GOOD STRATEGIC PROGRESS IN AN UNCERTAIN ENVIRONMENT
Tim Score
Non-Executive Chair
Dear Shareholders,
The experience of recent years has taught us to expect the unexpected and 2022 was no exception. The past year has been one of significant geopolitical and economic upheaval. As the world emerged from Covid-19 lockdowns, strains on supply chains began to fuel inflation, which was further exacerbated by the Russian invasion of Ukraine. Central banks responded with sharp increases in interest rates, marking the end of an economic era defined by easy access to cheap debt. Aside from the significant impact on both global bond and equity markets, it also caused property valuations in the UK to fall across all sectors, as yields increased to reflect the higher interest rate environment.
Against this backdrop, the value of our portfolio has declined by 12.3%, yet we have delivered another strong operational performance in FY23. We have a world class platform and are market leaders in subsectors where we benefit from pricing power. Occupational demand has remained high demonstrated by strong levels of leasing this year and as a result, our underlying profit grew by 7% and our full year dividend will be up by 3%.
Our balance sheet is strong. It gives us the resilience to navigate turbulent market conditions, while allowing us to continue to invest in our attractive development pipeline and the opportunities now emerging in the market.
Strategy update
I am very pleased with the progress we have made in the second full year of the strategy that we articulated in early 2021. Occupational markets are holding up well and we have strong conviction in our preferred subsectors, focusing on Campuses, Retail Parks, and London Urban Logistics. Underpinning our approach is a programme of active capital recycling. The sale of our 75% interest in the majority of our assets at Paddington Central to GIC is a great example of this, releasing capital to target growth opportunities elsewhere.
Our ability to be a preferred partner of organisations like GIC, who value our development and asset management expertise, is something I am very proud of. It enables us to crystallise returns of more mature assets or stretch our equity and diversify our risk, as we saw in our joint venture with AustralianSuper for the development of Canada Water.
We are increasingly excited about the opportunity for growth in life sciences and innovation. As part of this, we are repositioning our Regent’s Place Campus as a Life Sciences and Innovation hub given its unique location within the Knowledge Quarter and its proximity to a range of academic and research institutions, including University College London, the Wellcome Trust and the Francis Crick Institute. We are also actively looking for opportunities to replicate our Campus model outside London in the Oxford- Cambridge Arc, where supply is highly constrained, yet demand is very strong, particularly from these types of innovative businesses.
A sharp focus on environmental, social, and governance (ESG)
We continue to make great progress towards the targets set out in our 2030 Sustainability Strategy and this year, our quantitative ESG targets have been linked to three key pillars: Greener Spaces, Thriving Places and Responsible Choices.
Greener Spaces refers to our ambitious 2030 net zero targets across both our developments and our standing portfolio. This year, for the first time, environmental targets have been linked to executive remuneration. Maintaining our leadership in this area is a key focus. Our customers have their own emissions targets and face rising energy costs, and thisis reflected in our discussions with both new and existing customers.To support our commitment to Thriving Places we have launched a £25m Social Impact Fund, building on over a decade of investment into the communities in which we operate. This will support delivery of our headline 2030 Social Impact targets across employment, education and affordable space.
Responsible Choices builds on the excellent work we have done at British Land, and across the industry, to promote responsible employment, diversity and inclusion and responsible procurement.
Our people
We continue to make great progress towards the targets set out in our 2030 Sustainability Strategy and this year, our quantitative ESG targets have been linked to three key pillars: Greener Spaces, Thriving Places and Responsible Choices.
Greener Spaces refers to our ambitious 2030 net zero targets across both our developments and our standing portfolio. This year, for the first time, environmental targets have been linked to executive remuneration. Maintaining our leadership in this area is a key focus. Our customers have their own emissions targets and face rising energy costs, and thisis reflected in our discussions with both new and existing customers.To support our commitment to Thriving Places we have launched a £25m Social Impact Fund, building on over a decade of investment into the communities in which we operate. This will support delivery of our headline 2030 Social Impact targets across employment, education and affordable space.
Responsible Choices builds on the excellent work we have done at British Land, and across the industry, to promote responsible employment, diversity and inclusion and responsible procurement.
Concluding remarks
We continue to make good progress in executing our strategy. We believe in the strength of our Campus model, Retail Parks have emerged as the preferred format for retailers, and we are making progress on building out our London Urban Logistics pipeline. ESG remains a key focus and is integrated throughout our business.
This is set against a background of geopolitical and economic uncertainty. We are highly alert to the ongoing challenges presented by the uncertain macroeconomic environment. As a result, we will maintain a disciplined approach to financial leverage to ensure our balance sheet remainsin a position of strength.
On behalf of the Board, I would like to thank everyone at British Land for their continued hard work this year, which has been achieved once again in challenging circumstances.
Tim Score
Non-Executive Chair