EQUITY RESEARCH

United Kingdom
European Real Estate

November 16, 2007

British Land (BLND.L - 950.5p) 2-Equal weight

Mike Prew
(44) 20 7102 5734
mprew@lehman.com
LBIE, London

Recommendation Change
1H08: NAV growth warning

Investment Conclusion
In our view, these results have pulled the rug from

under the soft landing theory. BL's governing

dynamics are flat and earnings are positioned
defensively, but this was as close to an NAV
warning as the sector comes. The market is
skeptical of the unsold Meadowhall Centre which
risks further write-downs, the share buy back
programme and City developments into what
appears to be shortening cycle. With investors
keen to slice and dice diversified REITs, British
Land is continuing with business as usual. More of
the same is not helping the poorest performing
FTSE-100 REIT this year, in our opinion.

Summary
NAV unchanged at 1682p vs. LB est. 1688p
Portfolio -0.5% for the six months (Q2 -1.9%)
Offices +3.6%, Retail -2.9%
DPS 8.75p for the qtr. 35p FY guidance
Long leases (14.4 yrs) and long debt (12.7yrs)
70% geared, with debt 100% fixed rate at 5.3%
Cap rates +21bps (Offices +25bps; Retail +20bps)
Meadowhall -4.8% (79m) to 4.87% eq. yield
Broadgate up 1.2% with ERV 49 - 57psf, eq.
yield 4.77%
Our 2008 NAV is cut 3% to 1580p (1624p)
Reduced from Overweight to Equal weight

Stock Rating

Target Price

New: 2-Equal weight

Old: 1-Overweight

New:
Old:

Sector View: 2-Neutral

FY Mar
Currency STG
Net Rental Inc. (m)
Op. Profits
EPS (p adj)
Earnings Yield
DPS (p)
Dividend Yield (%)
NAVps (adj)
P/NAV prem/(disc)

561.0
123.0
43.5
4.6
20.3
2.1
1682
-23

2008E
Old
New
573.6
251.5
50.5
5.3
35.0
3.7
1624
-20

2009E
Old
New

555.4
266.5
53.6
5.6
35.0
3.7
1580
-18

Market Data

603.1
267.5
52.7
5.5
38.5
4.0
1700
-24

2010E
Old
New

556.8
267.8
53.2
5.6
38.5
4.1
1623
-20

666.2
290.2
56.9
5.9
42.3
4.4
1778
-27

588.8
262.8
52.3
5.5
42.3
4.5
1692
-24

Financial Summary

Market Cap (m)

4868

Net Debt (m)

Shares Outstanding (m)

512.2

Net Debt / Equity (adj)

5968.0
70.0

Float (%)

100

EBITDA/EV

Net Div Yield (%)

2.14

NAV 3yr CAGR (%)

0.20

No

EPS 3yr CAGR (%)

6.35

Convertible
Shares per ADR

4.6

N/A

Stock Overview
15/11/07
0.55

1800
1700

0.50

1600
1500

Reuters

BLND.L

Bloomberg

BLND LN

ADR

0.45

1400
0.40

1300
1200

1375p
1487p

2007A
Actual

Chet Riley
(44) 20 7102 5895
chriley@lehman.com
LBIE, London

0.35

1100
0.30

1000

900
0.25
N D J FMAM J J A SOND J FMAM J J A SON
BRITISH LAND
BLND/FTALLSH(R.H.SCALE)
Source: DATASTREAM

Performance

1M

3M

12M

Absolute %

-13

-21

-38

Rel. Market %

-9

-24

-40

Rel. Sector %

-3

-7

-10

52 Week Range 1722.00 - 932.00

Liquidity cause and effect

The property sector is looking for direction and being told that you should not start from here. Short of the collapse of a public real
estate developer, it is difficult to imagine much more pessimism being priced into the sectors 33% discount ratings which equate to
45% pre-REIT (i.e. backing out the tax savings), a level last seen in 2000. Then there was a liquidity crisis in real estate shares as flows
went into TMT with a buoyant underlying market. Now there is a liquidity crisis in the underlying real estate market, which is being
reflected in the shares.

British Land repositioning

So where does this leave British Land on the deepest discount in the sector (of the REIT majors) the day after Land Securities decided
to de-merge itself to counteract its low equity rating. BL warned of the over-pricing of the UK commercial real estate market more than
two years ago and now the timing appears right. The company summarized the causes as being the 100bps rise in gilts yields being too
far too fast, too many momentum investors, and the under-pricing of risk. The business is, however, in pretty good shape.

Lehman Brothers does and seeks to do business with companies covered in its research reports. As a result, investors
should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment decision.
This research report has been prepared in whole or in part by research analysts employed by foreign affiliates of Lehman
Brothers Inc. who, while qualified in their home jurisdictions, are not registered / qualified with the NYSE or NASD.

PLEASE SEE ANALYST(S) CERTIFICATION(S) ON PAGE 6 AND IMPORTANT DISCLOSURES

INCLUDING FOREIGN AFFILIATE DISCLOSURES BEGINNING ON PAGE 7
1

EQUITY RESEARCH

Refining the model

The acquisition of Pillar Property in 2005 brought a long overdue injection of fresh management talent and high-quality retail
warehouses into an underperforming, over-diversified portfolio, which has bolstered performance, but now the retail warehouse assets
are falling despite them being the highest quality open A1 usage (this allows for higher value fashion trading). The group has also found
some risk appetite for office development having missed out on the late 1990s surge in London office rents. It has also lost its past
attachment to assets having been a past hunter gatherer and sold 1.9bn of assets, notably the EBRD building for 407m, bringing
total sales to 6.1bn since 2005.
Figure 1: British Land, Period on Period Statement (1H07A 1H08A)
Period:

hy07a

Net rental income

Other net income
Admin costs / Depn / Amort
Operating profits / EBIT
Net interest payable
Capitalised interest
Other non-operating items
Pre-exceptional profits
Revaluation gains (Investment)
Revaluation gains (JV)
Fair value movement in derivatives
Other Exceptionals
Disposal profits (losses)
PBT
Revenue tax
Deferred tax
Net Profit
Cost of dividend
Retained earnings
Adjusted EPRA Earnings
Average shares on issue-m
Stated EPS (p)
Adjusted EPRA EPS (p)
DPS (p)
NAVps (fd. adj.), Mar-07

274
55
-50
279
-172
15
0
122
539
133
0
-228
104
670
-6
-86
578
-29
549
124
519
111
22
6
1682
Source: Company data, Lehman Brothers estimates

hy08a Delta (%)

282
46
-45
283
-174
24
0
133
-191
-56
9
30
40
-35
-1
34
-2
-90
-92
145
517
0
28
18
1682

2.9
n/a
n/a
1.4
1.2
62.7
n/a
9.3
n/a
-142.1
n/a
-113.2
n/a
n/a
n/a
n/a
-100.3
n/a
-116.8
17.3
-0.5
-100.3
n/a
n/a
0.0

Comment
New lettings offset sales activity, l-f-l rental income +5%
Includes 16m Songbird Dividend, JV and Fund profits 19m, other 2m, FM fees
Reduction in REIT restructuring costs in 1H08
Flat interest charges, current costs of debt 5.3%, 3bn in acquisition lines
Registering an increase in dvelopment activity
Reduction in admin charges and increase in lease activity
Portfolio valuation decline 0.5% (offices +3.6%, retail -2.9%), -21bps yield shift
As above
Group uses certain hedges to fix debt, with interest rate rising, non-cash item
Capital reciept from Songbird investment
3.1% gain based on 1.4bn in asset sales (BL shares)
Benifitting from REIT status, some residual tax charges
Net tax credits
Operating profits increasing, revaluation affects net result, partially offset by tax credits
Quarterly dividend in line with guidance
Adjusted earnings discount exceptionals, non-cash items and revaluations
Decreasing as a result of share buy back programme, 125m for 9.8m shares

Consistent with FY 35p dividend guidance, with 50% coming from PID
Represents 3% fall from 1q08 NAV declaration of 1730p

Meadowhall: 79m write down to 5% yield

BL should have de-geared more before the investment market closed, but the failure to find a buyer for Meadowhall risks tainting the
1.6bn centre with concerns of a further write downs even after a write down of 79m after a 24bps hike to an equivalent yield of 4.9%.
The proposition of British Land retaining a 25% equity stake and the management contract may have hindered the process and it may,
with the benefit of hindsight, have been better to abandon the sales process after the centre flooded in July.

The NAV pegged at 1682p (N/C)

With a reduced number of shares after 125m of stock was retired, the NAV stayed at the March level of 1,682p, having peaked at
1,730p in June. The appraisers, Knight Frank, have marked up cap rates despite a lack of deal evidence with a buyers strike to reflect
pricing uncertainty. The capital return from the portfolio was -0.5% with the IPD Benchmark at -0.9% although having underperformed
the higher level of secondary assets attracting debt driven buyers on the way up, to outperform in a credit crunch on the way down is
only to be expected, in our view. CBRE have also independently indicated that this trend continued from September through to
November with Retail Parks +50bps to 4.5%, Shopping centers +25bps with London offices +50bps (to City 5% and West End 4.25%).
This could be the short sharp valuation shock of 50bps we had anticipated In April, and has un-nerved the equity market.

A portfolio yield of 4.9% vs. Land Secs 5.2%

As with other recent REIT valuations the estimated rental value (ERV) of 4.2% increase over the six months largely offset the 21bps
hike in the portfolios net equivalent yield which rose to 4.9%, although Land Securities recorded 5.2%. London Offices including
developments saw outward yield shift of 25bps and values rise +3.7% driven by 8.7% ERV growth. Retail did poorly with Retail
Warehouse Parks yield +18bps and values fell -1.9%, Superstore +15bps and -2.4%, and Shopping centres +24bps and -4.5%. The
groups key sub-sectors of London Offices and Out of town Retail, showed annualised ERV growth rates of 18.2% and 3.3%
respectively in 1H08, with the portfolio 99% occupied with a weighted average lease term (WALT) of 14.4 years.

2.6 million sq ft London Office developments

The committed development programme is carried at a value of 1.1bn with 1bn of costs to complete with an estimated yield on cost
of 8% concentrated in the London office market with 57% leased or 67% including space under option. Imminent completions include
201 Bishopsgate (420,000 sqft) and The Broadgate Tower (400,000 sqft), London EC2, with 75% pre-let, and at Ludgate West, London
EC4, an agreement to lease has been exchanged over 88,000 sqft, representing 69% of the whole. In 2009 developments at
Ropemaker Place (593,000sqft), London EC2 and Osnaburgh Street (490,000sqft), Regent's Place, London NW1 complete with The
Leadenhall cheese grater Building (612,000 sqft), London EC3 completing in 2011 anticipating a longer cycle. 67% of the construction
costs have been fixed covering key material and labour.

EQUITY RESEARCH

Based on an average 2.5 year build to completion and a nominal 8% WACC we derive a PV surplus on costs of c686m (132pps), or
34% on combined costs and stated market value. The current estimated yield on cost is 7.2% (our estimates) and 95m in development
surpluses have been booked during the period, sheltering the remainder of the portfolio. The group achieved 537,000sqft of lettings
(with a further 100,000sqft under options) on average 17 year leases further crystallised value. We do not include the medium term
projects (Euston Station and Broadgate 2020, etc.) which carry considerably more risk (construction inflation, letting and planning etc.)
and arguably Leadenhall, EC3, (612,000sqft) should be discounted more heavily, with delivery in 2011 likely to hit a demand pinch
point in our view, although competing schemes appear to be falling away or being delayed. Around 67% of the near term programme
has been insulated from construction cost inflation and c67% of the programme has been pre-let (including options) and Ludgate West,
127,000sqft, at 69% pre-let has been forward-sold at current book value, with the letting risk passing to the new owners.
At Bishopsgate, BL has pre-let 124,000sqft to Hendersons who will relocate from 4 Broadgate (which will be redeveloped under
Broadgate 2020 doubling the current size to c400,000sqft but planning remains at early stages) and terms have been agreed for a
further 223,000sqft to Mayer, Brown and Maw (the 55,000sqft lease assignment if exercised would reduce the rent-free to compensate),
de-risking the development significantly. Terms have also been agreed for 155,000sqft at the Broadgate Tower. A pre-let at todays
rates probably represents a 10% discount in PV terms, given the consensus range of agents rental growth forecasts, but we think the
right approach in the current environment. We summarise the development programme below, noting the 132pps development surplus
if the programme is delivered to the market successfully. The downside risks remain city supply dynamics after 2009, the supply pinch
point in our view, and construction inflation; however, the pre-let strategy and timing of the bulk of the development programme adds
some comfort.

Figure 2: British Land, Current development programme (as at 31 Mar)

Property
Near term / committed developments:
Broadgate Tower/ 201 Bishopsgate
Ludgate West
Ropemaker
Osnaburgh St, Regents Pl.
Leadenhall, EC3
Puerto Venecia, Zaragoza*
Giltbrook, Nottingham

Principal
Area
use (000sqft)

Office
Office
Office
Office
Office
Retail
Retail

*50% interest
Totals
Net present value
Per share (p)
Per share discounted (p)
Forward / Expected sales
Osnaburgh St, Regents Pl.
Ludgate West

Resi
Office

Current
MV (m),
Finish
Mar 07

822
127
593
380
612
2159
199

Oct-08
Nov-07
Jun-09
Sep-09
Mar-11
Dec-09
Jun-08

174
20
211
214
368
88
44

17
0
29
19
46
8
3

4892

Aug-09
893
1119
2.5 years average build

122

110
127

369
71
175
77
114
77
10

Devt
Notn'l
Cost interest
(m)
(m)

Sep-09
Nov-07

Total
cost
(m)

Yield
on
Cost
(%)

ERV
(psf)

Est.
ERV
(m)

-21.0
-2.0

560
91
415
259
528
152
53

7.6
0.0
7.7
8.3
6.8
6.4
6.3

57.5
55
60
62.5
65
10
37

42.5
0.0
32.0
21.4
35.8
9.7
3.3

5.0
5.3
5.3
5.3
5.3
5.5
5.3

851
100
610
407
682
177
63

291
9
195
148
154
25
11

-174.0

2058

7.2

49.6

144.8

5.3
8%

2890

832.0
686.3
160.3
132.2

Sales*
(m)

-100.0
-51.0

51.0
100.0

Residual Value unadjusted

Surplus B/F (2h07)
Carried through balance sheet:
2008
2009
2010

Cap
Rate
(%) MV (m)

Est
Surplus
(m)

Included above
Included above

Taken

0
19
44

Surplus
(m) P/share
832
160
832
813
769

160
157
148

NPV
132
132
129
122

Source: Company data, Lehman Brothers estimates

Gearing 70%
Despite asset sales, gearing nonetheless remains high with a 44% loan to value (LTV) or 70% equity gearing, and interest cover 1.8
times, but both have been improving over the past two years. New bank loans of 950m have been arranged in spite of the paralysed
financial markets. British Land now has 3bn of committed bank lines, with 275m due to expire in the next three years. Within these
lines, nearly 2 billion are presently undrawn. The entire balance sheet was refinanced to give 100% fixed interest rates, the lowest cost
of debt (5.3%) in the sector with an average maturities of 12.7 years, with the 2bn of additional undrawn committed financing at the
same coupon.

NAV warning
The group believes that the likely scale of price correction is limited by real estate's defensive cash flows and risk adjusted prospective
returns - but it remains hard to predict as other markets move and investor sentiment is volatile. Given the limited current transaction
data available to valuers, there could well be uneven price changes and yield movements across different valuers and companies (for
comparable assets) into which little can be read until clearer hard evidence is available. Hence the price correction seems likely to take
more than one quarter to be accomplished, in our view.

EQUITY RESEARCH

Medium-term prospects.
The share buy-back programme does not appear to have worked, however, the 125m so far expended has been financed from the
zero yielding partially pre-let Ludgate West site for c. 100m. The group intends to press ahead with the remaining 125m and may
catch the bottom of this run on the shares time will tell. Given the quality of the retail asset despite the repricing and continuing growth
from the London office portfolio, the shares are now underperforming all its FTSE-100 REIT peers and SEGRO, the international flexible
business space operator. The business is liquid and typically easy to sell short, but Land Securities is the liquidity focus of the sector,
which BL has underperformed by 10% YTD. Higher gearing counts against BL, but is probably one of the businesses best assets given
current financing rates, in our view. The dividend yields 3.7% against Land Secs 4.3% and the underlying portfolio fell 0.5%, whereas
Land Secs increased by 0.9%. The merits and demerits if Land Securities demerger are debatable, but the business has bought an
option. We believe that British Land is business as usual better than before admittedly, but when REITs increasingly have significant
catalysts for change, British Land does not.
Figure 3: FTSE100 Real Estate returns (May 2007 November 2007)
15/11/07
120

110

100

90

80

70

60

50
JAN FEB MAR APR MAY JUN
Brit Land (income reinvested)
Land Secs (income reinvested)
Liberty In (income reinvested)

JUL AUG SEP OCT NOV DEC

Hammerson (income reinvested)
Source: T homson Datastream

Source: Datastream, Lehman Brothers research

Earnings Estimates
We have adjusted our earnings estimates to reflect recent asset sales, the share buy-back programme and have rolled forward our
estimates based on the current interim results. The earnings stream is predominantly driven by the delivery of the development
programme (and successful lettings thereof), which should be significant post 2009 show we show a relatively flat earnings profile in the
short term.
In our earnings estimates we do not make any adjustments for the capital distributions that might arise from the groups Songbird
investment and carry the recurring dividend assuming 6% annual growth. In 1h08 the capital distribution from Songbird was 30m, but
these are lumpy and unpredictable (along with 33m in 2007) and dividends totalled 16m, which are more predictable. With regard to
the share buy-back, we capture the 125m already taken and the group has advised they will recommence. If (almost wholly) funded by
the forward sale of Lugdate West with zero loss of income, the group is effectively buying back the 3.7% yield for free. We assume that
cash is used to retire the stock and we amend our funding costs to 5.3% to recognise the fall in overall, fully hedged, funding costs.
Our rental income profile (ex development) is predominantly driven by the contribution of rental increases (average 4% in 2008), the
income security of the indexed property and the reversion held within the existing lease contracts. We adjust for recent sales and base
our forecasts of an annualised net passing rent of 518m. In addition, we have adjusted our estimates to account for 5m in lost income
from the demolition at the Leadenhall site and we start to recognise development income, specifically from the Willis Building, Lime St,
EC3, which we estimate to be 19m pa. The net effect is a relatively flat rental income profile over the next two years before the delivery
of the development programme is monetised. After a period of heavy development there is usually a time lag, between the cessation of
interest capitalisation at post completion and the full revenue recognition from leasing activity which partially (but not significantly)
decreases adjusted earnings in 2009/2010. Adjusted earnings rise on average c10% pa over the next two years as the development
programme is rolled out and let. Until clearer guidance is given we are increasing dividends by the same amount annually on the basis
that the growth and distribution patterns remain the same (Figure 4.)

EQUITY RESEARCH

Figure 3: British Land - Summary Revenue Statement, 2007A10E

2008
March year end (m)
Net rental income
Other net income
Admin costs / Depn / Amort
Operating profits / EBIT
Net interest payable
Capitalised interest
Other non-operating items
Pre-exceptional profits
Revaluation gains (Investment)
Revaluation gains (JV)
Fair value movement in derivatives
Other Exceptionals
Disposal profits (losses)
PBT
Revenue tax
Deferred tax
Net Profit
Cost of dividend
Retained earnings
Adjusted EPRA Earnings
Average shares on issue-m
Stated EPS (p)

Adjusted EPRA EPS (p)

DPS (p)

2009

2010

2007

2008

2009

2010

H1

H2E

H1E

H2E

H1E

H2E

282
46
-45
283
-174
24
0
133
-191
-56
9
30
40
-35
-1
34
-2
-90
-92
145
517
0
28.2
17.5

299
53
-46
306
-175
28
0
159
-574
-136
0
0
5
-545
-6
21
-530
-90
-620
155
513
-103
30.3
17.5

301
52
-47
306
-175
28
0
159
6
0
0
0
0
166
-6
0
160
-99
61
161
513
31
31.3
19.3

303
53
-47
308
-175
21
0
154
132
26
0
0
0
312
-6
-5
302
-99
203
156
513
59
30.5
19.3

304
55
-48
311
-181
18
0
149
135
26
0
0
0
310
-5
-5
300
-109
191
151
513
58
29.4
21.2

313
56
-48
320
-186
5
0
139
139
26
0
0
0
304
-5
-5
294
-109
185
142
513
57
27.6
21.2

561
87
-212
436
-350
37
0
123
1,052
224
0
-272
143
1,270
-18
1,201
2,453
-106
2,347
226
520
472
43.5
20.4

581
99
-91
589
-349
52
0
292
-765
-192
9
30
45
-580
-7
55
-532
-180
-712
301
1,030
-104
58.4
35.0

604
104
-94
615
-350
49
0
313
138
26
0
0
0
478
-11
-5
461
-198
264
317
1,026
90
61.8
38.5

617
111
-96
632
-366
23
0
288
274
52
0
0
0
614
-11
-10
594
-217
377
293
1,026
116
57.0
42.4

Source: Company data, Lehman Brothers research

Figure 4: British Land Balance Sheet, 2007A10E

2007

2008

2009

2010

H1

2008
H2E

H1E

H2E

H1E

H2E

13,234
743
871
236
45
210
0
0
453
15,792

12,944
718
821
236
38
210
0
0
453
15,419

13,232
719
820
236
30
210
0
0
453
15,700

13,575
733
831
236
23
210
0
0
453
16,061

13,886
748
842
236
15
210
0
0
453
16,391

14,066
764
853
236
8
210
0
0
453
16,589

14,047
770
840
267
50
95
88
25
198
16,380

12,944
718
821
236
38
210
0
0
453
15,419

13,575
733
831
236
23
210
0
0
453
16,061

14,066
764
853
236
8
210
0
0
453
16,589

Trade creditors
Interest rate derivatives
Other creditors incl. corp tax
Short term borrowings and overdrafts
Long term borrowings/ debentures and loans
Obiligations under lease liabilities
Deferred tax liabilities
Other non-current liabilities
Total Liabilities

484
0
42
117
6,385
0
143
0
7,171

484
0
42
117
6,593
0
122
0
7,358

484
0
42
117
6,813
0
123
0
7,578

484
0
42
117
6,966
0
127
0
7,736

484
0
42
117
7,100
0
132
0
7,875

484
0
42
117
7,108
0
137
0
7,888

85
19
642
54
6,617
30
179
7
7,633

484
0
42
117
6,593
0
122
0
7,358

484
0
42
117
6,966
0
127
0
7,736

484
0
42
117
7,108
0
137
0
7,888

Net assets
Adjustments
Adjusted, diluted NAV

8,621
75
8,696

8,061
161
8,222

8,122
162
8,283

8,325
166
8,491

8,516
171
8,687

8,701
176
8,877

8,747
115
8,862

8,061
161
8,222

8,325
166
8,491

8,701
176
8,877

1,686
1,745
1,682

1,593
1,605
1,584

1,605
1,617
1,596

1,646
1,657
1,636

1,684
1,695
1,674

1,721
1,731
1,710

1,692
1,694
1,682

1,593
1,605
1,584

1,646
1,657
1,636

1,721
1,731
1,710

2007

2008

2009

2010

Mar year end (m)

Gross Property
Net investment in JVs
Net investment in Funds
Other investments
Intangible assets
Trade debtors
Interest rate derivatives
Other debtors
Cash and Short-term deposits
Total Assets

2009

2010

Per share data:

Basic (adj.)
NNNAV (adj. fd.)
Adjusted NAV (fd.)
Source: Company data, Lehman Brothers research

Figure 5: British Land Gearing ratios, 2007A10E

2008
Mar year end (m)
Net debt
Revalued gross assets less cash
Adjusted net assets
Loan-to-value ratio (%)
Net debt to equity adj. (%)

2009

2010

H1

H2E

H1E

H2E

H1E

H2E

6,049
13,652
8,647
44
70

6,257
13,312
8,173
47
77

6,477
13,600
8,234
48
79

6,630
13,953
8,442
48
79

6,764
14,275
8,638
47
78

6,772
14,466
8,828
47
77

6,473
15,459
8,816
42
73

6,257
14,029
8,173
45
77

6,630
14,686
8,442
45
79

6,772
15,230
8,828
44
77

Source: Company data, Lehman Brother research

EQUITY RESEARCH

Valuation: Revising price target to 1375p (1487p)

We have referenced the share target price to liquidation valuation, purchasers' costs and current REIT status. Our target price is based
on our assessment of NAV and allows an embedded 5-10% structural discount that the market applies to the business (50pps), which
we believe is related to the financial structure, but this is abating with the company reconstituting some of the securitisations with less
complex ones. We think that the Meadowhall shopping centre may result in a further price reduction of 125m (after 75m writedown)
and we also adjust for this in our target price calculation by 30pps. Our adjustment for the overhead allocation of the business is a
further 40pp and 90pps for valuation tolerance. We forecast a year-end NAV of 1,580p. The shares trade at a 40% discount against the
sector average discount of 30% and at 12 months, 42% discount versus a sector discount average of 33%.

Analyst Certification:
I, Mike Prew, hereby certify (1) that the views expressed in this research Company Note accurately reflect my personal views about any
or all of the subject securities or issuers referred to in this Company Note and (2) no part of my compensation was, is or will be directly
or indirectly related to the specific recommendations or views expressed in this Company Note.
Other Team Members:
Barkow, Peter (LBIE, London)

(44) 20 7102 6466

peter.barkow@lehman.com

Company Description:
It is an investment and development property company concentrated in the UK retail and office sectors and, although we believe the
asset quality is generally high and lease lengths long compared with its peer groups, we view the portfolio as mature, which has
previously only delivered sub-benchmark growth. The company has, however, entered a period of change recently, selling a number of
dry assets. In July 2005, it acquired Pillar Property, a co-investment fund manager and in doing so, indirectly gained access (principally)
to a prime retail warehouse portfolio and significant intellectual capability. The financial structure is complex and, we believe,
constrained with encumbered assets estimated at 7.4bn; however, significant progress has been made to pre-position the company
and it has recently committed to a 250m share buy-back programme.

EQUITY RESEARCH

Important Disclosures:
British Land (BLND.L)

950.5p (14-Nov-2007)

2-Equal weight / 2-Neutral

Rating and Price Target Chart:

Currency=STG
Date
Closing Price
24-Aug-07
1277.00
24-Aug-07
1277.00
11-Apr-07
1571.00
11-Apr-07
1571.00
15-Jan-07
1582.00

Rating

Price Target
1619.00

Date
22-Nov-06
15-Sep-06
16-Aug-06
12-May-06

1 -Overweight
1748.00
2 -Equal weight

Closing Price
1585.00
1362.00
1352.00
1284.00

Rating

Price Target
1716.00
1661.00
1581.00

1 -Overweight

1851.00

FOR EXPLANATIONS OF RATINGS REFER TO THE STOCK RATING KEYS LOCATED ON THE PAGE FOLLOWING THE LAST PRICE CHART.

Lehman Brothers Inc. and/or an affiliate trades regularly in the subject company's shares.
Valuation Methodology: We have referenced the share target price to liquidation valuation, purchasers' costs and current REIT status.
It is based on our assessment of NAV and includes an embedded 5-10% structural discount that the market applies to the business
(50pps), which we believe is related to the financial structure, but this is abating with the company reconstituting some of the
securitisations with less complex ones. We think that the Meadowhall shopping centre may result in a further price reduction of 125m
(after 75m writedown) and we also adjust for this in our target price calculation by 30pps. Our adjustment for the overhead allocation of
the business is a further 40pp and 90pps for valuation tolerance. We forecast a year-end NAV of 1,580p. The shares trade at a 40%
discount against the sector average discount of 30% and at 12 months, 42% discount versus a sector discount average of 33%.
Risks Which May Impede the Achievement of the Price Target: British Land is an investment and development property company
concentrated in the UK retail and offices sectors and, although we believe the asset quality is generally high and lease lengths long
compared with its peer groups, we view the portfolio as mature, which has previously only delivered sub-benchmark growth. The
company has, however, entered a period of change recently, selling a number of dry assets. In July 2005, it acquired Pillar Property, a
co-investment fund manager and in doing so, indirectly gained access (principally) to a prime retail warehouse portfolio and significant
intellectual capability. The financial structure is complex and, we believe, constrained with encumbered assets estimated at 7.4bn;
however, significant progress has been made to pre-position the company for REIT conversion in 2007, which increases its value.

EQUITY RESEARCH

Important Disclosures Continued:

The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total
revenues, a portion of which is generated by investment banking activities
Company Name
British Land

Ticker
BLND.L

Price (14-Nov-2007)
950.5p

Stock / Sector Rating

2-Equal weight / 2-Neutral

Guide to Lehman Brothers Equity Research Rating System:

Our coverage analysts use a relative rating system in which they rate stocks as 1-Overweight, 2-Equal weight or 3-Underweight (see
definitions below) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry
sector (the sector coverage universe). Below is the list of companies that constitute the sector coverage universe:
British Land (BLND.L)
Derwent London (DLN.L)
Eurocastle (ECT.AS)
Gagfah (GFJG.DE)
Great Portland Estates (GPOR.L)
IVG Immobilien (IVGG.DE)
Liberty International (LII.L)
Metrovacesa (MVC.MC)
Rodamco Europe (RDMB.AS)
Unibail (UNBP.PA)

Brixton (BXTN.L)
Deutsche EuroShop (DEQGn.DE)
Fadesa (FAD.MC)
Gecina (GFCP.PA)
Hammerson (HMSO.L)
Land Securities (LAND.L)
Mapeley (MAY.L)
Minerva (MNR.L)
SEGRO (SGRO.L)

In addition to the stock rating, we provide sector views which rate the outlook for the sector coverage universe as 1-Positive, 2-Neutral
or 3-Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system.
Investors should carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings
alone.
Stock Rating
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over a 12- month investment horizon.
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RS-Rating Suspended - The rating and target price have been suspended temporarily to comply with applicable regulations and/or firm
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involving the company.
Sector View
1-Positive - sector coverage universe fundamentals/valuations are improving.
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3-Negative - sector coverage universe fundamentals/valuations are deteriorating.
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