Our history
1973 to the 1980's
After three highly productive years, life suddenly became very trying for British Land. Late in 1973, the benign economic circumstances that had prevailed since the British Land/UPH merger of 1970 were reversed. The Yom Kippur War and resultant Middle East oil crisis accentuated the inflationary strains already being felt in a worldwide boom. The British Government’s reaction hit the property market particularly hard. Commercial rents were frozen and additional taxation on property was announced; Office Development Permits were curtailed. Added to this were high interest rates with the Bank Rate set at 13% to combat inflation. On the political front, a protracted miners’ strike led to the institution of a three-day working week to accommodate power shortages.
The inability to undertake rent reviews because of the rent freeze made it impossible for buyers or sellers of property to reach sensible conclusions on prices. As a consequence, the market in properties was unable to function. Because British Land was such an active trader in the property market, it was particularly affected by this. High interest rates took effect immediately, so all bank borrowing became very expensive at a stroke. In this climate of crisis banks became understandably very concerned both about their borrowers’ ability to pay the higher interest charges, and about the values of the properties on which their loans were secured. These high interest rates were a severe burden for the Company as its income was effectively frozen; at one point the share price declined to a few pence.
Gradually conditions eased, and the rent freeze had gone before the 1975 Report & Accounts were issued. More importantly, the renting and the investment markets were functioning again. Nevertheless, this was a challenging time for the quality of the British Land portfolio both in the UK and abroad. By the 1976 Report & Accounts the consolidated revenue deficit was down to £3.9 million, compared to £7.1 million in the previous year. The recovery continued, and in the year ending 31 March 1977 the revenue deficit was further reduced to £1.3 million. But the damage inflicted on the Company by high interest rates, severe inflation, punitive property legislation and a major world recession now had to be faced. There were large debt repayments imminently due, and financial markets were restive.
As a heavily indebted company, British Land had to watch its step. This was a defining point in the Company’s history – and it may not have continued very much longer if it had not negotiated its way through the severe cash crunch that came to a head in the second half of 1977. British Land took a rigorous view of its obligations, all of which it met. The Company’s principal bankers stood by it in these times and remain its principal bankers today.
Recovery and refinancing
British Land had demonstrated during a period of exceptionally difficult business conditions that it was able to help itself. A joint venture was arranged between British Land and the Dutch property company N.V. Beleggingsmaatschappij Wereldhave that embraced properties in the Netherlands and in France, a transaction which opened the way to a reorganisation of the Company’s European interests, leaving it free thereafter to concentrate on the financial situation at home. What was now needed was a set of proposals that would not only improve the maturity pattern of the Company’s borrowings, and lower the ratio of debt to shareholders’ funds, but also preserve for shareholders the greater part of their existing interests in the valuable freehold portfolio which British Land had so painstakingly created over the past few years. With a mix of a new debenture stock secured on Plantation House, a convertible loan stock and an issue of ordinary shares, the Company was able to retain its properties and move ahead on a sound financial footing. This step provided the base from which much of the Company’s 21st century strength and business would be derived.
As early as the next year (1978) the Accounts showed that the Company was fighting its way back. It moved to new offices at 10 Cornwall Terrace in Regent’s Park, London NW1, where it would remain for the best part of three decades. As the business expanded over the years, the adjoining four Cornwall Terrace properties were acquired, then finally 20/21 Cornwall Terrace to house the ever-increasing numbers of staff.
A decade of achievement
It was and remains a strength of British Land that it is always ready to sell properties when the time is right to do so, with no attachment to so-called “trophies”. After the pressures of the 1974–77 downturn, the next period saw a programme of sales to reduce debt.
Emerging from the switchback years of the 1970s, the Company entered the new decade restored and reinvigorated, but still facing difficult UK economic circumstances. Continuing high interest rates inhibited expansion and development, so there had to be ingenuity. An example of British Land’s ever-inventive approach was the imaginative conversion and letting of a 33,000 sq ft floor of the Derry & Toms department store building in Kensington High Street for office use. Originally acquired in a joint venture with the now sold-off Dorothy Perkins empire was later let to Visa. After conversion, Marks & Spencer and British Home Stores became the principal retail tenants of the building.
In 1980 the Company was able to report that 81% by value of its portfolio was freehold, up from 67% a year earlier. Dividend payments started again. It was also able to move forward once more through the corporate acquisition route, bidding successfully for the Corn Exchange Company, owner of a desirable City freehold, and the United Kingdom Property Company.
Each of these corporate acquisitions illustrate British Land’s readiness to undertake rather more than just buying chunks of real estate in the conventional way. This willingness to tackle intricacy has paid off on numerous occasions over the years. It is known in the market, and sellers of valuable but complicated assets appreciate that it is always worth trying a deal with British Land.
At the drop of a lock
Despite these successes, the Company still had to proceed cautiously. As high interest rates continued, cash was both precious and a good earner. A significant financing innovation, however, was just around the corner – one that would deliver tremendous benefits for many years to come.
In 1982 British Land completed a Drop Lock Debenture Option secured on Plantation House with a group of UK institutions, giving the Company irrevocable access to £37 million of fixed rate funding in one or two tranches at its choice. Under the Option, British Land had the right to compel these lenders at any time to lend at a pre-agreed margin over gilts. Provided £10 million was drawn by August 1987, the Company had until August 1991 to draw the rest, and the life of the loan was to 2024. If gilt rates fell to stipulated levels, British Land had to take the money (that is, the Drop Lock “locked” in to place) but the cost to it would be below 10% – a wonderful bargain in those days.
The Drop Lock was British Land’s “multi-million pound note”. All lenders, particularly the banks, would be reassured by the knowledge that there was access to long-term liquidity available to British Land. Happily not one of them ever asked for part of the proceeds to be earmarked for its own loan! The benefit to British Land’s credit, nationally and internationally, was enormous. Every seller of property to British Land could feel that it was good for the money and able to pay. The cost of the Drop Lock was modest, at only 0.125% per annum, which was not dear for such long-term access to even longer-term money.
At that time the Bank of England was able to regulate the timing for issuers and borrowers which wished to come to the market, a control which could be very awkward when companies needed funds urgently. However the Drop Lock had been given Bank of England approval, to be drawn at any time during the option period. Not surprisingly, the authorities quickly closed this loophole but fortunately for British Land the action was not retrospective and the Drop Lock’s exercisability remained in place.
The Company continued to expand its overseas activities in the 1980s. It bought a controlling interest in Growth Realty, a Real Estate Investment Trust (REIT) operating widely in the USA and listed on the New York Stock Exchange. This was 25 years before REITs were permitted to operate in Britain.
An apparently minor note in the 1983 Chairman’s statement remarked that the Company had joined a consortium, subscribing for a £34 million debenture with equity, in an office building being developed at Finsbury Avenue, London EC2. This was the first step in the 20-year process that would take the Company to full ownership of the Broadgate Estate, the 4 million sq ft office complex forming the new core of the City of London.
1984 saw the purchase of a half share in the Euston Centre, London NW1. In 1986 British Land gained full control and it proved possible to redevelop the site which will eventually comprise over 2 million sq ft of modern space. It has been renamed Regent’s Place in recognition of its proximity to Regent’s Park.
The company's history to 2006 was extracted from:
'No Stone Unturned. A History of The British Land Company 1856 - 2006' John Weston Smith (2006)
10 Cornwall Terrace, London NW1 - Head office between 1978 to 2006.
1 Finsbury Avenue - A minor interest in this building marked the start of the Broadgate Estate
The Euston Centre in the mid-1980s
