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Annual Report & Accounts 2003 The Royal Parks As Minister of State responsible for London’s eight Royal Parks, I am delighted that British Land has chosen to highlight the Parks’ special contribution to London life in its Annual Report & Accounts this year. Each visitor relates to The Royal Parks in a unique and individual way and this series of extraordinary photographs conveys a sense of the Parks’ importance as “London’s personal space”. With over 100,000 roses,150 species of trees,26 miles of river banks, 1,000 species of beetle, 20 football pitches and 220 his- toric fountains and monuments, there is something in the Parks for everyone to enjoy. We must conserve these for future genera- tions as well as providing opportunities for their use by all sections of the community. With this in mind, the Royal Parks are undertaking two flagship projects. The first focuses on community sport in Regent’s Park, a £5.3m initiative to renovate the football and cricket pitches and build a new sports pavilion. The second involves the restoration of Bushy Park and, in particular, the need to strengthen its education resources, safeguard the fragile ecology of the Woodland Gardens and improve facilities for visitors. Many businesses today recognise the benefits of investing in the communities in which they operate and The Royal Parks hope to develop a wide range of corporate partnerships. In May 2003, the Charity Commission registered a new charity, The Royal Parks Foundation, an independent body committed to supporting the heritage of the Parks,encouraging access and community involve- ment, promoting education, protecting wildlife and increasing biodiversity. This will provide the business community with an unprecedented opportunity to become closely involved with one of Britain’s most glorious green attractions. I strongly support partnerships, like this one between British Land and The Royal Parks, which help to raise awareness of this joint responsibility. I hope it continues to be successful. Baroness Blackstone Pulling together. With the exception of brewers’ drays, working horses have been absent from London’s streets for fifty years. For environmental reasons, they have recently been reintroduced in Richmond Park, where they perform much heavy duty in the course of their doings. Contents 1 British Land at a Glance 2 6 Financial Statements 63 Consolidated Profit and Loss Account 64 Corporate Strategy 4 Balance Sheets 65 Other Consolidated Primary Statements 66 Consolidated Cash Flow Statement 67 2 Chairman’s Statement 5 Notes to the Financial Statements Accounting policies 68 Operating profit 69 Net Interest payable 70 Ordinary dividends 70 Basic and diluted earnings per share 70 3 Financial Review 15 Parent company’s results 70 Profit on the disposal of fixed assets 71 Portfolio Analysis 20 Taxation 71 Acquisition of subsidiaries 72 Investment, development 73 and trading properties 4 Property Review 21 Joint ventures’ summary 74 Commercial Property Market Summary 26 financial statements Principal Investment Properties 28 Other investments 77 Joint Ventures Review 35 Debtors & creditors 78 Net asset value per share 79 Net debt 80 5 Management, Governance, Notes to the cash flow statement 83 Corporate Social Responsibility 41 Share capital 84 Remuneration Report 42 Reserves 85 Directors and Officers 47 Capital commitments 85 Group Executive and Advisers 48 Contingent liabilities 85 Report of the Directors 50 Disclosure of interests The Environment & Corporate and related parties 85 Social Responsibility 52 Pensions 86 Corporate Governance 54 Business Opportunity and Financial Calendar 88 Business Risk Management 56 Major Investment Properties Summary 89 Financing Policy and Risk Management 58 Shareholder Information 93 Valuation Certificate 59 Ten Year Record 94 Instruction to Valuers 61 Sponsorship 95 Report of the Auditors 62 Glossary of Terms 96 Quick reference Net asset value per Mortgage ratio 18 share calculation 79 Earnings per share 64, 70 Mark to market value of debt (FRS13) 18, 82 Deferred taxation (FRS19) 71, 79 Contingent tax 71 Interest cover 18 Dividends 3, 50, 70 Taxation 71 British Land at a Glance British Land is a property investment company registered in London Portfolio Analysis by Value and listed on the London Stock Exchange,investing in prime,modern as at 31 March 2003 properties. The portfolio is valued at £9.6 billion: the majority is directly owned and managed; the balance is held in joint ventures and Sector % 2 partnerships, of which British Land’s share is valued at £1.4 billion. Shopping centres 20 Supermarkets 13 Our investment approach is to concentrate on the fundamentals of Retail warehouses 11 individual assets. A key criterion is a property’s enduring attraction to Shops 4 occupiers,because of its business suitability,location and efficiency. Total Retail 48 The portfolio continues to focus on areas where the principles of Offices 41 supply and demand over the long term are strong. Some 38% is Office development 6 invested in out of town retail properties,including Meadowhall Shop- Total Offices 47 ping Centre (one of only six regional centres in the UK), 93 super- Industrial and distribution 5 markets and 69 retail warehouses. A further 44% is invested in Central Leisure & Residential London offices,including Broadgate,the premier City office estate. British Land continually and rigorously reviews assets for long British Land at a Glance term performance potential. Over the last five years £2.5 billion of The principal revenue source is rental income with current annu- property has been sold: on average around £500 million each year. alised net rents of £546 million. The rental income is predominantly contracted on 25 year leases Rental Income Profile (assuming no rental value growth) with rent reviews every five years to the higher of the passing rent or as at 31 March (£m) the prevailing open market rent. The weighted average unexpired lease term,assuming breaks are exercised at the earliest date,is 16 years. 800 The portfolio has significant further income growth potential from 700 both investment properties where current rents are below market 600 500 levels and new rents from committed developments. These currently 400 aggregate a further £101 million pa, of which £41 million is already 300 contracted. Prospective development projects could provide an addi- 200 tional income of £104 million, if developed and let. These are ready 100 to be progressed when pre-lets are agreed or when market condi- 0 tions are right. 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Our high quality properties,balanced portfolio and long lease profile Annualised net rents Renewal of leases on expiry or break* have secured IPD upper quartile performance with total compound Development programme committed Reversionary income* property returns of 12.7% per annum over the last 10 years. and prospective* * No rental value growth is assumed. The graph provides a snapshot of committed income and estimated income based on ERV at 31 March 2003, including our share of joint ventures and is not a forecast. Financing as at 31 March The main assumptions which underlie the graph are outlined on page 17. % Mortgage Ratio British Land has an efficient capital structure with optimal gearing to 100 enhance returns on equity. The cost of capital is minimised as debt finance is cheaper than equity and is tax deductible. 75 The ratio of debt to assets is maintained at or around 50%, while maintaining a strong financial position in terms of recurring interest cover and available liquidity. 50 The Group’s financing is risk averse with a long average debt maturity, 18 years, low average cost of debt, 6.31%, and with some 50 64% of debt ringfenced with no recourse for repayment to other Group companies or assets. Over the medium term, approximately 85% of debt is protected against upward movements in interest rates. 0 1999 2000 2001 2002 2003 Share of Joint Ventures Group The British Land Company PLC Net Rental Income* Underlying Profit before Tax Net Asset Value per Share† Dividends per Share year ended 31 March year ended 31 March as at 31 March year ended 31 March £m £m Pence Pence 14 525 150 900 3 800 12 British Land at a Glance 450 125 700 375 10 100 600 8 300 500 75 225 400 6 50 300 150 4 200 75 25 2 100 0 0 0 0 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 * Including Share of Joint Ventures † adjusted, diluted Total Return Over 1yr 2yrs 3yrs 4yrs 5yrs 6yrs 7yrs 8yrs 9yrs 10yrs Compound Total Return pa 8.8% 7.0% 9.6% 9.8% 9.2% 11.7% 12.0% 10.8% 9.8% 12.8% Net Rental Income Net Asset Value per Share Total net rental income rose by 7.6% (£36.4 million) to £513.3 million Adjusted diluted net asset value per share rose since 31 March 2002 (2002: £476.9 million), mainly as a result of increased rents achieved by 7.1% (57 pence) from 803 pence to 860 pence. from rent reviews and new lettings. The key drivers of this increase are the revaluation surplus, which contributed 10 pence (like-for-like valuation up 0.7%), retained Underlying Profit before Tax earnings 14 pence and share repurchases 34 pence (including re- Profit before tax,excluding gains from asset disposals of £26.7 million, demption of Convertible Bonds). was £145.7 million (2002: £127.5 million). This was 14.3% higher than last year, driven by the increase in net rental income, while Dividends per Share interest costs grew by only 2.7%. In line with our continuing policy of progressive dividend growth, the dividend per share is 13.4 pence (2002: 12.4 pence), an increase of Total Return 8.1% over 2002.

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