Financial policy

(Information reflects position at 31 March 2016)

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Approach to leverage

We manage our mix of equity and debt financing to achieve the right balance between enhancing returns for shareholders and the risk of higher leverage.

Our primary measure of leverage is loan to value (LTV) on a proportionally consolidated basis (which includes the Group’s share of joint ventures and funds and excludes non-controlling interests in the Group’s subsidiaries). We aim to manage our LTV through the property cycle such that our financial position would remain robust in the event of a significant fall in property values. This means we will not increase our leverage solely on the basis of an improvement in market yields.

We leverage our equity and achieve benefits of scale while spreading risk, through joint ventures and funds which are typically partly financed with debt, without recourse to British Land. The debt in joint ventures and funds is included in the proportionally consolidated LTV of 32% (as at 31 March 2016) which is higher than the Group measure for our unsecured lenders, which is around 25%.

Debt finance

We focus on having an appropriate balance of debt and equity funding which enables us to deliver our property strategy.

The scale of our business combined with the quality of our assets and rental income means that we are attractive to a broad range of debt providers and able to arrange finance on favourable terms. Good access to the capital and debt markets is a competitive advantage, allowing us to take opportunities when they arise.

The group's approach to debt financing for British Land is to raise funds predominantly on an unsecured basis with our standard financial covenants. This provides the greatest flexibility and low operational cost. Our joint ventures and funds are each financed in ‘ring-fenced' structures without recourse to British Land for repayment and are secured on the relevant assets.

We have five key principles that guide the way we finance the Group and manage its debt book. Debt financing involves risk from adverse changes in the property and financing markets. In arranging and monitoring our financing we include important risk disciplines, ensuring that relevant risks are fully evaluated and managed:

1. Diversify our sources of finance

We monitor the finance markets and seek to access different types of finance when the relevant market conditions are favourable to meet the needs of our business and, where appropriate, those of our joint ventures and funds.  The scale and quality of the Group's business enables us to access a broad range of unsecured and secured, recourse and non-recourse debt.

We enjoy and encourage long term relationships with banks and debt investors. We aim to avoid reliance on particular sources of funds and borrow from a large number of lenders from different sectors in the market and a range of geographical areas, with a total of {NUM|FILENDING} debt providers of bank facilities and private placements alone. We also aim to ensure that debt providers understand our business; we adopt a transparent approach to provide sufficient disclosures so that lenders can evaluate their exposure within the overall context of the Group. These factors increase our attractiveness to debt providers, and in the last five years we have arranged £6.1 billion (British Land share £5.1 billion) of new finance in unsecured and secured bank loan facilities, US Private Placements and convertible bonds.

2. Phase maturity of debt portfolio

The maturity profile of our debt is managed by spreading the repayment dates. We monitor the various debt markets so that we have the ability to act quickly to arrange new finance at advantageous rates as opportunities arise. Maturities of different types of debt are well spread, taking into account term debt and revolving facilities reducing our refinancing risk in respect of timing and market conditions. As a result of our financing activity, we are comfortably ahead of our preferred two year re-financing date horizon. The current range of debt maturities is one to twenty years.

3. Maintain liquidity

In addition to our drawn term debt, we aim always to have a good level of undrawn, committed, unsecured revolving bank facilities. These facilities provide financial liquidity, reduce the need to hold resources in cash and deposits, and minimise costs arising from the difference between borrowing and deposit rates while reducing credit exposure.
We arrange these revolving credit facilities in excess of our committed and expected requirements to ensure we have adequate financing availability to support business requirements and opportunities.

4. Maintain flexibility

Our facilities are structured to provide valuable flexibility for investment deal execution, whether sales or purchases, developments or asset management. Our bank revolving credit facilities provide full flexibility of drawing and repayment (and cancellation if we require) at short notice without additional cost. These are arranged with standard terms and financial covenants and generally have maturities of five years. Flexibility is maintained with our combination of this unsecured revolving debt and secured term debt in debentures with good substitution rights, where we have the ability to move assets in and out of the security.

5. Maintain strong balance sheet metrics

We actively manage our mix of equity and debt financing to achieve a balance between our ability to generate an attractive return for shareholders with the risks of having more debt.

Our capital strategy has evolved and is responsive to the need to manage our exposure throughout the property cycle such that we aim not to exceed a maximum proportionally consolidated LTV threshold in an economic downturn.

Monitoring and controlling our debt

We monitor our projected LTV and our debt requirement using several key internally generated reports focused principally on borrowing levels, debt maturity, available facilities, covenant headroom and interest rate exposure.

We also undertake sensitivity analysis to assess the impact of proposed transactions, movements in interest rates and changes in property values on the key balance sheet, liquidity and profitability ratios.

In assessing our ongoing debt requirements, including those of our development programme, we consider potential downside scenarios such as a fall in valuations and the effect that might have on our covenants. Based on our current commitments and our current available facilities, we have no requirement to refinance within the next four years.

Managing our interest rate exposure

We manage our interest rate exposure and risk independently from our debt exposure.

The Board sets an appropriate maximum level of sensitivity of underlying earnings and cash flows to movements in market rates of interest over a rolling five-year period. The proportion of fixed rate debt required to remain within the target sensitivity has decreased as a result of our lower levels of leverage and increased interest cover. Our debt finance is raised at both fixed and variable rates. Derivatives (primarily interest rate swaps) are used to achieve the desired interest rate profile across proportionally consolidated net debt. Currently {NUM|5YRFIXEDRATE} of projected net debt (including our share of joint ventures and funds) is fixed over the next five years. The use of derivatives is managed by a Derivatives Committee. The interest rate management of joint ventures and funds is addressed by each entity for its business.

Counterparties

We monitor the credit standing of our counterparties to minimise our risk exposure in respect of placing cash deposits and derivatives.

Regular reviews are made of the external credit ratings of the counterparties.

Foreign currency exposure

Our policy is to have no material unhedged net assets or liabilities denominated in foreign currencies.

When attractive terms are available to do so, the Group may choose to borrow in freely available currencies other than Sterling, and will fully hedge the foreign currency exposure.