The scale of our business, combined with the security and stability of our rental income flows, means we are able to finance our business on competitive terms from a broad range of sources.
We believe this gives us a significant advantage over the many smaller, less well capitalised property companies particularly in today’s environment where the availability of debt finance is highly constrained.
We aim to ensure that the Group and its joint ventures and funds (which account for half of our assets) are optimally financed with sufficient resources both to implement the strategy agreed by the Board (together with our partners in the case of joint ventures and funds) and cover additional requirements and opportunities which may arise.
The principal objectives of our financing policy therefore are to:
- Minimise the cost of capital through a mix of debt and equity finance;
- Raise debt from a variety of sources, accessing attractive market opportunities from time-to-time;
- Maintain a spread of maturities, including longer-term financing supported by committed income under long leases;
- Maintain significant committed undrawn loan facilities, to support current and future business requirements;
- Actively manage financial risks, including interest rate, foreign exchange, liquidity and counterparty risks.
Our joint ventures and funds are included in our accounts as equity net investments and are not fully consolidated. We consider the equity and debt funding structure of British Land both on a group statutory basis and a proportionally consolidated basis, showing Group share of results of joint ventures and funds.
Debt financing is used to enhance returns. In determining the optimal level of gearing for the business, the Board considers a range of factors including our ability to refinance and the impact on the aggregate risk of the business including development risk. Our preferred range of gearing is a Loan to Value ratio (LTV) on a proportionally consolidated basis of 40% to 50%, with a short term maximum of 55%. At 31 December 2011 our LTV was 46%.
Our debt financing is provided from a variety of sources. The average maturity of our debt is long at 9.6 years on a proportionally consolidated basis, reflecting the long-term nature of our lease structures. Our debt financing includes long-term securitisations, secured debentures, unsecured loan notes, and shorter-term unsecured facilities available for immediate drawdown. This provides us with significant flexibility enabling us to take advantage of opportunities as and when they arise.
The joint ventures and funds are able to raise finance on the strength of their assets with no recourse to the partners: we agree the financing strategy with our partners and other co-investors. The greater proportion of our joint ventures and funds (by value) are financed by long-term ring-fenced securitised debt where rents comfortably exceed interest and amortisation payments. Others are financed by shorter-term specific facilities or purely by funds provided by shareholders – in each case structured to support the strategic objectives of the fund or joint venture, while providing flexibility.
