The financial policy is disclosed in our annual report, and is updated annually. The information below reflects the policy as at 31 March 2023.
Our sound financial footing enables us to respond to market challenges and positions us to pursue opportunities.
Our use of debt and equity finance balances the benefits of leverage against the risks, including magnification of property returns. A loan to value (LTV) ratio measures our balance sheet leverage, primarily on a proportionally consolidated basis including our share of joint ventures (and excluding any non-controlling interests). At 31 March 2023, proportionally consolidated LTV was 36.0% and the Group measure was 27.4%. The ratio of Net Debt to EBITDA is also a measure of leverage, based on earnings rather than valuations and we consider this on both a proportionally consolidated basis and Group basis (excluding non-recourse borrowings). At 31 March 2023, our proportionally consolidated Net Debt to EBITDA was 8.4x and the Group measure was 6.4x. Our leverage on these metrics is monitored in the context of wider decisions made by the business. We manage our LTV through the property cycle such that our financial position remains robust in the event of a significant fall in property values. This means we do not adjust our approach to leverage based only on changes in property market yields. Consequently, our LTV may be higher at the low point in the cycle and will trend downwards as market yields tighten.
The scale of our business, combined with the quality of our assets and rental income, means that we are able to approach a diverse range of debt providers to arrange finance on attractive terms. Good access to the capital and debt markets allows us to take advantage of opportunities when they arise. Our approach to debt financing for British Land is to raise funds predominantly on an unsecured basis with our standard financial covenants. This provides flexibility and low operational cost. Our joint ventures that choose to have external debt, and Hercules Unit Trust, are each financed in ‘ring fenced’ structures without recourse to British Land for repayment and are secured on their relevant assets. Presented on the following page are the five guiding principles that govern the way we structure and manage debt.
We monitor our debt requirement by reviewing current and projected borrowing levels, available facilities, debt maturity and interest rate exposure. We undertake sensitivity analysis to assess the impact of proposed transactions, movements in interest rates and changes in property values on key balance sheet, liquidity and profitability ratios. We also consider the risks of a reduction in the availability of finance, including a temporary disruption of the financing markets. Based on our current commitments and available facilities, the Group has no requirement to refinance until early 2026. British Land’s undrawn facilities amounted to £1.8bn at 31 March 2023.
We manage our interest rate profile separately from our debt, considering the sensitivity of underlying earnings to movements in market rates of interest over a five-year period. The Board sets appropriate policy ranges of hedging on debt over that period and the longer term. Our debt finance is raised at both fixed and variable rates. Derivatives (primarily interest rate swaps and caps) are used to achieve the desired hedging profile across proportionally consolidated net debt. As at 31 March 2023, the interest rate on our debt is 97% hedged for the year to March 2024. On average over the next five years we have interest rate hedging on 76% of our projected debt, with a decreasing profile over that period. Accordingly, we have a higher degree of protection on interest costs in the short term. The hedging required and use of derivatives is managed by a Derivatives Committee. The interest rate management of joint ventures is considered separately by each entity’s board, taking into account appropriate factors for its business.
We monitor the credit standing of our counterparties to minimise risk exposure in placing cash deposits and arranging derivatives. Regular reviews are made of the external credit ratings of the counterparties.
Our policy is to have no material unhedged net assets or liabilities denominated in foreign currencies. When attractive terms are available, we may choose to borrow in currencies other than Sterling, and will fully hedge the foreign currency exposure.