation Place, EC3 ...... 527 527 20.2 City Point, EC2(3) ...... 520 187 8.3 1 Fleet Place, EC4 ...... 120 119 21.0 10 Fleet Place, EC4 ...... 109 109 15.6 Legal & General House, Kingswood ...... 74 74 30.4 2-16 Baker Street, W1...... 57 57 31.6 Microsoft Campus, Reading ...... 52 52 9.8 –––––––––– –––––––––– –––––––––– 1,459 1,126 18.3 Retail: ILAC Shopping Centre, Dublin ...... 85 85 25.0 Manchester Fort Shopping Park ...... 167 167 – (4) Banbury Cross Retail Park, Banbury(5) ...... 69 12 0.4 Greyhound Retail Park, Chester ...... 67 66 – Palace Grounds Retail Park, Hamilton(5) ...... 65 22 4.1 Solarton Retail Park, Farnborough ...... 48 48 – (4) Priory Retail Park, Merton ...... 43 43 6.8 Auldhouse Retail Park, Glasgow ...... 40 40 4.5 Matalan Unit, Romford ...... 12 3 10.8 Sixteen High Street retail units ...... 86 86 14.1 Six in-town supermarkets ...... 49 49 3.8 –––––––––– –––––––––– –––––––––– 731 622 6.0
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For the financial year ended 31 March 2006(1) Price British Land share Gain/(Loss)(2) (£ millions) (£ millions) (%) Industrial & Distribution: Daventry (Plots E1, E3, E4 and C1)(6)...... 83 42 19.0 1, 2 and 3 Heathrow Gateway, Feltham ...... 81 81 17.2 –––––––––– –––––––––– –––––––––– 164 123 36 Residential Portfolio...... 300 300 – Others ...... 44 35 – –––––––––– –––––––––– –––––––––– Total ...... 2,698 2,204 11.5 –––––––––– –––––––––– ––––––––––
Notes:
(1) Unaudited. (2) Sale price versus valuation as at 31 March 2005. (3) City of London Office Unit Trust (CLOUT). (4) Sale contracted by Pillar prior to British Land acquisition. (5) HUT – Banbury 50 per cent. owned. (6) International Rail Freight Terminal – BL Rosemound (joint venture).
For the financial year ended 31 March 2007(1) Price British Land share Gain/(Loss)(2) (£ millions) (£ millions) (%) Retail: Queensmere & Observatory Shopping Centres, Slough...... 200 200 (9.0) Gallions Reach Shopping Park, E6(3)...... 192 35 8.4 29 in-town retail units ...... 146 146 9.0 Weston Favell Shopping Centre, Northampton(4) . . . . 122 61 22.0 Nine retail warehouse parks ...... 112 75 9.2 Marsh Mills Retail Park, Plymouth(5) ...... 57 28 12.6 Four Homebase stores ...... 56 56 22.2 New Cross Gate, SE14, Sainsbury’s and retail units(6) ...... 48 48 20.5 Purley Way, Croydon, Units 1-3 ...... 44 44 12.5 Two B&Q warehouses, Stockton-on-Tees and Dagenham ...... 41 41 (1.1) Sainsbury’s, Hanley...... 21 21 (5.0) –––––––––– –––––––––– –––––––––– 1,039 755 5.2 Offices: Plumtree Court, EC4(7) ...... 120 43 18.8 133 Houndsditch, EC3 ...... 110 110 41.2 51 Eastcheap, EC3 ...... 55 55 7.1 2-12 and 20-21 Cornwall Terrace, NW1 ...... 50 50 59.8 Provincial offices...... 39 39 8.3 –––––––––– –––––––––– –––––––––– 374 297 27.7 Other ...... 60 50 82.3 –––––––––– –––––––––– –––––––––– Total ...... 1,473 1,102 12.7 –––––––––– –––––––––– ––––––––––
Notes:
(1) Unaudited. (2) Sale price versus valuation as at 31 March 2006. (3) HUT. (4) The Tesco British Land Property Partnership.
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(5) BLT Properties Ltd. (6) Completed April 2007. (7) City of London Office Unit Trust (CLOUT).
For the financial year ended 31 March 2008(1) Price British Land share Gain/(Loss)(2) (£ millions) (£ millions) (%) Retail: 50% share of 39 superstores portfolio(3)...... 595 595 (15.0) East Kilbride shopping centre(4) ...... 387 193 (2.8) Three UK retail parks and 14 retail warehouses. . . . . 307 263 (2.7) 50% share of Fort Kinnaird(5)...... 240 87 – 50% share of New Mersey shopping park(6)...... 209 76 5.3 16 High Street shops...... 151 151 0.1 Seven European retail parks(7)...... 132 40 14.8 41.25% share in Nueva Condomina, Murcia, Spain(8) ...... 105 32 – Three superstores ...... 87 87 (10.6) –––––––––– –––––––––– –––––––––– 2,213 1,524 (7.3) Offices: One Exchange Square, Broadgate, EC2 ...... 406 406 5.6 Blythe Valley Park, Phases I & II(9) ...... 161 161 4.0 Plantation Place South, EC3(10), (11) ...... 126 126 (10.7) Ludgate West, London EC4 ...... 112 112 15.2 95/99 Baker Street, W1...... 17 17 33.9 High Street, Nottingham...... 6 6 (12.7) –––––––––– –––––––––– –––––––––– 828 828 3.9 Others: Nine industrial properties ...... 140 140 (2.5) Great Eastern Hotel, EC2(12) ...... 16 16 24.0 12 other properties ...... 47 47 (1.1) –––––––––– –––––––––– –––––––––– 203 203 20.4 Total ...... 3,244 2,555 (3.4) –––––––––– –––––––––– ––––––––––
Notes:
(1) Unaudited.
(2) Sale price versus valuation as at 31 March 2007.
(3) New joint venture with J Sainsbury plc.
(4) Scottish Retail Property Limited Partnership – joint venture with Land Securities.
(5) HUT – joint venture with The Crown Estate.
(6) HUT – joint venture with Bank of Ireland Private Banking Limited.
(7) PREF.
(8) 50 per cent. of PREF’s holding.
(9) Including conditional deferred elements of the sale consideration; gain calculated on estimated present value.
(10) Subject to price deduction at completion to reflect unexpired rent fees and (for a limited period) remaining vacant space – gain calculated net.
(11) Completed after 31 March 2008.
(12) Sale of British Land’s 50 per cent. share to its former joint venture partner.
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For the nine months ended 31 December 2008(1) Price British Land share Gain/(Loss)(2) (£ millions) (£ millions) (%) Offices: Willis Building, Lime Street, EC3(3) ...... 400 400 (7.9) Portcullis House, Glasgow ...... 18 18 3.4 Two Moorfields, Liverpool ...... 11 11 (6.5) –––––––––– –––––––––– –––––––––– 429 429 (7.5) Retail: Peacocks, Working ...... 116 116 (1.4) Ten High Street Shops ...... 95 95 (2.0) Colne Valley Retail Park, Watford(4) ...... 45 16 (14.4) Two Supermarkets ...... 24 24 1.9 21 additional High Street Shops ...... 42 42 (26.3) Borehamwood Shopping Park, Herts(4) ...... 81 29 (26.4) Meadowbank Retail Park, Edinburgh...... 38 38 (25.7) –––––––––– –––––––––– –––––––––– 441 360 (10.9) –––––––––– –––––––––– –––––––––– Others ...... 20 19 (15.4) –––––––––– –––––––––– –––––––––– Total ...... 890 808 (9.3) –––––––––– –––––––––– ––––––––––
Notes:
(1) Unaudited. (2) Sale price versus valuation as at 31 March 2008. (3) Contract provides for top-up of rent-free period to minimum uplift (NPV £60 million); loss calculated net. (4) HUT.
(ii) Purchases The following tables give an overview of the Company’s purchases for the periods indicated:
For the financial year ended 31 March 2006(1) Price British Land share (£ millions) (£ millions) Pillar (wholly owned and share of funds) ...... 1,565.8 1,565.8 St. Stephen’s Shopping Centre, Hull(2)...... 135.0 135.0 Ropemaker Place, EC2 ...... 131.0 131.0 Four Retail Parks(3) ...... 96.8 33.5 Two Retail Parks in France ...... 50.4 17.2 Others ...... 166.9 150.2 –––––––––– –––––––––– Total ...... 2,145.9 2,032.7 –––––––––– –––––––––– Notes:
(1) Unaudited.
(2) Forward purchase.
(3) HUT.
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For the financial year ended 31 March 2007(1) Price British Land share (£ millions) (£ millions) Retail: UK 50% share of 21 Tesco superstores portfolio(2) ...... 325 325 50% share of BL Davidson portfolio...... 269 269 Nine B&Q warehouses(3) ...... 230 221 Centre Retail Park, Oldham...... 115 115 Hatters Way Retail Park Luton(4) ...... 39 14 Giltbrook Retail Park, Nottingham(5)...... 35 35 Two further retail parks: Dartford(6) and Hyde ...... 24 16 Worcester Road, Evesham(7)...... 20 5 Eight Somerfield supermarkets...... 20 20 Non-UK Europe Nueva Condomina, Murcia, Spain(8) ...... 237 118 Eight retail parks in Europe(9) ...... 200 63 50% share of Puerto Venecia, Zaragaoza(10) ...... 69 69 –––––––––– –––––––––– 1,583 1,270 Offices: 50% share of BL Davidson portfolio...... 96 96 Nine Cable & Wireless offices/network sites(11) ...... 88 88 Osnaburgh Street Estate, NW1(12) ...... 55 55 Colmore Row, Birmingham(12) ...... 25 25 –––––––––– –––––––––– 264 264 Others: Leisure, hotel and office ancillary investments ...... 47 36 14 TGIFriday restaurants(11)...... 44 44 –––––––––– –––––––––– 91 80 Total ...... 1,938 1,614 –––––––––– –––––––––– Notes:
(1) Unaudited.
(2) £650 million portfolio acquisition in new limited partnership, March 2007.
(3) Includes seven acquired in portfolio, one in HIF.
(4) HUT (completed May 2007).
(5) Existing park and new development project.
(6) Dartford acquired by HUT.
(7) HIF – forward purchase of retail development.
(8) Joint arrangement BL/PREF, exchanged contracts with completion due summer 2007.
(9) PREF – three parks in Portugal, two in Spain, two in Switzerland, one in Belgium and Italy.
(10) Purchase of 50 per cent. from and joint venture development agreement with Copcisa Corp (a Spanish construction company) and private investors.
(11) Completed April 2007.
(12) For development.
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For the financial year ended 31 March 2008(1) Price British Land share (£ millions) (£ millions) Nueva Condomania, Murcia, Spain(2) (3) ...... 237 118 50 share of Gallagher and The Shires retail parks(4)...... 100 36 50% share of Whitley Village factory outlet centre(5) ...... 55 28 Queens Retail Park, Stafford(6)...... 40 15 2 European and UK retail park ...... 39 13 Vista Alegre Retail Park, Zamora, Spain(7) ...... 19 6 Others ...... 8 8 –––––––––– –––––––––– Total ...... 498 224 –––––––––– –––––––––– Notes:
(1) Unaudited. (2) Jointly with PREF. PREF subsequently sold 41.25 per cent. to HERALD. See sales table for the financial year ended 31 March 2007 above under paragraph 1.2(b)(i). (3) Exchange of contracts previously reported in the purchases table above for the financial year ended 31 March 2007. (4) HUT – joint venture with The Crown Estate. See also sale to joint venture of HUT interest in Fort Kinnaird in sales table for the financial year ended 31 March 2008 above under paragraph 1.2(b)(i). (5) Joint venture with Universities Superannuation Scheme. (6) HUT. (7) PREF.
No purchases were contracted for in the nine months ended 31 December 2008.
(c) Conversion to REIT status CESR 30 The Company converted to REIT status effective 1 January 2007. This conversion enables the qualifying UK property rental activities to operate largely on a tax exempt basis both in relation to rental income and gains on disposals of properties.
The Company’s non-UK assets, its interest and fee income, certain UK properties and its disposals of investments continue to be subject to taxation at the corporate level.
The conversion to REIT status resulted in the release of £1.5 billion in deferred taxation in the year ended 31 March 2007 representing the amount of tax provided on valuation surpluses (previously not exempt from tax on disposal). Expenses relating to the conversion to REIT status and associated expenses amounted to £338 million for the year ended 31 March 2007 representing a conversion charge of two per cent. of the assets for which the REIT election was made. The REIT conversion charge was payable in July 2007.
The REIT conversion has enabled the Company to simplify its structure and to reduce its fees and expenses for tax, legal and regulatory compliance matters, which has been reflected in a reduction of the Company’s administrative expenses.
For additional information about the effects of REIT status on the Company’s operations, see “Risk AI, 9.2.3 Factors – Risks related to Tax and Regulation – The Company faces certain risks relating to its REIT status, including changes to tax legislation, which may affect the Company and impose potential limits on the Company’s flexibility in implementing its strategy”.
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1.3 Results of operations (a) Explanation of certain income statement line items
(i) Gross rental and related income CESR 31 Gross rental income includes rent receivable, spreading of tenant incentives and guaranteed rent increases and surrender premiums. Related income includes service charge income.
(ii) Net rental and related income Net rental and related income is gross rental and related income less service charge expenses and property operating expenses. Service charge expenses include primarily costs related to common areas and other costs incurred in running properties that are not recoverable from tenants. Property operating costs include primarily ground rents, void costs and letting and rent-review fees.
(iii) Fees and other income Fees and other income includes primarily performance and management fees from investment funds and joint ventures for which the Company acts as the fund manager or the property manager. Performance fees are based on the actual performance of a given fund measured against specific benchmarks, while management or advisory fees are based on the value of the assets under management. In addition, fees and other income include dividends from Songbird Estates plc and capital dividends following the capital restructuring of Songbird Estates plc. The Company owns 17.8 per cent. of the share capital of Songbird Estates plc, which in turn owns 60.8 per cent. of Canary Wharf Group plc, providing the Company with a 10.8 per cent. effective economic interest in Canary Wharf Group plc. Dividends payable by Songbird Estates plc are by their nature variable in amount and timing.
(iv) Amortisation of intangible assets Intangible assets are comprised entirely of fund management contracts acquired through business combinations, which are amortised on a straight-line basis and subject to regular impairment reviews.
(v) Funds and joint ventures Funds and joint ventures includes the Company’s share of the profits or losses after tax of investment funds and joint ventures in which the Company has an interest. These profits or losses primarily relate to revaluation movements on investment properties. For details on the results of certain of the Company’s interests in investment funds and joint ventures, see Note 12 to the Consolidated Financial Statements for the Year Ended 31 March 2008 and Note 11 to Consolidated Financial Statements for the Year Ended 31 March 2007, which are incorporated by reference into this document. For information on revaluation movements, see paragraph 1.2(a) above.
(vi) Administrative expenses Administrative expenses include primarily staff costs (including social security costs, pension costs and equity share-based payments) and other general corporate overhead fees and expenses. Administrative expenses also include expenses related to the Company’s conversion to a REIT effective 1 January 2007.
(vii) Net valuation movement This line item is described above in paragraph 1.2(a).
(viii) Goodwill impairment Goodwill impairment charges arise from annual impairment reviews of goodwill that has arisen primarily through the recognition of deferred tax on the acquisition of subsidiaries that are consolidated in the Company’s financial statements.
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(ix) Net financing costs Net financing costs include interest payable on financial obligations, interest receivable on deposits and securities, refinancing charges and other finance income and costs, including expected return on pension scheme assets, interest on pension scheme liabilities, hedging reserve recycling and valuation movements on fair-value debt, fair-value hedges and translation of foreign currency debt.
(x) Taxation Taxation includes current taxes, including UK corporation tax on non-REIT activities, foreign taxes and adjustment in relation of prior periods, as well as other taxes, including REIT conversion charges and deferred tax on income and revaluations. Changes in the Company’s net valuation movement can affect the Company’s tax credits. For example, if the Company experiences an increase in its net valuation deficit, then its tax credits may increase.
(b) Results of operations for the nine months ended 31 December 2007 and 2008 AI, 20.4.1 The following table sets forth the Company’s consolidated income statement that has been extracted AI, 9.1 from the unaudited interim condensed consolidated financial statements for the nine months ended AI, 20.4.3 31 December 2007 and 2008:
For the nine months ended 31 December 2007(1) 2008(1) Underlying Capital Underlying Capital pre-tax(2) and other Total pre-tax(2) and other Total (£ millions) (£ millions) (£ millions) (£ millions) (£ millions) (£ millions) Gross rental and related income . . 486 – 486 420 – 420 Net rental and related income . . . . 425 – 425 366 – 366 Fees and other income ...... 36 30 66 13 – 13 Amortisation of intangible asset . . . – (8) (8) – (11) (11) Funds and joint ventures ...... 27 (288) (261) 38 (605) (567) Administrative expenses ...... (54) – (54) (45) – (45) Net valuation movement(3) ...... – (1,310) (1,310) – (2,491) (2,491) Net financing costs – financing income ...... 23 – 23 19 – 19 – financing charges ...... (242) – (242) (184) (41) (225) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– (219) – (219) (165) (41) (206) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– (Loss) profit on ordinary activities before taxation ...... 215 (1,576) (1,361) 207 (3,148) (2,941) Taxation – current tax income...... (1) (1) (1) (1) – deferred tax income ...... 42 42 43 43 –––––––– –––––––– –––––––– –––––––– 41 41 42 42 –––––––– –––––––– –––––––– –––––––– (Loss) profit for the period after taxation attributable to shareholders of the Company ...... (1,320) (2,899) –––––––– –––––––– Notes:
(1) Unaudited.
(2) Underlying earnings consists of EPRA earnings measures, with additional adjustments. See the paragraph “Non-GAAP financial measures” in the “Important Information” section of this document.
(3) Includes profits and losses on disposals.
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(i) Gross rental and related income The Company’s gross rental and related income decreased £66 million, from £486 million for the nine months ended 31 December 2007 to £420 million for the nine months ended 31 December 2008.
This decrease was primarily due to a £87 million decrease in rent receivable resulting from net disposals of properties, which was partially offset by an increase in rent receivable arising from rent reviews and new lettings of properties and investments that remained in the Company’s property portfolio. On a like-for-like basis, gross rental income increased 3.8 per cent. in the nine months ended 31 December 2008 compared to the nine months ended 31 December 2007, primarily due to new lettings and rent reviews. In the retail sector, like-for-like rents increased 3.5 per cent., including 5.6 per cent. for retail warehouses, 2.3 per cent. for shopping centres and 1.5 per cent. for superstores. In the offices sector, like-for-like rents increased 4.4 per cent., including 3.4 per cent. in the City and 9.4 per cent. in the West End.
(ii) Net rental and related income The Company’s net rental and related income decreased £59 million, from £425 million for the nine months ended 31 December 2007 to £366 million for the nine months ended 31 December 2008.
This decrease was primarily due to a £66 million decrease in gross rental and related income (as discussed above), which was partially offset by a £6 million decrease in property operating expenses. The decrease in property operating expenses resulted from the disposal of properties with comparatively higher non-recoverable expenses and the implementation of more stringent revenue cost control measures.
(iii) Fees and other income The Company’s fees and other income decreased £53 million, from £66 million for the nine months ended 31 December 2007 to £13 million for the nine months ended 31 December 2008, largely due to lower valuations of properties held through investment funds.
The following table shows the breakdown of fees and other income for the nine months ended 31 December 2007 and 2008:
For the nine months ended 31 December 2007(1) 2008(1) (£ millions) (£ millions) Dividends from Songbird Estates plc...... 16 – Performance fees ...... 8 3 Management fees ...... 8 7 Other...... 4 3 –––––––– –––––––– Underlying other income ...... 36 13 Capital dividends from Songbird Estates plc ...... 30 – –––––––– –––––––– Total other income ...... 66 13 –––––––– –––––––– Note:
(1) Unaudited.
(iv) Amortisation of intangible assets The Company’s amortisation of intangible assets increased £3 million, from £8 million for the nine months ended 31 December 2007 to £11 million for the nine months ended 31 December 2008.
This increase arose primarily as a result of an impairment review and a change in the phasing of amortisation.
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(v) Funds and joint ventures The Company’s share of losses from funds and joint ventures increased £306 million, from a loss of £261 million for the nine months ended 31 December 2007 to a loss of £567 million for the nine months ended 31 December 2008.
This increase was primarily due to a £616 million net valuation decrease movement as a result of a reduction in the market value of the Company’s properties and investments held through investment funds and joint ventures.
(vi) Administrative expenses The Company’s administrative expenses decreased £9 million, from £54 million for the nine months ended 31 December 2007 to £45 million for the nine months ended 31 December 2008.
This decrease was primarily due to a reduction in share option incentives resulting largely from the impact of the reduction in the market value of the Company’s properties and investments on satisfaction of performance conditions for share plans for the nine months ended 31 December 2008 (compared to £288 million for the nine months ended 31 December 2007).
(vii) Net valuation movement The Company’s net valuation movement (which includes profits and losses on disposals) was a decrease of £1,310 million for the nine months ended 31 December 2007 and a decrease of £2,491 million for the nine months ended 31 December 2008.
The net valuation movements were primarily due to a reduction in the market value of the Company’s properties. The £1,310 million net valuation decrease in the nine months ended 31 December 2007 was composed of a loss of £1,342 million from the revaluation of properties, partially offset by a gain of £32 million from property disposals. The £2,491 million net valuation decrease in the nine months ended 31 December 2008 was composed of a loss of £2,356 million from the revaluation of properties and a loss of £78 million from property disposals.
(viii) Net financing costs The Company’s net financing costs decreased £13 million, from £219 million for the nine months ended 31 December 2007 to £206 million for the nine months ended 31 December 2008.
This decrease was primarily due to the repayment of outstanding debt with the proceeds from disposals of properties, partially offsetting a charge for derivative close-out costs in the nine months ended 31 December 2008 where £41 million previously charged to reserves was recorded in the income statement.
(ix) Taxation The Company’s deferred tax credit increased £1 million, from £42 million for the nine months ended 31 December 2007 to £43 million for the nine months ended 31 December 2008.
The tax charge reflects the impact of current and deferred tax on the Company’s non-REIT qualifying activities. The credits arise as the declining valuation of non qualifying assets results in releases of deferred tax. The £1 million increase reflects the difference between these credits net of tax on non-qualifying activities.
(x) Loss for the period after taxation attributable to shareholders of the Company The Company’s loss for the period increased £1,579 million, from £1,320 million for the nine months ended 31 December 2007 to £2,899 million for the nine months ended 31 December 2008.
This increase was primarily due to the increase in net valuation and disposals loss and the increase AI, 9.2.2 in the Company’s share of losses from funds and joint ventures as a result of a reduction in the market value of the Company’s properties and investments.
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(c) Results of operations for the financial years ended 31 March 2006, 2007 and 2008 AI, 20.4.1 The following table sets forth the Company’s consolidated income statements that have been extracted AI, 9.1 from the audited financial statements for the financial years ended 31 March 2006, 2007 and 2008:
For the financial year ended 31 March 2006(1) 2007 2008 Capital Capital Capital Underlying and Underlying and Underlying and pre-tax(2) other Total pre-tax(2) other Total pre-tax(2) other Total (£ millions) (£ millions)(£ millions) (£ millions) (£ millions) (£ millions) (£ millions) (£ millions) (£ millions) Gross rental and related income . . . . . 690 – 690 649 – 649 645 – 645 Net rental and related income . . . . . 589 – 589 561 – 561 561 – 561 Fees and other income ...... 50 – 50 50 33 83 40 30 70 Amortisation of intangible asset . . . . . – (10) (10) – (15) (15) – (15) (15) Funds and joint ventures ...... 39 272 311 37 422 459 40 (346) (306) Administrative expenses ...... (81) – (81) (78) (13) (91) (67) – (67) Net valuation movement(3) ...... – 1,370 1,370 – 1,167 1,167 – (1,562) (1,562) Goodwill impairment ...... – (240) (240) – (106) (106) – – – Net financing costs – financing income . . 50 – 50 41 – 41 26 – 26 – financing charges . . (419) – (419) (354) – (354) (316) – (316) – refinancing charges ...... – (122) (122) – (305) (305) – – – –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– (369) (122) (491) (313) (305) (618) (290) – (290) –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– (Loss) profit on ordinary activities before taxation . . . . 228 1,270 1,498 257 1,183 1,440 284 (1,893) (1,609) –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– Taxation – REIT conversion charge ...... (277) – current tax income . (7) 1 – deferred tax income ...... (307) 1,289 46 –––––– –––––– –––––– (314) 1,013 46 –––––– –––––– –––––– (Loss) profit for the year after taxation attributable to shareholders of the Company ...... 1,184 2,453 (1,563) –––––– –––––– –––––– Notes:
(1) Restated as described in footnote 1 to the Group’s audited financial statements for the year ended 31 March 2007, which are incorporated by reference into this document.
(2) Underlying earnings is a non-GAAP measure that consists of EPRA earnings measures, with additional adjustments. See the paragraph “Non-GAAP financial measures” in the “Important Information” section of this document.
(3) Includes profits and losses on disposals.
103 Part V: Operating and Financial Review
(i) Gross rental and related income The Company’s gross rental and related income was £690 million, £649 million and £645 million for the years ended 31 March 2006, 2007 and 2008, respectively.
These decreases were primarily due to decreases in rents receivable resulting from net disposals of properties, partially offset by increases in rent receivable arising from rent reviews and new lettings of properties that remained in the Company’s property portfolio.
(ii) Net rental and related income The Company’s net rental and related income was £589 million, £561 million and £561 million for the years ended 31 March 2006, 2007 and 2008, respectively.
The decrease from the year ended 31 March 2006 to the years ended 31 March 2007 and 2008 was primarily due to reduced gross rental income resulting from sales of properties (as described above), which was partially offset by decreases in property operating expenses. The decrease in property operating expenses primarily resulted from the disposal of properties with comparatively higher non-recoverable expenses and the implementation of more stringent revenue cost control measures.
(iii) Fees and other income The Company’s fees and other income was £50 million, £83 million and £70 million for the years ended 31 March 2006, 2007 and 2008, respectively.
The following table shows the breakdown of fees and other income for the financial years ended 31 March 2006, 2007 and 2008:
For the financial year ended 31 March 2006 2007 2008 (£ millions) (£ millions) (£ millions) Performance fees ...... 20 17 9 Management fees ...... 9 13 12 Dividends from Songbird Estates plc ...... 16 18 16 Other ...... 5 2 3 –––––––– –––––––– –––––––– Underlying other income ...... 50 50 40 Capital dividends from Songbird Estates plc ...... – 33 30 –––––––– –––––––– –––––––– Total fees and other income ...... 50 83 70 –––––––– –––––––– ––––––––
(iv) Amortisation of intangible assets The Company’s amortisation of intangible assets was £10 million, £15 million and £15 million for the years ended 31 March 2006, 2007 and 2008, respectively.
The increase in amortisation of intangible assets from the year ended 31 March 2006 to the years ended 31 March 2007 and 2008 was due to the acquisition of a fund management contract in connection with the acquisition of Pillar Property PLC (including HUT and PREF) in July 2005.
(v) Funds and joint ventures The Company’s share of results from funds and joint ventures was a profit of £311 million for the year ended 31 March 2006 and £459 million for the year ended 31 March 2007 and a loss of £306 million for the year ended 31 March 2008.
The movements in the years ended 31 March 2006 and 2007 were primarily due to the effects of the conversion to REIT status, as funds and joint ventures includes the Company’s share of the profits or losses after tax of investment funds and joint ventures in which the Company has an
104 Part V: Operating and Financial Review
interest. A £48 million REIT conversion charge paid in respect of the year ended 31 March 2007 in combination with the conversion to REIT status resulted in the release of £237 million of deferred tax, as compared to a £97 million deferred tax charge being accrued in the year ended 31 March 2006. The REIT-conversion effect was partially offset by a £121 million decrease in net valuation gains.
The movements in the years ended 31 March 2008 and 2007 were primarily due to the REIT tax credits recognized in the year ended 31 March 2007 (as discussed above) as well as a £354 million net valuation decrease in the year ended 31 March 2008 compared to a £257 million net valuation increase in the year ended 31 March 2007.
(vi) Administrative expenses The Company’s administrative expenses were £81 million, £91 million and £67 million for the years ended 31 March 2006, 2007 and 2008, respectively.
The increase in the year ended 31 March 2007 compared to the year ended 31 March 2006 was primarily due to the expenses incurred by the Company in connection with its conversion to REIT status. The decrease in the year ended 31 March 2008 compared to the year ended 31 March 2007 was primarily due to the expenses incurred in the year ended 31 March 2007 by the Company in connection with its conversion to REIT status, which did not reoccur in the year ended 31 March 2008, and a reduction in overhead expenses largely due to the simplified administrative structure as a result of the Company’s conversion to REIT status.
(vii) Net valuation movement The Company’s net valuation movement (which includes profits and losses on disposals) was an increase of £1,370 million in the year ended 31 March 2006 and £1,167 million in the year ended 31 March 2007 and a decrease of £1,562 million in the year ended 31 March 2008.
The changes in net valuation movements in the years ended 31 March 2006, 2007 and 2008 reflect changes in the market value of the Company’s property portfolio. The £1,370 million net valuation increase in the year ended 31 March 2006 was primarily composed of a gain of £1,201 million from the revaluation of properties and a gain of £165 million from property disposals. The £1,167 million net valuation increase in the year ended 31 March 2007 was primarily composed of a gain of £1,053 million from the revaluation of properties and a gain of £115 million from property disposals. The £1,562 million net valuation decrease in the year ended 31 March 2008 was composed of a loss of £1,588 million from the revaluation of properties partially offset by a gain of £26 million from property disposals.
(viii) Goodwill impairment The Company’s goodwill impairment was £240 million and £106 million for the years ended 31 March 2006 and 2007, respectively.
The Company’s goodwill impairments were primarily due to the expensing of goodwill, which had arisen through the recognition of deferred tax on acquisition of subsidiary companies, as a result of the Company’s conversion to REIT status.
(ix) Net financing costs The Company’s net financing costs were £491 million, £618 million and £290 million for the years ended 31 March 2006, 2007 and 2008, respectively.
The increase in the year ended 31 March 2007 compared to the year ended 31 March 2006 was primarily due to expenses relating to the refinancing of the Meadowhall shopping centre securitisations and of the Debentures, which were partially offset by reduced interest costs resulting from the repayment of debt on property that was sold in the current and the prior periods, lower
105 Part V: Operating and Financial Review
interest rates achieved as a result of the refinancings of the securitisation discussed above and higher coupon debentures that had been refinanced.
The decrease in the year ended 31 March 2008 compared to the year ended 31 March 2007 was primarily due to the charges for the refinancings in the prior period and repayment of outstanding debt with the proceeds from disposals of the Company’s properties.
(x) Taxation The Company’s net taxation was a charge of £314 million and credits of £1,013 million and £46 million for the years ended 31 March 2006, 2007 and 2008, respectively.
The change in the year ended 31 March 2007 compared to the year ended 31 March 2006 was primarily due to the Company’s conversion to REIT status, which resulted in the release of £1.3 billion in deferred taxation representing the amount of tax provided on valuation surpluses (which previously were not exempt from tax on disposal). The tax credit in the year ended 31 March 2008 was primarily due the increase in the net valuation deficit attributable to the Company’s non-UK European assets and other investments, which do not benefit from REIT tax status.
(xi) (Loss) profit for the year after taxation attributable to shareholders of the Company As a result of the factors described above, the Company’s (loss) profit for the year was a profit of £1,184 million and £2,453 million and a loss of £1,563 million for the years ended 31 March 2006, 2007 and 2008, respectively.
These changes were primarily due to changes in the net valuation of the Company’s properties and investments and the Company’s conversion to REIT status, which became effective on 1 January 2007.
2. CAPITALISATION AND INDEBTEDNESS AIII, 3.2
The tables below set out the Company’s total equity attributable to shareholders and its net indebtedness as CESR 127 at 31 December 2008. The information in these tables have been extracted without material adjustment from, AI, 20.4.3 and should be read together with, the Company’s unaudited interim condensed consolidated financial statements as at and for the nine-month period ended 31 December 2008, which are incorporated by reference in this document.
As at 31 December 2008(1) (£ millions) Equity Share capital – authorised ...... 200 –––––––– Share capital – issued, called up and fully paid ...... 131 Share premium ...... 1,271 Other reserves ...... (248) Retained earnings ...... 2,238 –––––––– Total equity attributable to shareholders of the Company(2) ...... 3,392 –––––––– Indebtedness Securitizations ...... 2,834 Debentures ...... 1,169 Bank loans and overdrafts ...... 677 Other bonds and loan notes ...... 464 –––––––– Gross indebtedness ...... 5,144 Interest rate and currency derivative liabilities ...... 214 Interest rate and currency derivative assets ...... (16) –––––––– 5,342 Cash and short-term deposits ...... (475) –––––––– Net indebtedness(4) ...... (4,867) ––––––––
106 Part V: Operating and Financial Review
Notes:
(1) Unaudited. (2) There has been no material change in the capitalisation of the Company from 31 December 2008 to 11 February 2009 (being the latest practicable date prior to the publication of this document) save for a £46 million charge to net assets incurred in connection with disposal of 50 per cent. of the Meadowhall shopping centre pursuant to the formation of the new Joint Venture as described in paragraph 2 of Part VI. (3) Includes primarily obligations under finance leases. (4) There has been no material change in the net indebtedness of the Company from 31 December 2008 to 9 February 2009 (being the latest practicable date prior to the publication of this document).
For information on the Company’s off-balance sheet financial liabilities, see paragraph 5 below.
3. CAPITAL RESOURCES AND LIQUIDITY MANAGEMENT AI, 10.1 CESR 33-37 As at 31 December 2008, the Company had £3.1 billion of committed credit facilities (of which £2.4 million were undrawn), along with £475 million of cash and short-term deposits. As at 9 February 2009 (being the AI, 10.5 latest practicable date prior to the publication of this document), the Company had £3.1 billion of committed credit facilities (of which £2.4 billion were undrawn).
The Company’s cash management policy is to keep its cash balance within a targeted range. Therefore, to the extent that the Company has cash in excess of its targeted range and its short-term needs as a result, for example, of proceeds received from the sale of property or other assets, it uses the cash to pay down its outstanding borrowings.
3.1 Cash Flow Analysis AI, 10.2 The following table sets forth the Company’s consolidated cash flow and for the financial years ended CESR 34 31 March 2006, 2007 and 2008 for the nine months ended 31 December 2007 and 2008:
For the nine months ended 31 December For the financial year ended 31 March 2007(1) 2008(1) 2006 2007 2008 (£ millions) (£ millions) (£ millions) (£ millions) (£ millions) Net cash inflow from operating activities(1) ...... 138 186 104 219 182 Net cash inflow (outflow) from investing activities(2) ...... 458 349 986 (54) 857 Net cash outflow from financing activities ...... (460) (302) (1,109) (102) (991) –––––––– –––––––– –––––––– –––––––– –––––––– Net increase (decrease) in cash and cash equivalents ...... 136 233 (19) 63 48 –––––––– –––––––– –––––––– –––––––– –––––––– Cash and cash equivalents at the end of period/year ...... 327 472 128 191 239 –––––––– –––––––– –––––––– –––––––– –––––––– Notes:
(1) Unaudited.
(2) Beginning for accounting periods ending on or after 1 April 2006, the Company changed its presentation of its net cash inflows from operating activities to the direct method from the indirect method. As a result of this change, VAT and indirect taxes were reclassified from operating activities to investing activities. The data in the table for the financial year ended 31 March 2006 has been restated under the direct method.
(a) For the nine months ended 31 December 2007 and 2008 (i) Net cash inflow from operating activities The Company’s net cash inflow from operating activities increased by £48 million, from £138 million for the nine months ended 31 December 2007 to £186 million for the nine months ended 31 December 2008.
107 Part V: Operating and Financial Review
This increase was primarily due to lower net interest expenses due to higher interest income earned on the net proceeds from property disposals and corporate tax received, partially offset by a decrease in fees and distributions received. In addition, interest paid for the nine months ended 31 December 2007 included interest payments that were due and recognised on Saturday, 31 March 2007, but paid on the next business day, Monday, 2 April 2007.
(ii) Net cash inflow (outflow) from investing activities The Company’s net cash inflow from investing activities decreased by £109 million, from £458 million for the nine months ended 31 December 2007 to £349 million for the nine months ended 31 December 2008.
This decrease was primarily due to a decrease in the amount of net disposal proceeds received and of capital distributions from investment funds, joint ventures and Songbird Estates plc.
(iii) Net cash outflow from financing activities The Company had a net cash outflow from financing activities of £460 million for the nine months ended 31 December 2007. This net cash outflow was primarily composed of a cash outflow of £196 million from the net repayment of debt and other financial liabilities, a cash outflow of £151 million from the repurchase of own shares and a cash outflow of £117 million from the payment of dividends.
The Company had a net cash outflow from financing activities of £302 million for the nine months ended 31 December 2008. This net cash outflow was primarily composed of a cash outflow of £168 million from the net repayment of debt and other financial liabilities and a cash outflow of £136 million from the payment of dividends.
(b) For the financial years ended 31 March 2006, 2007 and 2008 (i) Net cash inflow from operating activities The Company’s net cash inflow from operating activities decreased by £37 million, from £219 million for the year ended 31 March 2007 to £182 million for the year ended 31 March 2008.
This decrease was primarily the result of interest payments that were due and recognised on Saturday, 31 March 2007, being paid on the next business day, Monday, 2 April 2007, which was in the subsequent financial year.
The Company’s net cash inflow from operating activities increased by £115 million, from £104 million for the year ended 31 March 2006 to £219 million for the year ended 31 March 2007.
This increase was primarily due to the first full-year consolidation of Pillar Property plc, which the Company acquired in July 2005; a decrease in interest expenses as a result of a reduction in the Company’s weighted-average interest rate from 5.7 per cent. to 5.3 per cent. following its refinancing efforts; and, as discussed above, the payment of interest payments due and recognised on 31 March 2007 in the subsequent financial year.
(ii) Net cash inflow (outflow) from investing activities The Company had a £857 million net cash inflow from investing activities for the year ended 31 March 2008. This net cash inflow was primarily due to a net cash inflow of £1,343 million from sales and purchases of properties and other investments, a cash outflow of £291 million from the payment of the REIT conversion charge, a cash outflow of £523 million from development and other capital expenditure and a cash inflow of £272 million from the establishment of the BL Sainsbury joint venture.
The Company had a £54 million net cash outflow from investing activities for the year ended 31 March 2007. This net cash outflow was primarily due to a net cash inflow of £404 million from
108 Part V: Operating and Financial Review
the sale and purchase of properties and other investments, a cash outflow of £346 million from development and other capital expenditure, a cash outflow of £203 million from investments in and loans to investment funds and joint ventures and a cash inflow of £113 million from capital distributions from investment funds, joint ventures and Songbird Estates plc.
The Company had a £986 million net cash inflow from investing activities in the year ended 31 March 2006. This net cash inflow was primarily due to a net cash inflow of £1,484 million from the sale and purchase of properties and other investments, a cash outflow of £815 million from the purchase of subsidiary companies (net of cash acquired) and a cash inflow of £277 million from capital distributions received from investment funds, joint ventures and other investments.
(iii) Net cash outflow from financing activities The Company’s net cash outflow from financing activities increased by £889 million, from £102 million for the year ended 31 March 2007 to £991 million for the year ended 31 March 2008.
The cash outflow for both years resulted primarily from the repayment of outstanding debt using proceeds from disposals of properties (net of significant capital expenditure and the REIT conversion charges).
The Company’s net cash outflow from financing activities decreased by £1,007 million, from £1,109 million for the year ended 31 March 2006 to £102 million for the year ended 31 March 2007.
This decrease was primarily due to cash proceeds received from debt financings of property and investment acquisitions.
3.2 Principal On-Balance Sheet Debt Instruments AIII, 3.2 The financing structure of the Company’s operations utilises secured and unsecured debt sources with a AI, 10.3, variety of maturities. The following table gives an overview of the maturity profile of the Company’s AI, 10.4 existing on-balance sheet debt obligations: CESR 33
As at 31 December 2008(1) (£ millions) Repayable within 1 year and on demand ...... 123 –––––––– Repayable between: 1 and 2 years ...... 144 2 and 5 years ...... 942 5 and 10 years ...... 728 10 and 15 years ...... 606 15 and 20 years ...... 967 20 and 25 years ...... 1,259 25 and 30 years ...... 375 30 and 35 years ...... 0 –––––––– 5,021 –––––––– Gross indebtedness ...... 5,144 –––––––– Interest rate derivatives ...... 198 Cash and short-term deposits ...... (475) –––––––– Net indebtedness ...... 4,867 –––––––– Note:
(1) Unaudited.
109 Part V: Operating and Financial Review
(a) Non-recourse (i) Securitisations As at 31 December 2008, £2.8 billion of outstanding debt had been raised through securitisations, which the Company uses to raise long-term debt secured by the cash flows generated from specific assets or pools of assets.
The debt raised in this way is credit-rated. The terms of the debt enable the Company to retain the flexibility to develop and dispose of mortgaged property (subject to conditions), to provide suitable qualifying substitute assets, if appropriate, and to introduce third-party capital without repaying the existing debt. The principal is repaid quarterly, with the balance outstanding reducing to approximately 20 per cent. to 30 per cent. of the original amount raised by the expected final maturity.
Although the Company has used a combination of fixed- and floating-rate debt issued via securitisations in the past, as at 31 December 2008, all the floating-rate instruments have been fully swapped into fixed-rate debt, from the date of issue, to provide certainty of future interest costs.
The only financial covenant applicable to these securitisations is that income (broadly net rental income and amounts released from cash collateral held) must cover 100 per cent. of interest and scheduled amortisation. The securitisations have no loan-to-value covenants.
(A) Broadgate In 2005 Broadgate Financing PLC, a ring-fenced wholly owned subsidiary of British Land, issued £2,080 million of securitised bonds, with a weighted-average maturity of 17 years, supported by the cash flows from the built estate at Broadgate in the City of London. As at 31 December 2008, the Broadgate securitisation has a weighted-average debt maturity of 16.7 years and a weighted-average interest rate of 5.04 per cent.
(B) Meadowhall In 2006, Meadowhall Finance PLC, a ring-fenced wholly owned subsidiary of British Land, issued £840 million of securitised bonds, with a weighted-average maturity of 16 years, supported by the cash flow of the Meadowhall shopping centre. An additional £175 million of bonds were issued at closing of this issue and held as reserve tranches, which can be resold by the issuer subject to the satisfaction of certain conditions. As at 31 December 2008, the Meadowhall securitisation has a weighted-average debt maturity of 15.3 years and a weighted-average interest rate of 4.98 per cent.
(ii) BLD Property Holdings First Mortgage Debenture Stock BLD Property Holdings Limited (formerly Asda Property Holdings Limited) issued a total of £126 million debentures between March 1986 and May 1999, including:
• 10.3125 per cent. First Mortgage Debenture Stock 2011;
• 6.125 per cent. First Mortgage Debenture Stock 2014; and
• 9.125 per cent. First Mortgage Debenture Stock 2020.
BLD Property Holdings Limited became a ring-fenced wholly owned subsidiary of the Company in August 2006.
(b) Recourse As at 31 December 2008, £1.3 billion of outstanding debt had been raised through debentures and loan notes. The lenders have recourse for repayment of these borrowings to the Company, including equity interests in non-recourse wholly owned companies.
110 Part V: Operating and Financial Review
The assets of the Company not subject to any security stood at £2.9 billion as at 31 December 2008.
(i) Debentures The Company’s recourse debentures are secured against specific assets, with the right to substitute properties from time to time, subject to current income and capital tests. Mortgaged properties may be withdrawn from the security pools provided that tests relating to loan-to-value and interest cover are met. The Company is required to provide additional security if the loan-to-value and interest cover fall below certain levels.
As at 31 December 2008, £1.0 billion of debentures had been issued by the Company and were secured against a single combined pool of assets, which was valued at £1.5 billion as at that date, with common covenants. The value of assets is required to cover the amount of these debentures by a minimum ratio of 150 per cent. and net rental income must cover the interest by a minimum ratio of at least 100 per cent. This single combined pool of assets comprises 27 assets diversified on a geographic and sector basis.
(ii) Loan notes As at 31 December 2008, £256 million secured floating rate notes had been issued by British Land.
(iii) Unsecured debt
(A) Bank facilities As at 31 December 2008, the Company had committed bilateral and syndicated bank facilities in the amount of £3.1 billion bearing floating rates of interest with an average margin of 48 basis points per annum, of which £2.4 billion was undrawn. All of these bank facilities are revolving and can be drawn or repaid at short notice. Only £300 million of the commitments under these facilities are scheduled to expire during the next two years, and £1.0 billion of the facilities are for a term of more than five years. The bank facilities are diversified amongst 33 different financial institutions in a number of countries. As at 9 February 2009 (being the last practicable date prior to the publication of this document), the Company had £3.1 billion available under these facilities, of which £2.4 billion were undrawn.
The committed terms of the bank facilities are generally between five and ten years.
(B) US private placements As at 31 December 2008, the Company had £98 million of 5.50 per cent. Senior Notes 2027 and $154 million of 6.30 per cent. Senior US Dollar Notes 2015 outstanding.
(C) Principal features of unsecured debt The Company provides unsecured lenders with a standard set of financial covenant ratios:
• a 70 per cent. maximum ratio for net unsecured borrowings (excluding all secured and non-recourse debt) to unencumbered assets (excludes assets subject to a security interest and other assets of non-recourse companies, including joint ventures); and
• a 175 per cent. maximum ratio for net borrowings (including all Company borrowings, including non-recourse borrowings) to adjusted capital and reserves.
As at 31 December 2008, these ratios stood at 29 per cent. and 113 per cent., respectively. For information about the calculation of these ratios as at 31 December 2008, see note 5 of the Notes to the accounts for the period ended 31 December 2008.
No income or interest cover ratios apply to the Company’s unsecured debt facilities.
Although secured assets and other assets of non-recourse companies and joint ventures are excluded from unencumbered assets for the covenant calculations, unsecured lenders benefit
111 Part V: Operating and Financial Review
from the surplus value of these assets above the related debt and from the free cash flow from these excluded assets. These excluded assets generated £99 million of surplus cash after payment of interest and debt amortisation for the year ended 31 March 2008. Surplus cash is passed up to the Company on a quarterly basis.
4. COMMITMENTS CESR 34, 36 The following table sets forth the maturity profile of the Company’s contracted undiscounted cash flows of financial liabilities as at 31 March 2008 based on the earliest date on which the Company may be required to pay such amounts:
As at 31 March 2008(1) Less than Between one and Between two and More than one year two years five years five years Total (£ millions) (£ millions) (£ millions) (£ millions) (£ millions) Debt(1) ...... 103 49 707 4,396 5,255 Interest on debt...... 288 263 745 2,731 4,027 Derivative payments ...... 6 18 26 134 184 Finance lease payments ...... 2 2 8 220 232 –––––––– –––––––– –––––––– –––––––– –––––––– Total ...... 399 332 1,486 7,481 9,698 Derivative receipts...... (19) (6) (21) (103) (149) –––––––– –––––––– –––––––– –––––––– –––––––– Net ...... 380 326 1,465 7,378 9,549 –––––––– –––––––– –––––––– –––––––– ––––––––
Note:
(1) For a detailed break-down of the Company’s on-balance sheet debt obligations as at 31 December 2008, see paragraph 3.2 above.
(2) Debt is subject to financial covenants that must be maintained to prevent triggering a requirement of early repayment of debt.
British Land’s current committed development programme is limited to the London office developments Ropemaker, London EC2 and Osnaburgh Street, Regent’s Place, London NW1, and its 2.2 million square feet retail scheme (held through a joint venture) in Puerto Venecia, Zaragoza, Spain. The costs to complete these committed development projects are approximately £230 million, representing approximately 4 per cent. of the Company’s total portfolio value at 31 December 2008. For a description of the current committed development projects, see paragraphs 3.4 and 5 of Part IV of this document.
The Company expects to cover its financial commitments in the table above and capital commitments AI, 5.2.2 discussed above with cash inflows from operating activities and draw-downs on existing credit facilities for the period of twelve months from the date of this document and subsequently from these sources as well as the refinancing of financial commitments and existing arrangements, as well as with proceeds from property sales. The Company currently does not expect to have any refinancing needs in relation to the Group’s existing indebtedness until 2013.
5. OFF-BALANCE SHEET ARRANGEMENTS As at 31 December 2008, the Company’s share of outstanding debt raised through syndicated bank facilities and securitisations, on a non-recourse basis, by the investment funds and joint ventures in which the Company has an interest or holding was £1.5 billion. The debt has been arranged specifically for each venture, usually at the time of its establishment and for a term similar to the agreed initial life of the venture, generally five to ten years (subject, in some cases, to extension options). A total of £361 million of this debt is scheduled to mature up between the date of this document and 31 December 2010.
The majority of these off-balance sheet debt arrangements include a variety of loan-to-value cover ratios or covenants, with maximum levels ranging from 55 to 90 per cent. (except for one fund in which the Company has a small interest, where the loan-to-value covenant is 35 per cent.). In addition, most of these debt arrangements also have rental income-to-interest or debt service cover covenants. While the Company has no obligation to remedy any breach of these covenants, a failure to remedy a breach may cause the relevant
112 Part V: Operating and Financial Review investment fund or joint venture to be in default of its financing arrangement. Each of the off-balance sheet arrangements includes a provision relating to the loan-to-value covenant that allows fund investors and joint venture partners to inject cash into the relevant entity to prevent a breach of covenant.
6. HISTORICAL INVESTMENTS AND CAPITAL EXPENDITURES The following table provides an overview of the Company’s investments and capital expenditures by property AI, 5.2.1 segment and includes the Company’s investments in investment funds and joint ventures:
For the nine months For the financial year ended 31 December ended 31 March 2007(1) 2008(1) 2006 2007 2008 (£ millions) (£ millions) (£ millions) (£ millions) (£ millions) Offices ...... 447 312 491 487 537 Retail ...... 87 148 506 1,016 105 Other ...... 17 – 45 147 17 –––––––– –––––––– –––––––– –––––––– –––––––– Total ...... 551 460 1,042 1,650 659 –––––––– –––––––– –––––––– –––––––– ––––––––
Note:
(1) Unaudited.
7. SIGNIFICANT ACCOUNTING POLICIES For a discussion of the Company’s significant accounting policies, see Note 1 to the Consolidated Financial Statements for the Year Ended 31 March 2008, which are incorporated by reference into this document.
113 Part VI: Financial Information
1. HISTORICAL FINANCIAL INFORMATION ON BRITISH LAND AI, 20.2
The consolidated financial statements of the Company and its subsidiaries included in the Annual Report and AI, 20.1, 20.3 Accounts of the Company for each of the years ended 31 March 2006, 2007 and 2008 together with the audit AI, 20.4.1 reports thereon are incorporated by reference into this document. Deloitte LLP (formerly Deloitte & Touche AI, 20.5.1 LLP) of 2 New Street Square, London EC4A 3BZ, chartered accountants regulated by the ICAEW, has issued AI, 20.6.1 unqualified audit opinions on the consolidated financial statements of the Company and its subsidiaries AI, 20.6.2 included in the Annual Report and Accounts of the Company for each of the three years ended 31 March 2006, 2007 and 2008. The audit opinion for the year ended 31 March 2008 is set out on page 104 of the AIII, 10.1 Annual Report and Accounts 2008. The audit opinion for the year ended 31 March 2007 is set out on page 112 of the Annual Report and Accounts 2007. The audit opinion for the year ended 31 March 2006 is set out on page 118 of the Annual Report and Accounts 2006.
The unaudited interim condensed consolidated financial statements of the Company and its subsidiaries for AI, 20.6.1 the nine-month periods ended 31 December 2007 and 2008, together with Deloitte LLP’s interim review AI, 20.6.2 report in respect thereof, are incorporated by reference into this document. AI, 20.4.3
See Part X for further details about information that has been incorporated by reference into this document.
2. PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma statement of net assets below is based on the Company’s unaudited interim AII, 1 consolidated balance sheet as at 31 December 2008 as adjusted to illustrate the estimated pro forma effects AII, 5 of the Rights Issue and the disposal of 50 per cent. of the Meadowhall shopping centre pursuant to the formation of the new joint venture as if those events had been completed on 31 December 2008. This unaudited pro forma financial information below has been prepared for illustrative purposes only and, AII, 4 because of its nature addresses a hypothetical situation and, therefore, does not represent the Company’s actual financial position or results. The unaudited pro forma financial information is compiled on the basis set out below and in accordance with the accounting policies applied in preparing the Company’s unaudited consolidated financial statements for the nine months ended 31 December 2008. AII, 2 AII, 3
114 Part VI: Financial Information
As at 31 December 2008(1) Adjustments Adjustments for proceeds for the of the Rights Meadowhall Pro forma Actual(2) Issue(3) transaction(4) adjusted(5) (£ millions) (£ millions) (£ millions) (£ millions) Assets Non-current assets Investment properties ...... 7,258 (1,277) 5,981 Development properties ...... 374 374 Owner-occupied property...... 39 39 –––––––––– –––––––––– –––––––––– –––––––––– 7,671 (1,277) 6,394 Other non-current assets Investments in funds and joint ventures ...... 973 215 1,188 Other investments ...... 51 51 Intangible assets ...... 29 29 –––––––––– –––––––––– –––––––––– –––––––––– 8,724 (1,062) 7,662 Current assets Debtors ...... 98 41 139 Cash and short-term deposits...... 475 740 99 1,314 –––––––––– –––––––––– –––––––––– –––––––––– 573 740 140 1,453 –––––––––– –––––––––– –––––––––– –––––––––– Total assets ...... 9,297 740 (922) 9,115 –––––––––– –––––––––– –––––––––– ––––––––––
Liabilities Current Liabilities Short-term borrowings and overdrafts ...... (123) (123) Creditors ...... (665) 38 (627) –––––––––– –––––––––– –––––––––– –––––––––– (788) 38 (750) Non-current liabilities Debentures and loans ...... (5,021) 832 (4,189) Other non-current liabilities ...... (55) 6 (49) Deferred tax liabilities ...... (41) (41) –––––––––– –––––––––– –––––––––– –––––––––– (5,117) 838 (4,279) –––––––––– –––––––––– –––––––––– –––––––––– Total liabilities ...... (5,905) 876 (5,029) –––––––––– –––––––––– –––––––––– –––––––––– Net assets...... 3,392 740 (46) 4,086 –––––––––– –––––––––– –––––––––– –––––––––– EPRA net assets ...... 3,692 4,381 –––––––––– –––––––––– Group Loan to Value Ratio(6) ...... 54% 39% –––––––––– –––––––––– Ratio of net borrowings to adjusted capital and reserves(7) ...... 113% 63% –––––––––– –––––––––– Ratio of net unsecured borrowings to unencumbered assets(7) ...... 29% 0% –––––––––– –––––––––– Notes:
(1) Unaudited.
(2) The financial information in this column has been extracted without material adjustment from the unaudited II, 4 consolidated balance sheet of the Group contained in the Company’s unaudited consolidated third quarter results I, 20.4.3 for the nine months ended 31 December 2008, which are incorporated by reference in this document.
(3) The net proceeds of the Rights Issue of £740 million are calculated on the basis that the Company raises II, 6 £767 million net of estimated expenses in connection with the Rights Issue of approximately £27 million.
(4) This adjustment represents the disposal of 50 per cent. of the Meadowhall shopping centre and associated debt, announced on 9 February 2009. The Company’s remaining 50 per cent. interest in the Meadowhall joint venture has been reclassified as an investment in a joint venture. The cash consideration is up to £170 million, with £47 million being deferred. This is expected to give a loss of £46 million after reflecting the estimated present value
115 Part VI: Financial Information
of the net deferred consideration. The adjustment has been calculated from financial information extracted without material adjustment from the Company’s unaudited consolidated third quarter results for the nine months ended 31 December 2008, which are incorporated by reference in this document.
(5) Save for the adjustment for the net proceeds of the Rights Issue as described in note (3) above and the adjustment for the disposal of the Meadowhall shopping centre as described in note (4) above, no account has been taken of any trading or other transactions of the Company since 31 December 2008.
(6) The Group Loan to Value ratio is gross debt less cash and short-term deposits divided by total Group property plus investments in funds, joint ventures and other investments.
(7) As discussed in paragraph 3.2(b)(iii)(C) of Part V of this document, the Company provides unsecured lenders with a standard set of financial covenant ratios. These include a 70 per cent. maximum ratio for net unsecured borrowings (excluding all secured and non-recourse debt) to unencumbered assets (excluding assets subject to a security interests and other assets of non-recourse companies, including joint ventures) and a 175 per cent. maximum ratio for net borrowings (including all Company recourse and non-recourse borrowings) to adjusted capital and reserves. The adjusted capital and reserves, net borrowings, net secured borrowings and unencumbered assets data below is based on data from the Company’s unaudited interim consolidated financial statements for the AII, 2 nine months ended 31 December 2008 as adjusted to illustrate the estimated pro forma effects of the Rights Issue AII, 5 and the disposal of 50 per cent. of the Meadowhall shopping centre pursuant to the formation of the newly formed joint venture as if those events had been completed on 31 December 2008. AII, 6
As at 31 December 2008(1) Adjustments Adjustments for Proceeds for of the Rights Meadowhall Pro forma Actual(2) Issue(3) transaction(4) adjusted(5) (£ millions) (£ millions) (£ millions) (£ millions) Adjusted capital and reserves Share capital and reserves ...... 3,392 740 (46) 4,086 Deferred tax on revaluations, capital allowances and derivatives ...... 33 33 Exceptional refinancing charges ...... 468 (19) 449 Mark to market on interest rate swaps ...... 257 (5) 252 –––––––– –––––––– –––––––– –––––––– Adjusted capital and reserves ...... 4,150 740 (70) 4,820 –––––––– –––––––– –––––––– –––––––– Net borrowings Gross debt – Group ...... 5,131 (835) 4,296 Amounts owed to joint ventures ...... 31 31 TPP Investments Limited(8) ...... 23 23 Cash and deposits ...... (475) (740) (99) (1,314) –––––––– –––––––– –––––––– –––––––– Net borrowings ...... 4,710 (740) (934) 3,036 –––––––– –––––––– –––––––– –––––––– Unencumbered assets Group properties...... 7,651 (1,271) 6,380 Investments in funds and joint ventures ...... 973 215 1,188 Other investments ...... 51 51 Investments in joint ventures...... (500) (215) (715) Encumbered assets ...... (5,288) 1,258 (4,030) –––––––– –––––––– –––––––– –––––––– Unencumbered assets...... 2,887 (13) 2,874 –––––––– –––––––– –––––––– –––––––– Net unsecured borrowings Gross debt – Group ...... 5,131 (835) 4,296 Amounts owed to joint ventures ...... 31 31 Cash and deposits not subject to security interest (53) (740) (121) (914) Secured and non-recourse borrowings ...... (4,258) 835 (3,423) –––––––– –––––––– –––––––– –––––––– Net unsecured borrowings...... 851 (740) (121) (10) –––––––– –––––––– –––––––– –––––––– (8) TPP Investments Limited, a wholly owned ring-fenced special purpose subsidiary, is a partner in the Tesco British I, 20.4.3 Land Property Partnership and, in that capacity, has entered into a secured bank loan under which its liability is limited to £23 million and recourse is only to the partnership assets.
116 Part VI: Financial Information
3. ACCOUNTANT’S REPORT ON PRO FORMA FINANCIAL INFORMATION
UBS Limited 1 Finsbury Avenue London EC2M 2PP
Morgan Stanley & Co. International PLC 25 Cabot Square Canary Wharf London E14 4QA
12 February 2009
Dear Sirs,
The British Land Company PLC (the “Company” and, together with its subsidiaries, the “Group”) We report on the pro forma financial information (the Pro forma financial information) set out in paragraph 2 of Part VI of the prospectus dated 12 February 2009 (the Prospectus), which has been prepared on the basis described in note 2 thereto, for illustrative purposes only, to provide information about how the proceeds of the Rights Issue and the Meadowhall transaction might have affected the financial information presented on the basis of the accounting policies adopted by the Company in preparing the unaudited financial statements for the period ended 31 December 2008. This report is required by Annex 1 item 20.2 of Commission Regulation EC) No 809/2004 (the Prospectus Directive Regulation) and is given for the purpose of complying with that requirement and for no other purpose.
Responsibilities It is the responsibility of the directors and proposed directors of the Company (the Directors) to prepare the Pro forma financial information in accordance with Annex I item 20.2 and Annex II items 1 to 6 of the Prospectus Directive Regulation.
It is our responsibility to form an opinion, in accordance with Annex I item 20.2 of the Prospectus Directive Regulation, as to the proper compilation of the Pro forma financial information and to report that opinion to you in accordance with Annex II item 7 of the Prospectus Directive Regulation.
Save for any responsibility arising under Prospectus Rule 5.5.3R(2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law, we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in accordance with this report or our statement, required by and given solely for the purposes of complying with Annex I item 23.1 of the Prospectus Directive Regulation, consenting to its inclusion in the Prospectus.
In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the Pro forma financial information, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue.
117 Part VI: Financial Information
Basis of Opinion We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro forma financial information with the Directors.
We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro forma financial information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of the Group.
Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in jurisdictions outside the United Kingdom, including the United States of America, and accordingly should not be relied upon as if it had been carried out in accordance with those standards or practices.
Opinion In our opinion:
(a) the Pro Forma financial information has been properly compiled on the basis stated; and AII, 7
(b) such basis is consistent with the accounting policies of the Company.
Declaration For the purposes of Prospectus Rule 5.5.3R(2)(f), we are responsible for this report as part of the Prospectus I, 1.2 and declare that we have taken all reasonable care to ensure that the information contained in this report is, III, 1.2 to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with Annex I item 1.2 of the Prospectus Directive Regulation.
Yours faithfully
Deloitte LLP Chartered Accountants
Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 2 New Street Square, London EC4A 3BZ, United Kingdom. Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (DTT), a Swiss Verein whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk for a detailed description of the legal structure of DTT and its member firms.
118 Part VII: Certain Taxation and ERISA Considerations
UK TAXATION The following statements are intended only as a general guide to certain UK tax considerations and do not AIII, 4.11 purport to be a complete analysis of all potential UK tax consequences of acquiring, holding or disposing of AIII, 5.3.1 New Shares, Nil Paid Rights or Fully Paid Rights. Shareholders and prospective holders of New Shares, Nil Paid Rights or Fully Paid Rights are advised to consult their own professional advisers concerning the tax consequences of the acquisition, ownership and disposition of New Shares, Nil Paid Rights or Fully Paid Rights. The following statements are based on current UK legislation and on what is understood to be current HMRC practice as at the date of this Prospectus, which may change, possibly with retroactive effect. They apply only to Shareholders who are resident for tax purposes in the UK (except in so far as express reference is made to the treatment of non-UK residents), who hold their Shares as an investment and who are the absolute beneficial owners of both their Shares and any dividends paid on them. The tax position of certain categories of Shareholders who are subject to special rules (such as persons acquiring their New Shares in connection with employment, dealers in securities, insurance companies and collective investment schemes) is not considered. The statements are also not addressed to Shareholders which are companies that: (i) are beneficially entitled, directly or indirectly, to ten per cent. or more of the Company’s dividends; (ii) are beneficially entitled, directly or indirectly, to ten per cent. or more of the Company’s share capital; or (iii) control, directly or indirectly, ten per cent. or more of the voting rights of the Company. For the purposes of this paragraph, the term company includes any body corporate and certain entities which are deemed to be bodies corporate for tax purposes by certain overseas jurisdictions or under an international agreement.
Persons who are in any doubt about their tax position or who may be subject to tax in a jurisdiction other than the UK are strongly recommended to consult their own professional advisers.
1. TAXATION OF CHARGEABLE GAINS
1.1 UK tax resident Shareholders (a) New Shares acquired pursuant to the Rights Issue For the purposes of UK taxation of chargeable gains (CGT), the issue of New Shares to existing Shareholders who take up their rights should be regarded as a reorganisation of the share capital of the Company. Accordingly, to the extent that an existing Shareholder takes up all or part of his entitlement under the Rights Issue, he should not be treated as making a disposal of all or part of his holding of Existing Shares. Instead, the New Shares acquired and the Existing Shares in respect of which they are issued will, for CGT purposes, be treated as the same asset and as having been acquired at the same time as the Existing Shares. The amount paid for the New Shares will be added to the base cost of the Existing Shares when computing any gain or loss on any subsequent disposal.
(b) Disposals If a Shareholder sells or otherwise disposes of all or some of the New Shares allotted to him, or of his rights to acquire New Shares, or if he allows or is deemed to have allowed his rights to lapse and receives a cash payment in respect of them, he may, depending on his circumstances, incur a liability to CGT.
If a Shareholder disposes of all or part of his Nil Paid Rights, or allows or is deemed to allow them to lapse and receives a cash payment, then if the proceeds are “small” as compared to the value of the Existing Shares in respect of which the rights arose, the Shareholder will not generally be treated as making a disposal for CGT purposes. Instead, the proceeds will be deducted from the base cost of his holding of Existing Shares for the purpose of computing any chargeable gain or allowable loss on a subsequent disposal. HMRC currently regards a receipt as “small” if its amount or value is five per cent. or less of the value of the Existing Shares held or £3,000 or less, whether or not it would also fall within the five per cent. test.
In the case of a Shareholder within the charge to UK corporation tax, for the purpose of calculating any indexation allowance on a future disposal of the New Shares acquired, generally the expenditure incurred in acquiring the New Shares will be treated as having been incurred at the time that the acquisition monies for the New Shares are paid.
119 Part VII: Certain Taxation and ERISA Considerations
Subject to the availability of any exemptions, reliefs and/or allowable losses, a disposal of New Shares by individuals, trustees and personal representatives will generally be subject to CGT at the rate of 18 per cent., with no taper relief or indexation allowance.
1.2 Non-UK tax resident Shareholders An individual Shareholder who has ceased to be resident or ordinarily resident for tax purposes in the UK for a period of less than five years of assessment and who disposes of all or part of his New Shares during that period may be liable to CGT on his return to the UK, subject to any available exemptions or reliefs.
A Shareholder who is not resident or ordinarily resident for tax purposes in the UK will not otherwise generally be subject to CGT on the disposal or deemed disposal of New Shares unless the Shareholder is carrying on a trade, profession or vocation in the UK through a branch or agency (or, in the case of a corporate Shareholder, a permanent establishment) in connection with which the New Shares are held.
2. TAXATION OF DIVIDENDS As part of a REIT, UK resident REIT Group members and non-UK resident REIT Group members with a UK qualifying property rental business no longer pay UK direct taxes on income and capital gains from their qualifying property rental businesses in the UK and elsewhere (the Tax-Exempt Business), provided that certain conditions are satisfied. Instead, as discussed below, distributions relating to the Tax-Exempt Business (as determined by the legislation), and in particular distributions required to meet the minimum distributions requirement under the REIT rules, are treated for UK tax purposes as UK property income in the hands of Shareholders. However, corporation tax is still payable in the normal way in respect of income and gains from the Group’s business (generally including any property trading business) not included in the Tax-Exempt Business. Dividends relating to this business (as determined by the legislation) are treated for UK tax purposes as normal dividends. A dividend paid by the Company relating to profits or gains of the Tax-Exempt Business of the members of the Group is referred to in this section as a PID. Any normal dividend paid by the Company is referred to as a Non-PID.
2.1 Taxation of PIDs (a) Taxation of Shareholders who are individuals Subject to certain exceptions, a PID will generally be treated in the hands of individual Shareholders as the profits of a single UK property business (as defined in Section 264 of the Income Tax (Trading and Other Income) Act 2005). A PID is, together with any other property income distribution from any other UK REIT, treated as profit from a UK property business separate from any other UK property business (a different UK property business) carried on by the relevant Shareholder. This means that any surplus expenses from a Shareholder’s different UK property business cannot be off-set against a PID as part of a single calculation of profits of the Shareholder’s UK property business.
Please see also paragraph 2.1(d) (Withholding tax) below.
(b) Taxation of corporate Shareholders Subject to certain exceptions, a PID will generally be treated in the hands of Shareholders who are within the charge to corporation tax as profit of a Schedule A business (as defined in Section 15 of the Income and Corporation Taxes Act 1988). A PID is, together with any property income distribution from any other UK REIT, treated as profit from a Schedule A business separate from any other Schedule A business (a different Schedule A business) carried on by the relevant Shareholder. This means that any surplus expenses from a Shareholder’s different Schedule A business cannot be off-set against a PID as part of a single calculation of the shareholder’s Schedule A profits.
Please see also paragraph 2.1(d) (Withholding tax) below.
(c) Taxation of Shareholders who are not resident in the UK for tax purposes Where a Shareholder who is resident for tax purposes outside the UK receives a PID, the PID will generally be chargeable to UK income tax as profit of a UK property business and this tax will generally be collected by way of a withholding.
120 Part VII: Certain Taxation and ERISA Considerations
Please see also paragraph 2.1(d) (Withholding tax) below.
(d) Withholding tax (i) General Subject to certain exceptions summarised at paragraph 2.1(d)(iv) below, the Company is required to withhold tax at source at the (current) rate of 20 per cent. from its PIDs. The Company will provide Shareholders with a certificate setting out the gross amount of the PID, the amount of tax withheld, and the net amount of the PID.
(ii) Shareholders solely resident and ordinarily resident in the UK Where tax has been withheld at source, Shareholders who are individuals may, depending on their particular circumstances, either be liable to further tax on their PID at their applicable marginal rate, or be entitled to claim repayment of some or all of the tax withheld on their PID. Corporate Shareholders will generally be liable to pay corporation tax on their PID (see paragraph 2.1(b) above) and if income tax is withheld at source, the tax withheld can be set against their liability to corporation tax or income tax which they are required to withhold in the accounting period in which the PID is received.
(iii) Shareholders who are not resident for tax purposes in the UK It is not possible for a Shareholder to make a claim under a double taxation treaty for a PID to be paid by the Company gross or at a reduced rate. The right of a Shareholder to claim repayment of any part of the tax withheld from a PID will depend on the existence and terms of any double tax convention between the UK and the country in which the Shareholder is resident. Shareholders who are not resident for tax purposes in the UK should obtain their own tax advice concerning tax liabilities on PIDs received from the Company.
(iv) Exceptions to requirement to withhold income tax Shareholders should note that in certain circumstances the Company must not withhold income tax at source from a PID such that certain classes of shareholders may be able to claim exemption from deduction of withholding tax. These include where the Company reasonably believes that the person beneficially entitled to the PID is a company resident for tax purposes in the UK or a charity or a company resident for tax purposes outside the UK which is trading through a permanent establishment in the UK and is required to bring the PID into account in computing its UK taxable profits. They also include where the Company reasonably believes that the PID is paid to the scheme administrator of a registered pension scheme, the sub-scheme administrator of a certain pension sub-schemes, the account manager of an Individual Savings Account (ISA), or the account provider for a child trust fund, in each case, provided the Company reasonably believes that the PID will be applied for the purposes of the relevant fund, scheme or account.
In order to pay a PID without withholding tax, the Company will need to be satisfied that the Shareholder concerned is entitled to that treatment. For that purpose the Company will require such Shareholders to submit either a completed “Beneficial Owner Declaration of Eligibility for Gross PID Payments from UK REIT” form or a completed “Intermediary Declaration of Eligibility for Gross PID Payments from UK REIT” form (copies of which may be obtained from the Company’s website (www.britishland.com)). Shareholders should note that the Company may seek recovery from Shareholders if the statements made in their claim form are incorrect and the Company suffers tax as a result. The Company will, in some circumstances, suffer tax if its reasonable belief as to the status of the Shareholder turns out to have been mistaken.
2.2 Taxation of non-PIDs (normal dividends) Non-PIDs are treated in exactly the same way as the Company’s dividends prior to becoming a REIT and in the same way as dividends received from UK companies that are not REITs.
The Company is not required to withhold tax when paying a non-PID.
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An individual Shareholder who is resident for tax purposes in the UK and who receives a non-PID from the Company will generally be entitled to a tax credit equal to one-ninth of the amount of the dividend received, which is equivalent to ten per cent. of the aggregate of the non-PID received and the tax credit (the gross dividend), and will be subject to income tax on the gross dividend. An individual UK resident Shareholder who is subject to income tax at a rate or rates not exceeding the basic rate will be liable to tax on the gross dividend at the rate of ten per cent., so that the tax credit will satisfy the income tax liability of such a Shareholder in full. A Shareholder who is subject to income tax at the higher rate will be liable to income tax on the gross dividend at the rate (currently) of 32.5 per cent. to the extent that such sum, when treated as the top slice of the Shareholder’s income, falls above the threshold for higher rate income tax. After taking into account the ten per cent. tax credit, a higher rate taxpayer will therefore be liable to additional income tax of 22.5 per cent. of the gross dividend, equal to 25 per cent. of the net dividend. Where the tax credit exceeds the Shareholder’s tax liability the Shareholder cannot claim repayment of the tax credit from HMRC.
Under proposals announced in the 2008 Pre-Budget Report, a new 37.5 per cent. rate of tax will apply to some dividend income from 6 April 2011.
A UK resident corporate Shareholder will not generally have to pay corporation tax on non-PIDs received from the Company. Such a Shareholder will not be able to claim repayment of tax credits attaching to non-PIDs.
Other UK resident Shareholders who are not liable to UK tax on non-PIDs, including pension funds and charities, are not entitled to claim repayment of the tax credit.
Shareholders who are resident outside the UK for tax purposes will not generally be able to claim repayment from HMRC of any part of the tax credit attaching to non-PIDs received from the Company, although this will depend on the existence and terms of any double taxation convention between the UK and the country in which such Shareholder is resident. A Shareholder resident outside the UK may also be subject to foreign taxation on dividend income under local law. Shareholders who are not resident for tax purposes in the UK should obtain their own tax advice concerning their tax position on non-PIDs received from the Company.
3. UK STAMP DUTY AND STAMP DUTY RESERVE TAX (SDRT)
3.1 The Rights Issue No stamp duty or SDRT will be payable on the issue of New Shares pursuant to the Rights Issue, other than as explained in the paragraphs below.
No stamp duty or SDRT will be payable on the issue of Provisional Allotment Letters or the crediting of Nil Paid Rights to accounts in CREST. Where New Shares represented by such documents or rights are registered in the name of the Shareholder entitled to such shares, or New Shares are credited in uncertificated form to CREST accounts, no liability to stamp duty or SDRT will generally arise.
A purchaser of rights to New Shares represented by Provisional Allotment Letters (whether nil or fully paid) or of Nil Paid Rights or Fully Paid Rights held in CREST on or before the latest time for registration of renunciation will not generally be liable to pay stamp duty, but the purchaser will normally be liable to pay SDRT at the rate of 0.5 per cent. of the value or amount of the consideration given. Where such a purchase is effected through a stockbroker or other financial intermediary, that person will normally account for the SDRT liability and will indicate that this has been done in any contract note issued to the purchaser. In other cases, the purchaser of the rights to the New Shares represented by the Provisional Allotment Letter or Nil Paid Rights or Fully Paid Rights held in CREST is liable to pay the SDRT and must account for it to HMRC. In the case of transfers within CREST, any SDRT due should be collected through CREST in accordance with the CREST rules.
No stamp duty or SDRT will be payable on the registration of Provisional Allotment Letters or Nil Paid Rights or Fully Paid Rights, whether by the original holders or their renouncees.
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3.2 Subsequent transfers Stamp duty at the rate of 0.5 per cent. (rounded up to the next multiple of £5) of the amount or value of the consideration given is generally payable on an instrument transferring shares. A charge to SDRT will also arise on an unconditional agreement to transfer Shares (at the rate of 0.5 per cent. of the amount or value of the consideration payable). However, if within six years of the date of the agreement becoming unconditional an instrument of transfer is executed pursuant to the agreement, and stamp duty is paid on that instrument, any SDRT already paid will be refunded (generally, but not necessarily, with interest) provided that a claim for payment is made, and any outstanding liability to SDRT will be cancelled. The liability to pay stamp duty or SDRT is generally satisfied by the purchaser or transferee. An exemption from stamp duty is available on an instrument transferring Shares where the amount or value of the consideration is £1,000 or less, and it is certified on the instrument that the transaction effected by the instrument does not form part of a larger transaction or series of transactions for which the aggregate consideration exceeds £1,000.
3.3 Shares held through CREST Paperless transfers of Shares within CREST are generally liable to SDRT, rather than stamp duty, at the rate of 0.5 per cent. of the amount or value of the consideration. CREST is obliged to collect SDRT on relevant transactions settled within the system. Under the CREST system, no stamp duty or SDRT will arise on a transfer of Shares into the system unless such a transfer is made for a consideration in money or money’s worth, in which case a liability to SDRT (usually at a rate of 0.5 per cent.) will arise.
3.4 Shares held through Clearance Systems or Depositary Receipt Arrangements Where Shares are issued or transferred (a) to, or to a nominee for, a person whose business is or includes the provision of clearance services or (b) to, or to a nominee or agent for, a person whose business is or includes issuing depositary receipts, stamp duty or SDRT will be payable at the higher rate of 1.5 per cent. of the amount or value of the consideration payable or, in certain circumstances, the value of the Shares (rounded up to the next multiple of £5 in the case of stamp duty). This liability for stamp duty or SDRT will strictly be accountable by the depositary or clearance service operator or their nominee, as the case may be, but will, in practice, generally be reimbursed by participants in the clearance service or depositary receipt scheme. Clearance services may opt, provided certain conditions are satisfied, for the normal rate of stamp duty or SDRT (0.5 per cent. of the amount or value of consideration given) to apply to issues or transfers of Shares into, and to transactions within, such services instead of the higher rate of 1.5 per cent. generally applying to an issue or transfer of Shares into the clearance service and instead of the exemption from SDRT on transfers of Shares whilst in the service.
The statements in this paragraph 3 apply to any holders of Shares irrespective of their residence, summarise the current position and are intended as a general guide only. Special rules apply to agreements made by, amongst others, intermediaries.
UNITED STATES FEDERAL INCOME TAXATION The following is a summary based on present law of certain US federal income tax considerations relevant to the receipt, exercise and disposition of Nil Paid Rights pursuant to the Rights Issue as well as the acquisition, ownership and disposition of the Fully Paid Rights and the New Shares. It addresses only a US Holder that receives the Nil Paid Rights with respect to Existing Shares, will hold the Rights and New Shares as capital assets and uses the US dollar as its functional currency. The discussion is not a complete description of all the tax considerations that may be relevant to a US Holder. The discussion does not consider the circumstances of particular purchasers subject to special tax rules, such as banks, dealers, traders in securities that elect mark-to-market treatment, US expatriates, insurance companies, tax-exempt entities, persons holding five per cent. or more of the Company’s shares, persons holding the Rights or New Shares as part of a hedge, straddle, conversion or other integrated financial transaction, persons that are resident or ordinarily resident in the United Kingdom and persons holding Existing Shares, Rights or New Shares as part of the business property of a permanent establishment or as part of a fixed base located outside the United States. The discussion is a general summary only; it is not a substitute for tax advice. It also does not address US state, local, foreign or other tax considerations.
THE STATEMENTS ABOUT US FEDERAL TAX ISSUES ARE MADE TO SUPPORT MARKETING OF THE RIGHTS AND NEW SHARES. NO TAXPAYER CAN RELY ON THEM TO AVOID US
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FEDERAL TAX PENALTIES. EACH PROSPECTIVE PURCHASER SHOULD SEEK ADVICE FROM AN INDEPENDENT TAX ADVISER ABOUT THE TAX CONSEQUENCES UNDER ITS OWN PARTICULAR CIRCUMSTANCES OF THE RECEIPT, EXERCISE AND DISPOSITION OF NIL PAID RIGHTS AS WELL AS THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE FULLY PAID RIGHTS AND THE NEW SHARES UNDER THE LAWS OF THE UNITED KINGDOM, THE UNITED STATES AND ITS CONSTITUENT JURISDICTIONS AND ANY OTHER JURISDICTION WHERE THE PROSPECTIVE PURCHASER MAY BE SUBJECT TO TAXATION.
The tax consequences to a partner in a partnership receiving, exercising, holding or disposing of Rights or New Shares will generally depend on the status of the partner and the activities of the partnership. The tax consequence to a beneficiary of an estate or trust may also depend on the status of the beneficiary. Partners in a partnership or beneficiaries or fiduciaries of an estate or trust that is a US Holder are urged to consult their own tax advisers regarding the specific tax consequences of receiving, exercising and disposing of Nil Paid Rights and of purchasing, owning and disposing of Fully Paid Rights or New Shares.
US Holders should note that the “United Kingdom Taxation” discussion above is also relevant. Dividends that are PIDs will be subject to UK withholding tax (see paragraph 2.1(d) (Withholding tax) under “UK Taxation” of this Part VII) and, because the Company is incorporated in England and Wales, sales and transfers of Rights and New Shares will be subject to UK stamp duty or stamp duty reserve tax (see paragraph 3 under “UK Taxation” of this Part VII).
US Holders holding American depositary receipts (ADRs) generally will be treated for US federal income tax purposes as though such holder directly held the Existing Shares, Nil Paid Rights, Fully Paid Rights and New Shares, if any, represented by the ADRs. However, US Holders of ADRs should note that they may be subject to a higher rate of UK stamp duty or SDRT. (See paragraph 3.4 under “UK Taxation” of this Part VII.)
1. RIGHTS
1.1 Receipt of Nil Paid Rights The Company intends, to the extent relevant for US federal income tax purposes, to treat the Rights Issue as a non-taxable distribution with respect to a holder’s Existing Shares. The Company has not and will not seek a ruling from the IRS as to the tax consequences of the Rights Issue to a US Holder and it is possible that the IRS could take a position contrary to the discussion below.
A US Holder should be entitled to treat the receipt of Nil Paid Rights pursuant to the Rights Issue as a non-taxable distribution with respect to such holder’s Existing Shares for US federal income tax purposes, and the following discussion assumes that that treatment is correct. Were the Rights Issue to be treated as a taxable distribution, a US Holder generally would recognize dividend income equal to the fair market value of the Nil Paid Rights on the date of distribution.
If the fair market value of Nil Paid Rights when distributed is less than 15 per cent. of the fair market value of the Existing Shares with respect to which Nil Paid Rights are distributed, the Nil Paid Rights will have a nil tax basis unless the US Holder affirmatively elects to allocate its adjusted tax basis in its Existing Shares to the Nil Paid Rights in proportion to the relative fair market values of the Existing Shares and the Nil Paid Rights distributed (determined on the date Nil Paid Rights are distributed). A US Holder must make this election in a statement attached to its tax return for the taxable year in which the Nil Paid Rights are received in respect of all Nil Paid Rights received by the US Holder and, except as discussed below under paragraph 1.4, the election is irrevocable.
If the fair market value of Nil Paid Rights when distributed is 15 per cent. or greater than the fair market value of the Existing Shares with respect to which Nil Paid Rights are received, then, except as discussed below under paragraph 1.4, a US Holder’s adjusted tax basis in its Existing Shares must be allocated between the Existing Shares and the Nil Paid Rights in proportion to their relative fair market values determined on the date Nil Paid Rights are distributed.
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The US Holder’s holding period in the Nil Paid Rights will include its holding period in the Existing Shares with respect to which the Nil Paid Rights were distributed.
1.2 Exercise of Nil Paid Rights and Acquisition of New Shares A US Holder will not recognise taxable income when it receives Fully Paid Rights or New Shares by exercising Nil Paid Rights. A US Holder will have a tax basis in the Fully Paid Rights or New Shares equal to its tax basis, if any, in the Nil Paid Rights exercised plus the US dollar value of the pounds sterling exercise price of the Nil Paid Rights on the acquisition date or, in the case of cash basis and electing accrual basis taxpayers, the settlement date. Subject to the passive foreign investment company (PFIC) rules below, a US Holder’s holding period in the Fully Paid Rights or New Shares generally will begin on the date the US Holder exercises its Nil Paid Rights. The receipt of New Shares in exchange for Fully Paid Rights should not constitute a taxable event for US Holders.
If a US Holder uses previously acquired pounds sterling to pay the acquisition price for the Fully Paid Rights or New Shares, any foreign currency gain or loss that it recognises on the exchange of the pounds sterling for Fully Paid Rights or New Shares will be US source ordinary income or loss.
1.3 Dispositions Subject to the PFIC rules discussed below, a US Holder will recognise capital gain or loss on the sale or other disposition of Rights in an amount equal to the difference between such holder’s tax basis, if any, in the Rights and the US dollar value of the amount realised from the sale or other disposition. Any gain or loss generally will be treated as arising from US sources and will be long-term capital gain or loss if the US Holder’s holding period in the Rights exceeds one year. A US Holder’s holding period in the Nil Paid Rights will include its holding period in the Existing Shares with respect to which the Nil Paid Rights were distributed. However, except as described in the PFIC rules below, a US Holder’s holding period in Fully Paid Rights generally will not include the holding period in the Existing Shares with respect to which the Rights were distributed.
A US Holder that receives foreign currency on the sale or other disposition of the Rights will realise an amount equal to the US dollar value of the foreign currency on the date of sale or other disposition or, in the case of cash basis and electing accrual basis taxpayers, the settlement date. A non-electing accrual basis US Holder will recognize currency gain or loss if the US dollar value of the currency received at the spot rate on the settlement date differs from the amount realized. A US Holder will have a tax basis in the foreign currency received equal to the US dollar value of the foreign currency at the spot rate on the settlement date. Any gain or loss realised on a subsequent conversion of the foreign currency into US dollars will be US source ordinary income or loss.
1.4 Lapse If a US Holder allows Nil Paid Rights to lapse without selling or exercising them, and does not receive any proceeds from their sale on its behalf, the Nil Paid Rights should be deemed to have a nil tax basis and, therefore, such US Holder should not recognise any loss upon the lapse of the Nil Paid Rights and any tax basis from Existing Shares that was allocated to the Nil Paid Rights should be reallocated back to such Existing Shares.
The US federal income tax treatment of a US Holder that receives proceeds as a result of the placing by the Bank Underwriters of New Shares at a premium over the Rights Issue Price in respect of such holder’s lapsed Nil Paid Rights is not free from doubt. Generally, such a US Holder will be treated either as having sold the Nil Paid Rights (as described above) or as having exercised the Nil Paid Rights and sold the New Shares. A US Holder that is treated as having exercised the Nil Paid Rights and sold the New Shares will recognise a short-term capital gain or loss as described below in paragraph 2.2. US Holders that receive amounts in respect of lapsed Nil Paid Rights should consult their own tax advisers regarding the US federal income tax treatment of such amounts.
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2. NEW SHARES
2.1 Dividends The Company does not maintain calculations of its earnings and profits under US federal income tax principles and, therefore, subject to the PFIC rules discussed below, US Holders should treat a distribution by the Company with respect to the New Shares as ordinary dividend income from foreign sources.
Distributions will not be eligible for the dividends-received deduction generally available to US corporations. If the Company is not a PFIC in the year of distribution or the preceding year and the Ordinary Shares are substantially and regularly traded on the London Stock Exchange, dividends will qualify for the reduced rate on qualified dividend income available to certain non-corporate holders that meet the eligibility requirements in taxable years beginning before 1 January 2011.
Dividends paid in pounds sterling will be includable in income at their US dollar amount based on the exchange rate in effect on the date of receipt whether or not the payment is converted into US dollars at that time. If dividends received in pounds sterling are converted into US dollars on the day they are received, the US Holder generally will not be required to recognise foreign currency gain or loss in respect of the dividend income. Any gain or loss recognised on a subsequent conversion or other disposition of pounds sterling for a different US dollar amount generally will be US source ordinary income or loss.
Dividends distributed by the Company may be PIDs or Non-PIDs as described in paragraph 2 (Taxation of dividends) under “UK Taxation” in this Part VII. Non-PIDs will not be subject to UK withholding tax. However, PIDs will be subject to UK withholding tax without regard to a US Holder’s eligibility for benefits under the income tax treaty between the United Kingdom and the United States (the Treaty). (See paragraph 2.1(d) under “UK Taxation” in this Part VII.) US Holders eligible for benefits under the Treaty may claim a refund of the amount withheld on a PID in excess of the applicable Treaty rate. Investors should consult their own tax advisor about their eligibility for Treaty benefits and the applicable Treaty rate.
Subject to applicable limitations, a US Holder may claim a deduction or a foreign tax credit for UK tax withheld at the appropriate rate. A US Holder will not be allowed a foreign tax credit for UK withholding tax it could have avoided by claiming benefits under the Treaty or for UK stamp duty or SDRT, if any. In computing foreign tax credit limitations, non-corporate US Holders whose dividends have borne tax at the reduced rate on qualified dividend income may take into account only the portion of the qualified dividend income effectively taxed at the highest applicable marginal rate.
2.2 Dispositions Subject to the PFIC rules described below, a US Holder will recognize gain or loss on the sale or other disposition of New Shares in an amount equal to the difference between the US Holder’s adjusted tax basis in the New Shares and the amount realized from the disposition. Gain or loss will be capital gain or loss, and it will be long-term gain or loss if the holder has held the New Shares for more than one year. If the Company is or has been a PFIC while the holder held the shares, gain generally will be taxed as ordinary income under the PFIC rules described below. Unless the holder has made a mark-to-market election under those rules, any loss will be a capital loss. Deductions for capital losses are subject to limitations. For purposes of computing the US Holder’s foreign tax credit limitation, the gain or loss generally will be treated as arising from US sources.
A US Holder that receives currency other than US dollars on the disposition of New Shares will realize an amount equal to the US dollar value of the currency received on the date of disposition or, in the case of cash basis and electing accrual basis US Holders, the settlement date. A non-electing accrual basis US Holder will recognize currency gain or loss if the US dollar value of the currency received at the spot rate on the settlement date differs from the amount realized. A US Holder will have a tax basis in the foreign currency received equal to the US dollar value of the currency at the spot rate on the settlement date. Currency gain or loss generally will be US source ordinary income or loss.
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3. PASSIVE FOREIGN INVESTMENT COMPANY The Company believes that it is not currently a PFIC for US federal income tax purposes. This conclusion, however, is based on the interpretation of rules that are not entirely clear when applied to its business as conducted in an affiliated group. Rents derived in the active conduct of a trade or business from unrelated persons generally are not passive income for purposes of determining PFIC status. However, these rules could be interpreted in a manner which could cause the Company’s rental income to be treated as passive income to the extent the Company holds real properties in subsidiaries that are different from the subsidiaries through which it conducts its management and development activities.
A non-US corporation is a PFIC in any taxable year in which either (i) at least 75 per cent. of its gross income is passive income or (ii) at least 50 per cent. of the average value of its assets is attributable to assets that produce or are held to produce passive income. In applying these tests, a non-US corporation that directly or indirectly owns at least 25 per cent. by value of the stock of another corporation is treated as if it held its proportionate share of the other corporation’s assets and received directly its proportionate share of the other corporation’s income. The PFIC determination is made annually, and a company’s status could change depending, among other things, upon changes in the composition and relative value of gross receipts and assets. Accordingly, no assurance can be given that the Company will not be a PFIC in the current or any future taxable year.
If the Company is a PFIC for any taxable year in which a US Holder holds Rights or New Shares, a US Holder will be subject to additional taxes on any excess distribution and any gain realized from the disposition of Rights or of New Shares (regardless of whether the Company continues to be a PFIC). A US Holder has an excess distribution to the extent that distributions on New Shares during a taxable year exceed 125 per cent. of the average amount received during the three preceding taxable years (or, if shorter, the US Holder’s holding period). To compute the tax on excess distributions or any gain, (i) the excess distribution or gain is allocated rateably over a US Holder’s holding period, (ii) the amount allocated to the current taxable year and any year before the Company became a PFIC is taxed as ordinary income in the current year and (iii) the amount allocated to other taxable years is taxed at the highest applicable marginal rate in effect for each year and an interest charge is imposed to recover the deemed benefit from the deferred payment of the tax attributable to each year. For this purpose, the holding period of a Fully Paid Right or a New Share acquired through the exercise of a Nil Paid Right will include the holding period of the Nil Paid Right.
If the Company is or becomes a PFIC, a US Holder might be able to avoid some of the tax consequences described above by electing to mark the New Shares to market annually. The election is available only if the Ordinary Shares are marketable stock. Shares are marketable stock if they trade in more than de minimis quantities for at least 15 days during each calendar quarter. Any gain from marking New Shares to market or from disposing of them would be ordinary income. Any loss from marking New Shares to market would be recognized only to the extent of gains previously included in income. Loss from marking New Shares to market would be ordinary, but loss on disposing of them would be capital loss except to the extent of gains previously included in income. A US Holder should ask its tax advisor whether a mark-to-market election is available or desirable. A valid mark-to-market election cannot be revoked without the consent of the IRS unless the Ordinary Shares cease to be marketable.
A US Holder cannot avoid the tax consequences described above by electing to treat the Company as a qualified electing fund (QEF) because it does not intend to provide the information that a US Holder would need to make a QEF election.
If the Company were a PFIC, certain of the Company’s direct and indirect subsidiaries and other non-US companies in which it invests also may be PFICs (such subsidiaries and other companies, lower-tier PFICs). Because a shareholder in a PFIC is deemed to own its proportionate share of interests in any lower-tier PFICs, if the Company were a PFIC, US Holders generally would be subject to adverse US federal income tax consequences on excess distributions by or deemed dispositions of shares in any lower-tier PFICs. A mark-to- market election with respect to New Shares will not apply to a US Holder’s indirect interests in any lower-tier PFICs.
US Holders should consult their own tax advisors concerning the Company’s PFIC status, the consequences to them if the Company is a PFIC for any taxable year and the possible effects of lower-tier PFICs on their timing and character of income and loss.
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4. BACKUP WITHHOLDING AND INFORMATION REPORTING A US Holder’s dividends paid in respect of the New Shares and proceeds from the sale or exchange of Nil Paid Rights and New Shares may be reported to the IRS unless the US Holder is a corporation or otherwise establishes a basis for exemption. Backup withholding at the applicable statutory rate may apply to reportable payments unless the US Holder makes the required certification, including providing its taxpayer identification number or otherwise establishes a basis for exemption. Any amount withheld may be credited against a US Holder’s US federal income tax liability or refunded to the extent it exceeds the holder’s liability, provided the required information is timely furnished to the IRS.
THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A PARTICULAR INVESTOR. EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISER ABOUT THE TAX CONSEQUENCES TO IT OF AN INVESTMENT IN THE RIGHTS OR SHARES IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES.
5. CERTAIN ERISA CONSIDERATIONS ERISA imposes certain duties on persons who are fiduciaries of employee benefit Plans (as defined in Section 3(3) of ERISA) (ERISA Plans) and of entities whose underlying assets include assets of ERISA Plans by reason of an ERISA Plan’s investment in such entities. These duties include investment prudence and diversification and the requirement that an ERISA Plan’s investments be made in accordance with the documents governing the ERISA Plan. Section 406(a) of ERISA and Section 4975 of the United States Internal Revenue Code of 1986, as amended (the Code) prohibit certain transactions (prohibited transactions) involving the assets of ERISA Plans or plans described in Section 4975(e)(1) of the Code (together with ERISA Plans, Plans) and certain persons (referred to as “Parties-In-Interest” in ERISA and as “Disqualified Persons” in Section 4975 of the Code) having certain relationships to such plans and entities. A Party-In-Interest or Disqualified Person who engages in a non-exempt prohibited transaction may be subject to non-deductible excise taxes and other penalties and liabilities under ERISA and/or the Code.
The United States Department of Labor (the DOL), the government agency primarily responsible for administering the ERISA fiduciary rules and the prohibited transaction rules under ERISA and the Code, has issued a regulation (the Plan Asset Regulation, codified at 29 C.F.R. § 2510.3-101) that specifies the circumstances under which the underlying assets of an entity are treated for purposes of ERISA as assets of a plan (or plan assets), and are subject to the fiduciary provisions of ERISA, including the prohibited transaction provisions of ERISA, and the prohibited transaction provisions of the Code, by reason of the plan’s investment in the entity. Under the Plan Asset Regulation, when a Plan invests in an “operating company,” the Plan’s assets include its investment, but do not, solely by reason of such investment, include any of the underlying assets of the operating company. The term “operating company” is generally defined in the Plan Asset Regulation to mean an entity that is primarily engaged, directly or through a majority owned subsidiary or subsidiaries, in the production or sale of a product or service other than the investment of capital. The Plan Asset Regulation also treats an entity that qualifies as a “real estate operating company” (REOC) as an operating company. In addition, the Plan Asset Regulation provides that if equity participation in any entity by “Benefit Plan Investors” is not “significant” then the entity’s underlying assets will not be treated as “plan assets.” “Benefit Plan Investors” are defined in the Plan Asset Regulation, as modified by Section 3(42) of ERISA, to include (1) any employee benefit plan (as defined in Section 3(3) of ERISA), that is subject to part 4 of Title I of ERISA, (2) any plan to which Section 4975(e)(1) of the Code applies, and (3) any entity whose underlying assets include plan assets by reason of a plan’s investment in the entity. Equity participation by Benefit Plan Investors in an entity is significant if, immediately after the most recent acquisition of any equity interest in the entity, 25 percent. or more of the value of any class of equity interests in the entity (excluding the value of any interests held by certain persons, other than Benefit Plan Investors, having discretionary authority or control over the assets of the entity or providing investment advice with respect to the assets of the entity for a fee, direct or indirect, or any affiliates of such persons is held by Benefit Plan Investors.
Although the issue is not free from doubt, the Company believes that its underlying assets are currently not plan assets for purposes of ERISA. In an effort to prevent the Company’s assets from being treated as plan assets for purposes of ERISA, purchasers of New Shares, by their purchase of New Shares, will be deemed to represent and warrant that they are not and for so long as they hold any Ordinary Shares will not be, and will
128 Part VII: Certain Taxation and ERISA Considerations not be acting on behalf of, Benefit Plan Investors. However, there can be no assurance that such deemed representations and warranties will be effective to prevent the Company’s underlying assets from being treated as plan assets for purposes of ERISA or that the Company’s underlying assets will not be treated as plan assets for purposes of ERISA. Investors are advised to consult their own legal counsel with regard to this issue.
If for any reason the assets of the Company are deemed to be “plan assets”, both the Company and fiduciaries causing Plans to acquire or hold the Company’s Ordinary Shares could be adversely affected. With regard to the Company itself, although the reach of ERISA outside the United States is uncertain (i) certain transactions that the Company might enter into, or may have entered into, in the ordinary course of its business might constitute non-exempt “prohibited transactions” under ERISA or Section 4975 of the Code, which generally require rescission of prohibited transactions; (ii) various providers of fiduciary or other services to the Company, and any other parties with authority or control with respect to the Company, could be deemed to be Plan fiduciaries or otherwise Parties in Interest or Disqualified Persons by virtue of their provision of such service; and (iii) the payment of certain of the fees by the Company might be considered to be a non-exempt “prohibited transaction” under Section 406 of ERISA or Section 4975 of the Code. With regard to fiduciaries causing Plans to invest in the Company’s Ordinary Shares, (i) the underlying assets of the Company could be subject to ERISA’s reporting and disclosure requirements, in which case a Plan fiduciary would be required to report the Plan’s share of each of the Company’s assets as an asset of the Plan; (ii) a fiduciary causing a Plan to make an investment in the equity of the Company could be deemed to have delegated its responsibility to manage the assets of the Plan and could be held responsible under ERISA for investment decisions made by the Company, and (iii) it is not clear that Section 404(b) of ERISA, which generally prohibits Plan fiduciaries from maintaining the indicia of ownership of assets of Plans subject to Title I of ERISA outside the jurisdiction of the district courts of the United States, would be satisfied in all instances.
The sale of Ordinary Shares to a Plan is in no respect a representation by the Company that such an investment meets all relevant legal requirements with respect to investments by Plans generally or any particular Plan, or that such an investment is appropriate for a Plan generally or any particular Plan.
129 Part VIII: Additional Information
1. RESPONSIBILITY
The Company and the Directors, whose names are set out on page 33 of this document, accept responsibility AI, 1.1 for the information contained in this document. To the best of the knowledge of the Company and the AI, 1.2 Directors (who have taken all reasonable care to ensure that such is the case), the information contained in AIII, 1.1 this document is in accordance with the facts and does not omit anything likely to affect the import of such AIII, 1.2 information.
2. INCORPORATION AND REGISTERED OFFICE
2.1 The British Land Company PLC was incorporated and registered in England and Wales on 26 February AI, 5.1.1 1959 under the Companies Act 1948 as a private limited company under the name B L Holdings AI, 5.1.2 Limited. On 23 March 1959, it changed its name to its present name, The British Land Company AI, 5.1.3, Limited, and on 3 November 1981 it re-registered under the Companies Acts 1948 to 1980 as a public 5.1.4 company with limited liability. The Company is registered under company number 621920.
2.2 The Company is domiciled in the United Kingdom. Its head office and registered office is at York House, AI, 5.1.4 45 Seymour Street, London W1H 7LX (Tel. No. 020 7486 4466 or, if dialling from outside the United Kingdom, +44 20 7486 4466).
2.3 The principal laws and legislation under which the Company operates, and under which the Ordinary AIII, 4.2 Shares have been created, are the Companies Act and regulations made thereunder.
3. THE COMPANY’S SHARE CAPITAL 3.1 As at 11 February 2009 (being the latest practicable date prior to the date of this document), the authorised, issued and fully paid share capital of the Company was as follows:
Authorised Issued, called up and fully paid AI, 21.1.1(a) (Number) (Amount) (Number) (Amount) AI, 21.1.1(b) Ordinary Shares ...... 800,000,000 £200,000,000 522,576,628 £130,644,157 AI, 21.1.1(c)
3.2 The authorised, issued, called up and fully paid ordinary share capital of the Company immediately following completion of the Rights Issue is expected to be as follows:
Authorised Issued, called up and fully paid AI, 21.1.1(a) (Number) (Amount) (Number) (Amount) AI, 21.1.1(b) Ordinary Shares ...... 887,000,000 £221,750,000 863,450,217 £215,862,554 AI, 21.1.1(c)
3.3 Save as disclosed in paragraphs 3.5 and 3.6 below since 31 December 2008, there has been no issue of share capital of the Company, fully or partly paid, either in cash or for other consideration, and (other than in connection with the Rights Issue and the exercise of options or vesting of share awards) no such issues are proposed. As at the date of this document, the Company holds 11,266,245 Ordinary Shares in treasury.
3.4 The number of Ordinary Shares outstanding at the beginning and end of the last financial year, is as AI, 21.1.1(d) follows:
Issued, called-up Date Authorised and fully paid 1 April 2007 ...... 800,000,000 521,298,357 31 March 2008 ...... 800,000,000 522,190,080
3.5 History of Ordinary Share capital AI, 21.1.7 (a) Authorised Ordinary Share capital As at 1 April 2005, the first day covered by the historical financial information incorporated by reference into this document, the authorised Ordinary Share capital of the Company was £199,800,000 divided
130 Part VIII: Additional Information
into 799,200,000 Ordinary Shares. At the shareholders’ annual general meeting on 15 July 2005, shareholders approved the conversion and subdivision of 200,000 cumulative redeemable convertible preference shares of £1 each into 800,000 new Ordinary Shares of 25 pence each. Since 15 July 2005, the authorised Ordinary Share capital has not been changed. Subject to the passing of the Resolutions and Admission, pursuant to the Rights Issue, the authorised Ordinary Share capital of the Company will be increased to £221,750,000 by the creation of a further 87,000,000 Ordinary Shares.
(b) Issued Ordinary Share capital As at 1 April 2005, the first day covered by the historical financial information incorporated by reference into this document, 518,307,020 Ordinary Shares were in issue fully paid or credited as fully paid. Since 1 April 2005, there have been the following changes in the ordinary issued share capital of the Company:
Non-executive Ordinary Shares Ordinary Shares directors fees issued as a result of issued as a result of Year in Ordinary Shares Executive Options Rollover Options 2006 ...... 6,260 872,009 0 2007 ...... 4,041 1,513,208 595,819 2008 ...... 6,724 730,086 154,913 2009(1) ...... 11,085 315,881 59,582
Note:
(1) Up to 11 February 2009 (being the last practicable date prior to the publication of this document).
3.6 Subject to the passing of the Resolutions and Admission, pursuant to the Rights Issue, up to 340,873,589 AIII, 4.6 New Shares will be issued at a price of 225 pence per New Share. This will result in the issued ordinary share capital of the Company increasing by approximately 67 per cent.
Qualifying Shareholders who take up their pro rata entitlement in full will suffer no dilution to their AIII, 9.1 interests in the Company. Qualifying Shareholders who do not take up any of their rights to acquire the AIII, 9.2 New Shares will suffer an immediate dilution of 40 per cent. to their interests in the Company.
3.7 At an annual general meeting of the Company held on 11 July 2008, the power conferred on the AIII, 4.6 Directors by paragraph (1) of Article 13(B) of the Articles of Association was renewed for a period AI, 21.1.1(a) expiring at the conclusion of the annual general meeting of the Company in 2009 and for the purposes of that Article the “Section 80 amount” was set at £42,578,925.
3.8 If the Resolutions proposed to the General Meeting to be held on 3 March 2009 are passed:
(i) the authorised Ordinary Share capital of the Company will be increased to £221,750,000 by the LR 13.8.3 creation of a further 87,000,000 Ordinary Shares; LR 13.8.1 LR 13.8.2 (ii) the general authority conferred on the Directors to allot relevant securities by the Articles of Association will be varied for the period ending on the date of the Company’s Annual General Meeting in 2009 and the maximum amount of relevant securities which the Directors may allot during this period shall be 340,873,589 in connection with the Rights Issue and 284,061,323 in respect of the enlarged share capital of the Company following the issue of New Shares;
(iii) the authority of the Directors to allot shares other than in accordance with section 89(1) of the Companies Act pursuant to the authority referred in (ii) above will be increased for the period ending on the date of the Company’s Annual General Meeting in 2009 other than in connection with the Rights Issue, the authority enhanced in this Resolution will be limited to a maximum nominal amount of £10,793,127; and
(iv) the Company will be able to offer Shareholders a scrip dividend alternative.
The general authority to allot relevant securities for the prescribed period referred to in paragraph 3.7 above will, once increased as described in paragraph 3.8(ii) above, authorise the Directors to allot
131 Part VIII: Additional Information
relevant securities representing approximately 78 per cent. of the Ordinary Share capital of British Land as at the date of this document.
4. MEMORANDUM AND ARTICLES OF ASSOCIATION
The Memorandum and Articles of Association are available for inspection at the address specified in AI, 21.2.1 paragraph 25 below.
4.1 Memorandum of Association The Memorandum of Association provides, amongst other things, that the main objects for which the Company is formed and incorporated is to carry on the business of a property investment company and for that purpose to acquire and hold for investment land, buildings, houses and other real or personal property (including shares and other such securities). The objects of the Company are set out in full in clause 4 of the Memorandum of Association of the Company.
4.2 Articles of Association The Articles of Association adopted on 1 October 2008 pursuant to a resolution passed at the Company’s annual general meeting on 11 July 2008, contain (amongst other things) provisions to the following effect:
(a) Voting rights Subject to any rights or restrictions provided by the Articles of Association, on a show of hands at a AIII, 4.5 general meeting of the Company every holder of Ordinary Shares present in person or by duly appointed AI, 21.2.3 proxy and entitled to vote shall have one vote. Subject as mentioned in the previous sentence, on a poll, every holder of Ordinary Shares present in person or by duly appointed proxy and entitled to vote shall have one vote for every share held.
Under UK law, a member may (amongst other things) not exercise voting rights in the Company in respect of shares which are the subject of a restriction notice served after failure to provide the Company with information concerning interests in certain shares required to be provided under UK law.
(b) Shareholders’ meetings The Articles of Association rely on the provisions in UK law dealing with the calling of general meetings. AI, 21.2.5 The Companies Act requires that annual general meetings are held on a regular basis in addition to any other general meetings. The directors may call other general meetings whenever they think fit. The directors must also convene a meeting upon the valid request of Shareholders holding not less than ten per cent. of the Company’s paid-up capital carrying voting rights at general meetings of Shareholders. If the Company’s directors fail to give notice of such meeting to Shareholders when required to do so, the Shareholders that requested the general meeting, or any of them representing more than one half of the total voting rights of all Shareholders that requested the meeting, may themselves convene a meeting.
The Company must generally give at least 21 days’ notice of an annual general meeting. All other general meetings (other than an adjourned meeting) must generally be called by at least 14 days’ notice. In certain circumstances shorter notice can be agreed. Notice of a general meeting must be given in hard copy form, in electronic form, or by means of a website and must be sent to every member (other than those who are not entitled to receive notice), every director and to the Company’s auditors. The notice calling a general meeting must specify the place, day and time of the meeting and in the case of special business the general nature of such business. A notice calling an annual general meeting must state that the meeting is an annual general meeting.
(c) Attendance at Shareholders’ meetings and proxies In general, all Shareholders who have properly registered their shares in time may participate in general meetings. Shareholders may attend in person or by duly appointed proxy. Shareholders may vote in person or by such proxy. A Shareholder may appoint more than one proxy in relation to a general meeting, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by such Shareholder. The Articles of Association contain provisions for the appointment of
132 Part VIII: Additional Information
proxies including time limits for making such appointments ahead of a meeting and provisions for appointment by means of electronic communication.
(d) Quorum The Articles of Association state that no business other than the appointment of a chairman of the meeting shall be transacted at any general meeting unless a quorum is present. A quorum for the purposes of a general meeting is generally two people entitled to vote at the meeting.
If a quorum is not present at a general meeting within thirty minutes of the time appointed for the meeting, the meeting, if convened on the requisition of or by Shareholders, shall be dissolved. In any other case it shall stand adjourned to the same day in the next week at the same time and place or to such other day and time specified in the notice convening the meeting for such purpose or (if not specified) such time as the directors may determine. If at such adjourned meeting a quorum is not present within fifteen minutes from the time appointed for holding the meeting, the meeting shall be dissolved.
(e) Votes required for Shareholder action A simple majority of Shareholders entitled to vote and present in person or by duly appointed proxy may pass an ordinary resolution. To pass a special resolution, a majority of not less than three quarters of the members entitled to vote and present in person or by duly appointed proxy at the meeting is required.
(f) Amendments affecting Shareholder rights Shareholder rights of a class of shares in the capital of the Company may be varied with the written AI, 21.2.4 consent of the holders of three quarters of the issued shares of the class affected, or by a special resolution passed at a separate general meeting of the class of Shareholders affected.
(g) Financial statements and other communications with Shareholders Under UK law, not less than 21 days before the date of a general meeting, the Company must send or make available a copy of every balance sheet and profit and loss account which is to be laid before a general meeting, and a copy of the directors’ and auditors’ reports, to every member of the Company and every person who is entitled to receive notice of the meeting. The Company is entitled subject to complying with the necessary UK law provisions to send or supply summary financial statements to its Shareholders instead of the full reports and accounts.
(h) Dividends Subject to the provisions of UK Law, the Company may declare dividends on the Ordinary Shares by ordinary resolution. Interim dividends can be paid if the Directors consider that the profits of the Company justify it and this is permitted by applicable law. No dividend shall be payable in excess of the amount recommended by the Directors, or in contravention of the special rights attaching to any share. Except insofar as the rights attaching to any share otherwise provide, dividends shall be declared and paid according to the amounts paid on the shares in respect of which the dividend is paid.
No dividend payable shall bear interest against the Company (unless otherwise provided by the rights attaching to any share).
The Directors may withhold payment of all or any part of any dividends or other monies payable in respect of the Company’s shares from a person with an interest of 0.25 per cent. or more in amount or number if such a person has been served with a restriction notice after failure to provide the Company with information concerning interests in those shares required to be provided under UK law.
The directors may, if authorised by an ordinary resolution of the Company, offer Shareholders, in respect of any dividend, the right to elect to receive Ordinary Shares by way of scrip dividend instead of cash.
Any dividend unclaimed for a period of 12 years from the date when it was declared or became due for payment shall be forfeited and revert to the Company absolutely.
133 Part VIII: Additional Information
The Articles of Association also include provisions which: (i) provide the directors with powers to AI, 2.1.2.2 identify those persons whose interest in the Company may cause an additional tax charge to arise (a Substantial Shareholder); (ii) allow the directors to withhold the payment of dividends on shares that form part of the shareholding by virtue of which a person is a Substantial Shareholder (a Substantial Shareholding), unless certain conditions are met; (iii) allow dividends to be paid on shares that form part of a Substantial Shareholding where rights to dividends on the shares forming part of the Substantial Shareholding have been disposed of; (iv) seek to ensure that if a dividend is paid on shares that form part of a Substantial Shareholding and arrangements of the kind referred to in (iii) above are not implemented, the Substantial Shareholder concerned does not become beneficially entitled to that dividend; (v) allow the directors to require the disposal of shares forming part of a Substantial Shareholding if certain conditions are met; and (vi) require, in certain circumstances, a Substantial Shareholder to pay the tax charge.
(i) Changes in share capital The Company may increase its share capital by ordinary resolution. The Company may also by ordinary AI, 21.2.8 resolution:
(i) consolidate and divide any of its share capital into shares of larger amount than its existing shares;
(ii) cancel any shares which, at the date of passing the resolution, have not been taken, or agreed to be taken, by any person, and reduce the amount of its share capital by the amount of the shares cancelled; or
(iii) (subject to UK law) sub-divide any of its shares into shares of smaller amount than is fixed by the Memorandum of Association.
Subject to UK law, the Company may by special resolution reduce its share capital, any capital redemption reserve, any share premium account or other undistributable reserve in any way.
(j) Pre-emption rights Subject to UK law and any resolution passed by the Company under its and other Shareholders’ rights, AIII, 5.3.3 shares may be issued with such rights and restrictions as the Company may by ordinary resolution determine, or (if there is no such determination) as the directors may determine. Redeemable shares may be issued. Subject to UK law, the Articles of Association and any resolution passed by the Company, unissued shares are at the disposal of the board.
Under UK law, if the Company issues certain specific kinds of additional securities, current Shareholders will generally have pre-emption rights to those securities on a pro rata basis. Pre-emption rights are transferable during the subscription period relating to a particular offering.
The Shareholders may, by way of a special resolution, grant authority to the directors to allot shares as if the pre-emption rights did not apply. This authority may be either specific or general and may not exceed a period of five years. If directors wish to seek authority to disapply the pre-emption rights, the directors must produce a statement that is circulated to Shareholders detailing their reasons for seeking the disapplication of such pre-emption rights.
The pre-emption rights attaching to the Ordinary Shares do not apply to any allotments in respect of a rights issue where Ordinary Shares are allotted pursuant to the Directors’ authority to allot set out in the Articles of Association.
(k) Form, holding and transfer of Shares The Shares are in registered form. Shares may be held in either certificated or (subject to the Articles of AIII, 4.8 Association) uncertificated form. The transferor of a Share is deemed to remain the holder until the AIII, 4.3 transferee’s name is entered in the register.
Shares held in certificated form are evidenced by a certificate and a register of Shareholders is maintained by the Registrars. Subject to the provisions of the Articles of Association discussed in this paragraph (k), any member may transfer all or any of his certificated shares by an instrument of transfer in any usual
134 Part VIII: Additional Information
or common form or a form acceptable to the Directors. The instrument of transfer must be signed by or on behalf of the transferor and (in the case of a partly paid share) the transferee.
Title to certificated shares is evidenced by entry in the register of the Company’s members. The directors may decline to register any transfer of a certificated share unless:
(i) it is duly stamped and lodged at the specified place and accompanied by the relevant share certificate and such other evidence of the right to transfer as they may reasonably require;
(ii) the instrument of transfer is in respect of only one class of share;
(iii) in the case of a transfer to joint holders, the number of joint holders to whom the share is to be transferred does not exceed four; and
(iv) the instrument of transfer is in respect of a share in respect of which all sums payable to the Company have been paid.
Existing Ordinary Shares held in uncertificated form are held through CREST (the computerised AIII, 4.3 settlement system to facilitate the transfer of title to Shares in uncertificated form operated by Euroclear UK).
Subject to the provisions from the Articles of Association discussed in this paragraph (k), any member may transfer all or any of his uncertificated shares by means of a relevant system in the manner provided for in the Uncertificated Securities Regulations 2001 and the rules of the relevant system.
Title to uncertificated shares is evidenced by entry in the operator register maintained by Euroclear UK (which forms part of the Company’s register of members).
The Directors may decline to register the transfer of an uncertificated share in accordance with the Uncertificated Securities Regulations 2001, and, in the case of jointly held shares, where the share is to be transferred to more than four joint holders.
No fee is payable for the registration of transfers of either certificated or uncertificated shares although see Part VII of this document for tax consequences thereof.
The board may decline to register a transfer of any of the Company’s certificated shares by a person with an interest of 0.25 per cent. or more (if such a person has been served with a restriction notice) after failure to provide the Company with information concerning interests in those shares required to be provided under the Companies Acts, unless the transfer is shown to the directors to be pursuant to an arm’s length sale.
(l) Liquidation rights If the Company is liquidated, the liquidator may, with the authority of a special resolution and any other AIII, 4.5 sanction required by the Companies Act, divide among the members in specie or kind the whole or any part of the assets of the Company. The liquidator may determine how such division is to be carried out as between members or classes of members.
(m) Disclosure of holdings exceeding certain percentages The Disclosure and Transparency Rules require Shareholders to notify the Company if the voting rights AI, 21.2.7 held by such Shareholder (including by way of a certain financial instrument) reaches, exceeds or falls below three per cent. and each one per cent. threshold thereafter up to 100 per cent. Under the Disclosure and Transparency Rules, certain voting rights in the Company may be disregarded.
Pursuant to the Companies Act, the Company may also send a notice to any person whom it knows or believes to be interested in its Shares requiring that person to confirm whether he has such an interest and if so details of that interest.
Under the Articles of Association and UK law, if a person fails to comply with such a notice or provides information that is false in a material particular in respect of any shares (the default shares), the directors
135 Part VIII: Additional Information
may serve a restriction notice on such person. Such a restriction notice will state that the default shares and, if the directors determine, any other shares held by that person, shall not confer any right to attend or vote at any general meeting of the Company.
(n) Purchase of the Company’s shares by the Company Subject to UK law, and to any rights conferred on the holders of any class of shares and to any requirements imposed by the London Stock Exchange, the Company may purchase any of its own shares. The Directors are not obliged to select the shares to be purchased rateably or in any other particular manner as between the holders of shares of the same class or different classes.
(o) Lien and forfeiture The Company has a lien on every partly paid share for all amounts payable to the Company in respect of that share. The directors may, subject to the Articles of Association and to any conditions of allotment, call any monies unpaid on shares and may sell shares on which calls or amounts payable under the terms of issues are not duly paid.
(p) Ownership of Shares by non-UK persons There are no provisions in the Articles of Association that restrict non-resident or foreign shareholders from holding Ordinary Shares or from exercising voting rights attaching to Ordinary Shares.
(q) Untraceable Shareholders The Company shall be entitled to sell, at the best price reasonably obtainable, the shares of a member or AIII, 4.5 the shares to which a person is entitled by transmission if:
(i) during a period of 12 years prior to the date of advertising its intention to sell such shares at least three cash dividends in respect of such shares have become payable but no dividend has been claimed;
(ii) after the expiry of the period referred to in paragraph (q)(i) above, the Company has published a notice stating it intends to sell the shares in a leading national daily newspaper in the UK and in a newspaper circulating in the area of the last known address of the member or the person entitled by transmission, and by notice in writing to the London Stock Exchange (if the shares are listed on that exchange); and
(iii) during the period referred to in paragraph (q)(ii) above for three months following the publication of the advertisements, the Company has not heard from the member or the person entitled to the shares by transmission.
The net proceeds of such sale shall belong to the Company, which shall be obliged to account to the former member or other person who would have been entitled to the shares for an amount equal to the proceeds as a creditor of the Company.
5. MANDATORY TAKEOVER BIDS, SQUEEZE-OUT AND SELL-OUT RULES AIII, 4.9 Other than as provided by the Companies Act and the Takeover Code, there are no rules or provisions relating to mandatory bids and/or squeeze-out and sell-out rules in relation to the Ordinary Shares.
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6. DIRECTORS OF THE COMPANY AI, 1.1 AI, 14.1 6.1 Directors AIII, 1.1 The Directors and their principal functions are as follows:
Directors Function Chris Gibson-Smith Chairman Chris Grigg Chief Executive Andrew Jones Head of Retail Graham Roberts Finance Director Tim Roberts Head of Offices Clive Cowdery Non-Executive Director John Gildersleeve Non-Executive Director Aubrey Adams Non-Executive Director Kate Swann Non-Executive Director Robert Swannell Senior Independent Non-Executive Director Lord Turnbull Non-Executive Director
Brief biographical details of the Directors are as follows:
Chris Gibson-Smith (age 63), Chairman
Chris Gibson-Smith joined British Land as a Non-Executive Director in January 2003 and was AI, 16.1 appointed Chairman in January 2007. He is Chairman of the London Stock Exchange, a Trustee of Arts and Business, a Governor of London Business School and a non-executive director of Qatar Financial Centre Authority. Formerly he was a Group Managing Director of BP p.l.c. and until 2005 he was Chairman of National Air Traffic Services Limited, a non-executive director of Lloyds TSB Group PLC and a past Trustee of the Institute of Public Policy Research. He became Executive Chairman on 17 October 2008, following the resignation of Stephen Hester, and held this position until 12 January 2009 when Chris Grigg took up his appointment as the Company’s new Chief Executive. Chris Gibson-Smith now performs the role of Chairman.
In addition to his directorship of British Land and any directorships of Group companies, Chris Gibson- AI, 14.1 Smith holds or has held in the past five years the following directorships:
Company Status Arts and Business Limited Current Arts and Business Services Limited Current Institute for Public Policy Research Previous Lloyds TSB Bank PLC Previous Lloyds TSB Group PLC Previous London Stock Exchange Group PLC Current London Stock Exchange plc Current NATS (En Route) PLC Previous NATS (Services) Limited Previous NATS Holdings Limited Previous NATS Limited Previous Qatar Financial Centre Authority Current
Chris Grigg (age 49), Chief Executive Chris Grigg joined British Land as Chief Executive on 12 January 2009. He was Chief Executive of Barclays Commercial Bank until November 2008, having joined the bank in 2005 as Group Treasurer. Prior to Barclays, he held a broad range of leadership positions at Goldman Sachs, where his career spanned 20 years. He rose to partner of Goldman Sachs, working principally in its capital markets and derivatives business.
137 Part VIII: Additional Information
In addition to his directorship of British Land and any directorships of Group companies, Chris Grigg holds or has held in the past five years the following directorships:
Company Status Ingenious Film Partners 2 LLP Current IMS 3 Limited Liability Partnership Current
Andrew Jones (age 40), Head of Retail
Andrew Jones joined British Land in July 2005 after the Company’s acquisition of Pillar Property PLC. AI, 16.1 He was appointed to the executive committee in August 2005 and elected as an Executive Director in July 2006. He joined Pillar in 1995, becoming an executive director in 2002 with responsibilities for Retail Park investment and asset management. At British Land, he is Head of Retail and is also responsible for the Retail Fund advisory roles.
In addition to his directorship of British Land and any directorships of Group companies, Andrew Jones AI, 14.1 holds or has held in the past five years the following directorships:
Company Status BLSSP Property Holdings Limited Current
Graham Roberts (age 50), Finance Director
Graham Roberts joined British Land in January 2002 as an Executive Director and was appointed AI, 16.1 Finance Director in March 2002. He was previously senior real estate partner at Andersen. He is a member of the Management Board of EPRA, the European Public Real Estate Association.
In addition to his directorship of British Land and any directorships of Group companies, Graham AI, 14.1 Roberts holds or has held in the past five years the following directorships:
Company Status Balfour Beatty PLC Current
Tim Roberts (age 44), Head of Offices
Tim Roberts joined British Land in 1997, was appointed to the Executive Committee in August 2005 AI, 16.1 and was elected as an Executive Director in July 2006. He was appointed Joint Head of Asset Management at British Land in 2002 with responsibilities including investment sales and purchases. He has responsibility for the Office and ‘Other’ sectors of the Company’s portfolio. Before joining British Land, he was a partner at Drivers Jonas, in the Investment Agency team.
In addition to his directorship of British Land and any directorships of Group companies, Tim Roberts AI, 14.1 holds or has held in the past five years the following directorships:
Company Status BL Gazeley Limited Current BLT Properties Limited Current Songbird Estates PLC Current Tesco Aqua (GP) Limited Current Tesco Aqua (Nominee Holdco) Limited Current Tesco BL Holdings Limited Current
Clive Cowdery (age 45), Non-Executive Director
Clive Cowdery was appointed a Non-Executive Director of the Company in May 2007. He is Chairman AI, 16.1 of Resolution Limited, a company first founded in 2003. He was previously Chairman and Chief Executive of GE’s European primary insurance operations. Before joining GE in 1998, he co-founded Scottish Amicable/J. Rothschild International Assurance. He is also Chairman of the charity, The Resolution Foundation.
138 Part VIII: Additional Information
In addition to his directorship of British Land and any directorships of Group companies, Clive Cowdery AI, 14.1 holds or has held in the past five years the following directorships:
Company Status Pearl Group Holdings (No.1) Limited (formerly Resolution plc) Previous Resolution (Brands) Limited Current Resolution Operations LLP Current The Resolution Foundation Current
John Gildersleeve (age 64), Non-Executive Director
John Gildersleeve is Chairman of Carphone Warehouse Group where he has been a non-executive AI, 16.1 director since 2001. He joined the Board of EMI Group in February 2004, when he also became Deputy Chairman and senior independent non-executive director. He was appointed a Non-Executive Director in September 2008.
In January 2007, he was appointed non-executive Chairman of EMI Group and held this position until the UK music group’s purchase by private equity in 2007. Until February 2004, he was the Commercial & Trading Director of Tesco Plc. He joined Tesco in 1965 and became an Executive Director in 1984. He was formerly Chairman of Gallaher Group and a non-executive director of Lloyds TSB Bank Plc from 1994 to 1997 and Vodafone Group from 1998 to 1999.
In addition to his directorship of British Land and any directorships of Group companies, John AI, 14.1 Gildersleeve holds or has held in the past five years the following directorships:
Company Status EMI Group Limited Previous EMI Group Senior Executive Pension Scheme Trustee Limited Previous EMI Group Senior Executive Pension Trust Limited Previous Figleaves Global Trading Ltd Current Gallaher Group Limited Previous Tesco PLC Previous The Carphone Warehouse Group PLC Current WM. Low & Company PLC Previous
Aubrey Adams (age 59), Non-Executive Director
Aubrey Adams was until May 2008 Chief Executive of Savills, a leading global retail estates service AI, 16.1 provider with revenues over £300 million and some 18,000 employees. He was appointed a Non- Executive Director in September 2008.
He is non-executive Chairman of Air Partner, the world’s largest corporate aircraft charter company and was formerly Senior Non-Executive Director of Associated British Ports. He is a non-executive director of Unitech Corporate Parks which is a business focused on Indian Real Estate Investment. He is also a Trustee of the Wigmore Hall. He is a graduate of Cambridge University.
139 Part VIII: Additional Information
In addition to his directorship of British Land and any directorships of Group companies, Aubrey Adams AI, 14.1 holds or has held in the past five years the following directorships:
Company Status Adventis Group plc Current Air Partner PLC Current Associated British Ports Holdings Limited Previous Batley Mills Ladieswear Limited Previous Davies & Millett Limited Previous Foster Bowden Ltd Previous George Stead Limited Previous GHV (Llantrisant) Limited Previous Grosvenor Hill Properties Limited Previous Grosvenor Hill Ventures Limited Previous Netmortgage Limited Previous Pinnacle Regeneration Group Ltd Current S F Securities Limited Previous S.I.S. No. 1 Nominee Limited Previous Savills PLC Previous Shaw Cramond Limited Previous Shiplake Court Enterprises Limited Previous Shiplake Court Limited Previous Walker Walton Hanson Limited Previous Wigmore Hall Trust Current Unitech Corporate Parks Plc Current
Kate Swann (age 44), Non-Executive Director
Kate Swann was appointed a Non-Executive Director of British Land in April 2006. She is Chief AI, 16.1 Executive of WH Smith PLC. Before joining WH Smith, she had been Managing Director of Argos Ltd, within GUS plc, from 2000 and before that Managing Director of Homebase, within J Sainsbury plc. She began her career in marketing at Tesco Plc and went on to hold senior marketing roles with Homepride Foods, Coca Cola and Dixons.
In addition to her directorship of British Land and any directorships of Group companies, Kate Swann AI, 14.1 holds or has held in the past five years the following directorships:
Company Status Caffe Nuovo Limited Current Hodder Headline Limited Previous Lambert Howarth Group PLC Previous Smith News 2006 Limited Previous Smith News Trading Limited Previous UNS Group Limited Current UNS Hospitals Limited Current WH Smith 1955 Limited Current WH Smith International Limited Current WH Smith High Street Holdings Limited Current WH Smith High Street Limited Current WH Smith PLC Current WH Smith Retail Holdings Limited Current WH Smith Travel 2008 Limited Current WH Smith Travel Holdings Limited Current WH Smith Travel Limited Current WHSTV Sport Limited Current
Robert Swannell (age 58), Non-Executive Director
Robert Swannell is Senior Adviser, Citi Europe. He was previously Chairman of Citi’s European AI, 16.1 Investment Bank and Vice-Chairman Citi Europe. He has had a career in investment banking since 1977, when he joined Schroders (acquired by Citi in 2000). Before that, he qualified both as a chartered accountant and as a barrister. He is Chairman of HMV Group PLC, a non-executive director of 3i Group
140 Part VIII: Additional Information
plc, Deputy Chairman of the Governing Body of Rugby School, a Trustee of the Career Academies UK and a Member of the Takeover Panel Appeal Board. He was appointed a Non-Executive Director in September 2008.
In addition to his directorship of British Land and any directorships of Group companies, Robert AI, 14.1 Swannell holds or has held in the past five years the following directorships:
Company Status 3i Group plc Current Ashley Garden Freeholds Limited Previous HMV Group PLC Current The Arnold Foundation for Rugby School Current The UK Career Academy Foundation Current
Lord Turnbull (age 64), Non-Executive Director
Andrew Turnbull was appointed a Non-Executive Director of the Company in April 2006. He retired in AI, 16.1 July 2005 as Secretary of the Cabinet and Head of the Home Civil Service (2002 to 2005). He was Permanent Secretary of HM Treasury from 1998 to 2004; and before that Permanent Secretary at the Department of the Environment, 1994 to 1998. He entered the House of Lords in 2005. He is a non- executive director of Prudential PLC, Frontier Economics Ltd and a Council Member of the National Institute of Economic and Social Research. He is Chairman of BH Global Limited. He is also a part-time adviser to the London Partners of Booz and Co.
In addition to his directorship of British Land and any directorships of Group companies, Lord Turnbull AI, 14.1 holds or has held in the past five years the following directorships:
Company Status Arup Group Limited Previous Frontier Economics Limited Current National Institute of Economic and Social Research Current Prudential PLC Current Sheppey Academy Current BH Global Limited Current
7. DIRECTORS’ INTERESTS
Save as set out in paragraphs 7.1 and 7.2 below, no Director has any interests (beneficial or non-beneficial) AI, 17.2 in the share capital of the Company or any of its subsidiaries.
7.1 Directors’ shareholdings As at 11 February 2009 (being the latest practicable date prior to the publication of this document), the AI, 17.2 interests (all of which are beneficial unless otherwise stated) of the Directors (as well as their immediate families and including any interests held through the SIP) in the share capital of the Company or (so far as is known or could with reasonable due diligence be ascertained by the relevant Director) interests of a person connected (within the meaning of Section 346 of the Companies Act) with a Director and the existence of which was known to or could, with reasonable diligence, be ascertained by the Directors as at 12 February 2009 together with such interests as are expected to be held immediately following completion of the Rights Issue are as follows:
141 Part VIII: Additional Information
Executive Directors Immediately following As at 11 February 2009 completion of the Rights Issue Number of Number of Percentage of New and Percentage of Existing issued share Existing issued share Shares capital Shares capital Chris Grigg ...... 0 0.00 165,545 0.02 Andrew Jones ...... 59,268 0.01 98,780 0.01 Graham Roberts ...... 139,179 0.03 231,965 0.03 Tim Roberts ...... 49,914 0.01 83,190 0.01
Non-Executive Directors
Immediately following As at 11 February 2009 completion of the Rights Issue Number of Number of Percentage of New and Percentage of Existing issued share Existing issued share Shares capital Shares capital Chris Gibson-Smith ...... 31,921 0.01 53,201 0.01 Clive Cowdery ...... 6,040 0.00 10,066 0.00 Aubrey Adams ...... 10,000 0.00 16,666 0.00 Kate Swann...... 2,576 0.00 4,293 0.00 Robert Swannell ...... 7,834 0.00 13,056 0.00 Lord Turnbull ...... 3,171 0.00 5,285 0.00
7.2 Directors’ options and awards As at 11 February 2009 (being the last practicable date prior to the publication of this document), the AI, 17.2 Directors held options and awards to subscribe for Shares or were allocated Shares under the British Land Employee Share Plans which may be satisfied by a subscription of Shares, as follows: AI, 21.1.6
Andrew Jones Grant Number of Option Market Vested/ Exercise Share Plan Date of Grant Shares Price Price Unvested Period/Date (£) (£) Long-Term Incentive Plan Options 5 Dec 2005 5,432 9.94 – Vested 5 Dec 2008–4 Dec 2015 30 May 2006 10,423 12.52 – Unvested 30 May 2009–29 May 2016 14 Jul 2006 3,474 13.16 – Unvested 14 Jul 2009–13 Jul 2016 20 Dec 2007 33,193 8.83 – Unvested 20 Dec 2010–19 Dec 2017 29 May 2008 211,442 8.04 – Unvested 29 May 2011–28 May 2018 Performance Shares 5 Dec 2005 905 – 10.03 Vested 5 Dec 2008 30 May 2006 3,474 – 12.63 Unvested 30 May 2009 27 Jun 2007 33,131 – 13.40 Unvested 27 Jun 2010 20 Dec 2007 8,298 – 9.00 Unvested 20 Dec 2010 29 May 2008 52,860 – 7.86 Unvested 29 May 2011 Matching Share Plan 14 Jul 2006 12,084 – 12.83 Unvested 14 Jul 2009 22 May 2007 14,144 – 14.26 Unvested 22 May 2010 20 May 2008 25,656 – 7.96 Unvested 20 May 2011 Fund Managers Performance Plan 14 Jul 2006 56,977 – 12.83 Unvested 14 Jul 2009 30 May 2007 55,723 – 14.25 Unvested 30 May 2009 – 30 May 2011 14 Aug 2008 20,722 – 7.48 Unvested 14 Aug 2009 – 14 Aug 2011 Sharesave 22 Dec 2005 1,162 8.04 – – 1 Mar 2009–31 Aug 2009
Graham Roberts Grant Number of Option Market Vested/ Exercise Share Plan Date of Grant Shares Price Price Unvested Period/Date (£) (£) Long-Term Incentive Plan Options 25 Sep 2003 98,978 5.02 – Vested 25 Sep 2006–24 Sep 2013 28 May 2004 101,809 6.63 – Vested 28 May 2007–27 May 2014
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31 May 2005 84,663 8.77 – Vested 31 May 2008–30 May 2015 30 May 2006 64,696 12.52 – Unvested 30 May 2009–29 May 2016 14 Jul 2006 21,565 13.16 – Unvested 14 Jul 2009–13 Jul 2016 27 Jun 2007 84,777 13.27 – Unvested 27 Jun 2010–26 Jun 2017 20 Dec 2007 42,468 8.83 – Unvested 20 Dec 2010–19 Dec 2017 29 May 2008 128,059 8.04 – Unvested 29 May 2011–28 May 2018 Performance Shares 30 May 2006 21,565 – 12.63 Unvested 30 May 2009 27 Jun 2007 21,194 – 13.40 Unvested 27 Jun 2010 20 Dec 2007 10,617 – 9.00 Unvested 20 Dec 2010 29 May 2008 65,000 – 7.86 Unvested 29 May 2011 Matching Share Plan 14 Jul 2006 12,408 – 12.83 Unvested 14 Jul 2009 22 May 2007 11,404 – 14.26 Unvested 22 May 2010 20 May 2008 18,944 – 7.96 Unvested 20 May 2011 Sharesave 1 Mar 2005 2,550 6.48 – Unvested 1 Mar 2010–31 Aug 2010
Tim Roberts Grant Number of Option Market Vested/ Exercise Share Plan Date of Grant Shares Price Price Unvested Period/Date (£) (£) Long-Term Incentive Plan Options 29 Nov 2004 18,654 7.96 – Vested 29 Nov 2007–28 Nov 2014 31 May 2005 13,683 8.77 – Vested 31 May 2008–30 May 2015 5 Dec 2005 14,486 9.94 – Vested 5 Dec 2008–4 Dec 2015 30 May 2006 43,130 12.52 – Unvested 30 May 2009–29 May 2016 14 Jul 2006 14,376 13.16 – Unvested 14 Jul 2009–13 Jul 2016 27 Jun 2007 79,125 13.27 – Unvested 27 Jun 2010–26 Jun 2017 20 Dec 2007 39,637 8.83 – Unvested 20 Dec 2010–19 Dec 2017 29 May 2008 199,004 8.04 – Unvested 29 May 2011–28 May 2018 Performance Shares 5 Dec 2005 4,829 – 10.03 Vested 5 Dec 2008 30 May 2006 14,376 – 12.63 Unvested 30 May 2009 27 Jun 2007 19,781 – 13.40 Unvested 27 Jun 2010 20 Dec 2007 9,909 – 9.00 Unvested 20 Dec 2010 29 May 2008 49,751 – 7.86 Unvested 29 May 2011 Matching Share Plan 14 Jul 2006 10,744 – 12.83 Unvested 14 Jul 2009 22 May 2007 11,864 – 14.26 Unvested 22 May 2010 20 May 2008 27,628 – 7.96 Unvested 20 May 2011 Fund Managers Performance Plan Sharesave 14 Aug 2008 85,550 – 7.48 Unvested 14 Aug 2009 – 14 Aug 2011 1 Mar 2005 510 6.48 – Unvested 1 Mar 2010–31 Aug 2010 1 Sep 2008 1,205 6.24 – Unvested 1 Sep 2011–29 Feb 2012
The Non-Executive Directors do not hold any options/awards.
No British Land Director has or has had any interest in any transaction which is or was unusual in its nature or conditions or is or was significant to the business of the Company and which was effected by any member of the Company in the current or immediately preceding financial year or which was effected during an earlier financial year and remains in any respect outstanding or unperformed.
There are no guarantees provided by any member of the Company for the benefit of the Directors.
7.3 Within the period of five years preceding the date of this document, none of the Directors:
(a) has any convictions in relation to fraudulent offences; AI, 14.1.1(b)
(b) has been a member of the administrative, management or supervisory bodies or director or senior AI, 14.1(c) manager (who is relevant to establishing that a company has the appropriate expertise and experience for the management of that company) of any company at the time of any bankruptcy, receivership or liquidation of such company; or
(c) has received any official public incrimination and/or sanction by any statutory or regulatory AI, 14.1(d) authorities (including designated professional bodies) or has ever been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of a company or from acting in the management or conduct of the affairs of a company.
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7.4 Save as disclosed in paragraphs 7.1 and 7.2 above, none of the Directors has any potential conflicts of AI, 14.2 interest between their duties to the Company and their private interests or other duties.
8. REMUNERATION DETAILS, DIRECTORS’ SERVICE CONTRACTS AND LETTERS OF APPOINTMENT
8.1 Remuneration of Directors AI, 15.1 (a) In the financial year ended 31 March 2008, the aggregate total remuneration paid (including contingent or deferred compensation) and benefits in kind granted (under any description whatsoever) to the Directors by members of the Group was as set out on pages 69 to 77 of the Annual Report and Accounts 2008, which are incorporated by reference into this document.
Under the terms of their service contracts and applicable incentive plans, in the year ending 31 March AI, 15.1 2008, the Directors were entitled to the remuneration and benefits set out below: AI, 15.2
Salary/ Performance fees bonus Benefits Total (£ thousands) (£ thousands) (£ thousands) (£ thousands) Executive Directors Andrew Jones ...... 390 325 20 735 Graham Roberts ...... 376 240 26 642 Tim Roberts...... 352 350 23 725
Board committee Board fees fees Total (£ thousands) (£ thousands) (£ thousands) Non-Executive Directors Chris Gibson-Smith ...... 300 n/a 300 Clive Cowdery...... 28 16 44 John Gildersleeve...... 0 0 0 Aubrey Adams ...... 0 0 0 Kate Swann ...... 31 21 52 Robert Swannell ...... 31 34 65 Lord Turnbull ...... 31 32 63
No Director received any expense allowances chargeable to UK income tax or compensation for loss of office/termination payment. The Non-Executive Directors did not receive any bonus payments or benefits.
(b) Chris Grigg’s employment with the Company commenced on 12 January 2009. Under the terms of his service contract, Chris Grigg is entitled to an annual salary of £800,000 and additional benefits which are estimated to be worth approximately £25,000 per annum.
(c) In the financial year ended 31 March 2008, the total amount set aside or accrued by the Group to AI, 15.1 provide pension, retirement or other benefits to the Directors not including amounts set out in the table AI, 15.2 above is £474,300 (including amounts under the British Land Unapproved Retirement Benefits Plan, as set out on page 77 of the Annual Report and Accounts 2008), which are incorporated by reference into this document.
8.2 UK-based Directors (a) Benefits Benefits in kind for each Executive Director are reviewed annually by the Remuneration Committee, taking account of their performance and responsibility. Non-Executive Directors are not entitled to receive any benefits in kind, except that Chris Gibson-Smith is entitled to office accommodation and secretarial support as required for the performance of his duties.
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(b) Short-term annual incentive plan The annual incentive plan consists of a bonus payable to Executive Directors reflecting Company performance and the individual’s contribution during the preceding year. One-third of the annual bonus is paid in fully vested Ordinary Shares subject to a three year holding requirement under the Company’s Matching Share Plan described in paragraph 13.2 below. The remaining two-thirds of the annual bonus is paid in cash. For 2007/8 the “On Target” award level for the then Chief Executive was 90 per cent. of basic salary with a maximum award of 180 per cent. of basic salary. “On Target” award levels for the other Executive Directors were 75 per cent. of base salary with a maximum of 150 per cent. of basic salary. Bonus awards are not contractual and are not pensionable.
The Remuneration Committee’s approach to setting bonuses is two-fold. Each individual’s performance is considered in relation to the goals agreed for their specific areas of responsibility. The Remuneration Committee also considers team contributions made by each individual to overall corporate performance. These factors are then aggregated by the Remuneration Committee into individual bonus awards on a subjective basis (and taking account of other remuneration elements such as long term incentives).
(c) Long-term incentives British Land provides long-term incentives in the form of share options and share awards with the objective of achieving a strong alignment of management incentives with measures that matter to Shareholders and with shareholder returns via share ownership. Details of these long-term incentive plans are given in paragraph 13 of Part VIII of this document.
8.3 Termination payments Where an Executive Director’s service contract is terminated and any contractual notice period is not AI, 16.2 worked, the Company may pay a sum to the Executive Director in lieu of this notice period. This payment in lieu of notice is equal to the Executive Director’s fixed salary for the unexpired notice period and, in the case of Chris Grigg, Andrew Jones and Tim Roberts, either the cash value of the other benefits to which the Executive Director is contractually entitled, or alternatively the Company may decide to allow the Executive Director to continue to receive such benefits for any unexpired period of notice. Graham Roberts is entitled to be paid his fixed salary and pension contributions for all or part of the notice period if the Company chooses to make a payment in lieu of notice. In the case of Chris Grigg, Andrew Jones and Tim Roberts, any provision of benefits during the notice period will cease immediately if the Executive Director finds new employment. Depending upon the circumstances of the termination of employment, the Executive Director may be entitled, or the Remuneration Committee may exercise its discretion to allow, the Executive Director to receive outstanding awards under the British Land Employee Share Plans subject to the rules of the relevant plan.
Graham Roberts and Tim Roberts are members of the Company’s main pension scheme. Graham Roberts is contractually entitled to receive a final salary pension on the basis of two-thirds of final pensionable salary. Graham Roberts is also currently accruing benefits in the Company Funded Unapproved Retirement Benefit Scheme, whose benefits are defined lump sums. Andrew Jones is not a member of any Company pension scheme and instead the Company pays to a fund of his choice 15 per cent. of his fixed salary monthly in lieu of pension contributions. Chris Grigg is entitled to receive monthly contributions from the Company (at an annual rate of 35 per cent. of his fixed salary) either to the Company-sponsored group personal pension arrangement, or to a personal pension scheme, or in cash in lieu of pension contributions.
8.4 Aggregate emoluments The aggregate of emoluments for the Directors for the financial year ended 31 March 2008 was AI, 15.1 approximately £5,044,263 (and includes the emoluments of Stephen Hester, Robert Bowden, Michael Cassidy, Sir David Michels and John Travers, who are no longer Directors of the Company). The aggregate emoluments figure includes fees paid to Graham Roberts and Tim Roberts for Group Company board fees.
For further information on the total amount set aside by the Group to provide pensions, retirement or AI, 15.1 similar benefits in respect of the Directors in the financial year ended 31 March 2008, please see AI, 15.2 pages 76, 77 and 88 in the Annual Report and Accounts 2008.
145 Part VIII: Additional Information
8.5 Directors’ service contracts and letters of appointment The policy of the Company is to have service contracts with notice periods of one year. It is sometimes necessary when recruiting a new director to agree to a service contract with an initial notice period of longer than one year. In such circumstances it is the policy of the Company that the notice period should reduce to one year after an initial period of service. None of the Executive Directors currently has a notice period exceeding one year. The Company applies the principle of mitigation in the event of early termination of service contracts.
Details of the Executive Directors’ notice periods under their service contracts are set out below: AI, 16.1 AI, 16.2 Date of current contract/employing Notice period – from Notice period – from Name company company Executive Director Chris Grigg ...... 19 December 2008/ The British Land Company PLC 12 months 12 months Andrew Jones ...... 17 April 2007/ The British Land Company PLC 12 months 12 months Graham Roberts . . . . 19 November 2001/ The British Land Company PLC 12 months 12 months Tim Roberts...... 14 November 2006/ The British Land Company PLC 12 months 12 months
The Non-Executive Directors each have a letter of engagement reflecting their responsibilities and commitments. Chris Gibson-Smith has a six month notice period, Clive Cowdery, John Gildersleeve, Aubrey Adams and Robert Swannell have three-month notice periods and Kate Swann’s and Lord Turnbull’s engagements expire on 31 March 2009 unless renewed or terminated earlier in accordance with their letters of appointment.
Under the Articles of Association, all Directors must retire by rotation and seek re-election by Shareholders every three years. The dates in the table below reflect the latest date for re-election. No compensation would be paid to the Chairman or to any Non-Executive Director in the event of early termination of their letter of engagement.
The original date of appointment as a Director of the Company and the latest date for the next re- election are as follows:
Latest date for Date first appointed next re-election Chris Gibson-Smith...... 1 January 2003 AGM 2009 Chris Grigg ...... 12 January 2009 AGM 2009 Andrew Jones ...... 14 July 2006 AGM 2009 Graham Roberts ...... 2 February 2002 AGM 2011 Tim Roberts ...... 14 July 2006 AGM 2009 Clive Cowdery ...... 10 May 2007 AGM 2010 John Gildersleeve ...... 1 September 2008 AGM 2009 Aubrey Adams ...... 1 September 2008 AGM 2009 Kate Swann...... 1 April 2006 AGM 2009 Robert Swannell ...... 9 August 1999 AGM 2009 Lord Turnbull ...... 1 April 2006 AGM 2009
9. BOARD PRACTICES
9.1 Introduction The Combined Code recommends that at least half the members of the board of directors (excluding the Chairman) of a public limited company incorporated in the United Kingdom should be independent in character and judgement and free from relationships or circumstances which are likely to affect, or could appear to affect, their judgement.
Currently, the Board is composed of eleven members, consisting of the Chairman, four Executive Directors and six Non-Executive Directors, all of whom are independent.
146 Part VIII: Additional Information
The Board is responsible for the strategy, effective control and management of the Group. There is a formal schedule of matters specifically reserved for Board approval, which includes approval of the annual and quarterly accounts, the approval of authority levels below the Board and material acquisitions, disposals and financing arrangements. The Board delegates authority to the Approvals Committee of the Board, which consists of the Executive Directors of the Company, in respect of certain transactions within defined parameters. The Board has a regular schedule of meetings together with further meetings as required by the ongoing business of the Company. The Executive Directors and senior executives who comprise the Executive Committee meet weekly, to deal with the ongoing management of the Group.
Throughout the year ended 31 March 2008 and subsequent thereto through to the date of this AI, 16.4 document, the Company has complied with all of the provisions of the Combined Code issued by the Financial Reporting Council in June 2006. Chris Gibson-Smith performed the role of interim Executive Chairman (combining the roles of Chairman and Chief Executive) from 17 October 2008, following the resignation of Stephen Hester, until 12 January 2009 when Chris Grigg took up his appointment as the Company’s new Chief Executive. Although the Combined Code recommends that the roles of Chairman and Chief Executive should not be exercised by the same individual, the Board does not consider Chris Gibson-Smith’s performance of both roles on an interim basis to constitute a breach of the Combined Code.
The Combined Code requires a review of independence if a Director has served on the board for more than nine years from the date of their first election. The Board has reviewed whether Robert Swannell (after his appointment in 1999) remains independent in character and judgement, is satisfied that there are no relationships or circumstances which are likely to affect, or could appear to affect, his judgement and has also recently appointed him as the Senior Independent Non-Executive Director.
The Board has established Audit, Remuneration and Nomination Committees which operate within defined terms of reference, which are made available on the Company’s website (www.britishland.com), and their minutes are circulated to the Board. Robert Swannell is the Senior Independent Non-Executive Director.
9.2 Nominations Committee The Nominations Committee comprises Chris Gibson-Smith (chairman), Robert Swannell and Lord Turnbull.
The Nominations Committee’s responsibilities include making recommendations to the Board on all new Board appointments and succession planning. The Nominations Committee meets as required.
The Nominations Committee also considers, inter alia, the structure, size and composition of the Board and its committees, the recommendations to the Board of directors retiring by rotation for re-election by Shareholders, and the renewal of Non-Executive Directors’ letters of appointment.
9.3 Remuneration Policy and Committee The Remuneration Committee comprises John Gildersleeve, Kate Swann and Lord Turnbull (chairman). AI, 16.3
The Remuneration Committee meets regularly during the year. Its responsibilities include:
• determining and agreeing with the Board the framework for the remuneration of the Executive Directors and other members of the executive management;
• determining targets for any performance related pay schemes operated by the Company;
• determining the individual remuneration package of each Executive Director;
• determining the policy for and scope of pension arrangements, service agreements for the Executive Directors, termination payments and compensation commitments; and
• overseeing any major changes in employee benefit structure throughout the Group.
147 Part VIII: Additional Information
9.4 Audit Committee The Audit Committee comprises Aubrey Adams, Clive Cowdery, Robert Swannell (chairman) and Lord Turnbull.
The Audit Committee meets regularly during the year. The Audit Committee’s responsibilities include:
• monitoring the integrity of the financial statements of the Company and any formal announcements relating to the Company’s financial performance;
• reviewing the Company’s internal financial controls and the Company’s internal control and risk management systems;
• monitoring and reviewing the effectiveness of the Company’s internal audit function;
• making recommendations to the Board in relation to the appointment of the external auditor and approving the remuneration and terms of engagement of the external auditor;
• reviewing and monitoring the external auditor’s independence, objectivity and effectiveness;
• reviewing and monitoring the valuation process; and
• developing and implementing policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance.
The Audit Committee has undertaken each of the above responsibilities during 2008 for which it has received and reviewed relevant reports from management, the valuers and the internal and external auditors. It has agreed a schedule of internal audit reviews of various of the Group’s processes and controls to be undertaken, and has reviewed the results of those reviews already completed.
10. SIGNIFICANT SHAREHOLDINGS
10.1 As at 11 February 2009, the Company had been notified of or was otherwise aware of the following AI, 18.1 Shareholders who were directly or indirectly interested in three per cent. or more of the issued Ordinary Shares:
As at 11 February 2009 Percentage Ordinary of issued Shares share capital GIC ...... 38,965,331(1) 7.62 Legal & General Group Plc...... 21,101,687 4.13 APG (formerly Stichting Pensioenfonds ABP) ...... 20,831,757 4.07
Note:
(1) 36,705,979 of such Ordinary Shares (representing approximately 7.18 per cent. of the issued share capital of the Company) are held by GIC in relation to operations carried on by GICRE and 2,259,352 of such Ordinary Shares (representing approximately 0.44 per cent. of the issued share capital of the Company) are held by GIC in relation to operations other than those carried on by GICRE.
10.2 The Company is aware that Morgan Stanley may hold three per cent. or more of the total voting rights attaching to the Company’s issued share capital but is not aware of the exact amount of Morgan Stanley’s holdings. As at 6 February 2009, Morgan Stanley, on behalf of various clients for whom it has voting authority, held 26,144,259 Ordinary Shares (representing approximately 5.11 per cent. of the issued share capital of the Company). On 10 February 2009, Morgan Stanley provided regulatory notification that it had sold a sufficient number of shares to bring its holding below the five per cent. reporting requirement. At the date of publication of this document, the Company could not confirm the amount of Ordinary Shares held by Morgan Stanley although Morgan Stanley likely held more than three per cent. of the total voting rights attaching to the Company’s issued share capital.
148 Part VIII: Additional Information
10.3 Save as disclosed in this paragraph 10, the Company is not aware of any person who as at 11 February 2009 (being the latest practicable date prior to the publication of this document), directly or indirectly, has a holding which exceeds the threshold of three per cent. or more of the total voting rights attaching to its issued share capital.
10.4 Save as disclosed on pages 148 and 149 of this document, the Company is not aware of any persons AI, 18.3 who, as at 11 February 2009 (being the latest practicable date prior to the publication of this document), AI, 18.4 directly or indirectly, jointly or severally, exercise or could exercise control over the Company nor is it aware of any arrangements, the operation of which may at a subsequent date result in a change of control of the Company.
10.5 None of the Shareholders referred to in this paragraph 10 has different voting rights from any other AI, 18.2 holder of Shares in respect of any Shares held by them.
11. SUBSIDIARIES
The following table contains a list of the principal subsidiaries of the Company (each of which is considered AI, 7.1 by the Company to be likely to have a significant effect on the assessment of the assets, liabilities, the financial AI, 7.2 position and/or the profits and losses of the Group): AI, 25.1 AI, 5.2.1 Percentage ownership AI, 21.1.3 interest and voting Country of Name power Field of activity incorporation Registered office The British Land 100 Executive England & Wales York House, 45 Seymour Street, Corporation Limited London W1H 7LX British Land Property 100Finance, Investment England & Wales York House, 45 Seymour Street, Management Limited and Management London W1H 7LX BLD Property Holdings 100Finance, Investment England & Wales York House, 45 Seymour Street, Limited and Management London W1H 7LX BL European Fund 100Finance, Investment England & Wales York House, 45 Seymour Street, Management LLP and Management London W1H 7LX BL European Holdings 100Finance, Investment England & Wales York House, 45 Seymour Street, Limited and Management London W1H 7LX British Land (Joint 100Finance, Investment England & Wales York House, 45 Seymour Street, Ventures) Limited and Management London W1H 7LX British Land Property 100Finance, Investment England & Wales York House, 45 Seymour Street, Advisers Limited and Management London W1H 7LX Broadgate Financing PLC 100Finance, Investment England & Wales York House, 45 Seymour Street, and Management London W1H 7LX Meadowhall Finance PLC 100Finance, Investment England & Wales York House, 45 Seymour Street, and Management London W1H 7LX 1 & 4 & 7 Triton Limited 100 Property England & Wales York House, 45 Seymour Street, London W1H 7LX Percentage ownership interest and voting Country of Name power Field of activity incorporation Registered office 2 & 3 Triton Limited 100 Property England & Wales York House, 45 Seymour Street, London W1H 7LX 201 Bishopsgate Limited 100 Property England & Wales York House, 45 Seymour Street, London W1H 7LX 350 Euston Road Limited 100 Property England & Wales York House, 45 Seymour Street, London W1H 7LX BF Propco (No 10) Limited 100 Property England & Wales York House, 45 Seymour Street, London W1H 7LX
149 Part VIII: Additional Information
BL Fixed Uplift Fund 100 Property Jersey 47 Esplanade, St. Helier, Limited Partnership Jersey JE1 0BD British Land In Town 100 Property England & Wales York House, 45 Seymour Street, Retail Limited London W1H 7LX British Land Leisure Limited 100 Property England & Wales York House, 45 Seymour Street, London W1H 7LX British Land Retail 100 Property England & Wales York House, 45 Seymour Street, Warehouses Limited London W1H 7LX Broadgate (PHC 2) Limited 100 Property England & Wales York House, 45 Seymour Street, London W1H 7LX Broadgate (PHC 3) Limited 100 Property England & Wales York House, 45 Seymour Street, London W1H 7LX Broadgate (PHC 4) Limited 100 Property England & Wales York House, 45 Seymour Street, London W1H 7LX Broadgate (PHC 5) 100 Property England & Wales York House, 45 Seymour Street, 2005 Limited London W1H 7LX Broadgate (PHC 6) 100 Property England & Wales York House, 45 Seymour Street, 2005 Limited London W1H 7LX Broadgate (PHC 7) 100 Property England & Wales York House, 45 Seymour Street, 2005 Limited London W1H 7LX Broadgate (PHC 8) 100 Property England & Wales York House, 45 Seymour Street, 2005 Limited London W1H 7LX Broadgate (PHC 9) 100 Property England & Wales York House, 45 Seymour Street, 2005 Limited London W1H 7LX Broadgate (PHC 11) 100 Property England & Wales York House, 45 Seymour Street, 2005 Limited London W1H 7LX Broadgate (PHC 15a) 100 Property England & Wales York House, 45 Seymour Street, 2005 Limited London W1H 7LX Broadgate (PHC 16) 100 Property England & Wales York House, 45 Seymour Street, 2005 Limited London W1H 7LX Eastgate Shopping 100 Property England & Wales York House, 45 Seymour Street, Centre Basildon Limited London W1H 7LX Euston Tower Limited 100 Property England & Wales York House, 45 Seymour Street, London W1H 7LX Meadowhall Limited 100 Property Jersey 22 Grenville Street, St. Helier, Partnership (Jersey) Jersey JE4 8PX Osnaburgh Street Limited 100 Property England & Wales York House, 45 Seymour Street, London W1H 7LX Pillar Denton Limited 100 Property England & Wales York House, 45 Seymour Street, London W1H 7LX Ropemaker Place Unit 100 Property Jersey 47 Esplanade, Trust (Jersey) St. Helier, Jersey JE1 0BD Stockton Retail Park Limited 100 Property England & Wales York House, 45 Seymour Street, London W1H 7LX The Mary Street Estate 100 Property England & Wales York House, 45 Seymour Street, Limited London W1H 7LX Percentage ownership interest and voting Country of Name power Field of activity incorporation Registered office The Retail & Warehouse 100 Property England & Wales York House, 45 Seymour Street, Company Limited London W1H 7LX York House W1 Limited 100 Property England & Wales York House, 45 Seymour Street, London W1H 7LX
12. EMPLOYEES AI, 17.1 As at 31 March 2008, the Company had approximately 732 employees:
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As at 31 March 2006 2007 2008 Head Office ...... 200 199 177 Employed on properties ...... 518 605 555 –––––––––– –––––––––– –––––––––– Total ...... 718 804 732 –––––––––– –––––––––– –––––––––– 13. BRITISH LAND EMPLOYEE SHARE PLANS
13.1 Option Plans The Company operates the following Option Plans AI, 17.2 • the Savings-Related Share Option Scheme; and AI, 17.3 AI, 21.1.6 • the Long Term Incentive Plan.
(a) Terms of the Option Plans The following terms apply to the Option Plans:
(i) Time limit for option grants Options may not be granted more than ten years after Shareholder approval of the Option Plans.
(ii) Dilution limits In any ten-year period, the Company may not grant options under the Option Plans or any other all-employee share plans adopted by the Company or any other company under the Company’s control if such grant would cause the number of Ordinary Shares issued under the plans to exceed ten per cent. of the Company’s issued ordinary share capital at the proposed date of grant.
In addition, under the LTIP, in any ten-year period, the Company may not grant options under the LTIP or any other discretionary share plans adopted by the Company or any other company under the Company’s control if such grant would cause the number of Ordinary Shares issued under the plans to exceed five per cent. of the Company’s issued ordinary share capital at the proposed date of grant.
(iii) Variation of capital In the event of any variation in the Company’s share capital, adjustments may be made to the number of Ordinary Shares under option and/or the price payable on the exercise of an option as considered appropriate by the Remuneration Committee and confirmed as such by the Company’s auditors, subject to HMRC approval in respect of options granted under plans which have been approved by HMRC. In relation to performance shares granted under the LTIP, the trustee may utilise the net proceeds of any sale of rights in respect of performance shares to acquire new shares (whether by way of subscription in the rights issue or purchase of existing shares or otherwise) and the number of performance shares under each outstanding award of performance shares will be adjusted appropriately to reflect any shares so acquired.
(iv) Options personal to participants Options are not transferable, except on death.
(v) Rights attaching to Ordinary Shares Any Ordinary Shares allotted when an option is exercised will rank equally with Ordinary Shares then in issue (except for rights arising by reference to a record date prior to their allotment).
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(vi) Alterations to the Option Plans The Board or a committee (as appropriate) may amend the Option Plans in any respect, provided that the prior approval of Shareholders is obtained for the amendment of certain provisions to the advantage of participants.
The requirement to obtain the prior approval of Shareholders will not, however, apply to any minor amendment made to benefit the administration of the Option Plans, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for eligible employees, participants or for any company in the Group. Shareholder approval will also not be required for any amendment to any performance conditions.
Amendments that would adversely affect subsisting rights are subject to specified limitations. Amendments to plans approved by HMRC are generally subject to the prior approval of HMRC.
(b) Sharesave Scheme The following additional terms apply to the Sharesave Scheme as well as those set out in paragraph 13.1(a) above:
(i) Eligibility Employees and full-time Directors of the Company and any designated participating subsidiary are eligible to participate. The Board may require employees to have completed a qualifying period of employment, currently 18 months, of up to five years before they are eligible to participate in the Sharesave Scheme. The Board may allow other employees to participate.
(ii) Grant of options Options can only be granted to employees who enter into approved savings contracts, under which monthly savings are normally made over a period of three or five years. Options must be granted within 30 days (or 42 days if applications are scaled down) of the first day by reference to which the exercise price is set or within 42 days (or 54 days if applications are scaled down) from the dealing day following: approval of the plan by HMRC; announcement of the Company’s results for any financial period; the Company issuing a prospectus or other similar document; changes to the legislation affecting savings-related share option schemes being announced, made or coming into effect; announcement by the bank or building society holding monthly contributions under the plan of a new savings-related share option prospectus; a resolution by the Directors that exceptional circumstances have arisen which justify the grant of options; or restrictions on the grant or offer of options under the Model Code ceasing to apply. The number of Ordinary Shares over which an option is granted will be such that the total exercise price payable will correspond to the proceeds on maturity of the related savings contract.
(iii) Individual participation Monthly savings by an employee under all savings contracts linked to options granted under any Sharesave Scheme may not exceed the statutory maximum (currently £250 in the United Kingdom). The Board can set a lower limit in relation to any particular grant.
(iv) Exercise price The price per Ordinary Share payable upon the exercise of an option will not be less than 80 per cent. of the average middle-market quotation of an Ordinary Share on the London Stock Exchange on the three dealing days preceding a date specified in an invitation to participate.
(v) Exercise of options Options will normally be exercisable for a six-month period after the end of each savings contract before lapsing.
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(vi) Leaving employment Options will lapse on cessation of employment or directorship with the Company, its subsidiaries, any other companies permitted to participate in the Sharesave Scheme or any company which has control of the Company, is under the Company’s control or which is under the control of the same person as the Company, unless the participant ceases employment or directorship for a “good leaver” reason (death; injury or disability; redundancy; retirement on reaching age 60 or the age a participant is bound to retire under his employment or, if three years have passed since the option grant date, ceasing employment as a result of retirement by agreement with the participant’s employer, pregnancy or any other reason), on account of reaching age 60, or because the business in which he works transfers out of the Group in which case the participant may exercise options within six months of ceasing employment.
(vii) Corporate events In the event of a change of control as a result of a general offer, a compromise or scheme of arrangement, a compulsory purchase of shares or a winding up, options will become exercisable for specified periods and the Company will notify option holders of the relevant corporate event so as to enable them to exercise their options or take other action.
(c) LTIP Under the LTIP, the Remuneration Committee (or, in the case of performance shares, the trustee on the committee’s recommendation) may, in its discretion, grant market value options or awards of performance shares. The option section of the LTIP comprises an HMRC approved part and an unapproved part. The following additional terms apply to the LTIP, as well as those set out in paragraph 13.1(a) above:
(i) Eligibility Any employee (including an Executive Director) of the Company or its subsidiaries is eligible to participate. Participants will be selected on a discretionary basis.
(ii) Grant of options and performance shares The Company, at its discretion, may grant either (or both) market value options or performance shares.
(iii) Individual participation The Company may award options and/or performance shares over a maximum notional value of 250 per cent. of base salary each year disregarding the value of any award made for the purposes of recruitment. The split of the awards made each year between performance shares and options may be varied between 0 per cent. and 100 per cent. at the discretion of the Remuneration Committee. The Remuneration Committee’s current policy is to make awards of up to a maximum of 200 per cent. of base salary for executive directors and 250 per cent. of base salary for the chief executive.
(iv) Exercise price The price per share payable upon exercise of an option will not be less than the average market value of an Ordinary Share on the three dealing days before the date of grant or, if greater and in the case of an option over Ordinary Shares which are to be issued, the nominal value of an Ordinary Share.
(v) Performance conditions Grants made under the LTIP are subject to a prescribed performance condition upon which the exercise of options and the vesting of performance shares is contingent. Exceptionally, grants of performance shares may be made without any performance condition if required to facilitate the
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recruitment of an individual. The performance condition attaching to options and performance shares measures the growth in the Company’s net asset value per share against the capital growth component of the Investment Property Databank Annual Index (the Index), over a performance period of three years commencing the year in which the options and performance shares are granted. Growth in the Company’s net asset value per share must exceed that of the Index for a minimum proportion of the options to be exercised and/or performance shares to vest. Outperformance at a specified level is required for the entire award of options or performance shares to vest.
(vi) Exercise of options and vesting of performance shares Options will normally become capable of exercise and performance shares will normally vest three years after grant to the extent that the performance condition has been satisfied and provided that the participant remains employed by, or is a full-time director of, the Group. Any option not exercised by the tenth anniversary of its date of grant will lapse.
(vii) Leaving employment and corporate events As a general rule, an option will lapse and an award of performance shares will be forfeited upon a participant ceasing to hold employment or being a director within the Group. However, if a participant ceases to be an employee or director for a “good leaver” reason, because his employing company or the business for which he works is sold out of the Group or in other circumstances at the discretion of the Remuneration Committee, then all or a proportion of his option will become exercisable for a prescribed period and his awards will vest, normally subject to the attainment of the performance condition measured over the relevant shorter period. Depending on when the option or performance shares were granted, time-pro-rating may also apply.
Similarly, on the occurrence of a change of control as a result of a general offer, a compromise or scheme of arrangement, a compulsory purchase of shares or a winding up, options will generally become exercisable within specified periods, subject to the attainment of the performance condition which will be measured over the relevant shorter period. All or a proportion of performance shares will vest on a change of control as a result of a general offer, on a compulsory purchase of shares or on a winding up, subject to the extent that any performance condition has been achieved.
13.2 Employee Share Ownership Plans The Company operates the following Employee Share Ownership Plans:
• the Share Incentive Plan;
• the Executive Matching Share Plan;
• the Fund Managers’ Performance Plan; and
• the Co-Investment Plan.
(a) Terms of the SIP (i) Dilution limits An equivalent limit to that set out in paragraph 13.1(a) under the subheading entitled “Dilution Limits” applies to the allocation of shares under the SIP.
(ii) Eligibility All employees of the Company and any participating subsidiary may participate, provided they have the requisite period of continuous employment. When the SIP is operated, all eligible employees must be invited to participate.
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(iii) Operation Employees may be offered free, partnership or matching shares, as the Directors decide. The SIP operates through a trust, the trustee of which (the SIP Trustee) acquires Ordinary Shares by purchase or subscription and holds the Ordinary Shares on behalf of employees.
(iv) Free shares Participants may be given free Ordinary Shares (free shares) up to a market value limited by UK tax legislation, currently £3,000 a year.The Remuneration Committee may make the awards of free shares subject to performance targets. Free shares must generally be held in trust for between three and five years.
(v) Partnership shares Participants may be offered the opportunity to buy Ordinary Shares (partnership shares) using deductions from their pre-tax salary. Such partnership shares are bought at market value. Under UK tax legislation, participants can buy up to £1,500 worth of Ordinary Shares in each tax year or, if less, ten per cent. of salary.
(vi) Matching shares The Remuneration Committee may award additional free Ordinary Shares (matching shares) on a matching basis to participants who buy partnership shares. Under UK tax legislation, up to a maximum of two matching shares can be awarded for each partnership share bought.
(vii) Dividends Cash dividends paid on Ordinary Shares held in the SIP may be reinvested in further Ordinary Shares up to a maximum amount set out in UK tax legislation, which is currently £1,500 a year.
(viii) Voting rights The SIP Trustee can only vote Ordinary Shares held in the SIP in accordance with participants’ instructions.
(ix) Leaving employment If a participant ceases to be employed by the Group before his free shares, partnership shares or matching shares have been held in the trust for five years, his free shares, partnership shares and matching shares will be transferred to him after deduction of tax, unless he has ceased to be employed for a “good leaver” reason, in which case no tax will be deducted before the free shares, partnership shares and matching shares are transferred to him. Dividend shares will be transferred to the participant on cessation of employment without deduction of tax provided they have been held in the trust for more than three years or the participant is a “good leaver”. If the participant ceases to be employed at a time when the dividend shares have been held in the trust for less than three years and the participant is not a “good leaver”, the dividend shares will be taxed as a dividend.
(x) Corporate events In the event of any reconstruction or takeover of the Company, participants may direct the SIP Trustee how to act in respect of any Ordinary Shares held on their behalf.
(xi) Rights offers Whenever rights to acquire shares or other rights of any nature are granted by the Company in respect of shares held by the SIP Trustee under the plan on behalf of participants, participants may
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instruct the SIP Trustee to take up all or part of the rights, to sell the rights and/or to allow all or part of the rights to lapse.
(b) Terms of the MSP and FMPP The following terms apply to both the MSP and the FMPP:
(i) Time limit for grant of awards Awards may not be granted more than ten years after Shareholder approval of the MSP or FMPP.
(ii) Dilution limits Awards are subject to dilution limits so as to ensure that commitments to issue new shares under all of the Company’s share plans are limited to ten per cent. of the Company’s issued share capital in any rolling ten year period and that commitments to issue new shares under the Company’s discretionary share plans is limited to five per cent. of the Company’s issued share capital over the same period.
(iii) Variation of capital In the event of any variation in the share capital of the Company, including by way of rights issue, the trustees may (having consulted with the Remuneration Committee) make such adjustment as they consider appropriate (subject to confirmation from the Company’s auditors that such adjustment is fair and reasonable) to the number of shares which may be acquired pursuant to a share award.
(iv) Awards personal to participants Awards are not transferable, except on death.
(v) Alterations The Remuneration Committee (or Trustee, as appropriate) may amend the plan in any respect, provided that (a) prior written consent is obtained from participants holding 75 per cent. of outstanding awards where the amendment would adversely affect their accrued rights, and (b) prior shareholder approval is given to amendments which would be to the advantage of participants. Shareholder approval will not be required for any minor amendment to benefit the administration of the plan, to take account of a change in legislation, to obtain or maintain favourable tax, exchange control or regulatory treatment for participants or the Group, or (in the case of the MSP only) which constitutes a fair and reasonable adjustment of the performance conditions.
(c) Terms of the MSP The following additional terms apply to the MSP as well as those set out in paragraph 13.2(b) above:
(i) Eligibility Executive Directors and employees of the Company or members of its Group are eligible to participate in the MSP.
(ii) Grant of awards The Trustee (on the recommendation of the Remuneration Committee) may grant awards to participants.
One third of a participant’s after tax annual bonus (or such other after tax proportion as the Remuneration Committee may agree) (the Deferred Bonus) is delivered in the form of British Land shares (the Bonus Shares). Participants are eligible to receive an award of free shares (a Matching Share Award) benchmarked by reference to the number of shares (the Notional Bonus Shares) that
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is equal in value to the gross amount of their Deferred Bonus on the date such Deferred Bonus was declared. The receipt of that Matching Share Award is subject to (i) the Bonus Shares being held by the Trustee for a three year period (the Performance Period), (ii) the participant remaining an employee or officer of a Group company at the end of the Performance Period, and (iii) certain performance conditions being satisfied.
Matching Share Awards are generally granted within four months following the end of the Company’s financial year.
(iii) Individual participation The maximum amount of shares that can be delivered to a participant pursuant to a Matching Share Award cannot exceed 200 per cent. of the number of their Notional Bonus Shares for any relevant year.
(iv) Performance conditions The extent to which a Matching Share Award will vest depends on the satisfaction of performance conditions over the Performance Period. The Matching Share Award is divided into two equal parts, the first half of which is subject to a performance condition based on total shareholder return and the second is subject to a performance condition based on the growth in the Company’s earnings per share.
(v) Vesting of Matching Share Awards Matching Share Awards will vest and be delivered to participants as soon as practicable following the end of the three year Performance Period provided the related Bonus Shares have been held by the Trustee for the whole of that period, the participant remains an eligible employee, and to the extent to which performance conditions have been satisfied.
(vi) Leaving employment Rights to a Matching Share Award will normally lapse on cessation of employment. A participant who leaves before the end of the Performance Period will be classified as a “good leaver” if he leaves employment on account of injury, disability or death; retirement; redundancy; transfer of the business in which he is employed; or in any other circumstance at the Remuneration Committee’s discretion. Where a participant is considered a “good leaver”, the Remuneration Committee will recommend that the Trustee exercises its discretion to permit vesting of Matching Share Awards at the end of the Performance Period or earlier. In such a case, the Trustee (taking into account the recommendation of the Remuneration Committee) will determine that the Matching Share Award will vest to the extent to which the performance conditions have been achieved at the time of leaving and pro-rated to take account of the proportion of the Performance Period which has elapsed at the date of leaving.
(vii) Corporate events In the event of a takeover, scheme of arrangement or winding-up of the Company, Matching Share Awards will vest early if the Trustee (having consulted with the Remuneration Committee) so determines and only to the extent that the performance conditions have been satisfied at that time by reference to an appropriately modified period. The level of any such Matching Share Award will then be pro-rated by reference to the vesting period that has elapsed at the time of the relevant event.
In the case of an internal reorganisation, share awards will be replaced by equivalent new awards over shares in a new holding company.
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(d) Terms of the FMPP The following additional terms apply to the FMPP as well as those set out in paragraph 13.2(b) above:
(i) Eligibility The FMPP is designed to incentivise and retain executives who operate the “Company advised” unit trusts by rewarding outperformance and to align the interests of those executives with investors in the unit trusts. The Company is one of the largest investors in these unit trusts.
The work of the fund managers is very similar to that of executives who run the British Land owned portfolios. Shareholders approved an amendment of the rules of the FMPP (at the 2008 annual general meeting) to include both types of assets managed by the Group and to extend the plan to those executives managing internal portfolios.
In addition, the Remuneration Committee may in its absolute discretion make, or recommend that the Trustee makes, awards to employees who work outside of the fund management group. Such awards would be based on contribution to fund activity and would represent, in total, no more than 20 per cent. of the Incentive Pool (as defined below).
(ii) Grant of awards Following the end of each financial year, up to a maximum of 30 per cent. of the annual performance fees earned by the unit trusts is set aside (the Incentive Pool) to provide incentives under the FMPP to executives operating the “Company advised” unit trusts. As agreed by Shareholders in 2008, a comparative notional pool is now also calculated for the purposes of incentivising executives managing internal portfolios. At present, the Remuneration Committee expects that awards will be granted over 25 per cent. of the annual performance fees with the balance representing a reserve to be drawn upon if fund activity expands. The Remuneration Committee may in its absolute discretion grant, or recommend that the Trustee grants, awards under the FMPP. Unless the Remuneration Committee or the Trustee otherwise determine, an amount of 20 per cent. of the value of any award under the FMPP is paid as a cash bonus. The remaining 80 per cent. of the value of any award is delivered in the form of free shares in the Company (the Share Award).
In general, no single award under the FMPP will represent more than 25 per cent. of the Incentive Pool. However, the Remuneration Committee may in its absolute discretion grant, and recommend that the Trustee grants, awards with a higher value.
(iii) Individual participation Where a participant is eligible to receive an award under the FMPP and the LTIP in the same year vested Share Awards will be paid in full and downward adjustments will be made to awards that would otherwise have vested under the LTIP. Accordingly, the combined value of vested awards in any year for a participant under both the FMPP and the LTIP will be the higher of (i) the value of their FMPP award plus an award equal to 20 per cent. of what would otherwise have been the value of their LTIP award, and (ii) 100 per cent. of what would otherwise have been the value of their vested award under the LTIP, or such other combined value as the Remuneration Committee may determine in its absolute discretion from time to time.
(iv) Performance conditions No performance conditions need to be satisfied in order for a Share Award to vest. However, to the extent that performance fees (by reference to which the Incentive Pool was calculated) are “clawed back” due to subsequent fund underperformance, a pro rata proportion of all unvested Share Awards for that year cease to vest.
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(v) Vesting of a Share Award The Share Award vests and the shares are delivered in three equal tranches on the first, second and third anniversaries of the date of grant.
(vi) Leaving employment As a general rule, unvested tranches of a Share Award will lapse upon a participant ceasing to hold employment with the Group or giving or receiving notice. However, where participants who leave before the end of the three year vesting period are classified as “good leavers” (generally if leaving on account of injury, disability or death, retirement, redundancy, transfer of the business in which the participant works, or other reasons at the Remuneration Committee’s discretion), the Remuneration Committee will recommend that the Trustee exercises its discretion to permit some or all unvested tranches to vest (and be delivered) at the time when they would otherwise have vested or at such earlier time as they determine.
(vii) Corporate events In the event of a takeover, scheme of arrangement or winding-up of the Company (not being an internal corporate reorganisation), all unvested Share Awards shall immediately vest (and be delivered to participants) provided that the Trustee (having consulted with the Remuneration Committee) is satisfied that there is no likelihood of any remaining “claw back” exposures. If the Trustee is not so satisfied, then unvested Share Awards will vest, if at all, on such basis as is considered appropriate by the Trustee (having consulted with the Remuneration Committee).
In the case of an internal reorganisation, Share Awards will be replaced by equivalent new awards over shares in a new holding company.
(e) Terms of the CIP (i) Award personal to participant A conditional award under the CIP is not transferable, except on death.
(ii) Alterations The Trustee may at any time alter, vary or add to the provisions of the CIP or the terms of any conditional award under the CIP.
(iii) Eligibility Participation in the CIP is restricted to Chris Grigg and the plan will only be operated once.
(iv) Grant of the award Chris Grigg is entitled to invest up to a maximum of £800,000 in purchasing Shares (Invested Shares). The Company will then recommend to the Trustee that the Trustee makes a conditional award to Chris Grigg which, at the date of grant, will be of the same value (or as near as reasonably practicable) as the market value of the Invested Shares on the date they were acquired.
It is intended that Chris Grigg will fulfil his commitment to acquire the Invested Shares by purchasing Shares with a value equal to £800,000 in the market. These Shares will be purchased ex-rights. Alternatively, Chris Grigg may acquire rights in the market, and take up those rights to fulfil the £800,000 investment commitment. The Company will recommend that the Trustee make a conditional award to Chris Grigg under the CIP over an equivalent number of Shares, as calculated under the rules of the CIP. The conditional award will not require adjustment to take account of the impact of the Rights Issue.
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(v) Vesting of the award The conditional award will vest at the end of a retention period (the Retention Period) ending on 12 January 2012, provided normally that Chris Grigg remains in employment with the Company at that date and has retained his Invested Shares during the Retention Period. Vesting of the award is not dependent on satisfying a corporate performance target.
(vi) Leaving employment during the Retention Period Chris Grigg’s rights under his conditional award will lapse if he ceases to be employed by the Group during the Retention Period, unless he leaves employment on account of injury, disability, death, retirement, redundancy or in any other circumstance at the Trustee’s discretion (having considered any Board recommendation). If Chris Grigg leaves the Group’s employment in such “good leaver” circumstances, the Board will recommend that the Trustee allows the conditional award to vest on a time-apportioned basis as it considers appropriate.
(vii) Corporate events In the event of a change of control of the Company or any sale of the business of the Company during the Retention Period, the Board will recommend that the Trustee allows the conditional award to vest on a time-apportioned basis as it considers appropriate. In the event of an internal reconstruction during the Retention Period, the conditional award will be replaced with an award which, in the opinion of the Trustee, is of substantially equivalent value over shares in the reconstructed company. If other events occur, the Trustee (having considered any recommendations of the Board) may take such action as it considers appropriate in relation to the conditional award.
13.3 Employee benefit trusts The Company has set up a discretionary trust, the British Land Share Ownership Plan (the Trust), in the Isle of Man to facilitate the operation of the incentive schemes. The Trustee of the Trust purchases Ordinary Shares of the Company in the open market. Awards granted under the performance share section of the LTIP, the MSP and the FMPP are satisfied using Ordinary Shares transferred out of the Trust to participants. Dividends paid on Ordinary Shares comprised in awards granted under the LTIP, FMPP and MSP are retained by the Trust in interest bearing accounts and are paid to employees only on the vesting of the related award along with, in the case of awards granted under the LTIP only, interest earned on the accrued dividends.
14. PENSION BENEFITS The British Land Group of Companies Pension Scheme is the principal pension scheme in the Group. It is a defined benefit scheme, whose assets are independent of British Land’s finances. It provides a pension of one- sixtieth of final pensionable salary for each year and complete month of service prior to retirement. Higher accrual rates apply for executive members. Employees do not make contributions for basic pensions but may make additional voluntary contributions to secure additional benefits on a money-purchase basis.
Since 1 November 2005, the British Land Group of Companies Pension Scheme has been closed to new entrants. However, current members are still able to accrue benefits under the scheme.
British Land also has a defined contribution scheme to which contributions are paid by the Company at a flat rate of 15 per cent. of salary.
The Company also has a Funded Unapproved Retirement Benefits Scheme, the British Land Unapproved Retirement Benefits Plan, and five other small pension schemes. Of these, one is a defined benefit scheme which is in the process of being wound up, one is a defined contribution scheme which is closed to new members and to which the Company pays contributions at a rate of 13.39 per cent., one is a stakeholder scheme to which the Company makes contributions of between five per cent. and ten per cent., and the remaining two are group personal pension schemes.
Details of the funding position of the pension schemes are contained in the Annual Report and Accounts 2008. For information on the pension benefits paid by the Group, please see pages 76, 77 and 88 in the Annual Report and Accounts 2008, which are incorporated by reference into this document. The British Land Group
160 Part VIII: Additional Information of Companies Pension Scheme is currently underfunded, therefore the liabilities of the scheme, which are long term in nature, currently exceed the value of the scheme’s assets, as a result of which the Company may be required to make additional contributions to the scheme.
15. ENVIRONMENTAL ISSUES
The Company is of the opinion that there are no environmental issues which may affect the Company’s AI, 8.2 utilisation of its tangible fixed assets.
16. LITIGATION
So far as the Company is aware, neither the Company nor any member of the Group is or has been engaged AI, 20.8 in nor has pending or threatened any governmental, legal or arbitration proceedings which may have or have had in the recent past (covering the 12 months immediately preceding the date of this document) a significant effect on the Group’s financial position or profitability.
17. MATERIAL CONTRACTS
The following are all of the contracts (not being contracts entered into in the ordinary course of business) that AI, 22 have been entered into by members of the Group: (a) within the two years immediately preceding the date of this document which are, or may be, material to the Group; or (b) at any time and contain obligations or entitlements which are, or may be, material to the Group as at the date of this document:
17.1 Joint Venture Agreements (a) Meadowhall Joint Venture Agreement On 11 February 2009, British Land entered into a 50:50 joint venture shareholders’ agreement with LSPG Trust No 1 (LSPG), itself a joint venture between London & Stamford Property Limited and its joint venture partner, which established MSC Property Intermediate Holdings Limited (MSC) as a joint venture company (the Meadowhall JV Agreement). MSC acts as a holding company which owns a group of subsidiaries that collectively own the Meadowhall Shopping Centre, Sheffield, which was valued at 31 December 2008 at £1.25 billion. Certain of the properties acquired by the joint venture were transferred into MSC prior to the formation of the joint venture at book cost. LSPG acquired a 50 per cent. stake in MSC for £587.7 million, at a net initial yield of 6.75 per cent., consisting of £170 million in cash with MSC continuing to benefit from the existing third party debt issued by the Meadowhall securitisation. The transaction valued Meadowhall at £1.175 billion. There will be no employees or pension liabilities within MSC and its subsidiaries. The Meadowhall JV Agreement was entered into in order to carry on the business of acquiring, holding and managing the Meadowhall Shopping Centre, along with any other properties acquired, as investments with a view to maximising capital growth and income from such properties.
The shares in the joint venture company are divided into three classes, A Shares, B Shares and C Shares. The A Shares and the B Shares comprise the voting shares (each class carrying 50 per cent. of the voting rights) and carry the bulk of the economic rights in relation to the Company. The C Shares are owned by British Land, are non-voting and have nominal economic rights, and ensure that the properties owned by the joint venture remain within the Company’s capital gains tax group.
The Meadowhall Shopping Centre is subject to associated third party debt issued pursuant to Meadowhall Issuer/Borrower Loan Agreement (as described below), which, together with other assets and liabilities of MSC and its subsidiaries at the time of formation, will be taken into account in determining the purchase price payable by LSPG for its 50 per cent. shareholding in MSC. As at 31 December 2008, the nominal value of the bonds totalled £835 million. For further discussion, see paragraph 17.2(a) of Part VIII of this document.
In general, the Meadowhall JV Agreement provides for equal governance by British Land and LSPG and provides that the board of directors consists of six directors, three appointed by British Land and three appointed by LSPG. The chairman is one of LSPG’s directors who has a casting vote. This gives LSPG board control, although there is an extensive list of veto matters that will require Company approval. The veto matters cover nearly all significant events.
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In the event of the default or insolvency of a shareholder, the non-defaulting shareholder has the right to call for the defaulting shareholder’s interests in the joint venture for a price based upon 99 per cent. of the market value of the underlying properties or to put on the defaulting shareholder its own interests, for a price based upon 101 per cent. of the market value of the underlying properties, in each case subject to any necessary shareholder approvals. If such approvals are not obtained, there are provisions for the sale of the portfolio and winding down of the joint venture.
In accordance with the Meadowhall JV Agreement, and as set forth in a separate Administration Agreement and Property Management Agreement, British Land or a subsidiary of British Land is responsible for the day-to-day administration of MSC and management of the the Meadowhall Shopping Centre.
(b) Sainsbury Joint Venture Agreement In March 2008, British Land entered into a 50:50 joint venture partnership agreement with J Sainsbury PLC (Sainsbury) establishing Waveborder Limited (Waveborder), a joint venture company (the Sainsbury JV Agreement). Waveborder acts as a holding company of a group of companies that collectively own a portfolio of approximately 39 superstores (the Properties) valued as at 31 December 2008 at £990 million. Each of the properties, with the exception of one that is let to Waitrose Limited, are let to Sainsbury’s Supermarkets Ltd. The Sainsbury JV Agreement was entered into in order to carry on the business of acquiring, holding and managing the Properties, along with any other properties acquired, as investments with a view to maximising capital growth and income from such properties.
The shares in the joint venture company are divided into three classes, A Shares, B Shares and C Shares. The A Shares and the B Shares comprise the voting shares (each class carrying 50 per cent. of the voting rights) and carry the bulk of the economic rights in relation to the Company. The C Shares are non- voting and carry the right to a priority dividend based upon (a) the amount of the tax saving made by Waveborder by virtue of being within a REIT group (capped at 50 per cent. of the tax which would otherwise have been payable) and (b) the profits arising from the exercise of an option in respect of certain properties or upon the sale of the Swindon property. Subsidiaries of Sainsbury hold the A Shares and a subsidiary of the Company holds the B Shares and the C Shares.
In general, the Sainsbury JV Agreement provides for equal governance by British Land and Sainsbury and provides that the board of directors will consist of eight directors, four to be appointed by British Land and four to be appointed by Sainsbury. The Sainsbury JV Agreement contains provisions to deal with matters of conflict that may exist amongst the parties, as well as provisions to deal with voting deadlocks. In the event of the default or insolvency of a shareholder, the non-defaulting shareholder has the right to call for the defaulting shareholder’s interests in the joint venture for a price based upon 95 per cent. of the market value of the underlying properties or to put to the defaulting shareholder its own interests, for a price based upon 105 per cent. of the market value of the underlying properties, in each case subject to any necessary shareholder approvals. If such approvals are not obtained, there are provisions for the sale of the portfolio and winding down of the joint venture.
In accordance with the Sainsbury JV Agreement, and as set forth in a separate Administration Agreement and Property Management Agreement, a subsidiary of British Land is responsible for the day-to-day administration of Waveborder and management of the Properties.
Each of Sainsbury and the Company have guaranteed the obligations of their subsidiaries that are shareholders in the joint venture.
The term of the joint venture partnership is ten years with the ability to extend if the parties agree. Following the tenth anniversary of the Sainsbury JV Agreement, any shareholder may serve eight but no more than twelve months’ notice to terminate the joint venture. The Sainsbury JV Agreement provides for the sale of that shareholder’s shares to the non-selling joint venture partner or, following an offer to the non-selling joint venture partner, the sale of shares, or the underlying properties to any other interested party.
162 Part VIII: Additional Information
17.2 Securitisations (a) Meadowhall Finance PLC securitisation On 19 December 2006, Meadowhall Finance PLC (the MH Issuer), a ring fenced, wholly owned subsidiary of British Land, issued £840 million of bonds and entered into a loan agreement (the Meadowhall Issuer/Borrower Loan Agreement) with Meadowhall Limited Partnership (the MH Borrower), pursuant to which an amount equal to the aggregate principal amount of the bonds (other than the reserve tranches of bonds) was advanced by the MH Issuer to the MH Borrower. The MH Issuer’s obligation to pay interest and principal on the bonds is met primarily from payments of interest and principal received from the MH Borrower under the Issuer/Borrower Loan Agreement.
As at 31 December 2008, the Meadowhall securitisation has a weighted-average debt maturity of 15.3 years and a weighted-average interest rate of 4.98 per cent.
An additional £175 million of bonds were issued at closing and held as reserve tranches. These can be resold by the MH Issuer subject to the satisfaction of certain conditions.
The obligations of the MH Issuer under the bonds are secured in favour of Capita Trust Company Limited by fixed and floating charges over all the property, undertakings and assets of the Issuer.
The principal amount outstanding under the bonds is repaid quarterly.
The terms of these securitisations contain covenants and events of default typical for a transaction of this nature. The only financial covenant applicable to this securitisation is that income must cover interest and scheduled amortisation.
The terms of the securitisation contains a gross coverage test whereby if on any calculation date (the second business day prior to each interest payment date) the ratio of gross rental income to debt service is 90 per cent. or less there will be a loan event of default under the Meadowhall Issuer/Borrower Loan Agreement. In this case the borrower security trustee has the right to appoint a receiver with respect to the borrower security.
The Company has entered into a transaction to transfer the Meadowhall shopping centre to a newly formed joint venture with LSPG. As part of this transaction, the Company’s outstanding obligations under the Meadowhall Issuer/Borrower Loan Agreement will be reduced by 50 per cent. and the Company will transfer the remainder of its obligations to off-balance sheet liabilities. For further discussion, see paragraph 17.1(a) of Part VIII of this document.
(b) Broadgate Financing PLC securitisation On 2 March 2005, Broadgate Financing PLC (the BG Issuer), a ring fenced wholly owned subsidiary of British Land, issued £2,080 million of bonds and entered into a loan agreement (the Broadgate Issuer/Borrower Loan Agreement) with Broadgate (Funding) 2005 Limited (the BG Borrower) pursuant to which an amount equal to the aggregate principal amount of the bonds was advanced by the BG Issuer to the BG Borrower. The BG Issuer’s obligation to pay interest and principal on the bonds is met primarily from payments of interest and principal received from the Borrower under the BG Issuer/Borrower Loan Agreement.
As at 31 December 2008, the Broadgate securitisation has a weighted-average debt maturity of 16.7 years and a weighted-average interest rate of 5.04 per cent.
The obligations of the BG Issuer under the bonds are secured in favour of Capita IRG Trustees Limited by fixed and floating charges over all the property, undertaking and assets of the BG Issuer.
The principal amount outstanding under the bonds is to be repaid quarterly.
The terms of these securitisations contain covenants and events of default typical for a transaction of this nature. The only financial covenant applicable to this securitisation is that income must cover interest and scheduled amortisation.
163 Part VIII: Additional Information
The terms of the securitisation contains a gross coverage test whereby if on any calculation date (the second business day prior to each interest payment date) the ratio of gross rental income to debt service is 90 per cent. or less there will be a loan event of default under the Broadgate Issuer/Borrower Loan Agreement. In this case the borrower security trustee has the right to appoint a receiver with respect to the loan security.
17.3 Debentures On 29 August 2006, British Land issued £100,000,000 6.75 per cent. First Mortgage Debenture Bonds due 2011, £200,000,000 6.75 per cent. First Mortgage Debenture Bonds due 2020, £310,000,000 5.357 per cent. First Mortgage Debenture Bonds due 2028, £330,000,000 5.264 per cent. First Mortgage Debenture Bonds due 2035. On 20 December 2006, British Land issued £110,000,000 5.0055 per cent. First Mortgage Amortising Debenture Stock due 2035.
Security for the bonds is given by specified charging companies (the Charging Companies) over a specific pool of assets. The Charging Companies have the right to substitute charged properties from time to time, subject to income and capital tests.
The terms of the debentures bonds are subject to a common covenant that the net annual income from the mortgaged properties must not be less than gross annual interest on the bonds. In addition, the value of the mortgaged properties must not be less than 150 per cent. of the aggregate nominal value of the bonds (plus any premiums payable on final redemption). The terms of the debenture bonds contain covenants and events of default typical for a transaction of this nature.
17.4 Underwriting Agreement Pursuant to the Underwriting Agreement, the Bank Underwriters have agreed severally to procure acquirers AIII, 5.4.3, for, or failing which the Underwriters have agreed to acquire (or, in the case of Euro Lights, to procure the 5.4.4 acquisition of), in their Underwriting Proportions, New Shares not taken up under the Rights Issue, in each case at the Issue Price. For purposes of this paragraph, “Underwriting Proportion” means, in respect of MSSL, 32.9 per cent., in respect of UBS, 32.9 per cent., and in respect of Euro Lights, 34.2 per cent., subject to Euro Lights having no obligation to acquire or to procure the acquisition of, in aggregate, more than 116,687,136 New Shares pursuant to the Underwriting Agreement and the GICRE Irrevocable Undertaking. To the extent that Euro Lights procures the take up of rights under the GICRE Irrevocable Undertaking or otherwise under the terms of the Underwriting Agreement, the Underwriting Proportion of Euro Lights shall be reduced by subtracting a percentage equal to such number of taken up and/or acquired New Shares divided by the number of New Shares and the Underwriting Proportions of the Bank Underwriters shall then be increased proportionally to the extent necessary to ensure that the Underwriting Proportions of the Underwriters equal 100 per cent. of the New Shares.
The Bank Underwriters may arrange sub-underwriting for some, all or none of the New Shares. However, the Bank Underwriters have agreed that Euro Lights shall have the right, but not the obligation to acquire at the Issue Price, in priority to any sub-underwriters, any New Shares for which the Bank Underwriters have been unable to procure acquirers, provided that, immediately following such acquisition and completion of the Rights Issue, the Ordinary Shares held by GIC in relation to operations carried on by GICRE shall not represent more than 18 per cent. of the enlarged issued share capital of the Company.
The Company has agreed to pay to the Joint Bookrunners and MSSL, in consideration for their services provided in connection with the Rights Issue, an aggregate fee equal to approximately £17.8 million (including underwriting commissions and an advisory fee).
The Company has agreed to pay Euro Lights an underwriting commission equal to the higher of (i) 2.25 per cent. of the aggregate value at the Issue Price of the total number of New Shares which are the subject of Euro Lights’ underwriting commitment, and (ii) 2.25 per cent. of the aggregate value at the Issue Price multiplied by the actual aggregate number of New Shares acquired by Euro Lights or its affiliates under both the Underwriting Agreement and the GICRE Irrevocable Undertaking.
The payment of the commissions and fees to the Joint Bookrunners, MSSL and Euro Lights described above are conditional on the Underwriting Agreement having become unconditional in accordance with its terms and not having been terminated.
164 Part VIII: Additional Information
In addition to the fees and commissions described above, the Company shall bear all other agreed costs, charges and expenses of or incidental to the Rights Issue, including, without limitation, the fees and expenses of its professional advisers, the cost of preparation, advertising, printing and distribution of this document, the PAL, the Circular and any other document or announcement issued in connection with the Rights Issue, the Registrars’ fees and the fees of the Financial Services Authority and the London Stock Exchange.
The obligations of the Joint Bookrunners and Underwriters under the Underwriting Agreement are subject to certain conditions including, amongst others:
(a) the passing, without amendment (or with such amendments as the Company, the Joint Sponsors and Euro Lights may agree) of the Resolutions;
(b) Admission (nil paid) occurring no later than 8.00 a.m. on 4 March 2009 (or such later time and/or date as the Joint Sponsors and Euro Lights (acting by a majority in number) and the Company may agree);
(c) each condition to enable the Nil Paid Rights and the Fully Paid Rights to be admitted as a participating security in CREST (other than Admission) being satisfied on or before Admission;
(d) the fulfilment in all material respects by the Company of its obligations under a number of provisions of the Underwriting Agreement by the times specified therein;
(e) on Admission (nil paid) there being no breach by the Company of the representations and warranties given in the Underwriting Agreement; and
(f) there being no event referred to in Section 87G(1) of the FSMA arising between the date of this document and Admission (nil paid) and no supplementary prospectus being published by or on behalf of the Company prior to Admission (nil paid) which either of the Joint Sponsors or Euro Lights (acting in good faith) consider material in the context of the Rights Issue.
Pursuant to the Underwriting Agreement, the parties to the Underwriting Agreement have agreed that if a supplementary prospectus is published by the Company after Admission and two or fewer business days prior to the date specified as the latest date for acceptance and payment in full under the Rights Issue (or such later date as may be agreed between the Joint Sponsors and Euro Lights (acting by a majority in number) and the Company), such date shall be extended to the date which is three business days after the date of publication of such supplementary prospectus.
The parties to the Underwriting Agreement have further agreed that if a supplementary prospectus is published by the Company after Admission and earlier than two business days prior to the date specified as the latest date for acceptance and payment in full under the Rights Issue, the Joint Sponsors and Euro Lights (acting by a majority in number and in good faith), and with the consent of the Company (such consent not to be unreasonably withheld or delayed) may give notice to the Company of the postponement of such date for a period not exceeding two business days. In either case, all dates referable to the latest date for acceptance and payment in full shall be extended mutatis mutandis.
Each of the Joint Sponsors and Euro Lights may terminate the Underwriting Agreement in certain circumstances including for material adverse change and force majeure but only prior to Admission (nil paid). The Company has given certain representations and warranties and indemnities to the Joint Bookrunners and the Underwriters. The liabilities of the Company are unlimited as to time and amount.
Pursuant to the Underwriting Agreement, the Company has further agreed that, subject to certain customary exceptions (including the issue of New Shares under the Rights Issue), between the date hereof and the date which is the later of the date falling 100 days after the date of the Underwriting Agreement and the date on which the Company announces its results for the year ended 31 March 2009, it will not, without the prior written consent of the Joint Sponsors (acting in good faith) (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, deposit into any depositary receipt facility or otherwise transfer or dispose of any Ordinary Shares or any securities convertible into or exercisable or exchangeable for Ordinary Shares or any other interest therein or file any registration statement under the Securities Act with respect to any of the foregoing (or publicly announce the same); or (ii) enter into any swap, forward sale, option or any other
165 Part VIII: Additional Information agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Ordinary Shares, whether any such swap, forward sale, option, agreement or transaction described in (i) or (ii) above is to be settled by delivery of Ordinary Shares or such other securities, in cash or otherwise.
17.5 GICRE Irrevocable Undertaking Pursuant to the GICRE Irrevocable Undertaking, Euro Lights, an affiliate of GIC Real Estate Pte Ltd., has irrevocably undertaken to procure the voting in favour of the Resolutions and the taking up of entitlements under the Rights Issue in respect of 36,705,979 Ordinary Shares (representing approximately 7.18 per cent. of the issued share capital of the Company) held by GIC in relation to the operations carried on by GICRE. The remaining 2,259,352 Ordinary Shares held by GIC (representing approximately 0.44 per cent. of the issued share capital of the Company) are held in relation to operations other than those carried on by GICRE and, accordingly, are not the subject of the GICRE Irrevocable Undertaking.
The GICRE Irrevocable Undertaking is conditional on (a) the publication of this Prospectus; (b) Admission (nil paid), and (c) the Underwriting Agreement not having been terminated prior to Admission.
17.6 Subscription and Transfer Deeds
In connection with the Rights Issue, the Company, Newco and the Newco Subscriber, among others, have entered into several deeds each dated 12 February 2009 in respect of the subscription and transfer of ordinary shares and redeemable preference shares in Newco. Under the terms of these deeds:
(i) the Company and the Newco Subscriber have agreed to subscribe for ordinary shares in Newco and enter into put and call options in respect of the ordinary shares in Newco subscribed for by the Newco Subscriber that are exercisable if the Rights Issue does not proceed;
(ii) payments from Qualifying Shareholders and renouncees taking up New Shares under the Rights Issue shall be held by the Receiving Agent on behalf of the Newco Subscriber solely for the purpose of enabling the Newco Subscriber to subscribe for redeemable preference shares in Newco to an aggregate value equal to such Rights Issue monies, after deduction of the amount of the commissions referred to above, together with any relevant amounts in respect of any New Shares acquired by the Bank Underwriters or for which the Bank Underwriters have procured acquirers pursuant to the Underwriting Agreement (after deducting relevant commissions and/or expenses); and
(iii) the Company will allot and issue the New Shares to those persons entitled thereto in consideration of the Newco Subscriber transferring its holding of redeemable preference shares and ordinary shares in Newco to the Company.
Accordingly, instead of receiving cash as consideration for the issue of the New Shares, at the conclusion of the Rights Issue the Company will own the entire issued ordinary and redeemable preference share capital of Newco whose only assets will be its cash reserves, which will represent an amount equivalent to the net proceeds of the Rights Issue. The Company will be able to utilise this amount equivalent to the Rights Issue proceeds by exercising its right of redemption over the redeemable preference shares it holds in Newco and, during any interim period prior to redemption, by procuring that Newco lends the amount to the Company (or one of the Company’s subsidiaries).
Qualifying Shareholders are not party to these arrangements and so will not acquire any direct right against the Newco Subscriber pursuant to these arrangements. The Company will be responsible for enforcing the Newco Subscriber’s obligations thereunder.
18. OTHER CONTINGENCIES Additional contingent liabilities arise in the normal course of the Group’s business. It is not currently anticipated that any material loss will arise from these transactions.
166 Part VIII: Additional Information
19. RELATED PARTY TRANSACTIONS
Other than as disclosed in the financial information incorporated by reference into this document for the AI, 19 financial years ended 31 March 2006, 2007 and 2008, there are no related party transactions between the Company or members of the Group that were entered into during the financial years ended 31 March 2006, 2007 and 2008 and during the period between 1 April 2008 and 11 February 2009 (the latest practicable date prior to the publication of this document).
20. DIVIDENDS The following table sets out the dividend per Ordinary Share paid in respect of each of the financial years indicated: Dividend per Share Reported Adjusted Financial year ended 31 March 2006 ...... 17p 17p Financial year ended 31 March 2007 ...... 20.35p 20.35p Financial year ended 31 March 2008 ...... 35p 35p
21. WORKING CAPITAL
The Company is of the opinion that, after taking into account existing available bank and other facilities and AIII, 3.1 the net proceeds of the Rights Issue, the Group has sufficient working capital for its present requirements, that is, for at least the next 12 months from the date of this document.
22. NO SIGNIFICANT CHANGE
Save as disclosed in paragraphs 3 and 8 of Part I of this document, there has been no significant change in the AI, 20.9 trading or financial position of the Group since 31 December 2008 (the date to which the latest published interim consolidated financial information of the Company was prepared).
23. VALUATION REPORT The Valuation Report included in Part IX of this document is made as at 31 December 2008 (being the last practicable date prior to the publication of this document).
24. CONSENTS 24.1 Knight Frank has given and has not withdrawn its written consent to the inclusion in this document of LR 13.3.12(10) its name and its Valuation Report and references to it in the form and context in which they appear and PR 5.5.3R(2)(f) has authorised the contents of those parts of this document which comprise its report for the purposes of Rule 5.5.3R(2)(f) of the Prospectus Rules.
24.2 CBRE has given and not withdrawn its written consent to the inclusion herein of the references to its name in the form and context in which they appear.
24.3 Deloitte LLP is a member firm of the Institute of Chartered Accountants in England and Wales and has given and not withdrawn its written consent to the inclusion herein of the references to its name and of AI, 23.1 its pro forma financial report in the form and context in which they appear and has authorised the contents of those parts of this document, which comprise its report for the purposes of Rule 5.5.3R(2)(f) AIII, 10.3 of the Prospectus Rules.
25. GENERAL AI, 2.1 25.1 The financial information concerning the Company contained or incorporated by reference in this AI, 20.4.1 document does not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act. The consolidated financial statements of the Company in respect of each of the three years ended 31 March 2008 were reported on by Deloitte LLP, the auditors of the Company within the meaning of Section 495 of the Companies Act for the period of the historical financial information set out in this document. The auditors of the Company made reports under Section 503 of the Companies Act in
167 Part VIII: Additional Information
respect of each of the three years ended 31 March 2008 and such reports were unqualified reports within the meaning of Sections 836 to 841 of the Companies Act.
25.2 The Rights Issue is being underwritten in full by the Underwriters pursuant to the Underwriting Agreement, details of which are set out in paragraph 17.4 of this Part VIII.
25.3 The total costs, charges and expenses payable by the Company in connection with the Rights Issue are AIII, 8.1 estimated to be £27 million (inclusive of VAT).
25.4 The Company remains subject to the continuing obligations of the Listing Rules with regard to the issue AIII, 4.5, of securities for cash and the provisions of Section 89 of the Companies Act (which confers on 5.3.3 Shareholders rights of pre-emption in respect of the allotment of equity securities which are, or are to be, paid up in cash) apply to the balance of the authorised but unissued share capital of the Company which AI, 21.1.5 is not the subject of the disapplication approved by the Shareholders in a general meeting of the Company.
25.5 The Existing Shares are in registered form, are capable of being held in uncertificated form and are admitted to the Official List and are traded on the main market for listed securities of the London Stock Exchange.
25.6 The New Shares will be in registered form and, from Admission, will be capable of being held in AIII, 4.3 uncertificated form and title to such shares may be transferred by means of a relevant system (as defined in the CREST Regulations). Where New Shares are held in certificated form, share certificates will be AIII, 4.1 sent to the registered members by first-class post. Where New Shares are held in CREST, the relevant LR 13.3.1(9)(g) CREST stock account of the registered members will be credited. The New Shares will be admitted, nil paid, with the ISIN GB00B4W92R30 and, fully paid, with the ISIN GB00B4W92W82.
25.7 The New Shares will be issued at 225 pence per share. This represents a premium of 200 pence per AIII, 4.1 Ordinary Share to the nominal value of 25 pence per Ordinary Share. AIII, 4.4
26. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents may be inspected at the registered office of the Company and at the offices AI, 24(a) of Freshfields Bruckhaus Deringer LLP at 65 Fleet Street, London EC4Y 1HS during usual business hours on AI, 24(b) any weekday (Saturdays, Sundays and public holidays excepted) up to and including 2 March 2009 and will AI, 24(c) also be available for inspection at the General Meeting for at least 15 minutes prior to and during the meeting: (a) the Memorandum and Articles of Association; (b) the Annual Reports and audited consolidated accounts of the Company for the three financial years ended 31 March 2006, 2007 and 2008; (c) the unaudited interim condensed consolidated financial statements of the Company and its subsidiaries for the nine month period ended 31 December 2008, together with Deloitte LLP’s interim review report in respect thereof; (d) the Circular; (e) the consent letters referred to in paragraph 23 above; and (f) this document.
27. ANNOUNCEMENT ON RESULTS OF THE RIGHTS ISSUE AIII, 5.1.9, 5.2.4 The Company will make an appropriate announcement(s) to a Regulatory Information Service giving details of the results of the Rights Issue and details of the sale of New Shares not taken up by Qualifying Shareholders on or about 19 March 2009.
28. GOVERNING LAW AND JURISDICTION This document and any non-contractual obligations arising out of or in connection with this document shall be governed by, and construed in accordance with, English law. The courts of England and Wales are to have
168 Part VIII: Additional Information exclusive jurisdiction to settle any dispute which may arise out of or in relation to this document and any non- contractual obligations arising out of or in relation to this document.
12 February 2009
169 Part IX: Valuation Report
PR 5.6.5 AIII, 10.2 The British Land Company PLC CESR 128 York House 45 Seymour Street London W1H 7LX
Morgan Stanley & Co. International plc 25 Cabot Square Canary Wharf London E14 4QA
Morgan Stanley Securities Limited 25 Cabot Square Canary Wharf London E14 4QA
UBS Investment Bank 1 Finsbury Avenue London EC2M 2PP
12 February 2009
Dear Sirs,
MARKET VALUATION OF THE PROPERTIES WHOLLY OWNED BY THE BRITISH LAND COMPANY PLC AND ITS SUBSIDIARIES AS AT 31 DECEMBER 2008
1. INTRODUCTION In accordance with instructions received from The British Land Company Plc (the Company), we have CESR 130 (iv) inspected the wholly owned properties (the Properties and each a Property) of the Company and its subsidiaries (together, the Group) and made all relevant enquiries in order to provide our opinion of the Market Value (as defined below) as at 31 December 2008 (the Valuation Date) of the freehold, long-leasehold and short-leasehold interests in the Properties, subject to and with the benefit of the various occupational leases to which the Properties may be subject (the Valuation). The Valuation Date is the effective date of the Valuation.
We understand that our report and the schedule to it (together, the Valuation Report) is required in connection with the prospectus (the Prospectus) to be published in connection with the proposed 2 for 3 rights issue of up to 340,873,589 new ordinary shares of 25 pence each (the New Shares) in the capital of the Company (the Rights Issue) and the admission of the New Shares to the Official List of the Financial Services Authority and to trading on the London Stock Exchange PLC’s main market for listed securities.
The Properties are predominantly held by the Group for investment and in some instances held for development or occupied by the Group.
2. THE PROPERTIES Each Property has been valued individually and not as part of a portfolio. CESR 130 (iii)
All relevant details in respect of material properties necessary for the purposes of the Valuation are contained in Schedule 1 of this Valuation Report. For these purposes material properties are those Properties which have
170 Part IX: Valuation Report an individual Market Value (as defined below) of £150 million or more as at the Valuation Date (the Material Properties).
3. BASIS OF VALUATION We confirm that the valuation of each Property has been undertaken by us, acting as independent experts, in accordance with the Valuation Standards, Sixth Edition published by the Royal Institution of Chartered Surveyors (the Red Book), and in accordance with the relevant provisions of the Listing Rules and the Prospectus Rules issued by the Financial Services Authority and CESR’s recommendations for the consistent implementation of the European Commission’s Regulation on Prospectuses No 809/2004 and EU Directive 2003/71/EC.
3.1 Market Value In accordance with the Red Book and the Prospectus Rules, our Valuation has been carried out on the basis of Market Value, which is defined as:
The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.
3.2 Net Annual Rent In considering the net annual rent for each Property for the purposes of this Valuation Report, we have had regard to the definition contained in the Glossary of Definitions of the FSA’s Handbook of rules and guidance. This defines net annual rent as:
the current income or income estimated by the valuer:
(a) ignoring any special receipts or deductions arising from the property;
(b) excluding Value Added Tax and before taxation (including tax on profits and any allowances for interest on capital or loans); and
(c) after making deductions for superior rents (but not for amortisation), and any disbursements including, if appropriate, expenses of managing the property and allowances to maintain it in a condition to command its rent.
Where premises are let on effective full repairing and insuring leases, the net annual rents receivable are the present aggregate contracted rents payable under the relevant leases without any deduction for the cost of management or any other expenses. Where premises are subject to outstanding rent reviews the net annual rent is the aggregate current contractual rent that is subject to revision upwards, pending the outcome of rent review negotiations. The aggregate of the current net annual rents receivable for the Properties is £453,520,115 as at 31 December 2008.
In forming our opinion of market rent, we have had regard to the existing lease terms and, in particular, the rent review provisions within the leases to which each Property is subject. We have also had regard to lease terms anticipated in the current market and have assumed that at lease expiry the property will be reviewed to Market Rent, which is defined in the Red Book as:
The estimated amount for which a property, or space within a property, should lease (let) on the date of valuation between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion.
In the case of some large multi-tenanted Properties, including shopping centres, we have made various allowances for landlord’s expenses relating to the management of the relevant Property that are not recoverable through the service charge, including irrecoverable costs associated with any vacant unlet areas.
171 Part IX: Valuation Report
4. DEVELOPMENT COSTS In preparing this Valuation Report, we have made an allowance for outstanding development expenditure as advised by the Company relating to ongoing development projects, together with our opinion of subjective development variables, including allowances for letting voids and incentives and finance and development risks.
For Properties in the course of development, we have reflected the stage reached in construction and the costs remaining to be spent at the Valuation Date as advised by the Company. We have had regard to contractual arrangements as advised to us by the Company in respect of the parties involved in the developments and any cost estimates that have been provided to us by professional advisors to the projects.
5. INSPECTIONS Each Property was inspected by Knight Frank LLP during the last twelve months. CESR 130 (ii)
The dates of inspection in respect of the Material Properties are included in Schedule 1 of this Valuation CESR 130 (iv) Report.
The Properties which are not Material Properties were inspected between 12 February 2008 and 23 December 2008.
6. TAXATION AND COST No account has been taken in our Valuation of any liability for tax (including Value Added Tax) on either the rental income from the Properties (if any), the notional sale prices or any gains that may be realised on disposal. The Valuation is based on rents which are net of Value Added Tax.
We have made a deduction from our Valuation to reflect purchasers’ acquisition costs and, in particular, full liability for UK Stamp Duty Land Tax as applicable at the Valuation Date in accordance with normal valuation practice.
No allowance has been made for any costs that may be associated with disposals incurred by the Company.
7. TITLE We have not examined title documents and leases but have read and considered historic (or, where available, recent) certificates of title (the Certificates of Title) that were prepared by external lawyers retained by the Company in respect of those Properties listed in Schedule 2 Part A (the Certified Properties), together with (i) certain material issues reports produced by Freshfields Bruckhaus Deringer LLP and Linklaters LLP in relation to the Certified Properties and the properties listed in Schedule 2 Part B; (ii) confirmations prepared by the Company that highlight any material changes since the dates of the Certificates of Title in relation to the Certified Properties and the properties listed in Schedule 2 Part B; and (iii) tenancy schedules verified by SJ Berwin LLP and Addleshaw Goddard LLP from the title deeds for the Certified Properties and the properties listed in Schedule 2 Parts B and C ((i), (ii) and (iii) together, the Due Diligence Information).
Our Valuation Report assumes that, save as disclosed in the Certificates of Title and/or the Due Diligence Information, the Properties have good and marketable titles and are free of any onerous or unusual burdens, outgoings, obligations or restrictions.
8. PLANNING AND STATUTORY INFORMATION Where the Certificates of Title and/or the Due Diligence Information and/or information provided to us by the Company indicates that it is appropriate, we have made oral enquiries of the relevant planning and highway authorities and other statutory regulators in respect of matters affecting a particular Property, although information has been provided to us on the basis that it should not be relied upon.
Save where disclosed by such enquiries, by the Certificates of Title and/or the Due Diligence Information and/or advised by the Company, we have assumed that each Property has been constructed in full compliance
172 Part IX: Valuation Report with all statutory and local authority requirements, including building, fire and health and safety regulations, and is not subject to any outstanding statutory notices as to its construction, use or occupation. Save where disclosed by the enquiries described above, the Certificates of Title and/or Due Diligence Information and/or information provided to us by the Company, we have further assumed that the existing use of each Property is duly authorised or established and that no adverse planning conditions or restrictions apply.
9. CONDITION AND REPAIR OF THE PROPERTY We have not carried out either structural or condition surveys on the Properties and are therefore unable to report that each Property is free from any structural fault, infestation or defects of any other nature, including inherent weaknesses due to the use and construction of deleterious materials. However, the Company has confirmed to us that it is not aware of any such structural fault, infestation or defect of a sufficient material nature as needs to be considered for the purposes of our Valuation. No tests were carried out on any of the technical services at the Properties. However, during the course of our inspections, we took note of the state of repair and condition of each Property and had due regard to these factors in arriving at our Valuation. Any matters that were considered material to the Valuation are referred to in this report.
10. DEFECTIVE PREMISES, HEALTH AND SAFETY AND DISABILITY DISCRIMINATION LEGISLATION We have not taken account of any rights, liabilities and obligations under the Defective Premises Act 1972 and, unless specifically advised by the Company, have assumed the Properties currently comply, and will continue to comply, with current health and safety and disability legislation.
11. ENVIRONMENTAL ISSUES We have reviewed the information disclosed by the Certificates of Title and the Due Diligence Information and/or provided by the Company in relation to environmental matters relating to the Properties and have taken such information into account for the purposes of this Valuation Report. We have assumed that the Properties would, in all respects, be insurable against all usual risks including terrorism, flooding and rising water table at normal, commercially acceptable premiums.
12. FLOOR AREAS We have not carried out a full measured survey but have relied upon the site and floor areas of the Properties provided by the Company. We have compared these areas with the areas agreed at previous lettings, rent reviews and/or lease renewals and found the two to be consistent.
We assume that all floor area figures provided are complete and current and calculated in accordance with the Royal Institution of Chartered Surveyors Code of Measuring Practice Sixth Edition.
13. TENANCY INFORMATION We have not read copies of the leases or related documents but have relied upon the tenancy information provided by the Company and the information in the Certificates of Title and/or the Due Diligence Information. Schedule 1 includes a summary of tenancy information in respect of Material Properties.
We have not undertaken detailed investigations into the financial strength of tenants or guarantors. Save as disclosed by the Certificates of Title and/or the Due Diligence Information or otherwise advised to us by the Company, we have assumed that the tenants and guarantors are financially in a position to meet their obligations. However, our Valuation reflects the type of tenants actually in occupation, or likely to be in occupation, and the market’s general perception of their credit worthiness.
14. VALUATION CESR130(v) We are of the opinion that the aggregate Market Value of the Group’s interests in the Properties, as at 31 December 2008, was £7,648,587,620 (seven billion six hundred and forty eight million five hundred and eighty seven thousand six hundred and twenty pounds).
173 Part IX: Valuation Report
The Valuation is categorised as follows:
Total Freehold Long leasehold Short leasehold value (244 properties) (24 properties) (1 property) (269 properties) Held as investments/owner-occupied . . . £6,849,880,020 £275,145,000 £2,500,000 £7,127,525,020 Held for development ...... £162,062,600 – – £162,062,600 In the course of development ...... £359,000,000 – – £359,000,000 ––––––––––––––– ––––––––––––––– ––––––––––––––– ––––––––––––––– Total value ...... £7,370,942,620 £275,145,000 £2,500,000 £7,648,587,620 ––––––––––––––– ––––––––––––––– ––––––––––––––– –––––––––––––––
For categorisation purposes, those Properties held on very long leases, for terms of approximately 999 years at fixed peppercorn or nominal rents, have been included as freehold Properties. Short leasehold properties are classified as having less than 50 years unexpired.
The above figures are an aggregate of the values attributable to each individual Property, and should not be regarded as a valuation of the portfolio in the context of a sale as a single lot.
In our opinion, the aggregate Market Rent of the Properties, as at 31 December 2008, was £539,712,368 per annum (excluding developments).
15. MOVEMENTS IN THE VALUATION FIGURE The above figures in paragraph 14 show a £2,817,630,350 decrease in the aggregate Market Value of the CESR 130 (vi) Properties as compared to the equivalent value of the Group’s wholly owned properties as at 31 March 2008, being the date of the Group’s last published audited consolidated accounts. This shift in the value reflects the impact of property acquisitions, disposals and development expenditure by the Company incurred since 31 March 2008, together with property market pricing fluctuations.
16. DISCLOSURE CESR130(i) Knight Frank LLP is appointed by the Company as External Valuers (as defined in the Red Book as: being a valuer who, together with any associates, has no material links with the client, an agent acting on behalf of the client, or the subject of the assignment) to provide it with valuations for internal and balance sheet purposes and has fulfilled this role since September 2005. The signatories of this report have been responsible for the instruction since that time. We confirm that in relation to Knight Frank LLP’s preceding financial year, the total fees paid by the Company, as a percentage of the total fee income of Knight Frank LLP, was substantially less than 5 per cent.
We do not consider that any conflict of interest arises for us in preparing this Valuation Report, and the Company has confirmed to us that it also considers this to be the case.
We confirm that we do not have any material interest in the Company or any of the Properties.
17. RESPONSIBILITY This Valuation Report has been prepared for inclusion in the Prospectus.
Save for any responsibility arising under Prospectus Rule 5.5.3R(2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in accordance with this Valuation Report or our statement, required by and given solely for the purposes of complying with Annex I item 23.1 of the Prospectus Directive Regulation, consenting to its inclusion in the Prospectus.
174 Part IX: Valuation Report
For the purpose of Prospectus Rule 5.5.3R(2)(f), we accept responsibility for the information within this AI, 1.2 Valuation Report and declare that we have taken all reasonable care to ensure that the information contained AIII, 1.2 in this Valuation Report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with Annex 1 item 1.2 of the Prospectus Directive Regulation.
Yours faithfully
R J S Johnson BSc MRICS R D Norman MRICS Partner, Commercial Valuations Partner, Commercial Valuations For and on behalf of Knight Frank LLP For and on behalf of Knight Frank LLP
175 Part IX: Valuation Report
Schedule 1: Material Properties
Current Market Net Annual Value Description, Terms of Existing Rent 31 December Date of Property Age and Tenure Tenancies Receivable 2008 Inspection Meadowhall The property comprises a purpose The property is let on some 314 £71,476,675 £1,250,000,000 11/12/2008 Shopping Centre built, fully covered regional leases and licences to a variety of Sheffield South shopping centre arranged over tenants with a weighted unexpired Yorkshire S9 1EP two levels within a crescent lease term of approximately 12 shaped mall. The retailing areas years. There are 8 vacant shop units, are arranged in six themed areas 3 vacant Oasis units and 12 and comprise 213 shop units with ancillary storage/kart and kiosk 10 anchor stores and 23 mall units. kiosks. The Oasis Food Court and Principal tenants include Marks & The Lanes provide 34 restaurants Spencer Plc, Boots the Chemist and 24 speciality kiosks Limited, Next Group Plc, House of respectively, together with an 11 Fraser (Stores) Limited, Debenhams screen cinema complex. Retail Plc, WH Smith Plc, Bhs A major asset management Limited, H&M Hennes Limited, initiative was completed in March Sports World Ltd, Zara UK Limited, 2008 involving the redevelopment River Island Clothing Co Ltd and of the former Sainsbury’s Primark Stores Limited together Supermarket into 12 units, all of with representation from most high which are let. street chain stores, fashion shops, Approximately 9,600 free car banks and building societies and parking spaces are available service outlets. The cinema is directly adjoining the Property operated by Vue Entertainment together with 300 coach parking Limited. spaces. A further 3,000 free car Some shop units are let on leases parking spaces are currently with base and turnover rent available on an informal basis for provisions, with some shop units let occasional use on land on a base rent only basis and a surrounding Property. The limited number of shop units are let Property adjoins a Passenger with turnover provisions only. Transport Interchange (PTI) with The occupational leases at the Oasis facilities for local and regional are let on a turnover rental basis bus and train and super tram with a base rental provision. The services. A covered walkway links rents are subject to review every the PTI to Meadowhall Centre. 5 years. The total gross internal net The Lanes are let on short term lettable area is approximately licence agreements for 1,500,000 sq. ft. approximately 12 months. The The property is located 3 miles licences are inclusive of business north east of Sheffield City Centre rates and service charge. adjacent to Junction 34 of the M1 Whilst the majority of the Motorway with access both north occupational leases are drawn on and southbound. An internal dual effectively full repairing and insuring carriageway ring road services the terms through a proportionate customer car parks. service charge, there are property Built from June 1988. Opened on overheads that are paid for by The 4 September 1990. British Land Company PLC which Long leasehold, 999 years from include PTI fees (RPI Linked), 28 September 2001 at an annual marketing costs, Lanes rates and rent of £250 without review. service charge, kart rates and storage container rentals. Some of the leases contain a right of pre-emption in favour of the landlord triggered by the tenant seeking to transfer its interest to a third party. 25 leases contain tenant break rights, some of which are rolling tenant break rights. As at the valuation date, there are approximately 27 rent reviews outstanding. The gross current contracted annual rent is £74,590,678.
176 Part IX: Valuation Report
Current Market Net Annual Value Description, Terms of Existing Rent 31 December Date of Property Age and Tenure Tenancies Receivable 2008 Inspection Exchange House, Situated on the northern side of The property is multi-let to tenants £20,235,867 £271,000,000 12/09/2008 Exchange Square, Exchange Square within The including Societe Generale, F&C Broadgate, Broadgate Estate, Exchange Asset Management Ltd and The London, EC2M House is a prominent office Partners of Herbert Smith 3WA building extending to (Solicitors). approximately 384,511 sq ft All the office leases expire in arranged over basement, ground December 2020 apart from F&C on (reception only) and floors 1 to part level 7 until July 2012. The 10. There are also 32 car parking majority of the rent reviews are due spaces. in August 2009 and October and Built July 1990. December 2010. Long leasehold until 2988 at a peppercorn.
201 Bishopsgate, At the junction of Primrose Street Multi-let to Mayer Brown £9,000,131 £270,000,000 08/12/2008 London, EC2M and Bishopsgate within The International LLP, Henderson 4NR Broadgate Estate, a newly Administration Limited, Landesbank completed office building Baden Wurttenberg & Alpari (UK) comprising 418,875 sq ft. There is Limited, with lease expiries from retailing on the ground floor 2018 to 2028. comprising 9 units. Level 6 (38,629 sq ft) and part level Completed 2008. 5 west (10,679 sq ft) are vacant, as Leasehold until 2997 at a is the retail (8,507 sq ft). peppercorn. Outstanding development expenditure as advised and deducted was £3,679,783. 155 Bishopsgate, Located within The Broadgate The property is let to a variety of £17,711,338 £255,000,000 12/09/2008 London, EC2M Estate, 155 Bishopsgate provides tenants, including Bank of Scotland 3TQ approximately 386,750 sq ft of and Baring Investment Services. offices over ground and floors 1 Part of the 4th floor is vacant to 12 and 6,924 sq ft of retail (8,259 sq ft). accommodation across 3 retail The majority of leases expire in July units. 2019, with rent reviews due in 2009 Built June 1989. and 2010. Long leasehold until 2986 at a peppercorn. Broadgate Tower Situated between Broadwalk Part let to Reed Smith until 2023 £0 (with fixed £230,000,000 08/12/2008 Bishopsgate, House and 201 Bishopsgate, on (166,762 sq ft), with current rent rental London, EC2M Primrose Street within The free periods and incorporating five increases to 4NR Broadgate Estate, the property yearly rent reviews. £9,645,804 comprises a newly completed 36 The remaining office areas vacant, per annum storey tower comprising 397,255 totalling 230,493 sq ft together with after sq ft and 10,075 sq ft of retail the retail units. expiration of accommodation together with 12 rent free We are advised that outstanding car parking spaces. periods in development costs (as deducted) are November Completed in August 2008. £12,089,719. 2010 and Leasehold until 2997 at a May 2011) peppercorn.
177 Part IX: Valuation Report
Current Market Net Annual Value Description, Terms of Existing Rent 31 December Date of Property Age and Tenure Tenancies Receivable 2008 Inspection 100 Liverpool Occupying the south-eastern The office accommodation is let in £17,290,163 £225,000,000 11/09/2008 Street & 12 corner of the Broadgate Arena its entirety to UBS UK Properties Broadgate & 8 – within The Broadgate Estate, this Limited, being part of the 10 Broadgate, property comprises a complex of international bank UBS, on a lease London, EC2M interlinking office buildings and a expiring in December 2022 2RH retail arcade. incorporating 5 yearly rent reviews. 100 Liverpool St. & 12 Broadgate There are two tenant only break provide approximately 257,480 options in June 2009 (notice period sq ft of office accommodation passed) and September 2013, both over ground to 7th floors, whilst subject to rental penalties. The rent 8 – 10 Broadgate totals review to 8 – 10 Broadgate in approximately 119,902 sq ft of December 2008 is outstanding. office space also over ground to The retail units are let to a mix of 7th floors. national high street and smaller There are 9 retail units totalling retailers on leases expiring between approximately 5,677 sq ft within 2012 and 2017 with tenant break the Octagon Arcade which leads options in 2013 and rent reviews from Liverpool St. Station. from September 2010 onwards. The property has 37 car parking Retail Unit 4 is vacant and currently spaces. being marketed. Built February 1988. Long leasehold until 2985 at a peppercorn. Ropemaker Place, The property comprises a Development in progress. £0 £206,500,000 08/12/2008 25 Ropemaker committed office development We are advised (and deducted) Street, London, due to complete in May 2009, outstanding capital expenditure of EC2 being situated on a prominent £62,422,190. City site close to Moorgate and Liverpool Street. The 20 storey building will provide some 586,000 sq ft offices incorporating two trading floors of over 42,800 sq ft at the lower level. Freehold. 1-3 Broadgate, Situated in the south west corner 1 & 2 Broadgate were both let to £14,393,236 £202,500,000 11/09/2008 London, EC2M of the Broadgate Arena, 1 & 2 Lehman Brothers Limited until 7HA Broadgate comprise two office January 2017. However, since the buildings each arranged around demise of Lehman we have been their own individual glass atriums advised that sub-tenants are paying and extending across basement, rent direct to British Land. There are lower ground, ground and floors three office tenants; UBS, ICAP and 1 to 7. KBW, on six leases. Part of the 7th No.1 Broadgate totals floor at no. 1 is vacant (12,749 sq approximately 187,133 sq ft of ft). office accommodation, whilst 3 Broadgate has a reception on the No.2 is slightly smaller at ground floor, with the upper floors 135,185 sq ft. let until 2010 and 2012. No.3 Broadgate is a small stand The retail and A3 units are let to a alone circular office building variety of national high street and comprising a ground and three smaller retailers. The majority of upper floors totalling leases, both by number and income, approximately 3,035 sq ft. expire in 2013. Also included with 1-3 Broadgate The kiosk units tend to be let to are a number of retail, A3 and smaller retailers, with the leases on kiosk units. the majority of these expiring within Built December 1987. the next 3 years. Long leasehold until 2998 at a The leases incorporate five yearly peppercorn. rent reviews.
178 Part IX: Valuation Report
Current Market Net Annual Value Description, Terms of Existing Rent 31 December Date of Property Age and Tenure Tenancies Receivable 2008 Inspection 135 Bishopsgate, The most southern of the three National Westminster Bank Plc hold £14,688,704 £200,000,000 12/09/2008 London, EC2M Bishopsgate buildings within The a full repairing and insuring lease 3TP Broadgate Estate, 135 for the entire office accommodation Bishopsgate extends to expiring in February 2019, with the approximately 331,376 sq ft of next rent review due in February office accommodation over 2009. ground and floors 1 to 12 and a The retail units are predominantly parade of seven retail units let to mainly national high street totalling 7,804 sq ft. retailers, also for terms expiring Built December 1988. mainly in February 2019 Long leasehold until 2986 at a incorporating rent reviews from peppercorn. February 2009 onwards. Euston Tower, A landmark tower building The property is multi-let. £12,055,260 £189,500,000 01/09/2008 Regent’s Place, totalling some 379,627 sq ft Retailers include Pret A Manger London, NW1 providing a mixture of retail and (Europe) Ltd, Starbucks Coffee Co 3DP A3 accommodation at ground (UK) Ltd, Davy’s Wine Bar and floor level, with office Sainsbury’s Supermarkets Limited. accommodation located at All retail leases expire in 2019 with ground, podium and 35 upper the exception of periodic seating floors. Some of the upper floor arrangements to Pret A Manger and offices have been substantially Starbucks. refurbished by the tenant providing a highly specified Cat A The Secretary of State for the fit-out, including raised floors, Environment have recently re-geared metal tiled suspended ceiling, their lease of the whole of the office male and female toilet facilities on accommodation to incorporate fixed each floor and a new four pipe rental uplifts in 2012 and 2017. The fan coil air cooling system. lease now expires in December 2022, with a tenant only option to In addition, there are break in 2021. approximately 85 underground secure car parking spaces and five 23 person high rise and five 23 person low rise passenger lifts. Built circa mid 1960’s. Long Leasehold from 1993 for 999 years at a nil ground rent. Teesside Shopping A major out of town retail The property is let on 34 effectively £9,679,941 £181,000,000 25/10/2008 Park, Thornaby fashion park lying between full repairing and insuring terms Way, Stockton-on- Stockton-on-Tees and (through a proportionate service Tees, Cleveland, Middlesbrough at the intersection charge) to 32 retailers. TS17 7BS of the A66 and A19 trunk roads. Principal retailers include Marks & The property comprises some Spencer Plc, Next Group Plc, 342,980 sq ft of retail warehouse Redcastle Limited, Borders (UK) accommodation (with additional Limited, NBC Apparel, DSG Retail mezzanine areas) arranged in 33 Limited (Currys & PC World), units ranging in size from 1,450 Boots the Chemist Limited and sq ft to 33,000 sq ft together with Argos Limited. commercialisation income. The The lease terms incorporate 5 yearly units are positioned in a “U- rent reviews with lease expiries shape” arrangement around a ranging from November 2012 to surface car park (free customer May 2026. Two of the leases (Next parking) capable of and Redcastle) incorporate turnover accommodating some 1,468 rent provisions. The leases to Marks vehicles. Each of the units has & Spencer Plc and DSG Retail rear loading and service access. Limited incorporate fixed rental Access to the park is from the increases throughout the lease term. A66 road which also serves the There is also limited licence income adjoining Phase II (British Land from retail stalls, ATMs, advertising owned – Bulky Goods retailers and centre promotions. and restaurants), a Morrisons superstore (not Company owned), There are seven outstanding rent a Toys R Us unit (British Land reviews. owned), the Leisure Park (not The tenant, Zavvi Retail Limited, is Company owned) and other stand in administration. alone retail units and fast food outlets.
179 Part IX: Valuation Report
Current Market Net Annual Value Description, Terms of Existing Rent 31 December Date of Property Age and Tenure Tenancies Receivable 2008 Inspection Teesside Retail The Park has an open A1 (non Park, Thornaby food) planning consent except for Way, Stockton-on- a small area (Unit 4 – 15,070 sq Tees, Cleveland, ft) that has a bulky goods consent TS17 7BS (Section 106 Agreement). (continued) Built in the early 1990’s with on going active asset management involving reconfiguration of units and mezzanine additions. Freehold.
Broadwalk House, At the north west corner of The CL Property (Broadwalk), being part £12,002,994 £170,000,000 12/09/2008 5 Appold Street, Broadgate Estate, Broadwalk of the bank Credit Lyonnais, hold London, EC2A House is located on the corner of the ground to 3rd floors on one 2AG Appold Street and Primrose lease. Ashurst Morris & Crisp Street. occupy the 4th to 6th floors on two The property is a prominent sand separate leases. All these leases coloured building totalling expire in July 2019 and incorporate approximately 292,044 sq ft of five yearly rent reviews. office accommodation arranged Central Parking System of UK Ltd over lower ground, ground and lease 80 car parking spaces on a floors 1 to 6. lease expiring in December 2009 at There are approximately 113 car a current rent of £120,000 pa plus a parking spaces in the basement. turnover element. Built May 1989. Long leasehold until 2998 at a peppercorn.
1 Finsbury Avenue, Part of a number of interlinking The entire property is let to UBS £13,192,000 £162,000,000 12/09/2008 London, EC2M buildings around Finsbury Avenue (UK) Properties Limited on a lease 2PP Square forming part of The expiring in September 2022, with a Broadgate Estate, 1 Finsbury tenant only break option in Avenue is a 267,621 sq ft office September 2014. The next rent building extending across ground review is due in September 2012. and floors 1 to 7 with a treble height reception area. In addition there is a vacant residential apartment comprising approximately 404 sq ft. There are also 56 car parking spaces at ground level. Built August 1984. Long leasehold until 2998 at a peppercorn.
Regent’s Place One This committed development is The subject property is currently £0 £152,500,000 01/09/2008 & Two and One located on the west side of being developed. Osnaburgh Street, Regent’s Place with frontages to We are advised (and deducted) Osnaburgh Street, Euston Road and Osnaburgh outstanding capital expenditure of London, NW1 Street on a 2.50 acre site in the £99,505,980. 3AY West End of London. Both the social and intermediate Designed by Terry Farrell and housing have been pre-sold, with a Partners, the scheme will provide number of the market residential 110,000 sq ft of residential units sold off-plan. (including social housing) and some 380,000 sq ft of commercial premises (including a community theatre and retail units around a public square). The office accommodation is split between two buildings. This development is due to complete in the Autumn 2009. Freehold.
180 Part IX: Valuation Report
Schedule 2
PART A: CERTIFIED PROPERTIES 1. 350 Euston Road, Regent’s Place, London
2. 338 Euston Road, Regent’s Place, London
3. Homebase Store, High Road, Harrow
4. Homebase Store, Town Hall, New Zealand Avenue, Walton on Thames
5. Homebase Store West Side of Manor Road, Richmond on Thames
6. Homebase Store, 500 London Road, Camberley
7. Eldon House and Red Lion Public House, Eldon Street, London
8. 2 & 3 Triton Square, Regent’s Place, London
9. Somerfield Store, The Whim, Fore Street, Newquay
10. Somerfield Store, 9 Derby Road, Kilwardby Street, Ashby- de-la-Zouch
11. Somerfield Store, Oswald Road, Oswestry SY11 1RA
12. Somerfield Store, 89 St. John’s Way, Corringham, Stanford-le-Hope, Essex SS17 7NA
13. Somerfield Store, South Side of Pier Street, Burnham on Sea, Somerset
14. Somerfield, land and buildings on the west side of London Road, Boston, Lincolnshire
15. Somerfield Store, Parkgate Road, Coventry
16. Somerfield Store, High Street, Swadlincote, Derby
17. Somerfield Store, 280-284 Bath Road, Hounslow
18. Somerfield Store, Queenspark Avenue and York Road, Billericay
19. York House, 24 to 30 Edgware Road, 29 to 59 Seymour Street, 38 to 60 Bryanston Street and 15 to 15A and 17 Great Cumberland Place
20. Meadowhall, Sheffield
21. 201 Bishopsgate/Broadgate Tower
181 Part IX: Valuation Report
PART B: FURTHER PROPERTIES IN RESPECT OF WHICH MATERIAL ISSUES REPORTS HAVE BEEN PRODUCED BY LINKLATERS LLP AND FRESHFIELDS BRUCKHAUS DERINGER LLP AND CONFIRMATIONS HAVE BEEN PREPARED BY THE COMPANY 22. Leisure Centre, 1 Appold Street, London
23. 1 Appold Street, London
24. 4 Broadgate, London
25. 135 Bishopsgate, London
26. 155 Bishopsgate, London
27. Broadwalk House, Appold Street, London
28. 8 – 12 Broadgate & 100 Liverpool Street
29. Exchange House, Exchange Square, London
30. 10 Exchange Square, Appold Street, Broadgate, London
31. Broadgate Court, 199 Bishopsgate, London
32. 1, 2 & 3 Broadgate and Arena, London
33. 2 Finsbury Avenue, London
34. 3 Finsbury Avenue, London
35. 6 Broadgate, London
36. 1 Finsbury Avenue, London
37. B&Q warehouse store, Beevor Street, Lincoln
38. B&Q, Moor Lane, Exeter
39. B&Q store, Bridge Hall Lane, Bury
40. B&Q store, Robinson Street West, Grimsby
41. B&Q Store, Norman Road, Ashford, Kent
42. B&Q store, Middle Engine Lane, Wallsend, Tyne and Wear
182 Part IX: Valuation Report
PART C: FURTHER PROPERTIES IN RESPECT OF WHICH TENANCY SCHEDULES HAVE BEEN VERIFIED BY SJ BERWIN 43. Teesside Shopping Park, Stockton-on-Tees
44. Debenhams, Oxford Street, London, W1
45. Rackhams Store, 51/58 Corporation Street, Birmingham
46. Debenhams, High Street, Manchester
47. Tollgate Centre, Tollgate Road, Colchester
48. Debenhams, St. David’s Centre, Cardiff
49. Debenhams, Eastgate Street, Chester
50. Oxford Retail Park, Botley Road, Oxford
51. Debenhams, 315/325 Lavender Hill, Clapham Junction, London, SW11
52. Debenhams, The Moor, Sheffield
53. Debenhams, High Street, Chelmsford
54. Debenhams, Guildhall Street, Canterbury
55. Teesside Retail Park Phase 2, Stockton-on-Tees
56. Studlands Retail Park, Oaks Drive, Newmarket
57. Debenhams, Commercial Road, Bournemouth
58. Debenhams, Magdalen Street, Oxford
59. Homebase, Pines Way, Bath
60. Homebase, Twickenham Road, Feltham
61. Travel Lodge, North Circular Road, Wembley
62. Debenhams, Terminus Road, Eastbourne
183 Part X: Documentation Incorporated by Reference
The (i) Annual Report and Accounts of the Company for each of the financial years ended 31 March 2006, AI, 20.1 2007 and 2008 and (ii) unaudited interim condensed consolidated financial statements of the Company and PR 2.4 its subsidiaries for the nine month-period ended 31 December 2008, together with Deloitte LLP’s interim PR 2.4.5 review report in respect thereof, are available for inspection in accordance with Part VIII of this document AI, 20.3 and contain information which is relevant to the Rights Issue. These documents are also available on the AI, 6.2 Company’s website at www.britishland.com.
The Circular is available for inspection in accordance with paragraph 26 of Part VIII of this document and contains information which is relevant to the Rights Issue. This document is also available on the Company’s website at www.britishland.com.
The table below sets out the various sections of the documents that are incorporated by reference into this document so as to provide information required under the Prospectus Rules and to ensure that Shareholders and others are aware of all information that, according to the particular nature of the Company and the New Shares, is necessary to enable the Shareholders and others to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospectus of the Company.
Page AI, 20.6.1 numbers 20.6.2 in such Document Section document Third Quarter Report to Summary ...... 1–2 31 December 2008 Review of the Quarter to 31 December 2008 ...... 3–10 dated 12 February 2009 (unaudited) Consolidated Income Statement for the period ended 31 December 2008 ...... 11–12 Consolidated Balance Sheet ...... 13 Consolidated Statement of Recognised Income and Expense ...... 14 Consolidated Cash Flow Statement ...... 15 Notes to the Accounts ...... 16–22 Table A ...... 23 – 24 Independent Review Report to The British Land Company PLC dated 12 February 2009 ...... 25 AI, 15.1, 15.2
Annual Report and Accounts 2008 2008 Financial Statements (including comparative financial 80-104 dated 19 May 2008 information for 2007) and Notes to the Accounts ...... 2008 Report of the Auditors...... 104 Remuneration Report...... 69-77(1) Accounting judgements...... 34
Annual Report and Accounts 2007 2007 Financial Statements (including comparative financial 82-112 dated 21 May 2007 information for 2006) and Notes to the Accounts ...... 2007 Report of the Auditors...... 112 Remuneration Report...... 65 – 73(1) Accounting judgements ...... 33
Annual Report and Accounts 2006 2006 Report of the Auditors...... 118 dated 1 June 2006 Note:
(1) Excluding the information, analysis and graphs under the headings “Fixed/variable pay analysis” and “Performance graph”.
184 Part XI: Definitions
In this document the following expressions have the following meaning unless the context otherwise requires:
Admission the admission of the New Shares (nil paid or fully paid, as the case may require) to the Official List becoming effective in accordance with the Listing Rules and the admission of such shares (nil paid or fully paid, as the case may require) to trading on the London Stock Exchange’s main market for listed securities becoming effective in accordance with the Admission and Disclosure Standards
Admission and Disclosure the “Admission and Disclosure Standards” of the London Stock Standards Exchange containing, among other things, the admission requirements to be observed by companies seeking admission to trading on the London Stock Exchange’s main market for listed securities
Articles of Association the articles of association of the Company, details of which are set out in paragraph 4.2 of Part VIII of this document
Audit Committee the audit committee established by the Board
Bank Underwriters Morgan Stanley Securities Limited and UBS Investment Bank
Board the board of directors of the Company bps basis points
British Land Employee Share the Option Plans and the Employee Share Ownership Plans described Plans in Part VIII of this document business day a day (excluding Saturdays and Sundays or public holidays in England and Wales) on which banks generally are open for business in London for the transaction of normal business
CBRE CB Richard Ellis, an independent property valuation expert
CCSS or CREST Courier and the CREST Courier and Sorting Service established by Euroclear UK Sorting Service to facilitate, amongst other things, the deposit and withdrawal of securities certificated or in certificated form where a share or other security is not in uncertificated form
CGT UK tax on chargeable gains
CIP the Co-Investment Plan operated by the Company as described in paragraph 13.2(d) of Part VIII of this document
Circular the circular to Shareholders dated 12 February 2009 issued by the Company in connection with the Rights Issue and including the Notice
Combined Code the UK Combined Code on Corporate Governance
Companies Act the UK Companies Act 1985, as amended, or the UK Companies Act 2006, as the context so requires
Company or British Land as the context requires, (i) The British Land Company PLC, a company incorporated under the laws of England and Wales with
185 Part XI: Definitions
registered number 621920 and its registered office at York House, 45 Seymour Street, London W1H 7LX; or (ii) The British Land Company PLC and its subsidiaries from time to time; or (iii) The British Land Company PLC and other companies that comprise the REIT Group
CREST the relevant system, as defined in the CREST Regulations (in respect of which Euroclear UK is the operator as defined in the CREST Regulations)
CREST Manual the rules governing the operation of CREST, consisting of the CREST Reference Manual, CREST International Manual, CREST Central Counterparty Service Manual, CREST Rules, Registrars Service Standards, Settlement Discipline Rules, CCSS Operations Manual, Daily Timetable, CREST Application Procedure and CREST Glossary of Terms (all as defined in the CREST Glossary of Terms promulgated by Euroclear UK on 15 July 1996 and as amended since)
CREST member a person who has been admitted to Euroclear UK as a system member (as defined in the CREST Regulations)
CREST participant a person who is, in relation to CREST, a system participant (as defined in the CREST Regulations)
CREST Regulations or Regulations the Uncertificated Securities Regulations 2001 (SI 2001 No. 01/55), as amended
CREST sponsor a CREST participant admitted to CREST as a CREST sponsor
CREST sponsored member a CREST member admitted to CREST as a sponsored member
Daily Official List the daily record setting out the prices of all trades in shares and other securities conducted on the London Stock Exchange
Directors the Executive Directors and Non-Executive Directors, whose names appear on page 33 of this document
Disclosure and Transparency Rules the rules relating to the disclosure of information made in accordance with Section 73A(3) of the FSMA
Employee Share Ownership Plans the SIP, the MSP and the FMPP
EPRA the European Public Real Estate Association
EPRA earnings measure Earning measure that excludes investment property revaluations and gains or losses on disposals, intangible asset movements and their related taxation and the REIT conversion charge
EPRA net assets (EPRA NAV) the balance sheet net assets excluding the mark to market on effective cash flow hedges and related debt adjustments, deferred taxation on revaluations and diluting for the effect of those shares potentially issuable under employee share schemes
EPRA NAV per share the EPRA NAV divided by the diluted number of shares at the period end
EPRA NNNAV per share the EPRA NAV adjusted to reflect the fair value of debt and derivatives and to include deferred taxation on revaluations
186 Part XI: Definitions
EPS earnings per share
Equivalent yield the discount rate that equates the future income flows to the current capital value. In accordance with customary practice, the equivalent yields (as determined by the Company’s external valuers) assume rent received annually in arrears and on gross values including prospective purchaser’s costs
ERISA the United States Employee Retirement Income Security Act of 1974, as amended
ERV estimated rental value which is the Company’s external valuers’ opinion as to the open market rent that, on the date of valuation, could reasonably be expected to be obtained on a new letting or rent review of a property
EU or European Union the European Union
Euro Lights Euro Lights Pte Ltd., a company incorporated under the laws of Singapore, which is an affiliate of GIC Real Estate Pte Ltd.
Euroclear UK Euroclear UK & Ireland Limited, the operator of CREST
European Economic Area the European Union, Iceland, Norway and Liechtenstein
Excluded Territory the Republic of South Africa
Executive Directors the executive directors of the Company
Existing Shares the Ordinary Shares in issue as at the Record Date
Ex-Rights Date the date following which the Ordinary Shares trade ex-rights, being 4 March 2009
Financial Services Authority or the Financial Services Authority of the United Kingdom FSA
FMPP the Fund Managers’ Performance Plan operated by the Company as described in paragraph 13.2(b) and (d) of Part VIII of this document
FSMA the Financial Services and Markets Act 2000, as amended
Fully Paid Rights rights to acquire the New Shares, fully paid
General Meeting the general meeting of British Land to be held at York House, 45 Seymour Street, London W1H 7LX on 3 March 2009, notice of which is set out in the Circular
GIC Government of Singapore Investment Corporation Pte Ltd., an affiliate of GICRE
GICRE the group of companies managed by GIC Real Estate Pte Ltd. (including Euro Lights)
GICRE Irrevocable Undertaking the deed of irrevocable undertakings dated 12 February 2009 between Euro Lights and the Company under which, inter alia, Euro Lights has undertaken to procure the voting of 36,705,979 Ordinary Shares held by GIC in favour of the Resolutions and the taking up of entitlements
187 Part XI: Definitions
under the Rights Issue in respect of such 36,705,979 Ordinary Shares as further described in paragraph 17.5 of this document
Group or British Land Group the Company and its subsidiaries from time to time
HIF Hercules Income Fund
HMRC HM Revenue & Customs
HUT Hercules Unit Trust
IASB the International Accounting Standards Board
ICAEW the Institute of Chartered Accountants in England and Wales
IFRS International Financial Reporting Standards as issued by the International Accounting Standards Board
Index the Investment Property Databank Annual Index
IPD Investment Property Databank
IRS the Internal Revenue Service of the United States
Issue Price 225 pence per New Share
Joint Bookrunners Morgan Stanley and UBS Investment Bank
Joint Sponsors Morgan Stanley and UBS Investment Bank
Knight Frank Knight Frank LLP, an independent property valuation expert
LIBOR London Inter Bank Offered Rate
Like-for-like rental income growth the rate of growth in gross rental income on properties owned throughout the current and previous periods under review. This growth rate includes revenue recognition and lease accounting adjustments but excludes properties held for development in either period, properties with guaranteed rent reviews, asset management determinations, surrenders and back-rent adjustments
Listing Rules the Listing Rules made by the FSA under Part VI of the FSMA
London Stock Exchange London Stock Exchange plc
LSPG Butterfield Trust (Guernsey) Limited and Moulinet Trustees Limited, a joint venture between London & Stamford Property Plc and a wholly owned subsidiary of the Abu Dhabi Investment Council
LTIP the Long Term Incentive Plan operated by the Company as described in paragraph 13.1(c) of Part VIII of this document member account ID the identification code or number attached to any member account in CREST
Memorandum of Association the memorandum of association of the Company, details of which are set out in paragraph 4.1 of Part VIII of this document
Money Laundering Regulations the Money Laundering Regulations 2007 (SI 2007/2157)
188 Part XI: Definitions
Morgan Stanley Morgan Stanley & Co. International plc
MSC MSC Property Intermediate Holdings Limited
MSP the Executive Matching Share Plan operated by the Company as described in paragraph 13.2(b) and (c) of Part VIII of this document
MSSL Morgan Stanley Securities Limited
MSU medium-sized unit
Newco Springboard Capital (Jersey) Limited
Newco Subscriber Morgan Stanley & Co. International plc, Morgan Stanley Securities Limited or UBS Investment Bank or a third party to whom the rights and obligations of Morgan Stanley or UBS Investment Bank, as applicable (as subscriber for shares in Newco), are novated
New Shares the up to 340,873,589 Ordinary Shares to be allotted and issued pursuant to the Rights Issue
Nil Paid Rights rights to acquire the New Shares, nil paid
Nomination Committee the nomination committee established by the Board
Non-CREST Shareholder a Shareholder who does not hold their Ordinary Shares in CREST
Non-Executive Directors the non-executive directors of the Company
Notice the notice convening the General Meeting set out in the Circular
Official List the Official List of the FSA pursuant to Part VI of the FSMA open A1 a planning consent enabling the sale of a wide range of goods, including food, fashion, footwear, books, electronics and household goods – as set out in The Town and Country Planning (Use Classes) Order 1987
Option Plans the Sharesave Scheme and the LTIP
Ordinary Shares or Shares the ordinary shares of 25 pence each in the share capital of the Company (including, if the context requires, the New Shares)
Overseas Shareholders Shareholders with registered addresses outside the United Kingdom or who are citizens or residents of countries outside the United Kingdom
Panel the Panel on Takeovers and Mergers
Part VI Rules the rules contained in Part VI of the FSMA participant ID the identification code or membership number used in CREST to identify a particular CREST member or other CREST participant pounds sterling or £ the lawful currency of the United Kingdom
PREF Pillar Retail Europark Fund
Prospectus Directive the Directive of the European Parliament and of the Council of the European Union 2003/71/EC
189 Part XI: Definitions
Prospectus Rules the Prospectus Rules published by the FSA under Section 73A of the FSMA
Provisional Allotment Letter or the renounceable provisional allotment letter expected to be sent to PAL certain Qualifying Non-CREST Shareholders in respect of the New Shares to be provisionally allotted to them pursuant to the Rights Issue
Qualified Institutional Buyer or has the meaning given in Rule 144A under the US Securities Act QIB
Qualifying CREST Shareholders Qualifying Shareholders holding Ordinary Shares in uncertificated form in CREST
Qualifying Non- Qualifying Shareholders holding Ordinary Shares in certificated form CREST Shareholders
Qualifying Shareholders holders of Ordinary Shares on the register of members of the AIII, 5.2.1 Company at the Record Date
Receiving Agent Equiniti Limited
Record Date close of business on 27 February 2009
Registrars or Equiniti Equiniti Limited
Regulation S Regulation S under the US Securities Act
Regulatory Information Service one of the regulatory information services authorised by the Financial Services Authority to receive, process and disseminate regulatory information in respect of listed companies
REIT real estate investment trust
REIT Group the Company and the other companies in its group for the purposes of Section 134 of the Finance Act 2006
Remuneration Committee the remuneration committee established by the Board rent passing the gross rent, less any ground rent payable under head leases
Restricted Territories and each a Canada, the Commonwealth of Australia, its territories and Restricted Territory possessions, the People’s Republic of China, Japan, Switzerland and the United States
Resolutions the resolutions to be proposed at the General Meeting in connection with the Rights Issue
RICS Royal Institute of Chartered Surveyors
Rights rights to the New Shares pursuant to the Rights Issue
Rights Issue the proposed issue by way of rights of New Shares to Qualifying Shareholders on the basis described in this document and, in the case of Qualifying Non-CREST Shareholders, in the Provisional Allotment Letter
SDRT stamp duty reserve tax
190 Part XI: Definitions
SEC or US Securities and the US government agency having primary responsibility for enforcing Exchange Commission the federal securities laws and regulating the securities industry/stock market
Shareholder a holder of Ordinary Shares
Sharesave Scheme the Savings-Related Share Option Scheme operated by the Company as described in paragraph 13.1(b) of Part VIII of this document
SIP the Share Incentive Plan operated by the Company as described in paragraph 13.2(a) of Part VIII of this document stock account an account within a member account in CREST to which a holding of a particular share or other security in CREST is credited
Takeover Code the City Code on Takeovers and Mergers
Transparency Rules the Transparency Rules published by the FSA under Part VI of the FSMA
Trustee the trustee of the British Land Share Ownership Plan from time to time
UBS or UBS Investment Bank UBS Limited of 1 Finsbury Avenue, London EC2M 2PP uncertificated or in uncertificated recorded on the relevant register of the share or security concerned as form being held in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by means of CREST
Underwriters and each an Morgan Stanley Securities Limited, UBS Investment Bank and Euro Underwriter Lights
Underwriting Agreement the underwriting agreement dated 12 February 2009 between the Company, the Joint Bookrunners and the Underwriters relating to the Rights Issue as further described in paragraph 17.4 of Part VIII of this document
United Kingdom or UK the United Kingdom of Great Britain and Northern Ireland
United States or US the United States of America, its territories and possessions, any state of the United States and the District of Columbia
US Exchange Act the United States Securities Exchange Act of 1934, as amended
US Holder a beneficial owner of Rights or New Shares that is, for US federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation created or organised under the laws of the United States or any State thereof, (iii) an estate the income of which is subject to US federal income tax without regard to its source or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more US persons have the authority to control all substantial decisions of the trust
US Securities Act the United States Securities Act of 1933, as amended
Valuation Report the valuation report prepared by Knight Frank LLP dated 31 December 2008
191 Part XI: Definitions weighted average lease term the average lease term remaining to expiry across the portfolio weighted by rental income. This is also disclosed assuming all break clauses are exercised at the earliest date, as stated, and excludes short- term licences and residential leases
192 Erratum
This page does not form part of the prospectus
Please note that there is a typographical error on page 40 of the prospectus:
The Company’s EPRA NAV per share was 718 pence (not 861 pence as stated in the prospectus), down 31 per cent. for the three months ended 31 December 2008.
sterling 113619