At intu we create compelling
experiences that surprise
and delight our customers
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Intu Properties plc
Annual Report 2014
We aim to attract people
for longer, more often, which helps
our retailers flourish
What’s inside this report
This powers our business,
creating value for our retailers,
our communities and our investors
and drives our long-term success
Contents
Strategic report
Overview
At a glance
2014 highlights
Chairman’s statement
Business model and strategy
Business model
Corporate responsibility approach
Market review
Strategy
Interview with the Chief Executive
Strategic review
Focus on new developments
Top properties
Key performance indicators
People
Key risks and uncertainties
Financial review
Financial review
Corporate responsibility
Better together
Communities and
economic contribution
Environmental efficiency
Relationships
Governance
Board of Directors
Executive management
Governance
The Board
Relations with shareholders
Audit Committee
Nomination and Review Committee
Directors’ remuneration report
Directors’ report
Statement of Directors’ responsibilities
48
49
50
52
54
56
57
58
62
63
68
71
84
86
Accounts
Independent auditors’ report
Consolidated income statement
Consolidated statement
of comprehensive income
Balance sheets
Statements of changes in equity
Statements of cash flows
Notes to the accounts
Other information
Investment and development
property
Financial covenants
Group including share of joint ventures
Underlying profit statement
EPRA performance measures
Financial record
Glossary
Dividends
Shareholder information
2
4
6
8
10
12
14
16
18
26
28
30
32
38
40
intugroup.co.uk/ar2014
Benefits of scale
See page 19
for more information
Carbon reduction award
See page 51
for more information
World class service
See page 37
for more information
Our Spanish enterprise
See page 70
for more information
Dining revolution
See page 47
for more information
88
94
95
96
97
100
101
151
153
155
157
158
162
163
165
166
1
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk At a glance
Intu owns and manages some of the best shopping centres,
in some of the strongest locations, right across the country
including nine of the UK’s top 20
Our year
in facts
and figures
January
Conditional
development
agreement for
intu Broadmarsh
February
Works commence
to refurbish intu
Victoria Centre
and create a new
catering cluster
March
Construction starts
on new cinema and
restaurant quarter
at intu Potteries
Direct employees
2,459
and almost 89,000
employed in
our centres
September
Refurbishment
of intu Lakeside
food court complete
1/2
of the UK’s population
visit an intu centre
each year
Carbon reduction since 2011
30%
2
Over
21m sq. ft.
of retail, catering and leisure space
December
Announced
acquisition of
Puerto Venecia,
Zaragoza, Spain.
Planning consent
granted for major
extension at
intu Braehead
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Our values
Creative
Bold
Genuine
Asset valuation
Super-regional centres
1. intu Trafford Centre (£2,200m)
2. intu Lakeside (£1,255m)
3. intu Metrocentre (£928m)
4. intu Braehead (£599m)
5. intu Merry Hill (£435m)
6. Cribbs Causeway, Bristol (£243m)
Town and city centres
7. Manchester Arndale (£430m)
8. intu Derby (£420m)
9. St David’s, Cardiff (£308m)
10. intu Eldon Square (£273m)
11. intu Watford (£335m)
12. intu Victoria Centre (£314m)
13. intu Milton Keynes (£278m)
14. intu Chapelfield (£261m)
15. intu Bromley (£171m)
16. intu Potteries (£165m)
15 16
14
13
12
11
10
9
8
7
Spanish centres
Parque Principado (€106m)
Puerto Venecia (€451m)1
1 Acquisition completed January 2015.
3
Occupancy
95%
May
Acquisition of
intu Merry Hill
and intu Derby
June
Joint venture
formed with KWAP
at intu Uxbridge
Passing rent
£401 million
Debt to assets ratio
44%
Substantial
development pipeline
£1.9 billion
£1.3 billion in the UK and £0.6 billion in Spain
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report 2014 highlights
intu Potteries
Net rental income1
2010
2011
2012
2013
2014
Underlying EPS
20102
20112
20122
20132
2014
£277m
£364m
£363m
£370m
£397m
14.0p
15.0p
14.7p
13.7p
13.3p
Net rental
income1
£397m
2013: £370m
Property
revaluation
surplus1
£648m
2013: £126m
Underlying
earnings
£162m
2013: £140m
Profit for
the year
£600m
2013: £364m
Underlying EPS
13.3p
2013: 13.7p2
1
2 Adjusted for rights issue bonus factor.
Please refer to glossary for definition of terms.
Including Group share of joint ventures.
Presentation of information
Amounts are presented including the Group’s
share of joint ventures. Comparative per share
information is adjusted for the rights issue bonus
factor. See Financial Review, page 40, for details.
4
Delivering
improved returns
Our focus has been on total property
returns and sustainable income
— property valuations increased
8.2 per cent (£648 million),
outperforming the IPD monthly retail
index which increased 7.3 per cent
— total property return, as calculated by
IPD, 13.1 per cent (2013 – 7.3 per cent)
— net asset value per share (diluted,
adjusted) of 379 pence, giving a total
financial return for the year of 17 per
cent on the pro forma opening net asset
value per share of 335 pence
— underlying earnings per share 13.3
pence (H1 6.4 pence; H2 6.9 pence)
(2013 – 13.7 pence) reflecting a
reduction in like-for-like net rental
income of 3.2 per cent in the year
— signed 210 long-term leases for
£34 million new annual rent at an
average 5 per cent above previous
passing rent
Significant
corporate activity
Another year of progress in 2014
— acquired two UK top 20 shopping centres,
intu Merry Hill and intu Derby, along
with Sprucefield retail park in Northern
Ireland in May 2014 for £855 million
— exchanged contracts in December 2014
to acquire a top 10 Spanish shopping
centre, Puerto Venecia, Zaragoza for
€451 million. Acquisition completed
in January 2015
— formed a joint venture at intu Uxbridge
introducing an 80 per cent partner for
£175 million, a small premium to the
December 2013 book value
— debt refinancing activity of
£2 billion; weighted average maturity
over eight years
— cash and committed facilities of
£671 million at 31 December 2014
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Development momentum
We have maintained the momentum
of development and investment in
our centres
— development pipeline of £1.9 billion,
£1.3 billion in the UK and £0.6 billion
in Spain
— completed the remodelled food court
at intu Lakeside, on site with the leisure
extension at intu Potteries and mall
refurbishment and catering quarter
at intu Victoria Centre
— on target to commence a major
£110 million extension at intu Watford
in 2015
Dividend per share
20102
20112
20122
20132
2014
NAV per share
20102
20112
20122
20132
2014
Dividend
per share
13.7p
2013: 13.7p2
13.7p
13.7p
13.7p
13.7p
13.7p
355p
356p
357p
346p
379p
Market value
of investment
properties1
£8,963m
2013: £7,624m
Net external
debt1
£3,963m
2013: £3,698m
NAV per share
(diluted, adjusted)
379p
2013: 346p2
Debt to
assets ratio1
44.2%
2013: 48.5%
1
2 Adjusted for rights issue bonus factor.
Please refer to glossary for definition of terms.
Including Group share of joint ventures.
intu Metrocentre
Making the brand count
We are seeing the benefits
of our brand and scale
— active retailers on our transactional
website, intu.co.uk, include John Lewis,
Next and Topshop
— almost 40 per cent year-on-year
increase in website visits in December
2014 to nearly three million, with an
active marketing database of almost
two million individuals
— introduced Tell intu and customer
service measurement, with the average
Net Promoter Score increasing in
the year
5
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Chairman’s statement
2014 also saw us complete the food court
redevelopment at intu Lakeside and the
transformation of the malls at intu Eldon
Square. In addition, we commenced two
major catering and leisure projects at intu
Victoria Centre and intu Potteries and we
have moved the major extension at intu
Watford forward to the point where we
intend to commence the development
in 2015.
Our branding, now two years old, is gaining
significant traction, the result of a fruitful
combination of the customer service in
our centres and our digital platform. In our
centres we introduced Tell intu allowing us
to meet customers’ changing requirements
faster. Customer satisfaction has improved
measurably since its introduction. Digitally,
we now have the majority of our major
retailers on our website, intu.co.uk, with
the likes of John Lewis, Next and Topshop
added this year. As well as half of the UK’s
population visiting an intu centre at some
point in the year, we now have nearly two
million individuals on our online database.
Through all these actions, as well as the
groundwork in previous years, we have
delivered a total shareholder return of
24 per cent in 2014.
May I refer you to the interview with our
Chief Executive on pages 16 and 17 where
David Fischel answers a number of key
questions about the business and to the
financial review presented by our Chief
Financial Officer, Matthew Roberts, on
pages 40 to 46, where you will find a more
detailed assessment of our achievements,
our challenges and our strategy.
Ihope that after studying this report
you will be pleased – as I am – at the
way the business and the reputation
of the Group has moved forward
through 2014, positioning ourselves to
take full advantage of the recovery in
the economy.
Overview of 2014 activity
In the course of the year under review, we
acquired two top UK shopping centres,
intu Merry Hill and intu Derby. This takes
our ownership to nine of the top 20
shopping centres in the UK. Both of these
centres have enormous potential and we
are already seeing the benefits of our asset
management as rental values and market
values have increased significantly in our
eight months of ownership.
And in Spain, we announced the acquisition
of a top shopping centre, Puerto Venecia
in Zaragoza, which completed in January
2015. This demonstrates the seriousness
of our intent to grow our business there.
The centre will be a model for creating
high-quality shopping resorts at our
Spanish development options.
We have completed a two-year
programme for refinancing the majority
of the Group’s debt. Throughout this
period we have increased the tenor and
reduced the average cost of our debt.
This strengthening of our financial position
means that we are well placed to advance
our development pipeline.
66
Intu Properties plc – Annual Report 2014
intugroup.co.uk
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Corporate responsibility
Our centres make an important
contribution to their local neighbourhood
both because of their location and our
close and necessary engagement with the
communities around us. Responding to our
corporate responsibility is an integral part
of our commercial life through community,
environmental and stakeholder initiatives.
Our success in this field has been
validated by the achievement of several
high-profile awards. We once again
achieved the Business in the Community
CommunityMark award, one of only 52
companies to be accredited. This year
we were awarded the ‘Best in continuing
Carbon Reduction’ at the Carbon Trust
Standard Bearers Awards, for decreasing
our carbon emissions by 30 per cent in
three years. You can read more about this
amazing achievement on page 51.
Throughout the year we have run projects
encouraging and supporting employee
mentoring and volunteering.
Our people
I would like to record my thanks to the
Board and, with my fellow Directors, our
thanks to all our staff for their commitment
and dedication to intu’s values and vision in
the year.
The creation of intu Retail Services in
2013 has led to a greater sense of unity
within the Group and in 2014 we have not
neglected to ensure that all our staff have
the right skills and training for their roles.
Through these endeavours we have seen a
more motivated and committed workforce,
with a dramatic reduction in staff who
leave within their first year of service.
I am glad to report that our approach was
recognised when we received the Premises
& Facilities Management Partner in Retail
Facilities award this year. We are the only
shopping centre business to be accredited
by the Institute of Customer Service.
Read more on pages 32–37.
Dividends
Your Directors are recommending a final
dividend of 9.1 pence per share, bringing
the amount paid and payable in respect
of 2014 to 13.7 pence, unchanged from
the bonus factor adjusted 2013 dividend.
A scrip dividend alternative will be offered.
Looking forward
Over the last few years we have positioned
ourselves for the upturn in the economy.
I believe we are now beginning to see
sustained, though small, improvements in
disposable income, generally responding to
wage increases running ahead of inflation
and lower fuel prices. Uncertainties and
fragility remain, and this is not confined
just to the economic sphere: some
measure of caution is still therefore
desirable. Retailers have also had a good
end to 2014, which along with improved
consumer confidence should see them
growing their businesses.
Through the enhancements we have been
making to our centres, in terms of the retail
and leisure mix, our world class customer
service and our digital platform, we are
well placed to deliver a favourable trading
environment for retailers.
We will continue to build our business in
Spain, driving our developments there
forward to replicate our successful
UK model.
We remain focused on delivering strong
returns over the medium term through
rental growth in our existing assets,
superior returns from our development
pipeline and the increasing strength of
our brand.
Patrick Burgess
Chairman
27 February 2015
Shareholder return in 2014
24%
(2013: –7%)
Reduction in C02 emissions
since 2011
30%
In 2014 we
have positioned
ourselves to
take full advantage
of the recovery in
the economy
7
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Business model
Our customers are at the heart of everything we do. We are passionate about
providing them with a compelling shopping experience, so we ensure
their needs inform every stage of our business model.
Putting our customers first ultimately creates value for our shareholders
nted employees
ale
T
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1
Creating
compelling
experiences
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4
Generating
value for
shareholders
Our
customers
2
Establishing
enduring
relationships
with retailers
B
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3
Delivering
long-term
growth
k intu brand
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Long-term foc
8
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
1
3
Creating compelling experiences
Delivering long-term growth
The value we add
We provide customers with a shopping
experience that attracts people for longer,
more often
We use insights from our in-depth customer research to
understand what customers want from their shopping experience.
To satisfy this expectation, our centres need to provide not only
the right mix of retail, leisure and catering, but also a distinctive
events programme, digital connectivity and moments of surprise
and delight.
Today, our focus is on actively managing and developing our
centres which are in some of the best locations across the country.
The value we add
Sustainable value to our shareholders
and the communities in which we operate
Through our brand, we create uniquely compelling experiences
that surprise and delight our customers. This, coupled with our
scale and flexibility, attracts retailers.
We have nine of the UK’s top 20 centres and more than half of
the UK’s population visit our centres each year. This ensures that
occupancy remains strong.
And this drives rental income over the long term.
2
4
Establishing enduring
relationships with retailers
The value we add
We help retailers flourish
By creating great experiences for customers, we generate
powerful footfall that attracts and retains the right mix
of retailers and catering and leisure operators for our centres.
Our high footfall locations, along with the quality of the intu
brand, give tenants the confidence that they can roll out nationally
with intu.
We maintain effective relationships and engage our tenants
in the plans for and developments of our centres.
Generating value
for shareholders
The value we add
A trusted and recognisable name
for both shoppers and retailers
Our thriving centres are sought-after investments, creating
sustainable value for shareholders and supporting access
to capital for reinvestment.
We invest in achieving our strategic aims (see page 14) by creating
the perfect shopping experience and distinguishing Intu from
our competitors.
Beyond financial value, great shopping centres create a vibrant
hub for the community and make a significant economic
contribution to the region.
Putting our customers first ultimately creates value for
our shareholders.
Talented
employees
A robust capital
structure
A balanced
approach to risk
Professional, motivated and empowered
teams, specialists in their field, focused on
creating mutually beneficial opportunities
and relationships with partners.
Astute financial management to
maximise funding options for
disciplined and shrewd investment.
Risk management is underpinned by
rigorous analysis in the context of
potential threats to strategic objectives.
p32
for more information
intu brand
p44
for more information
p38
for more information
A long-term focus
Nationwide shopping centre brand
focused on enriching the customer
experience, providing compelling scale
for retailers and other commercial partners.
Creative and collaborative approach
to long-term investment and growth,
facilitated by development expertise
and community focus.
p23
for more information
p25
for more information
9
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Corporate responsibility
approach
At Intu we believe that
corporate responsibility must
be driven by the strategic aims
of the Company and be subject
to the same quality of
governance controls as other
areas of the business. We want
Intu to be a long-term and
sustainable business – and we
can only ensure that if we care
for the communities where our
shopping centres are located
and look after the environment
that we all share
Our approach
Our corporate responsibility approach is
based on three pillars of communities and
economic contribution, environmental
efficiency and relationships with
our stakeholders.
In 2014 we reached the target of reducing
our carbon emissions by 30 per cent
compared with 2011 (like-for-like portfolio
adjusted for occupancy). We also diverted
over 97 per cent of waste away from
landfill, recycled 69 per cent of waste and
reduced water use by 2 per cent compared
with 2011.
Our outstanding and sustained
performance in energy efficiency was
recognised by the Carbon Trust, which
awarded us the ‘Best in continuing
carbon reduction’ award at the Standard
Bearers Awards. The award recognises the
challenging 30 per cent reduction target
we set ourselves and the work we have
done to achieve this since 2011.
Once again in 2014 we were accredited
with the BitC CommunityMark, one of only
52 UK companies to receive the award.
The CommunityMark is a national standard
that publicly recognises leadership and
excellence in the community.
In our joint community projects we work
with local partners to help disadvantaged
young people into work. During 2014, we
worked with nine community partners
delivering 21 projects at our centres.
These projects have directly reached over
1,200 people.
We continue to be included in FTSE4Good
and the Dow Jones Sustainability Global
Index and we were awarded the Green Star
by GRESB. We have also received a gold
ranking in the Mayor of London’s Business
Energy Challenge for our two centres in
Greater London and our head office.
p48
for more information
Communities
and economic
contribution
R g overnance
C
1
Creating
compelling
experiences
4
Generating
value for
shareholders
Our
customers
2
Establishing
enduring
relationships
with retailers
Environmental
efficiency
3
Delivering
long-term
growth
Relationships
10
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Communities
and economic
contribution
Environmental
efficiency
Relationships
Our shopping centres are integral to
the communities they serve. They build
social togetherness by providing places
for people to come together to meet,
eat, drink and socialise. We also make
an important contribution to the
economic life within and beyond these
communities, providing jobs for local
people. Our centres support charities
and community organisations that
address fundamental issues in modern
society which are important to the
long-term success of our business,
including youth, education and the
prevention of anti-social behaviour.
We have a responsibility not just to
manage and minimise our day-to-day
environmental impacts but also to
share good practices and influence our
delivery partners, retailers and visitors
towards more sustainable behaviour.
Ultimately, we want to create a more
sustainable operating environment.
We focus our efforts on the common
areas of our shopping centres, where
we have the biggest ability to drive
change. Bringing facilities management
under our control has further increased
our oversight of the environmental
efficiencies we can achieve. We target
reductions in energy usage, increase
in recycling levels, and decrease in
water consumption.
We need to understand the needs
and expectations of a wide range of
stakeholders in order to provide a
business that offers a great shopping
experience with informed investors,
passionate employees and well-
supported communities. A key part of
our corporate responsibility is managing
and developing relationships with
key stakeholders and engaging
on relevant issues.
The main groups of stakeholders we
engage with are:
— Communities
— Customers
— Investors
— Local and national government
p49
for more information
Achieving Retail Gold
p50
for more information
Zero Waste Award
— Our people
— Retailers
— Suppliers
p52
for more information
A winning partnership
Since 2005, intu has supported the
Retail Gold initiative to prepare young
people for a career in retail, placing over
300 students with retailers. This year
we launched a tailored intu World Class
Service module for students preparing for
their retail placement. With intu Braehead
we are also providing employability
support to people attending classes
at the Kirklandneuk Community Centre.
intu Chapelfield is the first shopping
centre ever to win a Gold Zero Waste
Award for its commitment to reducing
waste to landfill. All staff and retailers are
trained in recycling, sorting waste and
reducing contamination and understand
why the centre takes waste management
so seriously. By the end of 2014 intu
Chapelfield and nine other intu centres
sent zero waste to landfill.
This year’s Chairman’s CR Prize went to
the team at intu Lakeside who worked
with the National Literacy Trust to support
local young people with literacy difficulties
and their families. Partnership working
is required for the prize; helping young
people facing educational, medical, social
and employment difficulties is part of our
CR approach.
11
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Market review
We understand our market and are taking advantage of the
opportunities offered by the changing face of retail
At Intu, we see the
rise of multichannel
retail – online, in-store,
click and collect – as an
opportunity rather
than a threat
The investment market is the
strongest it has been for some
years and we are seeing an
upturn in the occupier market,
but we are constantly aware of the
evolving demands of the retail market.
Investment market
The weight of money in the retail property
market has remained strong and, with
the increased availability of debt, has
heightened demand and resulted in
downward pressure on yields. The value
of UK shopping centre investment
transactions in 2014 was the highest for
eight years and well above the long-term
yearly average.
Shopping centre development is at
low levels offering limited new supply.
The majority of activity is focused
on extensions and reconfigurations.
The UK supply of new space in the year
has declined by 75 per cent, from the peak
in 2008, setting the stage for increased
occupancy and robust rental growth.
Occupier market
The UK economy showed signs of
continued improvement in 2014, with two
full years of quarterly GDP growth and
consumer confidence increasing through
the year. This has been supported by an
increase in the UK average household
disposable income with the Asda
benchmark index showing a rise of
9 per cent over the year. The economy is
starting to see year-on-year wage growth
outpacing inflation and a lower oil price,
which should give consumers a greater
level of disposable income going into 2015.
Consumer spending has also continued
to increase with higher like-for-like non-
food retail sales reported by the BRC
throughout 2014, aggregating to 2.7 per
cent for the year.
Retailer administrations in 2014 were at
the lowest levels since 2010, according
to the Centre for Retail Research, with
Phones 4U and La Senza being the largest.
They both closed all stores and accounted
for approximately 1 per cent of Intu’s rent
roll. Since the year end, two multibrand
fashion retailers, Bank and USC, have
entered administration, but continue to
trade and account for approximately 1 per
cent of the rent roll.
Changing face of UK retail
Online sales continue to grow, with the
Office of National Statistics estimating
that, on average, 11.2 per cent of sales
were conducted online in 2014, an increase
from 10.4 per cent in 2013. Retailers need
to offer a multichannel approach with
shoppers now expecting consistent pricing
and service across the physical store
and online.
The UK’s most successful brands have
generally developed a multichannel
Major extension for intu Braehead
Extensions and reconfigurations
of existing centres offer excellent
opportunities to create sustainable
growth in rental income
UK retail construction pipeline – PMA estimate (million sq. ft.)
9
8
7
6
5
4
3
2
1
6
8
9
1
7
8
9
1
8
8
9
1
9
8
9
1
0
9
9
1
1
9
9
1
2
9
9
1
3
9
9
1
4
9
9
1
5
9
9
1
6
9
9
1
7
9
9
1
8
9
9
1
9
9
9
1
0
0
0
2
1
0
0
2
2
0
0
2
3
0
0
2
4
0
0
2
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
l Complete
l Planned/proposed
Source: PMA
12
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Flagship stores key to
multichannel approach
Next has been highly successful at
adapting to the evolving retail market
offer and understand the power of the
physical store in their strategy. As well as
a profitable location in its own right, the
store can also function as a showroom for
the product or a distribution location for
their online sales. More and more, retailers
note that online customers are opting
to click and collect, allowing the retailer
to minimise their distribution costs and
enhance sales through further purchases
once in store.
As well as established physical retailers
reviewing their portfolios to have space
in the best retail locations, several online
retailers are now seeing the need for a
physical presence to improve their sales
and marketing, with the likes of Simply
Be building up a store network in key
locations. Retailers need fewer stores to
cover the UK population than 20 years
ago but increasingly need to focus on
prime destinations.
Our focus has been to further enhance
our centres as day-out family-friendly
destinations offering unrivalled shopping,
leisure and catering, supported by
intu.co.uk and other digital and marketing
opportunities. This has positioned us well
to benefit from these changes.
The UK’s most successful high
street brands are, on the whole,
those that have developed
their multichannel offer as the
e-commerce sector has grown,
but their physical stores are
still crucial. Shopping centres
will remain at the forefront of
the retail market but they must
continually evolve to maintain
their relevance in the modern
retail environment
Jonathan De Mello
Harper Dennis Hobbs
Outlook
The retail sector has been changing at a
rapid pace and change is likely to continue
in 2015 as the UK economy continues to
strengthen. The outlook for retail spending
in 2015 is positive due to a combination of
low inflation, reviving growth in earnings
and resilience in the labour market,
indicating that households’ real disposable
incomes should increase over the course
of the year.
We are strongly positioned to take
advantage of increased demand from
retailers. The supply of new space is limited.
In 2008, a record year, over 8 million sq. ft.
of new shopping centre space was built
in the UK. Levels fell with an all-time low
in 2014 and even by 2019 the supply is
only expected to have reached around
3 million sq. ft.
Across the sector we are expecting to see
a focus in 2015 on improving the customer
experience, with seamless multichannel
engagement and an increasing sense
of personalisation, showrooming and
convenience. We believe that our active
asset management and unique focus
on creating the best possible customer
experience will enable us to emerge as the
leader of this trend among retail landlords.
We recognise that the influence of digital
technology will continue to dominate
tactical and strategic decision-making
across the industry. At Intu, we see the rise
of multichannel retail – online, in-store, click
and collect – as an opportunity rather than
a threat. We have always striven to be at
the forefront of technological advances
and 2015 will be no different as we begin
to develop further ways to utilise data
gathered from our digital network.
Click and collect
Below: Choosing a product online but
picking it up in-store is becoming a
popular option for shoppers, driving
footfall and incremental sales
13
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Strategy
We have clear strategic objectives to ensure the
business model is put into action effectively
1
Optimise performance
of existing assets,
prioritising medium-term
total property return
2
Drive forward £1.3
billion investment
programme in
existing UK assets
3
Make the brand count
4
Seize the growth
opportunity in Spain
14
We aim to achieve this by
How we measure our success
p30
Our progress in 2014
Our priorities in 2015
Making our locations
the most desirable
for shopping and socialising
Astutely managing the
assets to take advantage
of new trends and
occupiers
Building long-term
partnerships with
local authorities
and communities
Footfall
Occupancy
Income performance
Total financial return
How we manage the risk
p38
Active management
of tenant mix
Leisure and catering space
to increase over the next
few years
Opened the redeveloped food court at intu Lakeside and on
site with restaurant developments at intu Potteries and intu
Increase the catering and leisure elements
of our centres which leads to increased dwell time
Victoria Centre
Introduced new brands to our customers including Five Guys,
to our centres which may be international entrants or online
MAC, Jack Wills and Hema
brands looking for a store presence
Engaged with national and local government and worked
with local partners to help disadvantaged people into work
Develop retail academy partnerships across the Group
following a North East pilot
Continue to introduce new entrants
Build local authority and parliamentary relationships with
a major event to launch latest economic impact report
We aim to achieve this by
How we measure our success
p30
Our progress in 2014
Our priorities in 2015
Delivering the required
planning approvals for
all projects
Generating the required
level of demand to
commence a project
Having the required
funding to progress
the pipeline
Prime property assets
Total financial return
Received town centre status and planning approval
Commence work on the major extension
for extension at intu Braehead
at intu Watford
How we manage the risk
p38
Completed letting of leisure scheme at intu Potteries in
Gain sufficient pre-lets to commence restaurant
Revolving credit facility increased
from £375 million to £600 million
during the year
Detailed appraisal work and
significant pre-lets continuing
ahead of starting major
development projects
advance of opening in 2015
developments at intu Metrocentre and intu Eldon Square
Introduced joint venture partner to intu Uxbridge
Achieving planning for intu Broadmarsh
and increased available facilities
We aim to achieve this by
How we measure our success
p30
Our progress in 2014
Our priorities in 2015
Offering a distinctive
customer signature
experience at all our
centres
Having a best-in-class
digital offering to retailers
and customers
Delivering a consistent
national brand partnership,
experiential and advertising
opportunity on and offline
Footfall
Income performance
How we manage the risk
p38
Training and employee
engagement to deliver
brand promise and values
Tell intu programme of customer
feedback and analysis
Digital investments to
improve relevance as
shopping habits change
Introduced Tell intu and measurement of Net Promoter Score,
Build on the Tell intu programme to improve customer
which has increased by 30 per cent since its introduction
experience against Net Promoter Scores
Introduced more retailers to our transactional website,
intu.co.uk, including John Lewis, Next and Topshop
Monetise the initiatives and infrastructure we have put in place
Increased our marketing database to almost two
Build on the success of ‘Home’ to secure more national
over the last two years
brand promotions
million individuals
Secured UK’s first national single portfolio multichannel
promotional launch for ‘Home’
We aim to achieve this by
How we measure our success
p30
Our progress in 2014
Our priorities in 2015
Building a platform of
the best centres in Spain
through acquisition
and development
Delivering the same brand
experience and returns
in Spain and the UK
Moving the development
options forward to a point
where we can consider
exercising them and
commencing developments
Income performance
Total financial return
How we manage the risk
Substantial property and
financial due diligence
undertaken before acquisition
Local partner in Spain with
market specialist knowledge
p38
Announced the acquisition of Puerto Venecia, a top 10 Spanish
Integrate Puerto Venecia into the Group
shopping resort
Delivered 21 per cent capital growth on Parque Principado
in our first full year of ownership
Entered into an option for a development site
in Palma, Mallorca
Rebrand Parque Principado as intu Asturias
Work to bring the Málaga development option forward to the
point where we can consider exercising it
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Optimise performance
of existing assets,
prioritising medium-term
total property return
Drive forward £1.3
billion investment
programme in
existing UK assets
Make the brand count
1
2
3
4
Seize the growth
opportunity in Spain
We aim to achieve this by
How we measure our success
p30
Making our locations
the most desirable
for shopping and socialising
Astutely managing the
assets to take advantage
of new trends and
occupiers
Building long-term
partnerships with
local authorities
and communities
Footfall
Occupancy
Income performance
Total financial return
How we manage the risk
p38
Active management
of tenant mix
Leisure and catering space
to increase over the next
few years
We aim to achieve this by
How we measure our success
p30
Delivering the required
planning approvals for
all projects
Generating the required
level of demand to
commence a project
Having the required
funding to progress
the pipeline
Prime property assets
Total financial return
How we manage the risk
p38
Revolving credit facility increased
from £375 million to £600 million
during the year
Detailed appraisal work and
significant pre-lets continuing
ahead of starting major
development projects
We aim to achieve this by
How we measure our success
p30
Offering a distinctive
customer signature
experience at all our
centres
Having a best-in-class
digital offering to retailers
and customers
Delivering a consistent
national brand partnership,
experiential and advertising
opportunity on and offline
Footfall
Income performance
How we manage the risk
p38
Training and employee
engagement to deliver
brand promise and values
Tell intu programme of customer
feedback and analysis
Digital investments to
improve relevance as
shopping habits change
We aim to achieve this by
How we measure our success
p30
Building a platform of
the best centres in Spain
through acquisition
and development
Delivering the same brand
experience and returns
in Spain and the UK
Moving the development
options forward to a point
where we can consider
exercising them and
commencing developments
Income performance
Total financial return
How we manage the risk
Substantial property and
financial due diligence
undertaken before acquisition
Local partner in Spain with
market specialist knowledge
p38
Our progress in 2014
Opened the redeveloped food court at intu Lakeside and on
site with restaurant developments at intu Potteries and intu
Victoria Centre
Introduced new brands to our customers including Five Guys,
MAC, Jack Wills and Hema
Our priorities in 2015
Increase the catering and leisure elements
of our centres which leads to increased dwell time
Continue to introduce new entrants
to our centres which may be international entrants or online
brands looking for a store presence
Engaged with national and local government and worked
with local partners to help disadvantaged people into work
Develop retail academy partnerships across the Group
following a North East pilot
Build local authority and parliamentary relationships with
a major event to launch latest economic impact report
Our progress in 2014
Received town centre status and planning approval
for extension at intu Braehead
Our priorities in 2015
Commence work on the major extension
at intu Watford
Completed letting of leisure scheme at intu Potteries in
advance of opening in 2015
Gain sufficient pre-lets to commence restaurant
developments at intu Metrocentre and intu Eldon Square
Introduced joint venture partner to intu Uxbridge
and increased available facilities
Achieving planning for intu Broadmarsh
Our progress in 2014
Introduced Tell intu and measurement of Net Promoter Score,
which has increased by 30 per cent since its introduction
Our priorities in 2015
Build on the Tell intu programme to improve customer
experience against Net Promoter Scores
Introduced more retailers to our transactional website,
intu.co.uk, including John Lewis, Next and Topshop
Monetise the initiatives and infrastructure we have put in place
over the last two years
Increased our marketing database to almost two
million individuals
Build on the success of ‘Home’ to secure more national
brand promotions
Secured UK’s first national single portfolio multichannel
promotional launch for ‘Home’
Our progress in 2014
Announced the acquisition of Puerto Venecia, a top 10 Spanish
shopping resort
Delivered 21 per cent capital growth on Parque Principado
in our first full year of ownership
Entered into an option for a development site
in Palma, Mallorca
Our priorities in 2015
Integrate Puerto Venecia into the Group
Rebrand Parque Principado as intu Asturias
Work to bring the Málaga development option forward to the
point where we can consider exercising it
15
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Interview with the Chief Executive
Q
Intu’s improved 2014 results
demonstrate we are well
positioned to benefit further
from rising consumer confidence
and strengthening demand
from retailers for quality space.
We welcome over 400 million
customer visits per annum and
our clear focus on delivering
outstanding customer
experience under the intu brand
is proving a powerful factor in
the successful performance
of our centres
David Fischel
Chief Executive
16
Q You have a £1.3 billion pipeline
of developments in the UK.
How fast can we expect to see these
developments and how will you
fund them?
A The development pipeline can be split
into active management projects and
major extensions. We have several
ongoing active management projects,
such as the leisure extension at intu
Potteries and the refurbishment and
restaurant quarter at intu Victoria
Centre, both of which will be completed
in the second half of 2015. We will also
be commencing three other restaurant
projects in the next few months. All
these projects can be funded from our
existing facilities.
intu Watford is our most advanced
major extension with planning
approved, the anchor cinema let and
over 50 per cent of the expected rent
under offer. We anticipate beginning
construction this year. The catalyst for
our other extensions, the majority of
which have planning approved, will be
the required level of tenant interest.
We should not need additional equity to
finance these projects. We can finance
the extensions from existing available
facilities, raising debt against the value
created from completed developments
and recycling capital from other
assets to reinvest into these growth
opportunities, including introducing
partners into existing assets. The major
developments are likely to be spread
over a number of years so the proceeds
from financing a completed project can
be used to help finance the next one.
Q You have recently acquired a second
centre in Spain. Why is Spain such
an attractive market for you and why
do you think you can replicate your
strategy there?
A Spain has very attractive market
dynamics with an economy moving
out of recession and a sophisticated
consumer and retail market, but a
retail sector where ownership of the
regional shopping centre market
remains highly fragmented and without
a large committed pipeline of new
centres. It is a country where we see
major opportunities for us to broaden
our presence and further strengthen
our position in the market. We believe
such expansion will be beneficial to our
overall brand and digital positioning.
The country holds huge potential for
the creation of genuinely regional
destination centres in which we
specialise. Eighty per cent of Spain’s
retail expenditure comes from 10
key catchments and we aim to be the
leading owner, developer and manager
of regionally pre-eminent shopping
centre destinations for a significant
number of those key areas.
The acquisition of Puerto Venecia
in early 2015, after the successful
acquisition of Parque Principado in 2013,
substantially accelerates our activities
in Spain.
We also have development options
on sites in Málaga, Palma, Valencia
and Vigo. It is our intention, subject to
shareholder approval, to exercise the
Málaga option in March 2015. We are
advancing the other sites to the point
where we can consider exercising
the options.
Q You have had a year of negative
like-for-like net rental income.
What specific actions are you taking
to address this and when can we
expect to see a turnaround?
A Over the last three years we have
successfully repositioned the Group
so that we are now well placed to
benefit from the improved confidence
of shoppers and retailers. Rather than
chasing a target level of occupancy
throughout this period, we have instead
concentrated on being selective and
ensuring that we have the right tenants
in the right space. This means we have
not compromised on the quality of the
tenant mix and have maintained or
improved the tone of the rents in our
prime centres.
While our results still reflect a lingering
impact from the administrations of late
2012 and early 2013, it is clear that this
active asset management strategy is
starting to pay off. For example, in the
case of Republic, we took back all the
units rather than let them at potentially
lower rents to tenants who did not fit our
desired retail mix. It took a year, but all of
these units are now relet to top-quality
brands, such as Hugo Boss, White Stuff,
Superdry and Footasylum, at rents in line
with the previous passing rent.
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
The remaining elements of the like-for-
like net rental income shortfall in 2014
can be split into two areas. First, with our
ongoing active management projects,
in particular at intu Victoria Centre, we
had to remove units from generating
income while we reconfigured the
centre to maximise rental potential on
completion of the project. Secondly,
there was a concentration of lease
expiries at intu Braehead and intu
Potteries this year. We repositioned key
tenants, as we illustrated last year, and
have now addressed the majority of the
expiries but have operated with a higher
vacancy level in these centres as a result.
Like-for-like net rental income is an
important measure, but total property
return, the combined income and capital
returns, encompasses everything we
do and is the overall measure on which
we focus. Over the past five years, our
annualised total property return of 9.9
per cent per annum outperformed the
IPD UK quarterly retail benchmark of
9.2 per cent.
Q intu is the only national shopping
centre brand. What value does this
bring and what evidence of success
do you have two years after the
brand was launched?
A Intu is one of the UK’s biggest retail
landlords, and focused on providing
a great experience for millions of
UK shoppers with, according to
our estimates, over half of the UK’s
population visiting an intu centre
every year.
Our shoppers are at the heart of
everything we do and providing
them with compelling experiences
also ensures that we establish
enduring relationships with our
retailers. Our brand enables us to offer
scalability to retailers and the size of
the Group also helps to support the
brand. Our national brand enables us
to deliver experiences and events for
the customer that ownership of a single
centre could not, such as the Everyone’s
Invited family friendly weekend of events
in all our centres which increased footfall
for the weekend year-on-year by around
13 per cent.
Our staff offer an unparalleled service
and our digital platform gives customers
access to brands in our centres 24 hours
a day. Our online presence is growing
rapidly with nearly three million visits
to intu.co.uk in December 2014, a year-
on-year increase of almost 40 per cent.
Our active marketing database is almost
two million strong and in 2015 we will
focus on developing opportunities
for more regular engagement and,
importantly, increased monetisation.
Our scale as owner of nearly half of
the top 20 shopping centres in the UK
means that we have a strong presence
offering key entry points in the areas
where retailers need to be. We recognise
that we are competing with other
attractions, not just shopping, for our
customers’ time and money and need
to offer an attractive product on a
national basis.
Asset valuation
£9.0bn*
(2013: £7.6bn)
Asset valuation
1516 **
1
14
13
12
11
10
9
8
7
6
5
4
3
2
nb0.9£
(2013: £7.6bn)
*
intu Derby (£420 million)
Town and city centres (34%)
7. Manchester Arndale (£430 million)
8.
9. St David’s, Cardiff (£308 million)
10. intu Eldon Square (£273 million)
11. intu Watford (£335 million)
12. intu Victoria Centre (£314 million)
13. intu Milton Keynes (£278 million)
14. intu Chapelfield (£261 million)
15. intu Bromley (£171 million)
16. intu Potteries (£165 million)
Manchester Arndale
(£430 million)
Super-regional centres (66%)
Town and city centres
Super-regional centres
intu Trafford Centre (£2,200 million)
1.
(66%)
(34%)
intu Lakeside (£1,255 million)
2.
1. intu Trafford Centre
7.
intu Metrocentre (£928 million)
3.
(£2,200 million)
2. intu Lakeside
intu Braehead (£599 million)
4.
(£1,255 million)
(£420 million)
intu Merry Hill (£435 million)
5.
3. intu Metrocentre
9. St David’s, Cardiff
6. Cribbs Causeway, Bristol (£243 million)
(£928 million)
(£308 million)
10. intu Eldon Square
4. intu Braehead
(£273 million)
(£599 million)
11. intu Watford
5. intu Merry Hill
(£335 million)
(£435 million)
8. intu Derby
6. Cribbs Causeway, Bristol
12. intu Victoria Centre
(£243 million)
* Including Group share of joint ventures.
** Other properties <£100 million (£350 million).
(£314 million)
13. intu Milton Keynes
(£278 million)
14. intu Chapelfield
(£261 million)
15. intu Bromley
(£171 million)
16. intu Potteries
(£165 million)
* Including Group share of joint ventures.
** Other properties <£100 million (£350 million).
Q What are your strategic
priorities for 2015?
A Our focus in 2015 will be on four
main goals which we believe will
result in strong total returns over the
medium term:
— optimising performance of existing
assets with the delivery of like-for-like
net rental income growth in 2015
and attractive total property returns
— driving forward the £1.3 billion
investment programme in UK assets
— making the brand count and
demonstrating the benefits of scale
— seizing the growth opportunity in
Spain, building on progress in the last
three years
A17
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Strategic review
Our strategic review shows how we have performed in the year and how we are
positioning ourselves to deliver on our strategy in the future
Four key themes have shaped
our performance in 2014
—delivering improved returns
—significant corporate activity
—making the brand count
—development momentum
Property revaluation surplus1
£648m
(2013: £126m)
Capital value movements (%)
Delivering
improved returns
Total property return has increased in 2014
as yields compressed and rental values
started to improve.
Valuation
The aggregate like-for-like market value
of our investment property increased by
8.2 per cent in the year, outperforming the
IPD monthly retail index (up 7.3 per cent)
as we have in each of the last five years.
This contributed to a total property return
of 13.1 per cent.
The weighted average nominal equivalent
yield at 31 December 2014 was 5.32 per
cent, a reduction of 47 basis points in the
year, reflecting market conditions and our
ongoing asset management initiatives
maintaining the prime and resilient nature
of our assets. Based on the gross portfolio
value, the net initial yield ‘topped-up’ for the
expiry of rent free periods was 4.60 per cent.
The like-for-like change in ERV was in line
with the IPD benchmark with a further
marginal increase in the second half
of 2014.
Group revaluation surplus – like-for-like
IPD* capital growth
Full year
2014
+8.2%
+7.3%
Second half
2014
+1.0%
+3.7%
Group weighted average nominal equivalent yield
Like-for-like change in Group nominal equivalent yield
IPD* equivalent yield shift
5.32%
–47bp
–56bp
5.32%
–3bp
–26bp
First half
2014
+7.6%
+3.5%
5.35%
–44bp
–30bp
8.2 7.3
Group ‘topped-up’ initial yield (EPRA)
4.60%
4.60%
4.66%
15
10
5
0
–5
11.0
7.5
1.0 0.6 0.6
1.8 0.8
–5.8
2010
2011
2012
2013
2014
l Intu
l IPD monthly retail index
Total property return1
13.1%
(2013: 7.3%)
1
Including Group share of joint ventures.
18
Group change in like-for-like ERV
IPD* change in rental value index
* IPD monthly index, retail.
+0.3%
+0.3%
+0.1%
+0.4%
+0.2%
–0.1%
In general the super-regional centres
continue to outperform with stronger
valuation surpluses from yield compression
and improvement in rental values. In the
case of Intu, yield compression was mostly
seen in the first six months of 2014 based
on transactional evidence. The larger
city centre locations have seen smaller
positive movements, but there has been
limited read-across to date in the smaller
centres. Notable changes in individual
valuations include:
Market value
Surplus/(deficit)
31 December 2014
£m
2,200
1,255
928
435
308
430
420
278
314
82
2,313
31 December 2013
£m
1,900
1,125
885
–
272
399
–
251
306
1432
2,343
£m
300
123
38
271
38
30
291
26
(22)
14
45
%
16%
11%
4%
7%
15%
7%
8%
10%
(7)%
21%3
–
8,963
7,624
648
8%
intu Trafford Centre
intu Lakeside
intu Metrocentre
intu Merry Hill
St David’s, Cardiff
Manchester Arndale
intu Derby
intu Milton Keynes
intu Victoria Centre
Parque Principado
Others including non like-for-like
Investment and development
property including Group’s share
of joint ventures
1 Since acquisition on 1 May 2014.
2 Treated as subsidiary at 31 December 2013.
3 Based on local currency.
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Focus on: Our scale
The benefits of scale:
create, trial, roll out
A great advantage of intu’s
strong brand is that it enables
us to think strategically
and nationally, rather
than tactically and locally
Our national scale means we can
pilot ideas and quickly adopt
those that work across all our
centres. This provides economies
of scale, ensures we learn from best
practice within the Group and embeds
our values consistently within our centres.
We are able to make national
improvements in many areas of the
business including customer service,
building management systems, technical
procurement and car park payments,
because our size gives us the means
to test and review on a small scale first.
Our signature customer experience
programme is one example of how we
are able to use this process to strengthen
our brand so that people know what intu
stands for.
As part of this programme we wanted
to create engagement tools to give our
staff opportunities to interact more often
with customers and make our customers’
shopping trips easier and more pleasant.
By testing several tools at different centres,
we could see which ones resonated with
customers and were natural for intu staff
to deliver. The successful tools include
intugrams (envelopes containing vouchers
for free services or products, distributed
as random acts of kindness), joy jars (jars
containing small engaging toys to keep
toddlers happy on the family shopping trip)
and free ponchos when it rains.
Using Tell intu, our Net Promoter Score
(NPS) measurement programme, we
identified the tools that work best, trained
staff to use the tools and then rolled out
the programme to all our intu-branded
centres. We then reviewed again to find
our NPS has increased by 30 per cent
since the engagement programme began
in March 2014.
Supported by our national training
programme, and reinforced by the
evidence from Tell intu, we are able to only
roll out those ideas that we know make
a demonstrable difference.
19
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Strategic review
continued
Operating metrics
Occupancy
– of which, occupied by tenants trading in administration
Leasing activity – number, new rent
– new rent relative to previous passing rent
Like-for-like change in net rental income
Total property return
Footfall
Retailer sales (like-for-like centres)
Rent to estimated sales (exc. anchors and major space users)
Customer metrics
Estimated dwell time (super-regional)
Customer visits (annualised)
Average customer visits per centre
Shopping centre space
Estimated retailer sales
2014
95%
1%
210,
£34m
+5%
–3.2%
+13.1%
+0%
+2.5%
12.5%
2013
95%
1%
201,
£42m
+4%
–1.9%
+7.3%
–2%
+0%
13.5%
2014
2hrs 11mins
400m
21m
21m sq. ft.
£5.5bn
— intu Trafford Centre has benefited from
the strong yield improvement seen on
super-regional centres and an increase
in the headline rents as a result of
evidence from new lettings
— intu Lakeside has benefited from the
strong yield improvements on super-
regional centres and the completion
of the food court development
— intu Metrocentre has benefited from
the strong yield improvement on
super-regional centres, but short-term
income reductions in parts of the centre
about to undergo redevelopment have
affected the overall valuation
— intu Merry Hill has benefited from
increases in rental tone evidenced by
new lettings since acquisition
— St David’s, Cardiff and Manchester
Arndale have both benefited from the
yield improvement seen in larger city
centre shopping centres with small
improvements in rental tone
— intu Derby has benefited from
increases in the rental tone, with some
yield improvement
— intu Milton Keynes has benefited from
the yield improvement seen in larger
city centre shopping centres
— intu Victoria Centre has been affected
by the short-term income reduction
and accrued development expenditure
of the ongoing refurbishment work,
with the improvement in yield partially
offsetting this reduction
— Parque Principado, Oviedo, has
benefited from improvements in yield
as investor interest for the best Spanish
assets has increased
20
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Top retailers choose intu centres
Brands such as Superdry, Jack Wills
and MAC have opened new stores in
our centres, joining our wide range of
established retailers
Occupancy remains firm at the 95 per cent
level at which we have operated for most
of the year and compares favourably to
PMA’s vacancy measure for ‘big shopping
centres’ of 11 per cent.
Like-for-like net rental income was 3.2
per cent lower in 2014 than 2013, with
a narrower 2.8 per cent decrease in the
second half. Income interruption from
centre redevelopments accounted for
approximately one percentage point
of the shortfall, in particular at intu
Victoria Centre and intu Eldon Square.
Tenants failing in late 2012 and early
2013 still impacted the first half of 2014,
their total impact in 2014 being around
one percentage point. The balance of
the shortfall was around concentrations
of lease expiries at intu Braehead and
intu Potteries.
We agreed 210 new long-term leases in
the year, amounting to £34 million new
annual rent, at an average of 5 per cent
above previous passing rent (like-for-like
units) and in line with valuers’ assumptions,
excluding one strategic leisure letting.
Significant activity in the year includes:
— 58 catering lettings, including Five Guys
at intu Trafford Centre, intu Lakeside
and intu Metrocentre, Chiquito at
intu Metrocentre, intu Potteries and
intu Uxbridge, Coast to Coast at intu
Trafford Centre, intu Metrocentre and
intu Victoria Centre and Carluccio’s in
newly converted space at intu Bromley.
Catering and leisure account for 11 per
cent of the rent roll, with a significant
increase in the development pipeline
— new brands to individual centres include
Superdry and a full-line River Island
at intu Victoria Centre, one of Dutch
retailer Hema’s first UK stores at intu
Bromley, MAC at intu Lakeside, intu
Bromley and St David’s, Fat Face at
intu Watford and intu Trafford Centre,
and Jack Wills at intu Trafford Centre
— previously online only brands creating
a physical presence, including a first
store for an intu.co.uk retailer, Watch
Warehouse, at intu Watford, a pop-up
for Ratchet at intu Lakeside and two
new Simply Be stores at intu Chapelfield
and intu Merry Hill
Change in like-for-like net rental income (%)
10.0
8.0
6.0
4.0
2.0
0.0
–2.0
–4.0
8.5
8.5
5.3
6.0
4.6
2.3
3.5
3.6
2.1
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
2014
–3.4
–4.3
–1.9
–2.7
–3.2
— 275 new shops opened or refitted in our
centres in 2014, around 9 per cent of
our 3,100 units. Tenants have invested
around £90 million in these stores,
a significant demonstration of their
commitment to our centres. As well
as major flagship store investments,
like River Island at intu Metrocentre,
JD Sports introduced their new concept
shopfit at intu Trafford Centre, intu
Watford and intu Chapelfield
At the property level, the total return from
Intu’s portfolio was 13.1 per cent (2013 –
7.3 per cent). The combination of capital
value increases and broadly stable income
demonstrates the strength of Intu’s assets
over the medium and long term.
The number of visitors to our centres
has increased marginally year-on-year in
2014, representing an outperformance of
Experian’s measure of UK national retail
footfall which declined 1 per cent.
Estimated retailer sales in our centres were
up 3.1 per cent in the second half of 2014
giving a year-on-year increase of 2.5 per
cent. The ratio of rents to estimated sales
for standard units reduced in the year to
12.5 per cent, continuing the trend of the
previous few years.
Lease expiry profile† (%)
40
30
20
10
34
17
10
*
5
1
0
2
8
6
1
0
2
10
9
9
7
1
0
2
8
1
0
2
9
1
0
2
–
0
2
0
2
4
2
0
2
+
4
2
0
2
† Expressed as a percentage of rent roll.
* Excludes three per cent in respect of leases
which have expired of which around three-quarters
are in negotiation or solicitors’ hands.
The difference between annual property
income (see Glossary) of £436 million and
ERV of £515 million represents £42 million
from vacant units and reversion of
£37 million, 8 per cent, from rent reviews
and lease expiry. Of the £37 million,
£5 million relates to reversions only
realisable on expiry of leases with over 10
years remaining (for example anchor units),
leaving £32 million, 7 per cent, from other
lease expiries and rent reviews.
The lease expiry cycle can bring risk to
short-term earnings depending on the
volume in a specific centre and when
the expiries fall in the economic cycle,
but it also provides the opportunity to
introduce, reposition and right-size tenants,
improving the tenant mix. This year we
have seen a significant concentration at
intu Braehead and intu Potteries. The chart
below shows the pattern of lease expiries
across the portfolio, with a weighted
average unexpired lease term of 7.4 years
(31 December 2013 – 7.5 years).
Significant
corporate activity
We have undertaken significant corporate
activity in 2014 and we believe that our
scale and focus is key to our successful
development and operation of prime
regional shopping centres. This year we
have further consolidated our position
in the UK, acquiring two top 20 centres.
In Spain, with the completion of the Puerto
Venecia acquisition in January 2015, we
now own two top 10 centres which along
with the sites we have under option in
other key locations position us well to
build scale there along similar lines to
our approach in the UK.
21
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Strategic review
continued
UK acquisitions
In May we completed our purchase of
interests in two prime UK shopping
centres, intu Merry Hill and intu Derby,
and Sprucefield retail park, Northern
Ireland, funded by a two for seven rights
issue raising £500 million (gross) and
£424 million of new debt facilities secured
on the properties. The final consideration
was £855 million. We have identified
multiple growth opportunities which
reinforce our investment case.
The acquisition was in line with our strategy
to focus on the UK’s most successful
destinations. Such assets are rarely traded,
so it is important to move decisively where
opportunities arise to acquire interests,
particularly where our operator skills
can be applied through our specialist
asset and property management teams.
The transaction also established a joint
venture with QIC, a major global investor,
at intu Merry Hill. It strengthened Intu’s
position as the leading owner, developer
and manager of prime UK shopping
centres, filled a gap in our national
coverage and extended the footprint of
our nationwide consumer facing brand.
Since completion we have:
— rebranded the two centres with
new signage, websites and World
Class Service training for the teams.
The intu brand has been welcomed
at both centres
— strengthened our local asset
management and operational
capabilities
— started work on detailed asset
management plans with initial leasing
activity positive to acquisition valuations
— at intu Merry Hill, been encouraged
by initial discussions with key retailers
about opportunities to upsize their
presence in the centre
— at intu Derby, through our early letting
activity, increased the zone A rents from
£110 to £125
— at Sprucefield, started the process of
unlocking the development potential
of this well-located site
New joint venture
In June we entered into a partnership in
respect of intu Uxbridge with Kumpulan
Wang Persaraan (Diperbadankan) (KWAP),
the £19 billion Malaysian pension fund.
This transaction established a relationship
with another significant overseas investor
and demonstrated the investment
demand for prime UK shopping centres
under the management of a specialist
operator such as Intu.
KWAP acquired an 80 per cent interest
in intu Uxbridge for £175 million,
representing a 2 per cent premium
to its 31 December 2013 valuation
of £214 million (100 per cent basis).
We retain a 20 per cent interest and
continue to manage the centre under the
intu brand on behalf of the joint venture.
The transaction is a useful step in recycling
capital into our substantial development
pipeline while retaining the scale of our
operations and has a deal structure which
could be applicable to other assets.
Spanish acquisitions
In December we exchanged contracts
to acquire the Puerto Venecia shopping
centre and retail park in Zaragoza, Spain for
€451 million. Eurofund, our development
partner in Spain, was closely involved in
the original development of this 200,000
sq. m. shopping resort. The centre, which
opened in 2012, offers a mix of retail,
leisure and restaurants and was recognised
by MAPIC in 2013, winning the best
worldwide retail and leisure development.
Bulevar de los Manzanos,
Parque Principado
Right: Parque Principado, to be
rebranded as intu Asturias in 2015,
was our first acquisition in Spain where
we aim to replicate our successful UK
business model
22
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Making intu Metrocentre sparkle
Above: This iconic chandelier is at the
heart of our transformation of intu
Metrocentre’s Platinum Mall, adding
sparkle and raising £16,000 for charity
through sales of individual crystal hearts
Catering for all tastes
Below: Five Guys, a top US restaurant
chain, used intu’s national portfolio to
roll out its brand across the UK
This is the template for our shopping
resort developments in Spain.
The acquisition, which completed in
January 2015, is funded by a 50 per cent
loan to value bridging loan which we
can exchange for a five-year term loan
secured on the asset. The balance of the
consideration has been met from our
existing resources. In 2015 we will be
looking to introduce an investment partner
into Puerto Venecia.
The acquisition is expected to be earnings
accretive and, following last year’s
successful acquisition of Parque Principado,
Oviedo, is another high-quality addition for
the Group, taking our ownership to two
of the top 10 shopping centres in Spain.
The transaction substantially accelerates
our activities in Spain, which is a country
where we see major opportunities for the
type of genuinely regional destination
centre in which Intu specialises.
As we highlighted in October 2013,
when we acquired Parque Principado,
the Spanish shopping centre market
offers opportunities to create a quality
business of scale which has the potential
to generate superior total returns over
the medium term.
Similar to our approach in the UK, our
aim is to be the leading owner, developer
and manager of regionally pre-eminent
shopping centre destinations for the major
trade areas of Spain. Eighty per cent of the
country’s retail expenditure comes from
10 key catchment areas.
Ownership of the largest Spanish shopping
centres is fragmented and many regions
do not have a pre-eminent retail and
leisure destination. The committed pipeline
of prime shopping centre developments
across Spain is at a low level and we believe
the opportunity exists to develop and build
new schemes in a number of key regions
of Spain.
We also have development options on
sites in Málaga, Palma, Valencia and Vigo.
It is our intention, subject to shareholder
approval, to exercise the Málaga option
in March 2015. We are working to bring
the other developments forward to the
point where we can consider exercising the
options. We believe such expansion will be
beneficial to the Group’s overall brand and
digital positioning.
Refinancing activity
Throughout 2014 we have continued to
take advantage of the favourable debt
markets to refinance the Group’s near-
term debt. Through a mix of term loans
and long-dated bonds, financed in the last
two years, we have, since 2012, increased
the tenor of the debt by two years to eight
years whilst reducing the cost of debt to
4.7 per cent. With debt to assets at 44 per
cent and available facilities of £671 million
we are well positioned to continue
with our strategy in Spain and our UK
development pipeline.
See Financial review on pages 40 to 46,
for more details.
Making the brand count
Scale is important and the establishment
of the intu brand further enhances our
competitive advantage. Our customers
are at the heart of everything we do
and providing them with compelling
experiences that surprise and delight drives
loyalty and in turn dwell time and spend.
This customer focus also ensures that
we establish enduring relationships with
our retailers.
Brand
When we rebranded in early 2013 we
orientated every aspect of our business
around the customer experience in our
centres. Since then we have brought more
services in-house to ensure we manage
every step of the customer experience.
A customer visit may start by looking on
intu.co.uk, followed by visiting the centre
which offers top-quality retail, with all
the major brands present in our centres,
dining and leisure options and national
promotional activities. All our staff are
trained to the same high standards in
customer service, with the commitment
of the intu brand ensuring equivalent
standards across all of our centres.
Over half of the UK’s population visit an
intu centre at some point through the year
on or offline.
We have seen an increase in brand
recognition which allows us to deliver
events and promotions on a national basis.
Events in 2014 included Elephant Parade,
Everyone’s Invited and Student Night.
Elephant Parade’s national tour visited
all intu centres and raised awareness for
The Asian Elephant Foundation as well
23
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Strategic review
continued
as entertaining shoppers. Everyone’s
Invited brought a festival of family
fun to the centres, increasing footfall
by 13 per cent year-on-year for that
weekend. Promotional partners and
commercialisation clients now recognise
our national proposition combined with
a multichannel approach and we are
seeing a growth in multicentre campaigns
including the use of our intu.co.uk website.
All staff continue to take part in our World
Class Service training which is the only
national shopping centre programme
accredited by the Institute of Customer
Service. To measure the impact of our
brand approach we launched Tell intu this
year which provides the Net Promoter
Score of centres monthly. The average
score has increased from 46 when we
launched it in March to 60 over the
Christmas period. Our research, which
confirms that happy customers stay longer
and spend more, has given considerable
impetus to delivering a number of
service improvements.
On the digital side, we have now
introduced free Wi-Fi into nearly all of our
centres, investing in our own infrastructure
rather than outsourcing. Over 1.5 million
people have registered with around 60
per cent opting in to receive marketing
information. Along with registrants on
the website, our marketing database
now has almost two million active users.
Owning the infrastructure allows us to
control this marketing and manage the
customer experience.
We enhanced intu.co.uk in September
2014. It is now fully mobile responsive
with improved content and an expanded
shopping proposition. Through our
affiliates programme most of our major
retailers are now on our transactional
website, including for example, John Lewis,
Next and Topshop, allowing us to offer
shoppers their centre online 24 hours a
day. The benefits of these changes can
be seen in the website traffic, with a year-
on-year increase of almost 40 per cent in
website visits in December 2014, to nearly
3 million.
Scale
As we discuss in the Market review, the
face of retail continues to change with
retailers needing to be in the best shopping
locations. Our scale positions us as a
key landlord to retailers with nine of the
top 20 shopping centres in the UK.
Over the past four years we have expanded
significantly with the portfolio now valued
at £9.0 billion, almost doubling over the
period through the addition of some of
the top centres in the UK as well as value
creation in our existing centres.
Our scale allows us to benefit from a
wealth of experience and knowledge and
apply best practice across all the centres.
With one website, intu.co.uk, we can
market all the centres more efficiently to
a national audience and attract customers
to stay for longer and visit more often.
All of our 18 UK centres exceed 10 million
visits each year and the busiest exceeds
40 million.
Over the last few years we have
demonstrated that we will not compromise
on quality for the sake of improvements in
Hayley
Since you guys
took over the glades
it’s been a huge
improvement, back
shopping locally again
16:09 – 30 January 2015
@intuBromley
Tell intu
Below: Working hard on our brand
experience is driving our commercial
success. How do we know? Because
in March 2014 we launched Tell intu,
the first real-time customer experience
tracker of its kind in the shopping centre
industry. From the 17,000 responses in
2014 we can prove that we have happier
customers, with a higher NPS, who stay
longer and spend more
24
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report the short-term occupancy level. This gives
retailers confidence in the long-term
attractiveness of the centres. We aim to
ensure that our mix of tenants is what
the customer wants and that the retailers
are appropriately located to maximise
their returns.
Development momentum
We have made significant progress
in the year with our pipeline of
development opportunities:
flexibility in 2014 by refinancing much
of the debt which was due to mature in
the next few years. At the end of 2014
we had cash and available facilities of
£0.7 billion
— the major developments are likely
to be spread over a number of years.
We intend to raise development finance
where appropriate and additional
finance from the value created by
completed developments to reinvest
in the next project
— completed the active management
— recycling capital from other assets to
projects at intu Lakeside (food court),
intu Eldon Square (mall upgrade) and
intu Metrocentre (Platinum Mall)
— on site at intu Victoria Centre (mall
refurbishment and creation of 12 new
restaurants) and intu Potteries (cinema
and catering extension), with both
projects due to be completed in the
second half of 2015
— about to commence work on catering
developments at intu Eldon Square,
intu Metrocentre and intu Bromley
— engaged the main contractor at Charter
Place, Watford and expect to be on site
later in 2015
— received town centre status and
planning approval for an extension
at intu Braehead
We can finance our £1.9 billion pipeline
through three main routes:
— available facilities within the business as
we have further improved our financial
reinvest into these growth opportunities
at the point where they will deliver
superior returns. This may include
introducing partners as we did at intu
Uxbridge in 2014
In the case of major extensions and
creation of significant new or reconfigured
space, we aim to have agreed terms with
a sufficient level of tenants including
strategic pre-lets before proceeding
with construction.
For expansionary projects which
create additional space for which direct
incremental rent can be identified, we
would expect most projects to generate
a stabilised initial yield on cost in the range
of 6 to 10 per cent and a minimum of
7 per cent for major projects. Where no
significant additional space is created,
we assess project return in the context
of an internal rate of return based on
the anticipated overall impact of the
expenditure on centre performance
through enhancing the ambience,
the tenant mix and the rental tone.
intu Uxbridge: a hit with Wagamama
Above: The Wagamama restaurant chain
chose intu Uxbridge to launch their new
concept design
Development pipeline
£1.9bn
£1.3bn in the UK and £0.6bn in Spain
Targeted stabilised initial yield
on cost for major projects
7%
Surprise and delight
Left: Our compelling experiences draw in
the crowds. This year’s Everyone’s Invited
weekend increased footfall by 13 per cent
– aided by the appearance of X Factor’s
Sam Callahan at intu Braehead
25
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Focus on new
developments
intu Victoria Centre
intu Victoria Centre
Refurbishment and restaurant development
£42 million development of a restaurant quarter and significant refurbishment of intu
Victoria Centre is underway. This project has already reignited interest from retailers,
with new lettings to Urban Outfitters, Superdry and River Island. Pre-lets on the
restaurant quarter are approaching 50 per cent, including Tortilla, Ed’s Easy Diner,
Coast to Coast and Handmade Burger Co.
intu Watford
intu Potteries
We have a development
pipeline of £1.9 billion –
£1.3 billion in the UK and
£0.6 billion in Spain – and we
expect to commence the major
extension at intu Watford
in 2015
p25
for more information
intu Metrocentre
intu Metrocentre
Restaurant development
£18 million extension to the ‘Qube’ dining
area adjacent to the Imax Odeon cinema,
creating 11 new restaurants. Pre-lets
at over 50 per cent including Five Guys,
Chiquito, T.G.I. Friday’s and Coast to Coast,
with another 25 per cent in solicitors’
hands. We have commenced work for
openings in early 2016.
intu Eldon Square
intu Eldon Square
Restaurant development
£25 million dedicated catering destination
‘Grey’s Quarter’, reconfiguring 80,000
sq. ft. of outdated retail space to over 20
restaurants. Over 50 per cent is exchanged
or in solicitors’ hands and we anticipate
work to commence on the project in the
first half of 2015.
26
intu Watford
Charter Place extension
£110 million, 380,000 sq. ft. extension
to create a new shopping, dining and
entertainment hub for Watford.
Cineworld have exchanged contracts to
be the anchor cinema operator and we
now have offers on over 50 per cent of the
units by rent. We have engaged the main
contractor and, subject to pre-letting, we
anticipate that works will be under way this
year with a target for completion in 2017.
We project stabilised initial yield on cost
of 7.1 per cent.
intu Potteries
Leisure extension
£19 million, 60,000 sq. ft. leisure extension
is under construction and due to open in
the second half of 2015. The leases for the
nine screen Cineworld cinema and six new
restaurants are all exchanged, bringing
Nando’s, Frankie & Benny’s, Pizza Express,
GBK, Coast to Coast and Chiquito to the
centre’s line up.
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Committed
intu Victoria Centre
intu Potteries
intu Watford
intu Eldon Square
intu Metrocentre
intu Bromley
Other committed projects6
Active management pipeline
intu Lakeside
intu Bromley
intu Trafford Centre
intu Merry Hill
Other active management projects6
Description
Refurbishment and restaurants4
Leisure extension5
Charter Place pre-development
Restaurant development
Restaurant development
Queens Gardens
Hotel
Boutique cinema and restaurants
Barton Square courtyard enclosure
Reconfigurations
UK planning
approved
New space
(sq. ft. 000)1
Indicative
timing2
Cost to
completion
£m3
–
60
–
2015
2015
2015
– 2015–2016
– 2015–2016
14
2015–2016
2015–2017
40
20
2015–2016
2016–2017
112
2016–2018
– 2015–2018
2015–2019
13
13
3
12
16
4
20
81
7
9
45
20
156
237
Major extensions
intu Watford
intu Broadmarsh
intu Lakeside
intu Lakeside
Cribbs Causeway
intu Braehead
intu Victoria Centre
Total UK
Spain developments7
Málaga
Valencia
Palma or Vigo
Total Spain
Total
Charter Place extension
380
2015–2017
106
Redevelopment
Leisure extension
Retail extension
Retail and leisure extension
Retail and leisure extension
Retail and leisure extension
Shopping resort
Shopping resort
Shopping resort
50
2016–2018
225
440
380
475
500
2016–2019
2017–2019
2019–2021
2020–2022
2020–2022
2015–2018
2019–2020
2021–2022
70
95
180
105
200
225
981
1,299
170
280
115
565
1,864
Timing subject to change due to a number of internal and external factors.
1 Represents net additional floor space of retail, catering and leisure.
2
3 Represents Intu’s share of costs.
4
Total project costs of £42 million of which £29 million has already been spent.
Málaga
5
6
Total project costs of £19 million of which £6 million has already been spent.
Smaller committed and pipeline projects do not necessarily involve the creation
of additional floor space.
7 Represents Intu’s share of costs assuming a joint venture partner introduced.
Málaga
Shopping resort development
€425 million, 175,000 sq. m.
shopping resort development
situated on the main Costa del
Sol highway. Engagement with
key retailers has indicated
a strong interest in the
development. We intend,
subject to shareholder
approval, to exercise the option
in March 2015. The expected
stabilised initial yield on
costs for the project is over
7 per cent.
27
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Top properties
Intu owns and manages nine
of the UK’s top 20 shopping
centres in locations right across
the country
4 intu Braehead
1 intu Trafford Centre
2 intu Lakeside
6 Cribbs Causeway
7 Manchester Arndale
3 intu Metrocentre
9 St David’s Cardiff
28
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Market
value
Size
(sq. ft. 000)
%
ownership
Number
of stores
Annual
Property
Income
Headline
rent
ITZA
ABC1
customers
Key stores
Super-regional centres
1 intu Trafford Centre
£2,200m 1,973
100%
233 £86.9m £415
2 intu Lakeside
£1,255m 1,435
100%
251 £59.7m £350
3 intu Metrocentre
£928m 2,085
90%
344 £46.8m £300
4 intu Braehead
£599m 1,136
100%
121 £25.5m £250*
65% Selfridges, John Lewis, Next, Superdry, Hollister, Apple,
Kurt Geiger, Ted Baker, Banana Republic, Nespresso,
Forever 21, Victoria’s Secret, Odeon Cinema, Legoland
Discovery Centre, H&M, Hamleys, Marks & Spencer
72% House of Fraser, Debenhams, Marks & Spencer,
Hugo Boss, Topshop, Zara, Primark, Forever 21,
Guess, Vue Cinema
55% House of Fraser, Marks & Spencer, Debenhams,
Apple, H&M, Topshop, Zara, Primark, River Island,
Odeon Cinema
62% Marks & Spencer, Primark, Apple, Next, H&M, Topshop,
Hollister, Superdry, Sainsbury’s
5 intu Merry Hill
£435m 1,671
50%
264 £23.1m
£150
43% Marks & Spencer, Debenhams, BHS, Primark,
Sainsbury’s, Next, ASDA, Boots, H&M
6 Cribbs Causeway
£243m 1,075
33%
153 £12.6m £305
76% John Lewis, Marks & Spencer, Apple, Next, Topshop,
Timberland, Jigsaw, Hobbs, Hugo Boss, H&M
In-town centres
7 Manchester Arndale
£430m 1,600
48%
249 £21.7m £250
8 intu Derby
£420m 1,300
100%
180 £28.4m £125
9 St David’s, Cardiff
£308m 1,391
50%
203 £16.2m £185
10 intu Eldon Square
£273m 1,350
60%
151 £14.0m £300
57% Harvey Nichols, Apple, Burberry, LK Bennett, Topshop,
Next, UGG, Hugo Boss, Superdry, Zara, Hollister, YO!
Sushi, Nando’s
53% Marks & Spencer, Debenhams, Sainsbury’s, Next, Boots,
Topshop, Cinema de Lux
66% John Lewis, Debenhams, Marks & Spencer, Apple,
Hollister, Hugo Boss, H&M, River Island, Hamleys,
Armani Exchange, Gap
60% John Lewis, Fenwick, Debenhams, Waitrose, Apple,
Hollister, Topshop, Boots, River Island, Next
11 intu Watford
£335m
726
93%
140 £17.3m £250
83% John Lewis, Marks & Spencer, Apple, Zara, Primark, Next,
Lakeland, Phase Eight, Lego, H&M, Topshop/Topman
12 intu Victoria Centre
£314m
981
100%
104 £16.9m £230
54% House of Fraser, John Lewis, Next, Topshop, River Island,
Boots, Urban Outfitters, Superdry, Office
Spanish centres
Market
value
Size
(sq. m. 000)
%
ownership
Number
of stores
Annual
Property
Income
Key stores
13 Puerto Venecia**
€451m
119
100%
202 €22.4m
El Corte Ingles, Primark, IKEA, Apple, Decathlon
14 Parque Principado
€106m
77
50%
161 €7.8m
Primark, Zara, H&M, MediaMart, Cinesa, Eroski
* The amount presented is on the Scottish ITZA basis, the English equivalent is £335.
** The Group completed the acquisition of Puerto Venecia on 19 January 2015.
10 intu Eldon Square
13 Puerto Venecia
29
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Key performance
indicators
We measure progress against
strategic objectives using the
following financial and non-
financial performance measures
Footfall
1
3
4
–1%
–2%
+0%
–1%
2012
2013
2014
Experian
Why is this important?
Footfall is an important measure of a centre’s popularity with
customers. Retailers use this measure as a key part of their
decision-making process on where to locate their stores.
How is this measured?
Footfall numbers across Intu’s centres, including those managed
by our partners, are captured using a combination of person or
car counting cameras located at specific entrance and exit points
within the centre.
How have we performed?
Footfall was unchanged in 2014, ahead of the 1 per cent reduction in
the national benchmark as measured by Experian.
Occupancy
1
Like-for-like net rental income
1
3
4
96%
95%
95%
94%
–2.7%
–1.9%
–3.2%
2012
2013
2014
IPD (retail)
Why is this important?
We aim to optimise the occupancy of our centres as attracting and
retaining the right mix of retailers and catering and leisure operators
will enhance our centres’ trading environment.
How is this measured?
The passing rent of let and under-offer units expressed as a
percentage of the passing rent of let and under-offer units plus
the ERV of un-let units.
How have we performed?
Occupancy remains at the same level as 2013 and remains above
the IPD benchmark figure.
2012
2013
2014
Why is this important?
Measures the organic growth in income generated from
the Group’s properties in the year.
How is this measured?
Removes from the year-on-year movement in net rental income
the impact of acquisitions, developments and disposals.
How have we performed?
The reduction in like-for-like net rental income reflects units held
to facilitate future development plans and the impact of tenant
administrations and lease expiries.
30
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Key to strategic objectives measured by key performance indicators
1
Optimise performance
of existing assets,
prioritising medium-term
total property return
2
Drive forward £1.3 billion
investment programme
in existing UK assets
3
Make the brand count
4
Seize the growth
opportunity in Spain
Shareholder return
1
2
3
4
Total financial return
+17%
+24%
+23%
FTSE
REIT
Index
–7%
2012
2013
2014
Why is this important?
Combines share price movement and dividends to produce
a direct measure of the movement in shareholder value in the year.
How is this measured?
Uses the movement in share price during the year plus
dividends paid in the year.
How have we performed?
The Group’s share price has performed strongly in the year
and compares favourably with the FTSE REIT index.
(Source: Bloomberg)
+4%
2012
+1%
2013
2014
Why is this important?
This is a measure of the movement in the underlying value of assets
and liabilities underpinning the value of a share plus the dividend
paid to shareholders.
How is this measured?
Uses the movement in adjusted net asset value per share
plus the impact of dividends paid in the year. The 2014 return is
assessed using the opening NAV of 346 pence per share as adjusted
for the bonus factor to reflect the rights issue. Using the pro forma
opening NAV of 335 pence, gives a return of 17 per cent.
How have we performed?
The strong total financial return performance reflects the 8.2 per
cent like-for-like property valuation gain, the Group’s earnings and
the impact of the Group’s capital structure.
Income performance
1
3
4
Prime property assets
14.7p
13.7p
13.3p
+8.2%
2012
2013
2014
Why is this important?
Underlying earnings per share is based on the underlying income
generated in the year which gives an indication of the Group’s ability
to pay dividends.
How is this measured?
Underlying earnings exclude property and derivative valuation
movements and exceptional income or charges. The 2012 and 2013
figures have been adjusted for the rights issue bonus factor.
How have we performed?
Underlying earnings per share fell during the year due to the
impact of the fall in like-for-like net rental income.
+1.8%
+0.6%
2012
2013
2014
Why is this important?
Measures the capital return on the Group’s property assets and
compares this with the IPD index, a recognised industry benchmark.
How is this measured?
Includes the capital growth on a like-for-like basis from
the Group’s properties.
How have we performed?
The Group recorded a significant valuation surplus in the year
which again outperformed the IPD monthly index, retail.
31
1
2
+14%
1
2
+7.3%
IPD
monthly
index
(retail)
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report People
Our people are energised and inspired by our vision
to deliver a compelling shopping experience
Our employees are fundamental
to the success of our business and
the delivery of our brand promise
to all our customers
Our values
Creative
We look at the familiar and we
see something different; we are
insightful and imaginative, but
not for their own sake, for we
never lose sight of what is
important and relevant
Bold
We act confidently and decisively,
always knowingly, perhaps at times
controversially, but never rashly
or without consideration
Genuine
We are true to ourselves, act fairly
and communicate clearly; we say
what we mean and we mean what
we say. We recognise our obligations
to our stakeholders and the wider
society, and commit to put our
utmost into everything we do
People who work at Intu are passionate
about what they do and proud of our
reputation as the market leader of the
UK shopping centre industry.
We expect the best from our employees,
and in return we are committed to offering
a stimulating and rewarding working
environment where they can achieve their
personal and professional goals as they
accomplish challenging business targets.
We appoint the best people, and develop
their talent, promoting internally and
rewarding commitment and innovation
whenever we see it.
And it works – 83 per cent of our staff
declared themselves proud to work for
intu, up 2 per cent on last year.
Our HR strategy is built around five key
themes to complement our corporate
strategy. We focus on three of these
in this year’s report.
Talent development
In 2014, we appointed a talent manager
to help us achieve our aim to provide the
same access to learning and development
opportunities for all intu employees
regardless of location role or level.
We also:
— implemented a structured leadership
programme to support succession
planning, identifying a group of senior
managers to work with internal and
external talent development specialists.
Two senior managers have now been
promoted to the Executive Committee
— created a comprehensive and consistent
induction programme for centre staff
— extended performance appraisal
systems to staff at all levels
Talent
development
Employee
engagement
Reward and
recognition
HR
Strategy
Performance
management
Employee
life-cycle
32
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Career development at Intu: Carly North
Left: Carly started her career with us
in 1999 as a customer care assistant
at intu Lakeside. She was promoted to
marketing coordinator and after a spell
at intu Bromley as assistant marketing
manager she returned to intu Lakeside
as customer services manager in 2011
Staff at intu Merry Hill
Employee survey 2014
Eighty four per cent of staff took
part in the annual employee survey
in November (2,032 out of 2,427
eligible employees).
Scores were up again in 42 of the
questions measured in previous
surveys, and in over half the questions
at least 70 per cent of respondents
agreed or strongly agreed with the
proposition. The overall engagement
score now stands at 747 (2013 – 732)
with favourable movement in all five
domains that make up the engagement
index: work environment, reward,
development, operating culture and
line of sight.
91%
Of all staff agree intu
puts customers at the
heart of everything we do
83%
Of our staff are
proud to work for intu
Employee engagement
Engaging with our staff, taking them
with us on intu’s journey to achieve its
ambitious targets, is crucial to our progress.
They need to understand our business and
know how they can contribute to feel part
of the team.
For the third year in a row our employee
survey records a rise in employee
engagement, from 701 in 2011 to 747
in 2014.
Next year we will:
— extend the leadership programme and
consolidate the succession plan to staff
at all levels
— develop assessment techniques to
better evaluate skills and resources
throughout the organisation
— encourage staff to gain cross-functional
experience through project- working
— build on the success of World Class
Service through a series of development
sessions focusing on delivering
a compelling experience
— introduce a national apprenticeship
scheme
— work towards achieving the Investors
in People standard at all our intu
branded centres
33
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report People
continued
Employee numbers
2,459
(2013: 2,027)
Leavers in their
first year
19%
(2013: 35%)
34
In 2014 we:
— kept our staff informed with regular
business briefings at national and local
level, and created a new employee
handbook for intu Retail Services staff
— carried out brand immersion events
for new staff
— developed an action plan based
on the 2013 employee survey
— introduced a new employee
volunteering programme
— relaunched the Employee Assistance
Programme (provided by the
Retail Trust)
— rolled out new policies for
whistleblowing and use of social media
Next year we will:
— improve internal communications
networks further
— deliver the action plans arising from
the 2014 employee survey
— develop our intranet making content
accessible to all staff, including
employees who do not have direct daily
access to the Intu network
— continue to encourage staff
to take part in Intu’s corporate
responsibility, community support
and sustainability programmes
— expand our induction programmes
to cover the full cycle of onboarding
— continue to review flexible
working options
— learn from the experience of
staff who leave us
Reward and recognition
Our competitive remuneration structure
helps to retain and motivate the best with
base salaries benchmarked against our
peers in the industry. Many employees
are eligible for an annual bonus based
on corporate measures that reflect
the executive remuneration policy and
are related to individual performance.
A proportion of the annual bonus is
awarded in deferred shares to encourage
focus on the Company’s growth.
Managers may also be rewarded with
longer-term share options and many staff
can join a Share Incentive Plan subject to
a qualification period.
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Service profile
Under 1 year
16%
2013: 15%
1-10 years
65%
2013: 64%
10-20 years
over 20 years
3%
2013: 4%
30-50
47%
2013: 48%
16%
2013: 17%
Age profile
Under 30
19%
2013: 18%
Over 50
34%
2013: 34%
Gender profile
Female
40%
2013: 37%
Gender profile
senior managers
Female
29%
2013: 27%
Male
60%
2013: 63%
Male
71%
2013: 73%
In 2014 we:
— made a voluntary defined contribution
pension plan available to all intu Retail
Services staff for the first time
— introduced intu’s first national
recognition and reward scheme called
‘Win Your Dream’, which allows staff
at all levels to nominate colleagues
for outstanding achievement linked
to our values
Next year we will:
— complete a comprehensive
remuneration review across all parts
of the business
— ask the Remuneration Committee to
review proposals and approve Senior
Manager and Executive Director salary
levels and bonus awards
— promote share ownership opportunities
to all staff to enhance engagement
Recruitment
In line with our policy of developing our
talent we have filled many of our new roles
from internal applicants. Five shopping
centres have new general managers,
four of whom are internal promotions
or transfers.
Most of our large scale recruitment is due
to expansion – as well as the transfer of
staff when we acquired intu Derby and intu
Merry Hill, we recruited 468 new people
into the Group during 2014.
Human rights
At Intu we respect the dignity, liberty
and equality of everyone we work
with. Our policies and procedures are
consistent with the United Nations’
universal declaration of human rights,
which sets “a common standard
of achievement for all peoples and
all nations”.
We are committed to implementing the
UN guiding principles on business and
human rights.
We only work with people who choose
to work freely and we respect their
rights to equal opportunities and
freedom of association. We work with
our suppliers, retailers and associated
companies to ensure they meet
acceptable standards of human dignity
in their own sourcing policies.
We will continue to evaluate the pay
and conditions of all our employees,
in particular new staff on or near to
minimum wage, to bring them into
line with the rest of our staff in terms
of wages and benefits and ensure fair
working conditions.
Fair treatment of people who work
for Intu or our suppliers is a key
focus of our corporate responsibility
approach. As appropriate our Board
CR Committee and CR Management
Committee consider the potential
human rights risks faced by Intu
and assess approaches to mitigate
those risks.
We appoint the
best people and develop
their talent, promoting
internally and rewarding
commitment and
innovation wherever
we see it
Career development at Intu: Gavin Prior
Left: When teenage night school student
Gavin Prior responded to a newspaper
advert for the role of Administration
Assistant at The Harlequin – now intu
Watford – in 1996 he probably didn’t
think that within 16 years he would be at
the helm of a super-regional destination.
From Services Manager to Operations
Manager at intu Metrocentre, he became
one of Intu’s youngest general managers
at intu Metrocentre in 2012. He has
recently been seconded to intu Merry
Hill, one of intu’s newest editions to
the portfolio
35
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report People
continued
Energised and inspired
Left: People who work at Intu are
passionate about what they do
and proud of our reputation as the
market leader of the UK shopping
centre industry
How are we structured?
Our teams are grouped into
six specialisms that underpin
our business model
p8
for more information about
the business model
nted employees
ale
T
B
a
l
a
n
c
e
d
a
p
p
r
o
a
c
h
t
O u r enablers R
o
b
u
s
t
c
a
p
i
t
a
l
s
t
r
u
c
t
u
r
e
Our
customers
s
u
Long-term foc
o
ris
k intu brand
Asset management
Drives the success of the centres by delivering
sustainable asset growth through innovation,
sound investment and commercial decision-
making, including proactive leasing of retail
units, dealing with rent reviews and lease
renewals, and managing smaller active
asset management projects.
Development and construction
Responsible for the planning, management
and delivery of new build, refurbishment and
extension projects across the portfolio from
inception through to completion.
Finance
Provides reports and analysis of the Group’s
financial performance, maintains a robust
financial control framework and provides
rigorous financial analysis and appraisals
of projects and strategic options to support
executive decision-making.
Operations and intu Retail Services
Each shopping centre is led by a dedicated
general manager working within regional
structures. intu Retail Services provides total
facilities management ensuring each centre
is properly maintained and that there is a
welcoming, clean, safe and secure environment
for retailers and customers.
Governance and support
Encompasses Legal, Secretariat, Human
resources, Corporate responsibility,
Communications and Public relations.
Commercial and digital
Adds value to assets through excellence and
innovation in the disciplines of marketing,
customer experience and digital technology to
build the brand and encourage customers to
come more often and stay longer. Includes intu
Experiences which delivers income through
advertising and brand partnerships. The digital
team is responsible for information and
communications technology operations and
project delivery across the spectrum of digital activity,
including our transactional website, intu.co.uk.
36
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Focus on: intu Retail Services
Motivating our people
to give their best
W e know from Tell intu that
when our customers have
a great experience at one of
our centres, they are more
likely to stay longer, spend more, come
back sooner and tell their friends.
The perfect intu customer experience
depends on our people and the positive
interactions they have with our customers.
So in 2013 we created intu Retail Services
to bring all frontline staff working in our
centres in-house. We wanted to ensure
every member of staff feels part of the
intu team and has a strong connection to
Intu as a wider Group. It also allows us to
train all our staff in our World Class Service
programme so that every member of the
intu Retail Services staff understands the
need to continually improve the experience
of customers and retailers and to provide
great standards and great service.
Our focus this year has been on
recruitment, induction and training to
ensure staff have the right skills. A great
by-product has been a more motivated
and committed workforce with a dramatic
reduction in staff who leave within their
first year of service, down from 35 per cent
to 19 per cent. Turnover is down by 18 per
cent overall and absence levels are down
by 15 per cent.
The success of our approach has been
independently recognised. At this year’s
industry awards we won the PFM Partners
in Retail Facilities award and intu is the only
shopping centre business to be accredited
by the Institute of Customer Service.
Tell intu continues to highlight how
much our customers value staff who are
knowledgeable and always looking to
provide the best experience.
37
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Key risks and uncertainties
Successful risk management
underpins Intu’s ability to
achieve its strategic objectives
s k u n derstood through
R i
i fi c a tion and analysis
e n t
i d
Intu’s
business
strategy
R
i
s
petite underpins b u s
e
i n
a
s
s
e
s
E
s
f
e
d
f
e
c
a
t
i
n
v
d
e
n
a
e
m
s
s
e
n
r
e
k a
p
d
e
v
i
e
d
a
w
s r
e
q
e
d,
uired
d
e
t
n
e
m
ple
e
t
i
t
e
p
p
o r is k is in line with risk a
s s strategy
n t r o l p rocedures im
o
C
s
Property market
Risk and impact
— Macro environment weakness
could undermine rental income
levels and property values,
reducing return on investment
and covenant headroom
Mitigation
— Focus on prime assets,
upgrading assets and aligning
the offering with demand,
for example by increasing
leisure offering
— Covenant headroom monitored
and stress-tested
— Active management of
tenant mix
— Regular monitoring of tenant
strength and diversity
— Lobbying on key policies,
for example business rates
1
2
4
2014 commentary
Likelihood and severity of potential
impact have reduced during 2014
versus 2013 due to a number of
factors including focus on tenant
mix and increased property values
— Strong valuation increases
for most centres resulting in
improved LTV headroom
— Tenant administrations reduced
compared to 2013
— Significant progress on planning
and pre-letting of pipeline, more
than half of which is leisure and
catering. Leisure and catering
space to increase by almost
50 per cent by 2018
— Digital investment to improve
relevance as shopping
habits change
p12
See Market review
for more information
Intu’s Board has responsibility for establishing the Group’s appetite
for risk based on the balance of potential risks and returns, and
has overall responsibility for managing risks. Risk management
is embedded in Intu’s culture so that all employees play a part.
This may be cleaners making sure that the centres are free of
hazards or the construction team ensuring the right contractors
are selected for developments.
Risks are considered in the day-to-day decisions made by the
business and this assessment of risk is underpinned by a formal
risk review process conducted by each centre, each department
and the Executive team. These reviews identify risks and assess
them for controllability and stability.
Risks are measured for impact and likelihood; gross risk being
the worst case scenario if there were no controls in place; net
risk being the risk as it stands today; and target risk being after
any further planned risk reducing measures are implemented.
An assessment is also made of how quickly the risks would
impact the business. Impact and likelihood change as businesses
and external factors evolve. Intu’s ongoing risk management
ensures that changes in impact and likelihood are identified
and managed appropriately.
38
Financing
Risk and impact
— Reduced availability of funds
could limit liquidity, leading
to restriction of investing
and operating activities and/
or increase in funding cost
Mitigation
— Funding strategy regularly
reported to Board with current
and projected funding position
— Effective treasury management
aimed at balancing long
debt maturity profile and
diversification of sources
of finance
— Consideration of financing plans
including potential for recycling
of capital before commitment to
transactions and developments
— Strong relationships with
lenders/shareholders
2
4
2014 commentary
Likelihood has reduced during 2014
versus 2013 due to the refinancing
activity in the year. Severity of
potential impact is unchanged
— Financing activity during 2014
raised gross debt of £1.1 billion
including Group’s share of
joint ventures
— Revolving credit facility
increased from £375 million to
£600 million during the year
— Refinancing of intu Derby
and intu Chapelfield during
2014 demonstrated flexibility
of Secured Group Structure
funding platform
p40
See Financial review
for more information
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Key to strategic objectives impacted by risk
1
Optimise performance
of existing assets,
prioritising medium-term
total property return
2
Drive forward £1.3 billion
investment programme
in existing UK assets
3
Make the brand count
Change in level of risk
Decreased
Increased
Remained the same
4
Seize the growth
opportunity in Spain
Operations
Risk and impact
— Accidents, system failure or
external factors could threaten
the safe and secure environment
provided for shoppers and
retailers, leading to financial and/
or reputational loss
Mitigation
— Strong business process and
procedures, supported by regular
training and exercises, designed
to adapt and respond to changes
in risk levels
— Annual audits of operational
standards carried out internally
and by external consultants
— Culture of visitor safety
— Crisis management and
business continuity plans in
place and tested, including cyber
security threats
— Retailer liaison and briefings
— Appropriate levels of insurance
— Staff succession planning and
development in place to ensure
continued delivery of World
Class Service
— Strong relationships and
frequent liaison with Police,
NaCTSO and other agencies
1
3
Strategy and execution
1
2
3
4
Risk and impact
— Misjudged or poorly
executed strategy fails to
create shareholder value
Mitigation
— Annual strategic review by Board
informed by external research
and advice
— Board and management team
experienced in shopping centre
and broader retail industry
— Engagement with national and
international retailers
— Specialist advice and
extensive research supporting
major initiatives
— Careful assessment of potential
partners to complement Intu’s
skills, experience and resources
— Rigorous control and review
procedures in place to ensure
successful implementation
of strategy
2014 commentary
Likelihood and severity of potential
impact have remained unchanged
versus 2013 with no significant
new strategies implemented in
the year
— New asset management
structure implemented
to enhance delivery of
strategic goals
— Extending reach through
introduction of new joint
venture partners
— Partnership agreements
designed to address both
partners’ interests and ensure
efficient asset management
p16
See Chief Executive’s review
for more information
2014 commentary
Overall likelihood and severity of
potential impact has increased
due to external factors. However
continuing improvement and
consistency of operational
procedures through intu Retail
Services mitigate changes in
external risk factors
— Operations of acquired
centres have been
successfully integrated
— Continuing group-wide cyber
security project with key focus
being proactive monitoring
of technical infrastructure to
mitigate cyber threats
— Work started towards achieving
ISO 9001, 14001, 18001 and
55001 accreditation
— intu Retail Services has
continued to deliver
improvements in systems and
processes, including investment
in in-house fire and health and
safety structure and a significant
increase in centre management
employees holding formal health
and safety qualifications
— Reduced exposure to future
energy costs and taxes through
award-winning energy reduction
initiatives – 30 per cent reduction
in carbon emissions since 2011
Development and acquisition
2
4
Brand
Risk and impact
— Misjudged or poorly executed
project results in increased cost
or income foregone, hence fails
to create shareholder value
Mitigation
— Capital Projects Committee
reviews detailed appraisals
before and monitors progress
during significant projects
— Research and third party
due diligence undertaken for
transactions including local
specialists in Spain
— Fixed price contracts
for developments
— Local partner in Spain with
market specialist knowledge
2014 commentary
Likelihood and severity of potential
impact have remained unchanged
in 2014 versus 2013
— Substantial property and
financial due diligence
undertaken before acquisitions
completed in the year
— Property management and
financial activities in respect
of centres acquired in the year
integrated with the Group’s
existing processes and policies
— Detailed appraisal work and
significant pre-lets continuing
ahead of starting major
development projects
Risk and impact
— The integrity of the
brand is damaged or the
commercial benefits of
the brand are not realised
Mitigation
— Intellectual property protection
— Strong guidelines for use
of brand
— Strong underlying
operational controls and crisis
management procedures
— Major training programme
and rewards and recognition
schemes designed to embed
brand values and culture
throughout the organisation
— Media monitoring
— Tell intu customer feedback
programme of customer
feedback collection and analysis
1
2
3
4
2014 commentary
Brand has continued to gain
momentum during the year
and higher profile results in greater
risks versus 2013 for both likelihood
and severity of potential impact
— World Class Service training
embedding brand and values
— External evidence of brand
value evidenced by disposal
of 80 per cent interest in
intu Uxbridge
39
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Financial review
Overview
Strong growth in property valuations
has resulted in a substantial increase
in the profit for the year. This valuation
increase has not yet been reflected in net
rental income as the Group holds units
to facilitate future development plans
and completes reletting units from 2013
administrations and lease expiries:
— underlying earnings of £162 million,
up 15 per cent on 2013 reflecting the
acquisitions in the year, with earnings
per share of 13.3 pence, down 3 per cent
on 2013, impacted by the reduction in
like-for-like net rental income
— NAV per share at 379 pence; total
financial return for the year of 14 per
cent based on the bonus factor adjusted
opening NAV per share of 346 pence
and 17 per cent based on the pro forma
opening NAV of 335 pence
Financing metrics improved due
to higher property valuations and
refinancing activity:
— debt to assets ratio at 44.2 per cent
(2013 – 48.5 per cent), below the
Group’s target maximum level of
50 per cent
— interest cover ratio at 1.82x (2013
– 1.71x), above the Group’s target
minimum level of 1.60x
— cash and available facilities increased
to £671 million (2013 – £325 million)
Major transactions:
— in May the Group completed
the acquisition of intu Merry Hill,
intu Derby and Sprucefield for
£855 million. Exceptional costs related
to the acquisition totalled £12 million.
The acquisition contributed £27 million
to the underlying earnings of the Group
— in June 2014 the Group sold 80 per
cent of its interest in intu Uxbridge for
consideration of £175 million, before
expenses. The Group retains a 20 per
cent interest which has been accounted
for as a joint venture from 20 June 2014
— in December the Group exchanged
contracts to acquire Puerto Venecia,
Zaragoza with the acquisition
completing in January 2015.
The 31 December 2014 balance
sheet includes the deposit paid of
€22.5 million within restricted cash.
The acquisition will be consolidated
from the date of completion.
See Strategic review for further details
intu Derby
40
Presentation of information
Joint ventures
The Group has adopted IFRS 11 Joint
Arrangements in 2014. This new
standard requires that all joint ventures,
which the Group previously chose
to account for on a proportional
consolidation basis, are equity accounted.
This means that the income statement
and the balance sheet now include
single lines with the Group’s total
share of post-tax profit and the net
investment in joint ventures respectively.
The Group’s profit for the year and total
equity are unaffected by these changes.
Further details of the impact of adopting
this accounting policy are given in
note 48.
The new standard has a greater impact
following the transactions in the year
which created joint ventures in respect
of intu Merry Hill, Parque Principado
and intu Uxbridge. Further details of
these transactions are given in notes
40 and 41.
Management both review and monitor
the business, including the Group’s
share of joint ventures, on an individual
line basis not on a post-tax profit or
net investment basis and therefore the
figures and commentary presented
are consistent with this management
approach. Note 48 and the Other
information section give reconciliations
between the two bases.
Rights issue
In April 2014 the Company issued
278.2 million shares by way of a rights
issue. Further details are included in note
37. Following a rights issue accounting
standards require an adjustment to be
made to the number of shares previously
used to calculate earnings per share and
in the Group’s case, to be consistent, an
adjustment is also made to the number
of shares used to calculate the dividend
and net asset value per share. A bonus
adjustment factor of 1.098 has been
used to adjust the comparative figures
in these results using the Company’s
closing ex-div share price on 28 March
2014 of 301 pence per share and the
theoretical ex-rights price of 274 pence
per share.
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Results for the year
Income statement
Profit for the year (£m)
Underlying earnings (£m)
Underlying EPS (pence)
Net rental income1 (£m)
1
Including Group share of joint ventures.
2 Adjusted for the rights issue bonus factor.
The Group recorded a profit for the year of
£600 million, a substantial increase on the
£364 million reported for the year ended
31 December 2013. This increase was
primarily due to:
— an increase in the revaluation gain on
property valuations to £648 million
including the Group’s share of joint
ventures (2013 – £126 million)
— lower exceptional finance costs of
£51 million (2013 – £158 million), largely
due to the lower level of interest rate
swap terminations in connection with
debt refinancing
The principal components of the change
in underlying earnings are as follows:
— net rental income increases due
to acquisitions totalled £43 million
reflecting the acquisitions of intu Merry
Hill and intu Derby in 2014 and a full
year contribution of intu Milton Keynes
and Parque Principado acquired part
way through 2013. This is offset by
a £5 million reduction due to the sale
of 80 per cent of intu Uxbridge
— like-for-like net rental income reduced
by £11 million, 3.2 per cent (see
Strategic review)
— underlying net finance costs increased
by £3 million with the cost of debt
drawn in the year to part-fund the
acquisitions of intu Merry Hill and intu
Derby partially offset by the favourable
impact of lower interest rates following
debt refinancings, in particular on
the intu Metrocentre facility that was
concluded at the end of 2013
— ongoing administration expenses
increased by £3 million, largely due to
costs related to management of recent
acquisitions, including new employees
and professional fees
— our partner’s share of the reduction
in finance costs following the intu
Metrocentre debt refinancing has been
the main factor reducing the non-
controlling interest credit by £3 million
compared to 2013
Year ended
31 December
2014
600
162
13.3
397
Year ended
31 December
2013
364
140
13.72
370
These positive factors were partially
offset by:
— negative movement of £431 million in
the change in fair value of the Group’s
financial instruments. 2014’s results
include a charge of £157 million
including the Group’s share of joint
ventures whereas 2013 benefited from
a £274 million credit
Underlying earnings increased by
£22 million to £162 million with underlying
earnings per share, which takes into
account the shares issued to part-fund
the acquisition of intu Merry Hill and
intu Derby, decreasing by 3 per cent to
13.3 pence. Underlying earnings exclude
valuation movements, exceptional
items and related tax and are presented
as they are considered to be a key
measure of the Group’s performance
and an indication of the extent to which
dividend payments are supported by
underlying earnings. The underlying profit
statement is presented in full in the Other
information section.
Underlying earnings bridge 2013–2014 (£m)
180
160
140
140
2013
+38
–11
–3
–3
+1
162
Net rental
income –
acquisitions/
disposals
Net rental
income –
like-for-like
Net finance
costs
Administration
costs
Other
2014
41
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Financial review
continued
Gross rental income
Head rent payable
Net service charge expense and void rates
Bad debt and lease incentive write-offs
Property operating expense
Net rental income
Net rental income margin
EPRA cost ratio (including direct vacancy costs)
Year ended
31 December
2014
£m
480
(23)
457
(21)
(7)
(32)
397
87%
19%
Year ended
31 December
2013
£m
448
(24)
424
(16)
(9)
(29)
370
87%
19%
which has been classified as an exceptional
finance cost as it relates to the termination
of swaps (£17 million) or payments in
respect of unallocated swaps (£27 million).
The balance of the payments has been
included as underlying finance costs as
they relate to ongoing interest rate swaps
used to hedge debt.
As previously detailed, the Group has a
number of interest rate swaps, entered into
some years ago, which are unallocated as,
due to a change in lenders’ practice, they
cannot be used for hedging the Group’s
borrowings. At 31 December 2014 these
swaps have a market value liability of
£242 million (2013 – £143 million). It is
estimated the Group will be required to
make cash payments on these swaps of
£25 million in 2015 in line with the level
of payments made in 2014. The balance
sheet shows £73 million of these as current
liabilities reflecting mutual options to break
during 2015. Since the year end we have
confirmed that no cash outflows will be
required in respect of these breaks.
Non-controlling interests at 31 December
2014 relate to our partner’s 40 per cent
stake in intu Metrocentre and increased
during the year due to its share of profit
and additional investment in capital
projects. The net reduction in the overall
non-controlling interest balance reflects
Parque Principado moving from being
a subsidiary with a non-controlling
based on the 31 December 2014 Equity
One share price. The India investment
largely comprises a 32 per cent interest
in Prozone, a shopping centre developer
listed on the Indian stock market, included
at £38 million on the Group’s balance sheet
at 31 December 2014. See notes 24 and 25
for further details.
Net external debt is discussed in the cash
flow and net external debt section.
Derivative financial instruments comprises
the fair value of the Group’s interest rate
swaps. The net liability at 31 December
2014 is £347 million, an increase of
£141 million in the year. This can be largely
attributed to a movement in the interest
rate yield curve. Cash payments in the
year totalled £70 million, £44 million of
31 December 2014
Group
balance sheet
as presented
£m
8,020
1,079
(3,958)
(347)
(197)
4,597
(73)
4,524
333
90
22
4,969
Share of
joint
ventures
£m
869
(851)
(5)
–
(13)
–
–
–
–
–
–
–
Group
including
share of joint
ventures
£m
8,889
228
(3,963)
(347)
(210)
4,597
(73)
4,524
333
90
22
4,969
31 December
2013
Group
including
share of joint
ventures
£m
7,551
191
(3,698)
(206)
(217)
3,621
(102)
3,519
198
83
4
3,804
Investment and development property
Investments
Net external debt
Derivative financial instruments
Other assets and liabilities
Net assets
Non-controlling interests
Attributable to shareholders
Fair value of derivatives (net of tax)
Other adjustments
Effect of dilution
Net assets (diluted, adjusted)
As detailed in the table above, the
Group’s net rental income margin
including share of joint ventures is in line
with 2013 at 87 per cent with higher
void costs offset by lower bad debts.
Property operating expense in the year
ended 31 December 2014 includes
£11 million (2013 – £10 million) in respect
of car park operating costs and the
Group’s contribution to shopping centre
marketing of £8 million (2013 – £8 million).
The Group’s ratio of total costs to income,
as calculated in accordance with EPRA
guidelines, remains low at 19 per cent.
Balance sheet
The Group’s net assets attributable to
shareholders have increased by £1.0 billion
to £4.5 billion at the end of 2014 due
to equity raised in the year to fund the
acquisition of the intu Merry Hill and
intu Derby shopping centres and the
retained profit for the year including the
£648 million gain on the revaluation
of the Group’s properties.
As detailed in the table, net assets (diluted,
adjusted) have increased by £1,165 million
from 31 December 2013 to £4,969 million
as at 31 December 2014.
Investment and development property
has increased by £1,338 million primarily
due to the acquisition of intu Merry
Hill, intu Derby and Sprucefield, valued
at £866 million on acquisition, and the
£648 million valuation gain in the year.
Investments of £228 million as at
31 December 2014 principally comprise
the Group’s interests in the US and India.
The US investment of 11.4 million shares
in a joint venture with Equity One, a
listed US REIT, is valued at £185 million
42
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report interest to a joint venture. See note 41 for
further details.
The Group is exposed to foreign exchange
movements on its overseas investments
in Spain, the US and India. The Group’s
policy is to ensure that the net exposure to
foreign currency is less than 10 per cent of
the Group’s equity attributable to owners
of the Company. At 31 December 2014
the exposure was 6 per cent, lower than
at 31 December 2013, because during
the year the Group’s Parque Principado
joint venture borrowed Euro denominated
debt secured on the centre. The Group’s
acquisition of Puerto Venecia in January
will increase the Group’s exposure to
around 8 per cent after the mitigating
impact of Euro denominated debt drawn
to fund the acquisition.
Adjusted net assets per share
As illustrated in the chart below, diluted,
adjusted net assets per share after the
bonus factor adjustment were 346 pence
at 31 December 2013. Taking into account
the full impact of the rights issue, the pro
forma opening position for 2014 was 335
pence per share. The increase from the pro
forma figure to the 31 December 2014
value of 379 pence per share was driven
by the property valuation gain of 50 pence
per share.
Adjusted net assets per share bridge (2013-2014)
346
–11
335
+13
+50
400
300
200
100
–5
–14
379
The Group’s
ratio of total costs
to income
remains low at
19 per cent
31 Dec
2013
e
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s
s
i
s
t
h
g
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31 Dec
2014
43
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Hill, the intention is that the Group and
our partner QIC will jointly refinance
at the asset level when the QIC CMBS
matures in 2016
— in June the debt secured on intu
Uxbridge of £146 million was repaid
as part of the disposal process
— in August the facility in our St David’s,
Cardiff, joint venture was repaid and
a new term loan of £120 million plus
a revolving credit facility of £41 million
was put in place, secured against the
Group’s interest in the joint venture
— in October the Group’s revolving credit
facility was extended from £375 million
to £600 million bringing in a further
two banks and extending the maturity
to 2019 with the ability to extend this
by a further two years. The margin has
reduced by between 25 and 50 basis
points. The combination of this and a
lower commitment fee means that we
expect to pay a lower all-in cost based
on planned utilisation levels despite
the larger facility size
— in November the debt on intu Derby
and intu Chapelfield was refinanced
and these assets were added into the
Group’s Secured Group Structure which
issued £350 million 4.25 per cent bonds
with maturity in 2030
Financial review
continued
Cash flow and net external debt
Group cash flow as reported
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Net increase/(decrease) in Group cash and cash equivalents
Net external debt (including Group’s share of joint ventures)
Cash (including Group’s share of joint ventures)
Debt (including Group’s share of joint ventures)
Short-term investments
Net external debt (including Group’s share of joint ventures)
Change in net external debt
2014
£m
56
(719)
724
61
2013
£m
(35)
(417)
423
(29)
260
(4,223)
–
(3,963)
(265)
166
(3,933)
69
(3,698)
(194)
During 2014 the Group has recorded an
increase in cash of £61 million. Cash flow
from operating activities of £56 million
is £91 million better than 2013, primarily
due to the lower level of exceptional swap
termination costs compared to 2013.
Cash flow from investing activities reflects
the cash outflows for the acquisition of
intu Merry Hill, intu Derby and Sprucefield
of £855 million, net of £175 million cash
received on disposal of 80 per cent of
intu Uxbridge.
Cash flow from financing activities
includes an inflow of £492 million from
the rights issue undertaken to part-fund
the acquisitions in May and an inflow from
net borrowings drawn of £314 million.
This includes £424 million of facilities to
part-fund the acquisitions in the year and
the repayment of £146 million as part of
the disposal of 80 per cent of the Group’s
interest in intu Uxbridge. Dividends paid in
cash during the year were £90 million.
Net external debt (including Group’s
share of joint ventures) has increased by
£265 million. Cash including the Group’s
share of joint ventures has increased by
£94 million, which includes the Group’s
share of the proceeds from raising new
finance on Parque Principado in August.
Debt has increased by £290 million
reflecting the key transactions above.
44
Financing
Debt structure
A large proportion of the Group’s debt has
been refinanced in the last two years, as a
result of which the Group has significantly
diversified its sources of funding. The range
of debt instruments now includes CMBS
and other secured bonds plus syndicated
bank debt secured on individual or pools
of assets, with limited or non-recourse
from the borrowing entities to other Group
companies outside of these arrangements.
Corporate-level debt remains limited
to the revolving credit facility and the
£300 million convertible bond.
During the year there was a significant
amount of financing activity, including:
— in February the Group raised
£110 million through the issuance of
further notes under the intu Trafford
Centre CMBS. The bonds had an
average maturity of nine years and
an all-in cost of 4.6 per cent
— in April the Group’s partnership with
CPPIB signed a €95 million, five-year term
loan secured on Parque Principado, Spain
— in May debt was raised to part-fund
the acquisition of intu Merry Hill, intu
Derby and Sprucefield. This involved
three new two and a half year debt
facilities secured on the intu Derby
and Sprucefield properties and
the equity interest in intu Merry
Hill (£203 million, £30 million and
£191 million respectively). The debt
secured on intu Derby was refinanced
later in 2014 (see below). At intu Merry
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Debt maturity profile (£m)
1,500
1,250
1,000
750
500
250
1,288
725
499
675
374
313
157
18
2015
2016
2017*
2018
2019
2020-
2024
2025-
2029
2030-
2034
166
2035+
* 2017 includes £191 million relating to intu Merry Hill, which has an initial maturity of 20 September 2016 extendable
at the Borrower’s option to 20 September 2017. It is anticipated that this option will be exercised at the earliest possible
opportunity.
Following the refinancing activity in the
year the above chart illustrates that there is
a minimal refinancing requirement in 2015
and no major refinancing due in 2016.
The table below summarises the Group’s
main debt measures, all including the
Group’s share of joint ventures.
The debt to assets has reduced
significantly from 2013 largely due to
the property valuation gain in the year
and remains below the Group’s target
maximum level of 50 per cent.
Interest cover of 1.82x has increased
partly due to the favourable impact of
lower interest rates following recent debt
refinancing and remains above the Group’s
targeted minimum level of 1.60x.
The weighted average maturity has
increased to 8.4 years with the benefit
from the £350 million bonds issued in
November, which mature in 2030, being
partly offset by the shorter term debt
related to the acquisition of intu Merry Hill.
The weighted average cost of gross debt
has reduced to 4.7 per cent reflecting the
lower rates achieved on refinancing activity
in the year.
The Group uses interest rate swaps to fix
interest obligations, reducing cash flow
volatility caused by changes in interest
rates. The proportion of debt with interest
rate protection has reduced slightly in
the year to 88 per cent within the Group’s
policy range of between 75 per cent and
100 per cent. The reduction is due to the
impact of the floating rate debt secured
against intu Merry Hill and Sprucefield
which has not been hedged as it is short-
term, partly offset by a lower level of
borrowing against the Group’s revolving
credit facility.
Cash and available facilities have increased
to £671 million at 31 December 2014.
This comprises cash of £260 million
in addition to undrawn facilities of
£411 million. The increase on 2013
primarily reflects the increase in the
Group’s revolving credit facility from
£375 million to £600 million.
Covenants
Full details of the loan financial covenants
are included in the Financial covenants
section of this report. The Group is in
compliance with all of its covenants.
Headroom over the minimum levels of
LTV covenants has generally increased
in the year reflecting the strong
valuation increases.
Capital commitments
The Group has an aggregate cash
commitment to capital projects of
£81 million at 31 December 2014
(including the Group’s share of
joint ventures).
In addition to the committed expenditure,
the Group has an identified uncommitted
pipeline of active management projects
and major extensions that may become
committed over the next five years
(see Strategic review).
Debt to assets
Interest cover
Weighted average debt maturity
Weighted average cost of gross debt
Proportion of gross debt with interest rate protection
Cash and available facilities
31 December
2014
44.2%
1.82x
8.4 years
4.7%
88%
£671m
31 December
2013
48.5%
1.71x
8.0 years
4.8%
92%
£325m
45
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Financial review
continued
The Group pays tax directly on overseas
earnings, any UK non-property income
under the REIT rules, business rates, and
transaction taxes such as stamp duty
land tax. In the year ended 31 December
2014 the total of such payments to tax
authorities was £26 million, of which
£25 million was in the UK, £0.5 million
in the US and £0.5 million in Spain.
In addition, the Group also collects VAT,
employment taxes and withholding tax
on dividends for HMRC and the Spanish
tax authorities. Business rates, principally
paid by tenants, in respect of the Group’s
UK properties amounted to around
£297 million in 2014.
Dividends
The Directors are recommending a final
dividend of 9.1 pence per share bringing
the amount paid and payable in respect of
2014 to 13.7 pence, unchanged from 2013
as adjusted to reflect the 2014 rights issue
(see note 17). A scrip dividend alternative
will continue to be offered. Details of the
apportionment between the PID and non-
PID elements per share will be confirmed
in due course.
Matthew Roberts
Chief Financial Officer
27 February 2015
Refinancing
activity has
reduced the average
cost of debt
to 4.7 per cent
intu Uxbridge
Other information
Tax policy position
As a Real Estate Investment Trust (REIT),
tax on property operating profits is paid at
shareholder level to the UK government
rather than by Intu itself. REIT status brings
with it the requirement to operate within
the rules of the REIT regime (for further
information see Glossary).
As a good corporate citizen we believe that
paying and collecting taxes is an important
part of our role as a business and our wider
contribution to society.
Intu does not employ tax avoidance
strategies, or undertake transactions
whose sole purpose is to abuse the tax
system. We are committed to acting
with integrity and transparency in all
tax matters and have an open, up front
and no surprises policy in dealing with
HMRC. The Group seeks pre-clearance
from HMRC in complex areas and actively
engages in discussions on potential or
proposed changes in the taxation system
that might affect property tax and
REIT legislation.
intu Chapelfield
46
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Focus on: intu Lakeside’s new food court
A highly contemporary
dining destination
Our brand means we look at
With a £9 million investment we have
transformed the food court, recreating
the space from floor to ceiling: converting
underused areas into stylish lounges and
other spaces for a new type of retailer and
a new type of customer.
The result is a more clearly defined
and repositioned catering offer,
which has elevated the overall food
service proposition and provided new
income streams.
development differently.
When we invest in our centres
our perspective is all about
our customers – how we can create a
compelling shopping experience that
delivers on our brand promise and will
encourage customers to stay longer and
visit more frequently.
For the 2013-14 redevelopment of the
food court at intu Lakeside our vision was
to create a setting that would bring in
aspirational food operators and make the
centre a more attractive leisure destination
for a wider range and reach of customer.
It has been a great success, winning the
British Council of Shopping Centres Gold
Award for Catering and Leisure Destination
of 2014, and seeing new contemporary
retailers lining up to take space, including
Five Guys, Tortilla, Patisserie Valerie,
Nando’s, Wasabi, Harper’s, Thai Express,
Rhythm Kitchen, Olive Oil & Oregano and
Gino’s My Pasta Bar.
It has contributed substantially to
the overall customer experience and
‘personality’ of intu Lakeside, offering a
dynamic dining experience that changes
through the day and into the evening.
Footfall, dwell time and spend have all
increased and the development is forecast
to generate a stabilised net rental uplift
of approximately £1 million per annum.
47
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Corporate responsibility
We take our responsibilities seriously across all areas of our business and
we are committed to being a responsible and sustainable Group
Better together
Why CR matters
Corporate responsibility matters. We want
intu to be a long-term and sustainable
business – and we can only ensure that if
we care for the communities where our
shopping centres are located and look
after the environment that we all share.
Our corporate responsibility approach,
set out on page 10, is fundamental to
the way we run our business, securing
our licence to operate, helping to
manage risk, contributing to cost
management, protecting stakeholder
value and safeguarding and enhancing
our reputation.
But corporate responsibility is more than
a business driver. It is the right thing to do.
Intu owns some of the biggest and
best shopping centres in the country.
So it is right that we make sure our
impact as a business is as beneficial
to local communities and the national
economy as possible. It is right that we give
opportunities to the young people who live
near our centres. It is right to do as much
as we can to negate the environmental
effects of our business. And it is right
that we listen when our stakeholders –
employees, retailers, community partners
and local authorities – tell us what
they need. It is right – and it is good for
our business.
CR governance
The Intu Board takes responsibility for
determining policy and strategic direction
on CR topics. The strategic direction of
our CR programme is led by the CR Board
Committee while the CR Management
Committee takes responsibility for
progress against our operational objectives.
Both committees met three times in 2014.
External recognition
We measure our sustainability
performance against our peers
through indices such as the Dow Jones
Sustainability Indices and CDP. This ensures
that we remain focused on best practice
and allows us to identify areas of strength
and weakness. We monitor the actions of
our UK REIT competitors and work with
them on important industry issues through
membership of organisations such as the
British Council of Shopping Centres (BCSC)
and the Better Buildings Partnership.
Understanding our stakeholders’ views
We believe it is important to engage
with our stakeholders around our CR
reporting. In the autumn of 2014 we
conducted our second stakeholder review
to better understand the corporate
responsibility issues that internal and
external stakeholders believe are key to our
business. Further details can be found in
the 2014 Corporate Responsibility Report.
Improvements and targets
We work with our stakeholders to improve
all areas of our CR performance and set
relevant goals and targets that let us
critically monitor progress. For example,
our centres continue to roll out leading
technology and energy management
plans to optimise efficient energy use and
explore new ways to bear down on our
energy demands, costs and our corporate
carbon footprint.
We see
corporate
responsibility
not just as a
business driver
but as the right
thing to do
Working together to create public art
Above: intu worked with Create:Arts to
bring mainstream students, disabled
students and young carers together to
break down barriers through creative
arts. intu volunteers were also involved
Creating green spaces
Far right: intu supports The Conservation
Volunteers (TCV) in the development of
four Green Gyms® close to our centres.
Green Gyms create a community green
space and provide volunteers with
the opportunity to develop skills and
improve fitness
48
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Communities and
economic contribution
Why it matters
Our shopping centres are integral to the
communities they serve, providing places
for people to come together to meet, eat,
drink and socialise as well as shop.
We rely on these communities as
customers and as employees as well as
for their acceptance of our business. So, as
investors, it’s important that we show our
support for local communities and develop
partnerships that give us opportunities
to make a real impact in the local area.
As a major local player in every community
we operate in we can make a substantial
difference to people living nearby – and
we believe it is our responsibility to do so.
That’s why one of our main focuses is on
training and supporting young people and
helping them into work.
Our focus on local issues means the
community activities our centres
undertake can make a real difference to
local people; our scale means we make
a significant economic contribution to
communities across the country.
What we’re doing
In our joint community projects we work with
local partners to help disadvantaged young
people into work. During 2014, we worked
with nine community partners delivering
21 projects at our centres. These projects
have directly reached over 1,200 people.
In 2014 we launched our volunteering
policy which means all of our employees
can take 15 hours out of working
time to volunteer in the community.
While we’ve had a long-running tradition
of volunteering on the community
projects close to our centres we hope
this new policy will boost our employees’
involvement in their communities and
help them to develop both personally
and professionally.
Once again in 2014 we were accredited
with the BitC CommunityMark, one
of only 52 UK companies to receive
the award. The CommunityMark is
a national standard that publicly
recognises leadership and
excellence in the community.
What we plan to do
— increase employee volunteering
across intu
— further our use of the London
Benchmarking Group framework
and introduce this approach to our
community partners
— expand our education programmes
for young people
Each year since 2011 we’ve commissioned
Nathaniel Lichfield & Partners to analyse
the economic contribution of our shopping
centres. We believe that recognising these
impacts and outputs will enable us to
better understand, and respond to, our
community footprint. Doing this will help
to underpin our planning applications
and give us the evidence we need to
demonstrate to investors the strength
of our position. According to the report
in 2014, Intu and its retailers nationally
directly employed almost 89,000 people
and indirectly supported over 25,000 jobs.
£1.3m
Our community activities during 2014
were supported by total donations of
£1.3m cash equivalent, including
facilitated donations
49
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Corporate responsibility
continued
Environmental
efficiency
Why it matters
As long-term investors in our shopping
centres it is important we demonstrate
a sustainable approach to managing
our operations. Given the scale and
nature of our business we recognise our
responsibility to manage and minimise
our environmental impact.
55
50
45
40
35
30
25
Saving energy and water and managing
waste effectively minimises our impact
on the environment, reduces costs and
mitigates against environmental risks –
all of which makes us a more attractive
landlord for our retailers. We are also
committed to creating a sustainable built
environment and consider environmental
issues as part of all of our development
work. We share our good practice and
learning with our retailers, suppliers
and visitors to our centres.
What we’re doing
Our environmental initiatives typically
focus on the areas of our shopping centres
where we are most able to implement
changes – mainly in the common parts that
we manage, including car parks. In 2011 we
set ourselves challenging targets to reduce
our carbon emissions (CO2) by 30 per
cent, to divert 95 per cent of waste from
landfill, to recycle 75 per cent of waste
and to reduce our water consumption by
10 per cent all by the end of 2014. By the
end of 2014, we had reduced our carbon
emissions by 30 per cent compared with
2011 (like-for-like portfolio adjusted for
occupancy), diverted over 97 per cent of
waste away from landfill, recycled 69 per
cent of waste and had reduced water use
by two per cent compared with 2011.
Further details of our progress against
our targets can be found in the separate
2014 Corporate Responsibility Report.
Absolute energy use and carbon emissions
(CO2) at directly managed centres
140
120
100
80
60
40
20
000
MWh
2012
2013
2014
000
tonnes
l Electricity (thousand MWh)
l Gas (thousand MWh)
l District heating (thousand MWh)
CO2 emissions (thousand tonnes)
Water use at directly managed centres
350,000
340,000
330,000
320,000
310,000
m3
2012
2013
2014
l Water used (m3)
Waste used (m3/million visits)
1,380
1,360
1,340
1,320
1,300
m3/m
visits
Waste disposal at directly managed centres
100
80
60
40
20
%
25,000
20,000
15,000
10,000
5,000
tonnes
2012
2013
2014
l Waste recycled (tonnes)
l Waste to landfill (tonnes)
l Waste to energy (tonnes)
Waste diverted from landfill (%)
50
Our efforts have been publicly recognised –
as well as the 2014 Carbon Trust Standard
award for carbon reduction (see opposite)
we have held the Carbon Trust Standard
certification since 2011. We have also
received a gold ranking in the Mayor of
London’s Business Energy Challenge for
our two centres in Greater London and
our head office.
Sustainable transport remains a key
concern for our business given the reliance
of customers and centre employees on
public transport and private vehicles to
reach our centres. We have appointed
transport champions with responsibility
for creating and updating sustainable
travel plans which we make available
to all interested stakeholders.
What we plan to do
— reduce carbon emissions intensity
by 50 per cent between 2010 and 2020
— reduce water consumption intensity
by 10 per cent between 2010 and 2020
— divert 99 per cent of waste away from
landfill by 2020
— continue to update travel plans
for all centres
Greenhouse Gas emissions from intu’s
directly-managed shopping centres
Absolute
CO2e
emissions
(tonnes)
4,808
33,115
5,571
32,814
Tonnes
CO2e per
£m net
rental
income
15
106
17
102
Emission type
2014 Scope 1
Scope 2
2013 Scope 1
Scope 2
Greenhouse Gas (GHG) emissions reported are for our head
office and for those shopping centres and leisure facilities
under direct management by intu as these are the operations
where intu has the opportunity to directly influence
emissions levels. As such data from the following centres is
excluded: The Mall at Cribbs Causeway, Manchester Arndale,
St. David’s, Cardiff and Parque Principado. Emissions have
been normalised by net rental income generated by those
shopping centres under direct management control.
Centres acquired in 2014 have not been included.
GHG emissions are calculated based on Defra’s CO2e factors
for 2013 and 2014. Due to a change in factor 2013 data has
been restated. For further details see the 2014 CR Report.
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report
Focus on: a great record of carbon reduction
Outstanding performance
in energy efficiency
We haven’t made a big thing
about our work on carbon
reduction because it’s just
the way we do business – but
in 2014 our outstanding and sustained
performance in energy efficiency was
recognised by the Carbon Trust, which
awarded us the ‘Best in continuing
carbon reduction’ award at the Standard
Bearers Awards. The award recognises the
challenging 30 per cent reduction target
we set ourselves and the work we have
done to achieve this since 2011.
As part of our ambitious carbon reduction
programme we installed 60,000 energy
efficient LED light bulbs across our centres,
resulting in £2 million in electricity savings
each year as well as significantly reduced
lamp replacement costs. This minimises
our environmental impact and helps
mitigate the risk of increasing energy costs
for ourselves and our retailers.
We appointed an energy champion in
every centre to focus on innovative and
deliverable ways to reduce energy use at
their centre and share best practice with
other centre champions. Our scale and
single management means champions
can ensure the best energy-saving ideas
are replicated across intu centres.
These ideas include savings that can be
made without capital outlay, such as
carefully scheduling lighting for night-time
cleaning and managing the lighting of car
park areas more efficiently.
As a result of these changes and more, Intu
has reduced its carbon emissions (CO2)
by 30 per cent since 2011 on a like-for-like
basis – equivalent to taking 7,000 cars off
the road for a year.
51
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Corporate responsibility
continued
Relationships
In order to provide a business
that offers a great shopping
experience we need loyal
customers, committed retailers,
informed investors, passionate
employees and well-supported
communities. A key part of our
corporate responsibility is
managing and developing
relationships with key
stakeholders and engaging
on relevant issues
How we engaged in 2014
— Carried out over 26,000 customer surveys
— Received over 17,000 responses to Tell intu
Outcomes
— intu is well informed of customers’ needs
and wants
— We are able to evaluate our customer
strategy against customer opinion
Customers
To maintain our competitive
edge we must understand what
our customers are looking for
in a perfect shopping experience
from retailer mix to customer
service expectations.
Retailers
Maintaining strong relationships
and open dialogue with
our retailers and other occupiers
is a prime focus of our business.
We work to connect with them
to ensure that we are providing
the high-quality service
they need.
How we engaged in 2014
— Intu senior management met with key
directors of many top retailers in 2014
— Merchants’ association meetings
— Feedback from shopper engagement
provided to all retailers
Outcomes
— Corporately as well as at centre level we
are well informed of retailer wants and
needs and so are able to consider this
in any planning
— Retailers are kept well informed of the
opinions of shoppers in each of our centres
How we engaged in 2014
— Active engagement with all investor
enquiries including a number of enquiries
from ethical funds
— Active participation in responsible investor
indices and tools such as CDP climate
change survey
Outcomes
— Inclusion in FTSE4Good and the Dow Jones
Sustainability Global Index
— Awarded Green Star by GRESB
— Increased our Carbon Disclosure Project
(CDP) disclosure score for the fifth
year running
— For an outline of our approach to managing
relations with shareholders, see page 62
Investors
Constructive engagement
with our shareholders and potential
investors, bankers and other
organisations on socially responsible
investment matters helps to raise
awareness of how we’re managing
material environmental
and social risks.
52
Intu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Communities
It is imperative that we maintain good
links with our communities and that
we undertake significant community
consultations as part of our process
for any planned developments.
How we engaged in 2014
— We conduct government engagement through
industry-wide organisations
— General managers and others within
the business maintain and develop links
with local stakeholders
— Proactive engagement with constituency MPs
— Submissions to Parliamentary
Select Committees
Outcomes
— A Group-wide database supports a
co-ordinated programme of engagement
on issues of relevance to our business
such as business rates and national/regional
planning policy issues
— We publish details of our policy positions
on our website
— Our views are taken into account when
national policy is made
Our people
Our employees are fundamental
to the success of our business and
to the delivery of a high-quality service.
We believe that employee
engagement is key to maintaining
a motivated workforce.
How we engaged in 2014
— During 2014 we conducted formal
community consultations regarding planned
developments at one of our centres
— For further details of our approach to
communities see page 49 and the separate
2014 Corporate Responsibility Report
Outcomes
— We are able to include community
feedback in our planning process
— We are one of only 52 UK companies
to hold the BitC CommunityMark
How we engaged in 2014
— Comprehensive induction programme for
new employees including specific CR module
— Feedback from 2013 employee
survey provided and 2014 employee
survey conducted
— Presentations of annual and interim results
— Annual CR presentation
— Employee recognition fund 92 per cent utilised
Outcomes
— Increased understanding of employee views
on workplace and Group issues
— Employees are kept informed of all key
business developments
— For further details of our approach to our
people see pages 32 to 37
How we engaged in 2014
— Included our metering providers and LED
suppliers in our energy forum
— Included contractor employees based
on our sites in our induction process
— Contractors working on our development
pipeline attend brand immersion events,
including the World Class Service module
Outcomes
— Able to work collaboratively with suppliers to
promote best practice in environmental areas
— Key suppliers have strong understanding
of our business and our values
53
Local and
national
government
It is important that we engage
with national government around
policies that impact on our business
and local authorities over planning
and other local issues.
Suppliers
We recognise the wide range
of potential impacts arising from
our supply chain and therefore
the need to engage with our suppliers
across a range of issues.
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukStrategic report Career: John Whittaker is the Chairman of
the Peel Group which he founded in 1971 and
developed into a leading UK infrastructure,
transport and real estate enterprise.
Skills and experience: John is a highly
regarded real estate investor, and has
overseen the growth of the Peel Group
across many sectors such as land, real estate,
ports, airports, renewable energy and media.
John is an experienced property developer
and business leader illustrated by projects
such as The Trafford Centre and MediacityUK.
His appointment to the Board followed the
acquisition by Intu of The Trafford Centre
from the Peel Group.
Other appointments: Chairman of the
Peel Group.
Matthew Roberts
Chief Financial Officer
Age 51
Appointed to the Board
Appointed as Finance
Director on 3 June 2010
Career: Matthew Roberts was previously the
Finance Director of Debenhams plc from 1996
to 2003, and Chief Financial Officer of Gala,
subsequently Gala Coral Group Ltd, from 2004
to 2008.
Skills and experience: Matthew Roberts (FCA)
joined Intu as Finance Director in May 2010
and was part of the team which acquired The
Trafford Centre, Manchester, in the UK’s largest
ever single property transaction. In Spring
2013 he led the establishment of Intu’s
Secured Group Structure with initial issue of
£1.15 billion of bond and bank debt. Since then
he has led a series of further transactions
which have raised over £2 billion of leverage.
Board of Directors
Chairman, Deputy Chairman and Executive Directors
Patrick Burgess MBE
Chairman
Age 70
Appointed to the Board
Appointed as a
Non-Executive Director of the
Group in 2001 and Chairman
on 1 August 2008
Career: Patrick Burgess qualified as a
solicitor in 1972 and became a partner in
Gouldens in 1974, serving as head of the
Corporate Department for 14 years and as
Senior Partner for six, culminating with the
merger of Gouldens with Jones Day in 2003,
from which he retired in 2007. He has also
been active in a number of charitable and
community organisations.
John Whittaker
Deputy Chairman
Age 72
Appointed to the Board
Appointed as Deputy
Chairman and a Non-
Executive Director on
28 January 2011
Skills and experience: At Jones Day, Patrick
specialised in mergers and acquisitions and
corporate re-structuring. He has considerable
experience in compliance, regulatory and stock
exchange matters.
Other appointments: Non-Executive Director
of Standard Bank PLC.
Chairman of the Capital Projects Committee
Chairman of the Nomination and
Review Committee
Chairman of the Corporate
Responsibility Committee
Career: David Fischel qualified as a chartered
accountant in 1983 at Touche Ross & Co
before joining the Group in 1985.
Skills and experience: At Touche Ross, David
worked in the corporate finance department
with experience in acquisitions, flotations and
capital raisings. During his 29-year career with
Intu, David has gained significant executive
experience in numerous aspects of the
shopping centre industry including shopping
centre acquisitions and developments. He has
also been closely involved with the Group’s
corporate development including equity and
debt financings and a wide range of other
corporate transactions, including the 2010
demerger of Capital & Counties from Intu.
Other appointments: Non-Executive
Director of Equity One, Inc and Prozone Intu
Properties Limited.
David Fischel
Chief Executive
Age 56
Appointed to the Board
Appointed Finance Director
in 1988, Managing Director in
1992 and Chief Executive in
March 2001
Audit Committee
Remuneration Committee
Nomination and Review Committee
Executive Committee
Corporate Responsibility Committee
Capital Projects Committee
54
Intu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Non-Executive Directors
Adèle Anderson
Age 49
Appointed to the Board
Appointed as a
Non-Executive Director
on 22 February 2013
Career: Adèle Anderson commenced her
career at KPMG where she became a partner
and held a number of senior roles, including
Chief Financial Officer. She is currently
Chairman of the Audit Committee of easyJet
plc and Save the Children International.
Skills and experience: Adèle graduated from
Kent University with BSc Hons in Mathematics
and Computer Science. She is a qualified ACA
and has gained extensive financial experience
throughout her career and has significant
Audit Committee experience.
Other appointments: Non-Executive Director
of easyJet plc; a member of the Board of
Trustees of both Save the Children UK and
Save the Children International.
Chairman of the Audit Committee
Richard Gordon
Age 56
Appointed to the Board
Appointed as a
Non-Executive Director
in May 2010
Career: Richard Gordon previously served as
a Non-Executive Director of Capital Shopping
Centres PLC between 1996 and 2006 and was
appointed as an alternate Director in respect
of Graeme Gordon’s directorship of the Group
in 2001.
Skills and experience: Richard has also
served on the boards of a number of
companies within the Liberty Life group and
various companies within the commercial
and residential real estate sector, mainly in
South Africa.
Andrew Huntley
Age 76
Appointed to the Board
Appointed as a
Non-Executive Director
on 8 July 2009 and Senior
Independent Director with
effect from 1 August 2013
Career: Andrew Huntley’s career commenced
some 41 years ago with Richard Ellis where
he served as Chairman from 1993 until 2002.
He was a Non-Executive Director of Pillar
Property plc from 2000 to 2005 and a Non-
Executive Director of LondonMetric Property
plc from 2010 until 2013.
Skills and experience: Andrew is a Chartered
Surveyor and an experienced property adviser.
Other appointments: Non-Executive Director
of Capital & Counties Properties PLC.
Louise Patten
Age 61
Appointed to the Board
Appointed as a
Non-Executive Director
on 22 September 2011
Career: Louise Patten began her career at
Citibank, working mainly in retail financial
services until she joined global strategy
advisers Bain & Company Inc in 1993 where
since 1997 she has been a Senior Adviser.
Skills and experience: Louise has extensive
board level experience at a number of
retail and property companies including as
Chairman of Brixton plc and Interim Chairman
of Somerfield plc, and non-executive roles at
Marks and Spencer plc, where she chaired the
Remuneration Committee, GUS plc, Hilton
Group plc, Harveys Furnishings plc and Control
Risks Group.
Neil Sachdev
Age 56
Appointed to the Board
Appointed as a
Non-Executive Director
in November 2006
Career: Neil Sachdev joined Tesco plc in 1978,
where he was Property Director before joining
J Sainsbury plc as Commercial Director in
March 2007 and Property Director from June
2010 until March 2014.
Skills and experience: Neil has an MBA from
Stirling University and has gained significant
experience in retail and property matters
throughout his career.
Other appointments: Neil was appointed as
a Director to Medico-Dental Holdings Ltd in
September 2014. He is also Deputy Chairman
to the HSS Hire Group as at February 2015
and serves on the Joint Advisory Board of
the Grantham Institute for Climate Change.
Since 2008 he has been a member of the
BiTC Mayday leadership team focusing on the
climate change sector and is also a member
of the Business, Innovation and Skills Board
on Green Construction.
Chairman of the Remuneration Committee
Andrew Strang
Age 62
Appointed to the Board
Appointed as a
Non-Executive Director
on 8 July 2009
Career: Andrew Strang started his career
with Richard Ellis in 1975. He served as
Managing Director of Threadneedle Property
Investments Limited for 17 years until January
2008. He was Chairman of Hermes Real Estate
Investment Management from 2009 to 2011.
He was a Director of the British Property
Federation from 1994 to 2013, and is a current
member of the Norges Bank Investment
Management Real Estate Advisory Board and
a member of the Investment and Governance
Committees at AEW UK.
Skills and experience: Andrew is a Chartered
Surveyor and has substantially focused on
property investment throughout his career.
Other appointments: Non-Executive Director
of Capital & Counties Properties PLC.
55
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Executive management
Executive Committee*
Mike Butterworth
Chief Operating Officer
Appointed as Chief Operating Officer on 3 October 2011. A Fellow of the
Royal Institution of Chartered Surveyors, Mike joined the Manchester Ship
Canal Company, now part of the Peel Group, in 1981, and became Property
Director of Peel Holdings in 2002. He has extensive experience in the
shopping centre industry having served as Managing Director of The Trafford
Centre Limited from 1996, responsible for the opening of the centre in 1998,
until 2011 when The Trafford Centre was acquired by Intu.
Kate Bowyer
Director of Finance
Joined the Group in 2000 as Group Financial
Controller and managed the Group’s investor
relations from 2008 until 2014. She was appointed
Director of Finance in August 2014. Kate qualified
as a chartered accountant with Coopers & Lybrand
(now PricewaterhouseCoopers) in 1995, working
in their Canadian and corporate finance practices.
Martin Ellis
Construction Director
Appointed as a Director of Capital Shopping
Centres PLC on 1 October 2005. He joined
the Group in 1990 and in 2008 was appointed
Managing Director of Liberty International
Construction and Development Limited.
Following the demerger of the Capital & Counties
business in May 2010, Martin reverted to being
Intu’s Construction Director responsible for
development and construction projects.
Hugh Ford
General Corporate Counsel
Appointed General Corporate Counsel to the
Group in 2003. He was previously General Manager
Legal at Virgin Atlantic Airways, and before that
a commercial lawyer with British Airways plc.
He qualified as a solicitor in 1992 with Freshfields.
Susan Marsden
Group Company Secretary
Joined the Group as Company Secretary in 2000.
A fellow of the Institute of Chartered Secretaries
and Administrators, Susan began her career
at the London Stock Exchange, and has been
Company Secretary of two FTSE real estate sector
companies before joining Intu.
Trevor Pereira
Digital and Commercial Director
Joined the Group in 2007 as Commercial Director
of Intu Shopping Centres plc. He was appointed
Group Commercial Director in October 2011 and
Digital and Commercial Director in November
2013. Trevor worked for airport group BAA plc for
21 years, most recently as Retail and Commercial
Director for Heathrow Airport.
Dushyant Sangar
Corporate Development Director
Joined the Group in 2010 and was appointed
Corporate Development Director in 2014.
Dushyant has been involved in all of the Group’s
major acquisitions and joint venture transactions
since the demerger of the Capital & Counties
business. He previously worked in the corporate
acquisitions team for MGPA, a real estate private
equity investment advisory business. Before this,
he worked in the real estate investment banking
team for UBS.
Executive management
Biographies of the senior management team are available on our website at:
intugroup.co.uk/who-we-are/our-people/executive-management/
* Additional members of the Executive Committee are the Chief Executive (Chairman of the Committee) and the Chief Financial Officer, whose biographies are set out on page 54.
56
Intu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Governance
Dear Shareholder
I am pleased to introduce Intu’s Corporate
Governance report for 2014.
I would like to highlight the following key
areas of focus during 2014:
Risk management – As a result of the
rapid changes to the business including
especially the increased focus on digital
services and the expansion of operations
into Spain, the Audit Committee has
overseen an evolution of the Group’s risk
management methodology to ensure
all risks are identified and prioritised
appropriately. A comprehensive formal
appraisal of risk appetite, introduced last
year, was repeated in 2014. All existing
and new risks were analysed, discussed
and reviewed with the Board and
Senior Management. Each risk was
assessed as to potential impact and
probability and categorised accordingly.
Further information on the Group’s risks
can be found on pages 38 and 39.
UK Corporate Governance Code
Compliance – The Audit Committee has
confirmed to the Board that in its opinion,
the Annual Report and Accounts for the
year ended 31 December 2014, taken as a
whole, is fair, balanced and understandable
and provides the information necessary
for shareholders.
Compliance statement
Compliance with the UK Corporate
Governance Code
The Company has, throughout the year
ended 31 December 2014, complied
with all provisions of the UK Corporate
Governance Code.
Compliance with the Disclosure and
Transparency Rules
The disclosures required under DTR 7.2
of the Disclosure and Transparency Rules
are contained in this report, except for
those required under DTR 7.2.6 which
are contained in the Directors’ report.
Our approach to good
governance continues to be
robust and highly effective
Patrick Burgess
Chairman
Key matters discussed in 2014
— Acquisition of Merry Hill and
Derby in the UK and Sprucefield
in Northern Ireland
— Driving the investment programme
— Joint venture to introduce an 80
per cent partner at intu Uxbridge
— Building the brand and rolling out the
digital infrastructure
— Launch of £350m 16-year bond
— Talent development across Intu
— International activity and purchase
of Puerto Venecia
— Evaluation of Board’s performance
Areas of focus in 2015
The main areas of focus for next
year are:
— Succession planning
— Board communication
— Risk
Please see page 64 of the Audit
Committee Report where we discuss the
external auditor and their tenure.
Our approach to good governance
continues to be robust and, we believe,
highly effective. Our governance
procedures are kept under close scrutiny
by the Board, and we react quickly, where
appropriate, to match best practice and
regulation. I am confident that our attitude
and approach to good governance is
embedded throughout the business
and remains of the highest standard.
An amended version of the UK
Governance Code was issued in September
2014 which is applicable to companies
with a UK premium listing with financial
years beginning on or after 1 October
2014; Intu will report on its compliance
with the 2014 version of the Code in its
2015 Annual Report.
Patrick Burgess
Chairman
27 February 2015
57
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukGovernance The Board
The Board
Audit Committee*
Remuneration Committee*
Nomination and Review Committee*
Chairman
Adèle Anderson
Members
Neil Sachdev
Andrew Strang
Chairman
Neil Sachdev
Members
Louise Patten
Adèle Anderson
Key responsibilities
Monitors the integrity
of financial statements,
internal controls and risk
management process and
reviews the effectiveness
of the internal and
external auditors.
More information
Audit Committee report
– pages 63 to 67.
Chairman
Patrick Burgess
Members
Andrew Huntley
Neil Sachdev
Louise Patten
Key responsibilities
Sets remuneration policy
for all Executive Directors
and the Chairman and
recommends and
monitors the level and
structure of remuneration
for senior management.
More information
Directors’ remuneration
report – pages 71 to 83.
Key responsibilities
Ensures that the Board is
comprised of individuals
with an appropriate
balance of skills,
knowledge and
experience.
More information
Nomination and Review
Committee Report –
pages 68 and 69.
Executive Committee
Corporate Responsibility Committee
Chairman
David Fischel
Members
Matthew Roberts
Kate Bowyer
Mike Butterworth
Martin Ellis
Hugh Ford
Susan Marsden
Trevor Pereira
Dushyant Sangar
Key responsibilities
Considers investment proposals, reviews progress on
projects and project expenditure in detail and receives
updates on other business matters. Has delegated
authority, within limits, to authorise initiatives and
expenditure.
Meets fortnightly
Chairman
Patrick Burgess
Members
David Fischel
Neil Sachdev
Alexander Nicoll
(CR Director)
Jennifer Sandars
(CR Manager)
Key responsibilities
Oversees the management of the Group’s Corporate
Responsibility activities.
More information
Corporate responsibility report – pages 48 to 53.
Capital Projects Committee
Chairman
Patrick Burgess
Members
John Whittaker
David Fischel
Matthew Roberts
Mike Butterworth
Martin Ellis
Andrew Huntley
Neil Sachdev
Key responsibilities
Reviews new projects and project expenditure in detail
and, as appropriate, comments on certain projects
for the Board. Has no power to approve proposals
or authorise expenditure.
The Capital Projects Committee is not a formal
committee of the Board.
* Terms of reference of the Audit,
Remuneration and Nomination and
Review Committees are available
on the Company’s website.
The Board
Led by the Chairman, the Board’s overarching objective is to
provide effective leadership to the Group underpinning the
business model described on pages 8 and 9 to ultimately deliver
long-term growth and generate sustainable returns for its
shareholders. It does this by setting and implementing strategy,
ensuring that its employees are professional, motivated and
focused, and establishing a balanced approach to risk within
the framework of established controls.
Appropriate and effective corporate governance is taken
extremely seriously and is intrinsic to all aspects of the Board’s
activities. The Board is accountable to the Company’s shareholders
and other stakeholders for the good conduct of the Company’s
affairs. It has therefore established a governance framework which
underpins the culture of the Group. This framework consists of
committees with specific delegated responsibilities (as shown
in the diagram above), and internal policies, procedures and
controls (including delegated authority limits) which are regularly
reported on, reviewed and updated by the Board and the relevant
Board Committees. The internal processes are communicated
to all staff and are available at all times on the Group’s intranet.
Delegated authority limits apply at all levels of the business and
their application is incorporated into the standard procedures for
the execution of all leases, licences, contracts and other relevant
documentation by the Group. The Board considers that the way in
which both the Board and the Group function meets the highest
standards of accountability and probity.
58
Intu Properties plc – Annual Report 2014 intugroup.co.ukGovernance The Company’s approach to corporate
responsibility is a key element of its
overall governance culture. We have
consistently demonstrated a strong
commitment to high standards of
corporate responsibility, particularly
focused on the local communities
surrounding our shopping centres and
details of our CR activities are set out in
the CR report on pages 48 to 53, which
we strongly recommend shareholders
to read, and on the Company’s website.
Structure of the Board and independence
Board structure
Board structure
Chairman
Executives
Non-Executives
1
2
7
Board independence (excluding Chairman)
Executive
2
Non-Independent 2
Independent
5
Gender split
Women
Men
2
8
Length of tenure of Non-Executive Directors
0–3 years
3–6 years
6–9 years
1
4
2
Matters reserved for the Board
Responsibility for the day-to-day
management of the Group is delegated
to certain Board Committees, the
Executive Directors (with the support of
the Chief Operating Officer) and senior
management. These delegated powers
are supported by delegated authority
limits which are documented and kept
under review by the Board.
Certain matters have been reserved
for decision by the whole Board and
a schedule setting out a list of these is
reviewed regularly. These include, but
are not limited to:
— strategy
— the application of the Board protocol
for dealing with related-party matters
— dividend policy
— major acquisitions and disposals, other
capital expenditure and controls
— risk management
— shareholder circulars and other
documents required by the listing rules
The Board also receives regular reports
on the proceedings of its Committees
and considers their recommendations.
It has been the Board’s custom over many
years to ensure that major decisions are
taken after a reiterative process which
involves examination and review at several
levels. In part, this examination and review
process is dealt with by the Board and
other Committees mentioned below.
The Chairman and Chief Executive
The roles of the Chairman, Patrick Burgess,
and of the Chief Executive, David Fischel,
are separate and have been defined by
the Board. In summary, the Chairman’s
responsibilities include leading the Board,
setting its agenda, achieving clarity
of decision-making and ensuring its
effectiveness on all aspects of its role.
He also ensures that the Board maintains
effective two-way communication
with shareholders and management.
The Chief Executive’s key responsibilities
include day-to-day management of
the Group’s operations in the most
effective way possible, implementing the
policies and strategies developed by the
Board and developing the abilities and
skills of the Group’s personnel to their
maximum potential.
Non-Executive Directors
The Non-Executive Directors bring an
external and independent view to the
Board’s discussions, providing constructive
challenge to executive management
when appropriate.
Biographical details of each Director
are set out on pages 54 and 55.
The Senior Independent Director
Andrew Huntley was appointed as Senior
Independent Director in August 2013.
In this role, Andrew provides advice and
additional support and experience to the
Chairman as required, and is available
to act as an intermediary for the other
Directors if necessary. Andrew also
leads the appraisal of the Chairman’s
performance annually in discussion with
the other Non-Executive Directors, and is
available as an additional point of contact
for shareholders should they feel that
communication through the normal
channels of the Chairman, Chief Executive,
Secretariat or Investor Relations team has
failed or is otherwise inappropriate.
Alternate Directors
John Whittaker and Richard Gordon
have appointed Steven Underwood
and Raymond Fine respectively as
their alternates under the terms of
the Company’s Articles of Association.
The Board has generally invited
the alternate Directors to attend
Board meetings.
59
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukGovernance The Board
continued
Key matters discussed/approved
by the Board in 2014
— acquisition of Merry Hill and Derby UK
shopping centres and the Sprucefield
retail park in Northern Ireland together
with the associated rights issue and
the sale of 80 per cent of intu Uxbridge
— driving forward the investment
programme in existing assets
— continuing to build the public profile of
the brand and the roll-out of the new
digital infrastructure across our centres
— progress of development projects
including major extensions at intu
Watford and intu Lakeside
— launch of a £350 million 16-year bond
following the transfer of intu Derby
and intu Chapelfield into the Group’s
Secured Group Structure
— new £600 million revolving credit
facility replacing the existing
£375 million facility that was
due to expire in November 2018
— talent development across
the organisation
— development of international
activities including the acquisition of
the Puerto Venecia Shopping Centre,
Zaragoza, Spain
Communication between
Board meetings
Directors are kept fully informed of
progress on matters between formal
meetings, in particular by way of scheduled
conference calls or less formal update
meetings in every month when there is not
a formal Board meeting, ad hoc meetings,
working visits to centres and pursuing
a policy of open communication.
The chairmen of the Audit Committee and
Remuneration Committee communicate
regularly with relevant staff and advisers
including the Head of Risk and Internal
Audit, the Company Secretary and the
Remuneration Consultants.
Effectiveness
Balance, composition and culture
The Nomination and Review Committee
regularly reviews the balance (including
skills and experience) and composition
of the Board to ensure that it operates
efficiently. The Board has therefore
determined that candidates for the role
of Non-Executive Director should have
relevant qualifications and experience
notably in property, retail, and finance,
areas that are well represented by
the current Non-Executive Directors
(see biographies on page 55).
The attendance of Directors at all Board
meetings held in 2014 is set out in the
table below:
Board
Scheduled
(4 meetings)
Additional
(4 meetings)
A
4
4
4
4
4
4
4
4
4
4
B
4
4
4
4
4
4
4
4
4
4
A
4
4
4
4
4
4
4
4
4
4
B
4
4
4
4
4
4
4
4
4
4
Patrick Burgess
David Fischel
Matthew Roberts
John Whittaker
Adèle Anderson*
Richard Gordon
Andrew Huntley*
Louise Patten*
Neil Sachdev*
Andrew Strang*
A = Maximum number of meetings the Director was
eligible to attend.
B = Number of meetings actually attended.
* Independent directors.
Board meetings
The Board meets regularly during the
course of the year, and met a total
of nine times in 2014. There were
four scheduled meetings as well as a
Directors’ Away Day focused on plans
and strategy for 2015. A further four
unscheduled meetings were held, both
of which were necessarily convened at
short notice to deal with matters arising
between the scheduled meetings.
At each scheduled meeting, the
Executive Directors, Chief Operating
Officer and Company Secretary
give reports on their key areas of
responsibility. In addition, the chairmen
of the Audit, Remuneration and
Nomination and Review Committees
give an update on the discussions
of those Committees, highlighting
any areas requiring escalation to,
or consideration by, the full Board.
Other matters for discussion are added
to the agenda for scheduled Board
meetings, or discussed at additional
Board meetings, as required.
60
Intu Properties plc – Annual Report 2014 intugroup.co.ukGovernance The appropriate balance of skills,
independence, experience and knowledge
does not in itself ensure the efficient
operation of a Board. To this end, the role
of the Chairman is essential in creating an
environment where the Non-Executive
Directors are able to draw on their own
experience to constructively challenge
the views of the executive management.
The Chairman works closely with the
Company Secretary to ensure that all
Directors are provided with fully accurate
and timely information to facilitate
informed discussion at Board meetings.
The Chairman is particularly mindful that
the views of all Directors should be taken
into consideration and that the range of
experience of our Non-Executive Directors
must be drawn upon to provide insight and
alternative perspectives to aid the Board’s
decisions on key strategic matters.
The role of the Chairman
is essential in creating an
environment where the
Non-Executive Directors are
able to draw on their own
experience to constructively
challenge the views of the
executive management
The Board reviews the independence of
its Non-Executive Directors on an annual
basis. With the exception of John Whittaker
and Richard Gordon, both representatives
of major shareholders, the Board has
concluded that all other Non-Executive
Directors continue to demonstrate their
independence. The balance of the Board
is illustrated on page 59.
Time commitment, external activities
and conflicts of interest
Non-Executive Directors are generally
appointed for a three-year period and their
continuing service thereafter is subject
to review by the Board. Their annual time
commitment will vary according to their
membership of Board Committees and the
activities of the business in any given year.
The terms of appointment of the Non-
Executive Directors set out the minimum
expectation of preparation for and
attendance at all Board meetings, Board
Committee meetings where appropriate,
ad-hoc meetings and the annual Board
away day. Non-Executive Directors are
required to confirm on accepting their
appointment, and annually following each
accounting year end, that they are able
to allocate sufficient time to meet the
expectations of the role.
The terms of appointment for each of the
Non-Executive Directors are available for
inspection at the Company’s registered
office, or on written request from the
Company Secretary.
Directors have a statutory duty to avoid
situations in which they have or may
have interests that conflict with those of
Intu, including when a Director takes up a
position with another company, unless that
conflict is first authorised by the Board.
The Board has adopted a formal procedure
for the identification of conflicts under
which Directors must notify the Chairman
of any potential conflicts. The Chairman
then decides whether a conflict exists
and recommends its authorisation by
the Board where appropriate. In certain
circumstances, the conflicted Director may
be required to recuse himself from the
Board’s discussions on a matter in which
he or she is conflicted.
Directors must also notify the Chairman
when they take on any additional
responsibilities or external appointments,
and it is their responsibility to ensure that
such appointments will not prevent them
from meeting the time commitments
discussed above.
In addition, the Board has implemented
a ‘Related Party Protocol’ for situations
where a proposed transaction could be
captured by the related party provisions
of the Listing Rules or by the Companies
Act 2006.
61
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukGovernance
Relations with shareholders
Overall approach
Intu places considerable emphasis on
maintaining an open and frank dialogue
with investors. Our programme of investor
relations activities is based around the
financial reporting calendar and seeks to:
— develop existing and potential investors’
understanding of Intu’s business
strategy, operations, performance
and investment case
— provide to the Board and executive
team an insight into the differing
views of Intu’s shareholders
With these objectives in mind, the
executive team (including, on occasion,
the Chairman) met with representatives
of 180 investment institutions during 2014
to keep them informed of our performance
and plans, to answer their specific
questions and to understand their views.
In addition our website provides to all
shareholders a great deal of immediate as
well as general information and a feedback
facility. Regular visits to our properties
enable investors to see our operations
close up.
Intu places considerable
emphasis on maintaining
an open and frank dialogue
with investors
Investor visits
Below: In 2014, investors visited intu
Merry Hill, intu Derby, intu Victoria
Centre, intu Broadmarsh, intu Watford
and intu Trafford Centre to see recent
changes and to hear about significant
planned projects
62
Key components of the investor
relations programme
— One-on-one meetings with
principal shareholders: The
Chairman is available to meet
with key investors to answer their
questions and to better understand
their views, particularly with regard
to governance matters
— Results-related meetings:
Institutional shareholders are invited
to a presentation with a question
and answer session by the executive
team on the day of announcement
of final and interim results. They can
choose to attend in person, by phone
or join the webcast. The Chairman
and a number of the Non-Executives
also attend these presentations
— Road shows: In the few weeks
following results announcements,
executive management conduct
a series of one-to-one and group
meetings with institutional
shareholders in the UK, South
Africa, Europe and the US, giving
the opportunity to meet other
fund managers as well as the
sector specialist of each institution.
Unattributable feedback from these
meetings collected by our brokers
is provided to the Board
— Investor and analyst property visits:
Institutional shareholders are invited
to attend at least one property
visit each year with presentations
on Intu’s business. This gives an
opportunity for formal and informal
interaction with the executive team
and the ‘next tier’ of operational
management. In 2014, investors
visited intu Merry Hill, intu Derby, intu
Victoria Centre, intu Broadmarsh,
intu Watford and intu Trafford Centre
to see recent changes and to hear
about significant planned projects.
Such presentations are available for
download from the Investors section
of our website intugroup.co.uk
— Investor conferences: Several
investment banks hold conferences
for investors and companies in the
real estate sector. They are a good
opportunity for the executive team
to meet a large number of current
and potential investors in a mixture
of group and one-to-one meetings
and informally. Intu attended nine
such conferences in 2014 in the UK,
Europe and the US
— General meetings: The Annual
General Meeting (AGM), usually
held in May, gives the opportunity
for all shareholders (private and
institutional) to ask questions of the
Board, including the Chairmen of
both the Audit and Remuneration
Committees. The entire Board is
also available to talk to shareholders
before and after the meeting.
The results of all shareholder
votes are announced via the
London and Johannesburg stock
exchanges and are available on the
Company’s website
— Interaction with ‘sell side’ analysts:
Many investors develop their
understanding of the Company
partly through discussions with
independent analysts. Intu engages
with analysts from around 20
institutions in order to improve the
accuracy and insight of their research.
The Board is kept informed of analyst
commentary and recommendations.
A list of the analysts publishing
material on Intu can be found
at intugroup.co.uk/investors/
shareholders-bondholders/analysts/
— Debt investors: Representatives
of Intu’s key relationship banks
are invited to the bi-annual results
presentations by the executive
team and meet periodically
with the Chief Financial Officer.
Institutional investors in certain
of the Group’s listed debt are
invited to periodic updates on the
Group’s business and performance.
We welcome the moves by some
credit side institutional investors
towards more openness regarding
holdings of debt instruments
and ‘road show’-style one-to-
one meetings
Intu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Highlights of 2014
— Accounting treatment for significant
transactions in the year
— Financial integration and control
of significant acquisitions in the year
— The impact of the adoption
of IFRS11 Joint Arrangements
— The Group’s cyber security plans
Members in 2014
Chairman
Adèle Anderson
(Independent Non-Executive Director)
Members
Neil Sachdev
(Independent Non-Executive Director)
Andrew Strang
(Independent Non-Executive Director)
Areas of focus 2015
— Developments
— International operations
— Partners and joint ventures
Audit Committee
Dear Shareholder
As the Chairman of the Audit Committee
it is my role to present to you the Audit
Committee report for 2014.
In addition to its core activities, the
Committee has this year continued to
focus on risk management, particularly
in relation to the expanding digital
environment and our entry into Spain.
For the second consecutive year, the
Committee carried out a comprehensive
risk review and assessment of risk appetite
across the Group. The results of the risk
review were discussed by the full Board
at its annual away day. The Group’s risk
management framework is described
in detail on pages 38 and 39.
The Board again asked the Audit
Committee to advise it on whether
the annual report is fair, balanced and
understandable and allows shareholders
to make an assessment of the Company’s
performance, business model and strategy.
The annual report preparation process
is set out on page 65 and, together
with opinions of key executives and the
external auditor, has been designed to
assist the Committee in reaching its view.
The Committee is satisfied that, taken
as a whole, this Annual Report is fair,
balanced and understandable and has
recommended as such to the Board.
Meetings in 2014
Adèle Anderson (Chairman)
Neil Sachdev
Andrew Strang
Audit
Committee1
(4 meetings)
A
4
4
4
B
4
4
4
A = maximum number of meetings eligible to attend.
B = number of meetings actually attended.
1
The Audit Committee normally invites the Chairman,
Chief Executive and Chief Financial Officer to attend
meetings. The Chairman attended three meetings
of the Audit Committee in 2014 and the Chief
Executive and Chief Financial Officer attended
all four.
Following our annual review of auditor
quality and independence, we have
determined that it is not necessary
to tender the audit contract for the
time being, and have recommended
that PricewaterhouseCoopers (PwC)
be reappointed for the 2015 audit.
Although we are awaiting final guidance on
audit tendering, we anticipate that a tender
exercise will, at the latest, be carried out
at the end of the current audit partner’s
five year tenure, i.e. in respect of the year
ending 31 December 2018.
In 2015 we will continue to focus on
the key risk areas of the Group. This will
include in-depth reviews of the Group’s
developments, international operations
and the approach to our partners and
joint ventures.
Adèle Anderson
Chairman of the Audit Committee
27 February 2015
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Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Audit Committee
continued
Responsibilities
The Audit Committee’s key responsibilities
are to monitor and review:
— the integrity of the financial statements,
including a review of the significant
financial reporting judgements and
accounting policies
— the effectiveness of the Group’s internal
control and risk management
— the effectiveness of the internal audit
function, including the work programme
undertaken by the function
— the Group’s policy on whistleblowing
— the Group’s overall approach to
monitoring areas of risk
— the Company’s relationship with
the external auditor, including
its independence
Main activities during the year
The Audit Committee considered the
following key matters in 2014:
— the Group’s investment property
valuation process
— accounting treatment of the most
significant transactions in the year
including the acquisitions of interests
in intu Merry Hill, intu Derby and
Sprucefield from Westfield and
the associated rights issue, along
with the sale of 80 per cent of
intu Uxbridge
— financial integration and control
of acquisitions in the year
— changes to accounting standards
and their potential impact on the
Group including the adoption of
IFRS 11 Joint Arrangements
— the 2014 Internal Audit Plan and
Audit Charter
— discussion on the appropriateness of
those items classified as ‘exceptional’
in the year and therefore excluded
from underlying earnings
— the results of a review of the carrying
value of the Group’s investment in
Prozone due to the market value of
the shares trading at a discount to
the Group’s carrying value based
on share of net assets. This included
further enquiries by management
to supplement their understanding
of the Indian market including
discussions with an independent
expert. The review concluded that no
adjustment was required at this time
— the Group’s cyber security plans
External auditor
The Audit Committee has assessed
the effectiveness of the external auditor,
PricewaterhouseCoopers LLP (PwC), by
a combination of direct meetings and
review of independent reports:
— Senior finance staff reviewed the
detailed execution of the 2013 audit
plan with the engagement team and
identified specific improvements for
the 2014 plan
— The report of the Financial Reporting
Council (FRC)’s May 2014 Audit Quality
Inspection review of PwC was reviewed
and found to be supportive of the firm’s
overall systems of quality control
— The Chairman of the Audit Committee
and the Chief Financial Officer each
met privately with a senior partner of
PwC unrelated to the engagement
shortly after the publication of the
Group’s Annual Report to review the
performance of the firm
— The FRC’s Audit Quality Review team
undertook a review of PwC’s 2013 audit
of the Company, reporting in November
2014. The Audit Committee discussed
the findings with the lead audit partner
and was satisfied with the actions to
be taken. No significant changes to the
audit approach were identified
The EU Audit Regulation (537/2014) and
Audit Directive (2014/56/EU) become
applicable from 17 June 2016 and must
be implemented in the UK by the same
date. These limit the length of tenure
an audit firm can serve and put in place
requirements for the audit tender process.
PwC have been Intu’s audit firm for more
than 20 years and it is anticipated that
a tender process will, at the latest, be
carried out at the end of the current audit
partner’s five year tenure, i.e. in respect of
the year ending 31 December 2018.
A resolution to reappoint PwC for the 2015
audit will be proposed at the 2015 AGM.
The Committee will continue to review the
effectiveness and independence of PwC
each year.
64
Intu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Key financial reporting and
significant judgements
During the year the Committee discussed
the planning, progress and final conclusions
of the external audit process. The audit plan
was reviewed and approved at the July
2014 Committee meeting. The significant
risk areas identified were: investment
property valuations; revenue recognition;
and management override of controls.
International Standards on Auditing (UK
and Ireland) identify these latter two risks
as significant for all companies. These
issues were discussed by the Committee
following finalisation of the audit.
The Committee takes into account the views
of the external auditor in understanding
and assessing whether suitable accounting
policies have been adopted and whether
management has made appropriate
estimates and judgements, and whether
disclosures are balanced and fair. The main
issues discussed by the Committee in the
current year were:
Valuation of investment properties
For the interim results at 30 June the
Audit Committee carried out a review
of the investment property valuations.
The full Board carried out a review
of the 31 December valuations included
in this report.
Due to the overall importance of the
valuations to the Group’s results, DTZ, who
undertake the largest proportion of the
Group’s valuations, were invited to both the
Audit Committee and the Board meetings
to participate in the consideration of
the valuations.
The Audit Committee review included
discussion with management and the
auditor of the key assumptions and results
of the valuation process undertaken by the
independent third party valuers.
This review also included understanding
which general factors had influenced the
valuers in concluding on appropriate yields
to use in the valuations. This involved
factors affecting both the investment and
occupier markets and recent comparable
market transactions.
Particular emphasis was given to
understanding the factors that had
resulted in individual property valuations
being either significantly above or
below the average movement in the
Group’s valuations.
Presentation of information
The Group has adopted IFRS 11 Joint
Arrangements in 2014. This new standard
requires that all joint ventures, which the
Group previously chose to account for
on a proportional consolidated basis, are
equity accounted.
Operating through joint ventures is a core
part of Intu’s strategy. Management both
review and monitor the business, including
the Group’s share of joint ventures,
on an individual line basis not on a
post-tax profit or net investment basis.
The figures and commentary presented
in the Strategic report have therefore
been presented consistently with this
management approach. Reconciliations to
the presentation under IFRS 11 have
been provided in note 48 to the financial
statements and in the Other information
section on pages 155 and 156.
The Committee has reviewed the
prominence given to both statutory
information and information on a
management basis, and concluded that
the approach adopted provides the most
useful analysis of the results for the year.
Going concern
The Company’s ‘going concern’ review
which is based on an 18-month cash
flow projection, with particular focus on
the next 12 months, was discussed with
management. The projections cover the
major trading cash flows, being rental
income, interest expense and capital
expenditure plans in the context of the
latest debt maturity profile.
Stress tests of the projections were
considered, covering reductions in net
rental income levels and the value of
the Group’s properties and what impact
such changes may have on both the
Group’s liquidity and its ability to meet the
financial covenants on its debt facilities.
The discussion also considered what
actions were available to the Group to
mitigate the impact of such reductions
on the cash flow projections.
Following discussions with
management, the Committee agreed
with the conclusions reached and the
treatments relating to the above issues
adopted in these financial statements.
Fair, balanced and understandable
At the request of the Board, the
Committee considered whether the
2014 Annual Report was fair, balanced
and understandable and whether it
provided the necessary information
for shareholders to assess Intu’s
performance, business model and
strategy. As part of its considerations
the Committee took into account the
preparation process detailed below
which, together with opinions of key
executives and the external auditor,
has been designed to assist the Audit
Committee in reaching its view:
— at an early stage, a matrix is produced
identifying key themes and the
sections in which those themes
should be reflected
— individual sections of the
Annual Report are drafted by
appropriate senior management
with regular review meetings to
ensure consistency across the
whole document
— a verification process is undertaken
to ensure that information contained
is appropriately supported and
factually accurate
— detailed reviews of drafts
of the Annual Report are
undertaken by members of the
Executive Committee and other
senior management
— drafts are discussed with the Group’s
legal advisors and brokers
— a final draft is reviewed by the Audit
Committee and discussed with senior
management prior to consideration
by the Board
As a result of its considerations the
Committee is satisfied that, taken
as a whole, the Annual Report is fair,
balanced and understandable and has
recommended as such to the Board.
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Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Audit Committee
continued
Details of the amounts paid to the external
auditor for audit and non-audit services
are included in note 9 on page 107 to
the financial statements. The Company
engaged PwC to carry out certain non-
audit work in 2014 including assurance
services in respect of the Group’s 2014
interim report, reporting accountant work
in respect of the rights issue to part-fund
the acquisition of intu Merry Hill, intu Derby
and Sprucefield, and the debt issues for the
Secured Group Structure and intu Trafford
Centre, and financial due diligence on the
acquisition of intu Merry Hill, intu Derby
and Sprucefield.
The above safeguards were adhered
to when awarding this non-audit work
and PwC were chosen for the reporting
accountant work as it was considered to
be sensible for the external auditor to be
used and more efficient in terms of time
and cost. PwC were chosen to undertake
the due diligence work on efficiency
grounds given the overall assignment.
Fees paid to PwC in respect of non-audit
work represented 65 per cent of the total
fees paid. During 2014 the Group used
accounting firms other than PwC for
a number of assignments.
The EU Audit Regulation (537/2014)
and Audit Directive (2014/56/EU), which
come into force on 17 June 2016, impose
restrictions on certain non-audit services.
A number of non-audit services will be
prohibited and others will require approval
by the Audit Committee. There will be
an overall fee limit of 70 per cent of the
average of audit fees charged in the
past three years for permitted non-audit
services. The UK regulator is currently
consulting on the definition of non-audit
services and hence which services would
be affected. Although these restrictions
do not come into force until 2016, the FRC
has already imposed a ban on tax services
by auditors where fees are payable on a
contingent basis. Intu’s current policy on
non-audit services set out above continues
in force for the time being. As soon as there
is more clarity on the new regulations, and
in particular which services are impacted,
Intu will review its policy and make any
necessary amendments to comply with
the new rules.
Risk management and internal control
The Board has overall responsibility to
oversee the Group’s system of internal
control and to keep its effectiveness under
review, as well as to determine the nature
and extent of the risks it is willing to take
in achieving its strategic objectives based
on the balance of potential risks and
reward. The ongoing risk management
process is described in detail on page 38
and is designed to manage, rather than
eliminate, the risk of failure to achieve
business objectives and can provide only a
reasonable, rather than absolute, assurance
against material misstatement or loss.
Key elements of the Group’s internal
control system relating to financial
reporting are as follows:
— the Group has a comprehensive
system for reporting financial results
to the Board; detailed regular financial
reports with comparisons to historic
performance and against budget and
forecasts are provided to the Board.
The Board reviews these for the
Group as a whole and takes action
when appropriate
— the Group undertakes a detailed
financial reporting process on a
quarterly basis. This process is carried
out using the policies and practices that
apply to the control environment on an
ongoing basis, and is largely undertaken
by the Group’s financial reporting team,
which comprises appropriately qualified
finance professionals. Detailed planning
is undertaken prior to the period end.
As part of this process, significant
business risks and their potential impact
on the financial reporting process and
results are considered, including the
effect of any changes in the business
activities or accounting standards and
matters arising from the underlying
information systems
Non-audit services
The Group has a policy to ensure that
the provision of any non-audit services by
the incumbent external auditor does not
impair the external auditor’s independence
or objectivity.
The Audit Committee has considered the
option of putting material non-audit work
out to tender. While recognising that the
circumstances of a particular transaction
may make it most sensible to use the
incumbent external auditor for such work
(for example where the nature of the
transaction would not allow a new firm
sufficient time to assimilate the requisite
knowledge of the Group’s operations in
order to carry out the non-audit work), the
Audit Committee has recommended that
non-audit work should be undertaken by
someone other than the external auditor
wherever practical.
The Audit Committee has delegated to
the Executive Directors the authority to
contract for non-audit services with the
external auditor subject to observing
certain guidelines including:
(a) Executive Directors have the authority
to commission the external auditor
to undertake non-audit work up to
a specified value;
(b) the Executive Directors must consider
whether the proposed arrangements
will maintain audit independence; and
(c) the external auditor must
satisfy the Company that it is
acting independently.
66
Intu Properties plc – Annual Report 2014 intugroup.co.ukGovernance — the preparation of the consolidated
financial results involves a number
of review stages. One of these stages
includes a technical accounting review
by an internal technical specialist,
who has primary responsibility for
ensuring that financial accounting
developments are appropriately dealt
with in the Group’s financial reporting
process. After various internal review
stages, draft financial reports, with
narrative commentary on new technical
requirements or issues requiring a
significant level of judgement, are
prepared for review and approval by
the Audit Committee. This review stage
involves the Audit Committee discussing
the consolidated financial results and
significant judgements with senior
management and, where appropriate,
the external auditor
The Board has conducted a review of the
effectiveness, on the basis of criteria set out
in the 2005 Financial Reporting Council’s
internal control guidance for Directors,
of systems of internal financial control
and risk management for the year ended
31 December 2014 and has confirmed
that there have been no material
developments affecting their review which
have taken place since the year end.
Internal audit
The Group has a risk and internal audit
function which reports to the Audit
Committee. The risk and internal audit
function reviews internal controls and
reports to the Audit Committee on
whether such controls are in place and are
being operated effectively. The function
covers Intu Properties plc, subsidiaries
(including intu Retail Services) and
joint ventures.
The most significant areas reviewed in
2014 were: shopping centre healthchecks
(or follow up reviews) at six centres,
corporate responsibility reviews at four
centres, integration of the major assets
acquired in the year (intu Merry Hill and
intu Derby), a review of the transactional
services operation (including accounts
payable, expenses, accounts receivable
and cashiers), review of intu Experiences’
commercialisation processes, a review of
cash exposures, centre demise reviews,
data identification, service charges, payroll
outsourced service provider review and a
review of self-certification at the centres
and head office. Additionally, annual
assurance activities were performed,
including a review of gifts and hospitality
and Executive expenses.
The Audit Committee regularly reviews the
effectiveness of the risk and internal audit
function and in particular ensures that the
function remains sufficiently independent
of the wider business to ensure it can carry
out its work effectively. An independent
review of the risk and internal audit
function is carried out every five years and
was last performed at the end of 2013.
Whistleblowing policy
The Audit Committee reviews the
Group’s arrangements by which staff
can confidentially raise concerns
about possible improprieties (whether
financial or otherwise) within the
Group. Any whistleblowing incidents
are reported to the Audit Committee,
and fully investigated with procedures
reviewed and improved where appropriate.
During 2014 we:
— revised the existing whistleblowing
policy to make it more user friendly,
communicate the role of the Audit
Committee and emphasise the
protection afforded to informants
— publicised the revised policy and
process throughout the Group and
improved accessibility to whistleblowing
information and advice via the
Group’s intranet
— created an online process to
register concerns
There was one whistleblowing incident
during 2014. This was a non-financial
matter which was fully investigated and
found to be unsubstantiated. The outcome
was accepted by the complainant.
Audit Committee effectiveness
As part of the Board evaluation process,
the Audit Committee reviewed its own
effectiveness and the results were positive.
The Committee took the opportunity
to streamline the agenda and papers
submitted for its meetings to improve
efficiency and decision making.
Adèle Anderson
Chairman of the Audit Committee
27 February 2015
67
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Nomination and Review Committee
Statement on diversity policy
The Nomination and Review Committee,
and the Board, recognises the importance
of boardroom diversity, not just gender
specific, and the Committee’s policy is to
seek to ensure that all available suitable
candidates are taken into account when
drawing up shortlists of candidates for
possible appointments to the Board.
However, the priority of the Committee
and the Board is to ensure that the Group
continues to have the strongest and most
effective Board possible, and therefore
all appointments to the Board are
made on merit against objective criteria.
The Board is supportive of the Davies
Report recommendations in relation
to board diversity.
Board composition
The Committee’s discussions regarding
the composition of the Board continued
to be framed by the Company’s previously
stated goal of reducing the overall size
of the Board. The Committee is satisfied
that the balance of skills, knowledge
and experience on the Board and its
Committees is appropriate and no further
appointments are currently planned or
envisaged. The Committee has discussed
the scheduled retirements of the SID and
the Remuneration Committee Chairman,
due at the 2016 AGM. The Committee is
in the early stages of the search for two
new Non-Executive Directors following the
2015 AGM.
Dear Shareholder
As the Chairman of the Committee it is
my task to present to you the report of
the Nomination and Review Committee
for the year ended 31 December 2014.
The Committee is pleased with the
progress of the newly implemented
comprehensive succession planning and
leadership development programme
across the Group, identifying appropriate
internal succession paths and establishing
a programme for talent development.
The Committee carried out a formal
Board performance evaluation process the
outcome of which is summarised opposite.
We continue to have 20 per cent female
representation on the Board and will keep
the target of 25 per cent in mind when
an opportunity next arises for a Board
appointment to be made. Our statement
on our diversity policy is set out below.
Responsibilities and how they were
discharged in 2014
The principal role of the Nomination and
Review Committee is to evaluate the skills
available on the Board and to determine
when appointments and retirements
are appropriate.
In addition to its key responsibilities set out
above, the Committee is also responsible
for carrying out the annual performance
evaluation of the Board, its Committees
and individual Directors, as well as making
recommendations to the Board on
appointments to the Board, including the
induction programme for newly appointed
Directors, and on succession planning.
The Committee met twice in 2014 with
its main focus on the composition of the
Board and succession planning.
Meetings in 2014
Patrick Burgess (Chairman)
Andrew Huntley
Louise Patten
Neil Sachdev
Nomination
and Review
Committee
(2 meetings)
A
2
2
2
2
B
2
2
2
2
A = Maximum number of meetings eligible to attend.
B = Number of meetings actually attended.
The priority of the Committee
is to ensure that the Group
continues to have the
strongest and most effective
Board possible
Patrick Burgess
Chairman of the Board
Highlights of 2014
— Succession planning
— Performance evaluation
— Education and development
Members in 2014
Chairman
Patrick Burgess
(Chairman of the Board)
Members
Andrew Huntley
(Independent Non-Executive Director)
Louise Patten
(Independent Non-Executive Director)
Neil Sachdev
(Independent Non-Executive Director)
Areas of focus 2015
— Appointment of two
Non-Executive Directors
— Directors’ induction
— Board communication
68
Intu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Succession planning
Succession planning and the development
of talent in the business was a major
preoccupation of the Committee during
the year, and a comprehensive talent and
leadership development programme,
including succession planning, has been
implemented across the entire Group
from the Board down. The Committee has
monitored the progress of the programme
at every meeting and is pleased with the
progress made to date.
Renewal of Non-Executive
appointments
All Directors will submit themselves for
re-election at the forthcoming Annual
General Meeting in May 2015.
Induction for new Directors
There is a comprehensive induction
programme for new Directors which is
tailored by the Chairman, in consultation
with the Chief Executive and Company
Secretary, depending on the type of
appointment but includes meetings with
Board members, senior management
and external advisers as well as a high-
level review of all current projects, Board
strategy and an in-depth review of the
Group’s assets.
Where required, the Company Secretary
provides guidance or facilitates the
provision of training on Directors’ individual
duties under the Companies Act 2006
and on legal, regulatory and governance
matters with which the Company, Board
and individual Directors must comply.
Education and development
The Chairman, with the assistance of
the Nomination and Review Committee,
regularly considers the need for Directors
to update and expand their skills and
knowledge. Training is provided for
Non-Executive Directors in the form
of presentations at Board meetings, as
well as attendance at relevant seminars
and courses.
The Board also recognises the need
for Directors to keep up to date with
relevant legislative and regulatory
developments as well as changes to
corporate governance best practice and
investor expectations. The Company
Secretary reports to each Board meeting
on these matters, drawing attention to any
issues of particular relevance. In addition,
the Company Secretary maintains an
up-to-date comprehensive schedule
summarising legislative and regulatory
developments relevant to the Company
and rated according to risk/impact on the
Group, which is available to the Board and
Senior Management.
Patrick Burgess
Chairman
27 February 2015
Performance evaluation
Every year, the Board conducts an evaluation of its own performance and of the performance of the Chairman and each of the Board
Committees. In addition, the Chairman reviews the performance of each individual Director and the Senior Independent Director
oversees the review of the Chairman’s performance. The evaluation process conducted during 2013 generated three areas requiring
attention during 2014 and progress against those areas is shown in the table below:
2014 performance evaluation
The 2014 performance evaluation was conducted by way of an internal questionnaire with external facilitation.* The key points
identified formed the basis for recommendations which the Board used to establish an action plan for 2015. The main areas covered
by the action plan for attention in 2015 are:
— Succession planning – identification of appropriate profiles for candidates, followed by the appointment of two new
Non-Executive Directors to replace Andrew Huntley and Neil Sachdev, both to retire at 2016 AGM
— Board Communication – Board members encouraged to attend Board update session in person rather than by conference
call where possible, and create more opportunities for the Board to make working visits to our centres
— Risk – add as standard agenda item to Audit Committee agenda. Incorporate a section on ‘risk’ into Board presentations
and capex proposals
Area identified for attention in 2014
— Revisions to Board and Committee
Action taken
— Committee meetings held one week prior to Board meetings
timetable and sequencing of meetings
— Additional meetings of Remuneration
Committee to develop the new format
Directors’ remuneration report
— Committee meetings held sequentially on one day
— Remuneration Committee met on two occasions, in addition to scheduled meetings,
to develop the new format Directors’ remuneration report
— More exposure to senior management
— Attendance at Board meetings by senior managers to present on specific topics
across the Group on topics of
particular relevance
— Audit Committee agenda amended to allow for ‘deep dives’ into particular topics
at least twice per year
* External facilitation provided by Claire Howard, who also carried out the formal external evaluation in 2013. Ms Howard has no other connection with Intu.
69
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Focus on: Spain
Our Spanish enterprise
of Puerto Venecia, an award-winning
retail and leisure centre in Zaragoza,
which has substantially strengthened
our market position in Spain. With our
partners Eurofund we have options on
four development sites in Málaga, Valencia,
Palma and Vigo and are likely to embark
on the Málaga site, to be intu Costa del
Sol, in 2015.
Our timing has been good – Spain is out
of recession, with workplace reforms in
place, unemployment falling, consumer
confidence strengthening and household
debt reducing.
The top 10 Spanish retail locations account
for 80 per cent of retail expenditure. Intu
now owns or has options in six of these.
Creating this leading platform in three
years demonstrates our agility in
executing new strategies.
Spain’s shopping
centre market has
fragmented ownership
and offers great
opportunities for
an imaginative
new owner
Our Spanish strategy has come a
long way since we first started
thinking about Spain in 2012.
We chose Spain because it
offers a great investment opportunity
with possibilities for growth: good
infrastructure, an economy moving out
of recession, sophisticated retailers and
consumers. Most of all, its prime regional
shopping centre market has fragmented
ownership and offers great opportunities
for an imaginative owner to shake it up.
In 2013 a rare opportunity to acquire a
quality asset came up – the 75,000 sq. m.
Parque Principado shopping centre in
Oviedo, Asturias in northern Spain. It is
one of Spain’s top 10 shopping centres,
strategically located with over 9 million
visitors a year.
In a bold move – six months earlier the
Spanish economy looked fragile – Intu
teamed up with the major property
investor, Canada Pension Plan Investment
Board (CPPIB), to acquire the centre in
October 2013.
At the end of 2014 we are already seeing
the rewards for our boldness, which gives
us confidence that we’re on the right path.
The centre was purchased for €162 million
but is now valued at €212 million, an
increase in value of 28 per cent since
acquisition. It is 99 per cent occupied and
new leases signed in 2014 averaged 18 per
cent above ERV. Sales and footfall are both
significantly ahead of nationwide indices.
Parque Principado, which will undergo
a full intu rebrand as well as change its
name to intu Asturias in 2015, was our
first Spanish acquisition. In December
2014 we announced the acquisition
70
Intu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Directors’ remuneration report
Alignment with long-term success
The Committee believes that our
remuneration philosophy and incentive
policy is aligned with the long-term success
of the Company. Our long-term incentive
plan has time horizons extending to five
years, and 50 per cent of our annual bonus
is deferred into shares. Performance pay
is linked to:
— outperformance of Total Shareholder
Return against our peers
— delivering absolute total return for
our shareholders
— annual EPS performance
— achievement of our strategic initiatives
that will build value for the longer term
Key areas of focus and decisions in 2014
and for 2015
The Chief Executive’s salary will be
increased by 3.6 per cent from £545,480
per annum to £565,000 per annum
with effect from 1 April 2015. The Chief
Financial Officer’s salary will be increased
by 3.6 per cent from £430,090 per annum
to £445,500 per annum with effect from
1 April 2015.
The annual bonus awarded to the
Executive Directors for the year ended
31 December 2014 was 65.0 per cent to
65.3 per cent of maximum opportunity,
based on EPS performance against budget
in the year and the achievement of key
strategic objectives.
The 2012 Executive Share Option Scheme
(ESOS) awards did not meet the threshold
performance test and therefore no
long-term share award will vest in respect
of 2014.
No changes have been made to the
performance measures for the annual
bonus and performance share plan.
Performance share plan awards of 250 per
cent of salary were made to each of the
Executive Directors. These will only vest
subject to the achievement of stretching
Total Shareholder Return (TSR) and
Absolute Total Return (TR) performance
conditions, over three, four and five years.
For incentive awards in respect of 2015
onwards, we are introducing a clawback
provision under which incentive amounts
delivered to the Executive Directors may
be reclaimed in certain circumstances.
Shareholder Annual General Meeting
The Directors’ remuneration report will be
put to the shareholder vote at our 2015
AGM and we look forward to receiving
your views and support.
Neil Sachdev
Chairman of the Remuneration Committee
27 February 2015
Members and meetings in 2014
Meetings in 2014
Neil Sachdev (Chairman)
(Independent Non-Executive
Director)
Louise Patten
(Independent Non-Executive
Director)
Adèle Anderson
(Independent Non-Executive
Director)
Remuneration
Committee1
(6 meetings)
A
6
6
6
B
6
6
6
A = maximum number of meetings eligible to attend.
B = number of meetings actually attended.
1
The Committee normally invites the Chairman
and the Chief Executive to attend the scheduled
meetings. The Chairman attended all of the
scheduled meetings in 2014. The Chief Executive
attended five of the six scheduled meetings.
The Chief Financial Officer was invited to, and
attended, one scheduled meeting of the Committee
in 2014. No individual is present when his or her
remuneration is being determined.
Compliance statement
This is the Directors’ Remuneration Report
of the Company which has been produced
pursuant to, and in accordance with, the Listing
Rules, section 420 of the Companies Act 2006
and Schedule 8 to the Large and Medium-
sized Companies and Groups (Accounts and
Reports) Regulations 2008 (as amended
2013). The Company also complies with the
requirements of the UK Corporate Governance
Code (the ‘Code’).
This report contains both auditable and non-
auditable information. The information subject
to audit is set out in the Directors’ remuneration
report, in sections marked with §.
A copy of our shareholder approved Directors’
Remuneration Policy can be found on the
Company’s website at intugroup.co.uk/
who-we-are/governance/corporate-policies/
71
Dear Shareholder
I am pleased to present Intu’s 2014
Directors’ remuneration report to
you, which has been prepared by the
Remuneration Committee and approved
by the Board.
Results and context of remuneration
2014 was another year of significant
activity at Intu, as described in the
Chairman’s statement on page 6.
Intu delivered a total shareholder return
of nearly 25 per cent for the year. The key
strategic objectives achieved in the year
included the performance of the Group’s
existing assets, strong KPI outcomes,
broadening of the intu Digital offering,
strong performance in Spain and excellent
progress on augmentation of financial
headroom through successful refinancing
of bank facilities, bond issue and rights
issue in the year. In addition three top
shopping centres were acquired, intu Merry
Hill and intu Derby in the UK and Puerto
Venecia in Spain.
Remuneration Policy
Last year we put our Directors’
remuneration policy to binding shareholder
vote for the first time. It was approved
at the 2014 AGM with 99.77 per cent
of votes cast in favour. The Committee
was delighted with the level of support
shown by shareholders and we continue
to welcome feedback.
We are not proposing to make any
changes to our Directors’ remuneration
policy this year. In the interests of succinct
reporting we have not reproduced the full
policy report. A summary table, setting out
an overview of remuneration elements
and policy for 2015 is included in the body
of the report. The approved policy table is
included at the end of this report for ease
of reference. The full policy report can be
found on our website.
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Directors’ remuneration report
continued
Annual remuneration report
This report sets out how the Directors’ remuneration policy of the Company has been applied in the year and details of how
the Committee intends to apply the policy going forward. In accordance with section 439 of the Companies Act 2006, an
advisory shareholder resolution to approve this report will be proposed at the 2015 Annual General Meeting of the Company.
Subsections marked with § have been audited in accordance with the relevant statutory requirements.
Key responsibilities
The principal role of the Remuneration Committee is to determine and then agree with the Board the framework and policy for the
remuneration of the Chief Executive, the Chief Financial Officer, the Chairman of the Company and such other members of the executive
management as it is tasked to consider.
Key principles of remuneration policy
The Company’s remuneration policy aims to attract, motivate and retain high calibre executives by rewarding them appropriately with
competitive compensation and benefit packages. The policy seeks to align the interests of Executive Directors with the performance
of the Company and the interests of its shareholders.
Our incentive arrangements are designed to reward performance aligned to our key performance indicators. Our aim is to focus
management on delivering sustainable long-term performance and support the retention of critical talent.
Overview of Executive Director remuneration
An overview of the key remuneration elements in place for Executive Directors is set out below. After the strong support received from
shareholders last year, we have not made any changes to the operation of our policy this year except for the introduction of clawback.
Base salary
Summary of policy
— Salaries are reviewed annually and will take into
account factors such as: market pay levels for
the role, increases for the rest of the Group and
individual and Company performance
Details of policy for 2015
— Salaries for 2015 are:
— David Fischel, Chief Executive: £565,000
— Matthew Roberts, Chief Financial Officer:
£445,500
— This is in line with increases to staff across
the business
Pension and benefits
— The Company operates an approved defined contribution pension arrangement, where the contribution
is 24 per cent of basic salary. The Chief Executive receives an extra six per cent in recognition of the benefit
foregone on the closure of the defined benefit scheme
— Benefits include a car allowance (up to £18,000), private medical insurance, life assurance and long-term
Short-term incentive
Long-term incentives
sickness insurance
— Maximum opportunity of 120 per cent of salary
— A proportion earned is deferred into Intu shares,
which vest over two and three years subject to
continued employment
— At least two thirds of this award is based on
Group financial measures or quantitative key
performance measures
— The normal maximum grant size is 250 per cent of
salary per annum; however this may be increased
to 375 per cent in exceptional circumstances
— Awards under the plan vest one third after each
of three, four and five years
— For 2015 performance is based two thirds on
EPS and one third on strategic and operational
objectives. This is the same framework which
applied for 2014
— 50 per cent of the award deferred into shares
— Awards of 250 per cent of salary
— For 2015, the awards will be based:
— 50 per cent TSR relative to the top five
listed REITs
— 50 per cent total return (NAV growth per share
plus dividends)
— Targets unchanged from 2014
Shareholding guidelines
— Executive Directors must build up, over a period of three to five years, a holding with a value equivalent
to 200 per cent of salary (Chief Executive) and 150 per cent of salary (Chief Financial Officer)
The approved policy report, rather than the summary above, continues to be the policy under which the Company is bound.
The policy table from the policy report is provided at the end of this report for ease of reference.
72
Intu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Clawback
For incentive awards in respect of 2015 onwards, we are introducing a clawback provision under which incentive amounts delivered
to the Executive Directors may be retained in certain circumstances.
Total remuneration in 2014 §
The table below sets out the total remuneration received by each Director for the year to 31 December 2014.
Salary or fees
£000
Benefits
£000
Annual bonus
(cash and
deferred shares)
£000
Long-term
incentive
(ESOS)
£000
Pension
£000
Total
remuneration
£000
Director
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
Executive
David Fischel
Matthew Roberts
Chairman
Patrick Burgess
Independent Non-Executive
Adèle Anderson
(appointed 22.02.13)
Andrew Huntley
Louise Patten
Neil Sachdev
Andrew Strang
Other Non-Executive
Richard Gordon
John Whittaker1
Total
545
427
540
415
400
400
76
77
66
89
61
56
–
1,797
58
62
65
85
62
57
–
1,744
20
20
7
–
–
–
–
–
–
–
47
20
20
6
–
–
–
–
–
–
–
46
425
327
359
287
–
–
–
–
–
–
–
–
–
–
–
–
–
–
752
–
–
646
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
164
103
162
99
1,154
877
1,081
821
–
–
–
–
–
–
–
–
–
–
–
–
407
406
76
77
66
89
61
58
62
65
85
62
–
–
267
–
–
261
56
–
2,863
57
–
2,697
1
John Whittaker did not receive any remuneration in 2014 or 2013 in connection with his position as Deputy Chairman and Non-Executive Director of the Company. A management fee
of £200,000 per annum was paid to Peel Management Limited for the provision by Peel of management and advisory services, as further described on page 81.
The figures have been calculated as follows:
— Base salary: amount earned for the year
— Benefits: the taxable value of annual benefits received in the year. The main benefits are life assurance, long-term sickness insurance, private healthcare and company car cash allowance. The value
of the company car cash allowance is £18,000
— Pension: the value of the Company’s contribution during the year (30 per cent salary supplement in lieu of contributions for the Chief Executive, 24 per cent SIPP contribution, part taken as a salary
supplement in lieu of SIPP contributions, for the Chief Financial Officer)
— Annual bonus: cash and deferred: the value at grant of the annual incentive payable for performance over 2014
— ESOS: awards made in 2012, with vesting subject to EPS performance to 31 December 2014. The actual adjusted EPS growth over the period to 31 December 2014 was below the threshold level.
As the performance condition has not been met, the Remuneration Committee has determined that the 2012 ESOS awards will lapse in March 2015
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Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Directors’ remuneration report
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Performance out-turns and incentives
Annual bonus §
The maximum award for both the Chief Executive and Chief Financial Officer in 2014 was 120 per cent of salary, of which 50 per cent
is deferred for two and three years. This will remain unchanged for 2015.
Annual bonus payments are based on pre-determined performance measures. Two thirds is based on adjusted EPS performance in the
year, split evenly between performance versus budget and prior year figures.
The remaining third is based on achievement of strategic and operational objectives against a scorecard of measures. The Remuneration
Committee considers the objectives carefully each year to align with Intu’s strategic objectives, and include quantitatively assessed
financial and operational measures and milestones. Each objective relates directly to the strategic plan. Under the scorecard approach,
the weightings of each objective vary between Executive Directors to reflect their roles and responsibilities. For 2015, the scorecard will
include objectives in the following key areas:
— Optimising performance of assets
— Key capital expenditure projects
— Building the Intu brand and delivering customer experience
— Maximising the growth opportunities internationally
— Financial flexibility
— Talent development and staff engagement
Annual bonus – 2014 out-turn §
Performance against the targets for the 2014 short-term incentive arrangements is given below:
Performance element
Adjusted EPS vs. budget
Adjusted EPS vs. prior year
Weighting
33%
33%
Threshold
12.0p
100%
Target
Target
12.6p
102.5%
Maximum
13.2p
105%
2014
performance
13.3p
97.1%
Scorecard of strategic and
operational measures
Total
33% See details of scorecard achievements
Out-turn
(% max element)
100%
0%
David Fischel Matthew Roberts
96%
65.3%
95%
65.0%
The strategic objectives in the annual bonus are a key part of the remuneration framework for incentivising and rewarding the
achievements and milestones which are the foundation for value creation in the future. The Committee follows a rigorous process in the
setting and monitoring of scorecard objectives. This includes determination of objectives by reference to the approved board strategy,
quarterly reviews of quantitative and qualitative data, and an end of year full review with supporting evidence, to ensure a robust
assessment of performance against the objectives.
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Intu Properties plc – Annual Report 2014 intugroup.co.ukGovernance For 2014, the scorecard weightings and out-turns were as follows:
Scorecard
Weighting
Summary achievement against objectives
(Including specific objectives under each area of focus)
Optimising performance of existing assets
David
Fischel
30%
Branding and customer relationships
20%
Financial achievements
Corporate development
Talent development
20%
20%
10%
Matthew
Roberts
20% — Continued improvement in retailer demand against a difficult
economic background
— Strong valuation uplifts and KPI outcomes (footfall, occupancy, lettings)
— Active management and development projects at every centre, including
significant progress regarding planned major extensions and completion
of projects, including intu Lakeside (food court), intu Eldon Square (mall
upgrade), on site at intu Potteries (cinema and restaurants) and intu
Victoria Centre (restaurants and reconfigurations)
Upper end performance
20% — Broadening of digital offering, including launch of new mobile-responsive
website, receiving strong website traffic levels, and launch of wifi in key
shopping centres
— Launch of Net Promoter Score as a customer service measure
— Recognised a 30 per cent like-for-like reduction in carbon emissions since
2011, winning ‘Best in continuing carbon reduction’ in the Carbon Trust
Standard Bearers Awards
Upper end performance
30% — Excellent progress on augmentation of financial headroom, including
successful refinancing of bank facilities, successful bond issue and rights
issue in the year
Maximum achievement
20% — Successful acquisition of Westfield Derby and Merry Hill shopping centres
and Sprucefield retail park
— Strong performance from Parque Principado, in Spain
Maximum achievement
10% — Successful launch of leadership development program
— Continued integration of intu Retail Services with all HR strategies
— Engagement index from staff survey increased for third successive year,
based on 84% response rate
Maximum achievement
The Directors consider that more granular details of the strategic objectives are commercially sensitive.
The resulting total short-term incentive payouts for David Fischel and Matthew Roberts in respect of 2014 were 78.0 per cent and 78.4
per cent of salary (65.0 per cent and 65.3 per cent of maximum opportunity), respectively.
Deferral into shares
50 per cent of the 2014 short-term incentive for both David Fischel and Matthew Roberts was deferred into shares of the Company.
Executive Directors must remain in employment with the Company for a period of two years (half of award) and three years (half of award)
after the date of award before such shares are released.
Long-term incentives §
Awards with performance periods ending in the year – Executive Share Option Scheme (ESOS)
The LTIP awards shown in the single figure relate to 2012 ESOS awards which were due to vest in March 2015.
The performance condition was as follows:
— Vesting based on three-year EPS growth ranging from 4 per cent p.a. to 6 per cent p.a. 100 per cent vests for growth of 6 per cent p.a.
or higher; 33 per cent vests for growth of 4 per cent p.a.; awards vest on a straight-line basis for performance between these levels.
Awards lapse for growth of less than 4 per cent p.a.
— Actual adjusted EPS growth over the period to 31 December 2014 was below the threshold level. As the performance condition has
not been met, the Remuneration Committee has determined that the 2012 ESOS awards will lapse in March 2015
The ESOS does not form part of the forward looking policy for Executive Directors, and in 2013 the Company adopted the Performance
Share Plan.
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Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Directors’ remuneration report
continued
Awards granted during the year – Performance Share Plan and Deferred Bonus Award §
This table summarises awards granted in the year:
Individual
Type of interest
£
% of salary
Face value of 2014 award*
David Fischel
Matthew Roberts
David Fischel
Matthew Roberts
PSP**
(nil-cost
options)
Deferred
Bonus Award
(restricted
shares)
1,363,000
1,049,000
179,024
250%
250%
33%
143,417
34%
% vesting at
threshold
25%
25%
Performance period end
3 years
31 December
2016
31 December
2016
4 years
31 December
2017
31 December
2017
5 years
31 December
2018
31 December
2018
* Face value calculated using share price at date of grant of £2.92 for the PSP and the Deferred Bonus Award.
** Vesting of awards is based 50 per cent on relative TSR and 50 per cent on Absolute Total Return (NAV growth per share plus dividends) performance, with targets equivalent to the
2015 award.
Awards for 2015 – Performance Share Plan
Awards for 2015 will be 250 per cent of salary.
Awards under the plan vest one third after each of three, four and five years.
A summary of the applicable targets are as follows:
Individual
Minimum vesting (25% of element vesting) 6 per cent per annum
Full vesting (100% of element vesting)
10 per cent per annum
Straight line vesting between points
Absolute total return
(NAV growth per share plus dividends)
(50% of award)
Total shareholder return relative
to top-five UK-listed REITS
(50% of award)
TSR in line with the third-ranked company
TSR in line with the top-ranked company
Straight line vesting between points.
Subject to a Committee-operated
discretionary assessment of underlying
financial performance
The combination of absolute return and relative return measures ensures a balanced assessment of Company performance and
alignment to shareholders. In particular, both relative and absolute outperformance would be required for full vesting to be achieved.
Malus and clawback
Shares awarded under the Deferred Bonus Plan and the Performance Share Plan are subject to malus provisions. The Committee may
apply malus at its discretion in circumstances including (but not limited to):
— a material misstatement of the Company’s audited financial results
— a material failure of risk management by the Company, any Group company or business unit
— a material breach of any applicable health and safety or environmental regulations by the Company, any Group company
or business unit
— serious reputational damage to the Company, any Group company or business unit
— serious misconduct of the individual
The annual bonus and the Performance Share Plan are also subject to clawback provisions. The Committee may at its discretion seek
to apply clawback in circumstances of:
— a material misstatement of the Company’s audited financial results where the individual is responsible or accountable (and where
Executive Directors would always be deemed to have management responsibility)
— serious misconduct of the individual
Clawback provisions may be applied up to two years following the determination of the annual incentive and up to one further year
following vesting for awards under the Performance Share Plan. Taking into account the three, four and five year vesting timescales,
this means that Performance Share Plan awards may be reclaimed for up to four, five and six years, respectively, from the date of award.
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Intu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Other share schemes
The Company operates an Employee Share Ownership Plan (ESOP) which has in the past used funds provided to purchase shares
required under the annual bonus scheme.
The Company operates a Share Incentive Plan (SIP) for all eligible employees, including Executive Directors, who may receive up
to £3,600 worth of shares as part of their annual bonus arrangements. As part of the SIP arrangements, the Company offers eligible
employees the opportunity to participate in a ‘Partnership’ share scheme, the terms of which are governed by HM Revenue &
Customs regulations.
Season ticket loan
All employees of the Group are entitled to an interest-free travel season ticket loan which is repaid over the year via deductions from
salary. Neither David Fischel nor Matthew Roberts received a season ticket or other loan from the Group during 2014.
Chief Executive pay increase in relation to all employees
The table below sets out details of the percentage change in salary, benefits and annual bonus for the Chief Executive and the wider
employee comparator group. For these purposes, head office employees (who have been in employment over both periods) have been
used as a comparator group as this is considered to be a reasonable, practical sub-set of the all-employee population.
Chief Executive
Head office employees
Percentage change in remuneration from 31/12/2013 to 31/12/2014
Percentage change in base salary
+0%
+5%
Percentage change in benefits
–0.5%
+3.3%
Percentage change in annual bonus
+18.8%
+20.8%
Shareholding and share interests §
Executive Directors must build up, over a period of three to five years, a holding of shares in the Company with a value equivalent
to 200 per cent of salary (David Fischel) and 150 per cent of salary (Matthew Roberts). This requirement has been effective from
1 January 2013.
The graph below illustrates the shareholdings of the Executive Directors as a percentage of salary. Note that only actual holdings count
towards the shareholding requirements. Shares subject to deferral and/or performance conditions have also been shown for reference.
Shareholding of Intu ordinary shares as at 31 December 2014
(% of salary)*
2,400
2,000
1,600
1,200
800
400
David Fischel
Matthew Roberts
l Actual shareholding
l Deferred shares
l Unexercised share options (vested)
l Shares subject to performance conditions
Shareholding requirement
* Value of shareholding calculated based on 12 month average share price to 31 December 2014.
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Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Directors’ remuneration report
continued
As shown above, David Fischel’s shareholding clearly exceeds his shareholding requirement. Matthew Roberts will have until January
2018 to build up the required shareholding.
The table below sets out the Directors’ interests in shares as at 31 December 2014.
Number of
shares owned
(including
connected
persons)5
Own
name
Held in SIP
trust for
> 5 years
Unvested awards
Vested awards
Conditional shares not
subject to performance
conditions
Deferred
Shares
Held in SIP
trust for
< 5 years
PSP
subject to
performance
conditions1
Options
subject to
performance
conditions2
Unexercised
unapproved
options2
Unexercised
approved
options
Options
exercised in
the year
Executive
David Fischel
Matthew Roberts
965,646
154,506
5,176
0
204,399
158,705
8,677
6,210
1,097,598
844,302
340,061
261,924
1,469,021
511,339
12,906
11,203
0
0
1 PSP awards held as fixed-value zero-cost options and jointly owned shares.
2 Held as jointly owned shares. Includes 2012 ESOS awards, which will lapse in March 2015.
3 Partially held as jointly owned shares.
4 Outstanding share awards were adjusted as a result of the 25 April 2014 rights issue.
5 No changes in the interests of Directors have occurred between 31 December 2014 and 19 February 2015.
Vested
2009 ESOS awards
2010 ESOS awards
Unvested
2012 ESOS award
2013 PSP award
2014 PSP award
Awards of market value share options, with an exercise price of 232.41 pence. These awards became
exercisable on 28/02/2013 and may be exercised until 28/05/2019.
Awards of market value share options, with an exercise price of 267.75 pence. These awards became
exercisable on 26/05/2013 and may be exercised until 26/05/2020.
Awards of market value share options, granted in March 2012 with an exercise price of 287.43 pence.
Vesting was based on three-year EPS growth to 31 December 2014 (ranging from 4 per cent p.a. to 6 per
cent p.a.). The 2012 ESOS awards did not meet the threshold performance test and therefore will lapse in
March 2015.
Awards of performance shares, granted on 21 May 2013. Vesting is based on TSR (relative to the top five UK-
listed REITS ) and absolute total return performance (ranging from 6 per cent p.a. to 10 per cent p.a.), in three
equal tranches over three, four and five years. Any awards that vest will be exercisable to 21 May 2023.
Awards of performance shares, granted on 12 May 2014. Vesting is based on TSR (relative to the top five UK-
listed REITS) and absolute total return performance (ranging from 6 per cent p.a. to 10 per cent p.a.), in three
equal tranches over three, four and five years. Any awards that vest will be exercisable to 12 May 2024.
Six-year Total Shareholder Return chart
The following graph shows the Total Shareholder Return (TSR) for Intu Properties plc over the six-year period ended 31 December
2014, compared with our closest comparator group for this purpose, the FTSE 350 Real Estate. TSR is defined as share price growth plus
reinvested dividends.
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Intu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Six-year total shareholder return (TSR) performance
200
150
100
50
2009
l Intu Properties plc
l FTSE 350 Real Estate
2010
2011
2012
2013
2014
2015
UK real estate is a cyclical sector. Since 2009, a key driver for growth in value within the UK real estate market has been exposure to
central London properties. As a result of the demerger of Capital & Counties from Liberty International (now intu Properties plc) in 2010,
Intu’s portfolio does not include properties in central London and Intu has therefore not benefited from the recent uplift experienced by
those property companies with exposure to London. However, given the cyclical nature of the property sector, we would not expect this
trend to endure over the long-term cycle.
Chief Executive historic remuneration
The table below sets out details of historic Chief Executive pay.
CEO single figure of total remuneration
Annual bonus payout (% maximum)
Long-term incentive plan vesting in year (% maximum)
2009
£1,044k
50%
0%
2010
£1,350k
100%
0%
2011
£1,275k
83%
0%
2012
£1,810k
70%
100%
2013
£1,081k
55%
0%
2014
£1,152k
65%
0%
Shareholder context
The table below shows the binding vote on the 2013 Policy Report and the advisory vote on the 2013 Directors’ remuneration report at
the 2014 AGM. It is the Committee’s policy to consult with major shareholders prior to any major changes, and to maintain an ongoing
dialogue on executive remuneration matters.
2013 Policy Report
2013 Directors’ remuneration report
For
99.77%
99.71%
Against
0.23%
0.29%
Abstentions
10.6m
21.8m
Additional disclosures
Other directorships
Executive Directors are not generally encouraged to hold external directorships unless the Chairman determines that such appointment
is in the Group’s interest and does not cause any conflict of interest. Where such appointments are approved and held, it is a matter for
the Chairman to agree whether fees paid in respect of the appointment are retained by the individual or paid to the Company.
David Fischel currently holds three external directorships. In two cases he receives and retains the fees. His principal external
appointment is as a Non-Executive Director of US company Equity One, Inc, in which Intu retains an investment through units held in
a US venture controlled by Equity One, convertible into Equity One shares. David Fischel also holds another external appointment as a
Non-Executive Director of Marlowe Investments (Kent) Limited, a UK private company which relates to his family affairs and does not
require any significant time commitment and does not conflict in any way with his role as Chief Executive of Intu. David Fischel is also
a Non-Executive Director of Prozone Intu Properties Limited, an Indian shopping centre owner and developer in which the Group has
a 33 per cent interest. He does not receive a fee in respect of this appointment.
During 2014, David Fischel received a fee of $64,000 in respect of his directorship of Equity One, Inc. He retained the fees paid in
respect of his appointment with the Board’s consent. In addition to his fee, restricted stock in Equity One, Inc. awarded to David Fischel
vested during the year with a value on vesting of $87,108. He also received and retained a fee of £5,000 in respect of his non-executive
directorship of Marlowe Investments (Kent) Limited.
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Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Directors’ remuneration report
continued
Payments to former Directors §
A Life Presidency fee of £150,000 per annum (2013 – £150,000) was paid to Sir Donald Gordon, the Group’s Life President and former
Chairman who founded the Company in 1980. The Life Presidency fee was agreed by the Board at the time of his retirement in June
2005 in recognition of his outstanding contribution to the Group. The payment is payable for the remainder of Sir Donald’s life, and is
secured by Deed.
Payments for loss of office §
There were no payments for loss of office made to Directors in the year.
Alternate Directors §
Steven Underwood and Raymond Fine serve as Alternate Directors to John Whittaker and Richard Gordon respectively. Neither Steven
Underwood nor Raymond Fine received any fees in 2014 in respect of their appointment as Alternate Directors. Raymond Fine received
a fee of £159,250 in respect of consultancy services provided to the Company in connection with South African tax and shareholder
issues (particularly in respect of South African dividends tax), liaison with the Gordon Family and other related matters.
Service contracts
Executive Directors and the Chairman have rolling service contracts which are terminable on 12 months’ notice on either side.
All Non-Executive Directors have been appointed on fixed terms of two or three years, subject to renewal thereafter. Richard Gordon
is deemed to have served for more than nine years and is now subject to a one-year term. All are subject to annual re-election
by shareholders.
David Fischel
Matthew Roberts
Patrick Burgess
Adèle Anderson
Richard Gordon
Andrew Huntley
Louise Patten
Neil Sachdev
Andrew Strang
John Whittaker
Notice Period
12 months
12 months
12 months
Contract term expires
2016 AGM
2015 AGM
2016 AGM
2017 AGM
2016 AGM
2015 AGM
2017 AGM
Distribution statement
The table below shows the percentage change in underlying earnings, dividends, and total employee compensation spend from the
financial year ended 31 December 2013 to the financial year ended 31 December 2014.
Underlying earnings (£m)
Dividend (£m)
Total employee pay expenditure (£m)
+15%
£140m
£162m
180
160
140
120
100
80
60
40
20
180
160
140
120
100
80
60
40
20
+10%*
£142m
£156m
80
+63%**
£72.3m
£44.3m
60
40
20
2013
2014
2013
2014
2013
2014
* Increase due to increased issued share capital.
Dividend per share was £0.14 (2013 – £0.14 adjusted
as as a result of the 25 April 2014 rights issue).
** 2014 includes full year impact of
Intu Retail Services. Average increase
in staff salaries for 2014 was 2.48%.
The Group employed a total of 2,459 staff as at 31 December 2014 (2013 – 2,027).
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Intu Properties plc – Annual Report 2014 intugroup.co.ukGovernance
Chairman and Non-Executive Director fees for 2015 §
The Chairman’s fee will be increased from £400,000 per annum
to £410,000 per annum with effect from 1 April 2015.
The basic Non-Executive Director fee will be increased from
£56,375 per annum to £59,000 per annum with effect from
1 April 2015. The Senior Independent Director receives an
additional fee of £10,000 per annum. Committee chairmen receive
£15,000 per annum, and Committee members receive £5,000
per annum. Fees for additional Committee responsibilities remain
unchanged from 2014.
John Whittaker does not receive a fee in respect of his position
as Deputy Chairman and Non-Executive Director. The Board has
authorised the payment of a management fee of £210,000 per
annum (2014 – £200,000) to Peel Management Limited for the
provision by Peel of a Non-Executive Director and an Alternate
Director, and other management and advisory services, together
with reasonable costs and out of pocket expenses. It is anticipated
that the agreement will be renewed annually thereafter by
agreement between the parties. This payment is disclosed
in the related party transactions note on page 139.
Remuneration Committee membership in 2014
The principal responsibilities of the Committee, which take
full account of the recommendations contained within the
Code, include:
— Determining the remuneration policy for the Company’s
Executive Directors and senior executives
— Determining individual remuneration packages for the
Chairman, Executive Directors and senior executives
— Setting appropriately stretching and achievable targets for the
Company’s incentive schemes in order to motivate executives
to deliver high levels of performance in the interests of our
shareholders, customers and employees
— Overseeing any significant changes to remuneration policy
for the wider employee population
The full duties and responsibilities are set out in the terms
of reference of the Committee which are available on the
Company’s website.
The Remuneration Committee currently comprises three
independent Non-Executive Directors. Throughout the year the
Committee consisted of Neil Sachdev (Chairman), Louise Patten
and Adèle Anderson.
The Chairman, Chief Executive, Company Secretary, HR Director
and on occasion the Chief Financial Officer are invited to attend
Committee meetings to contribute to the Committee in its
deliberations. However, no individual is present when his or her
remuneration is being determined.
The Remuneration Committee met a total of six times in 2014,
including four scheduled meetings and two additional drafting
meetings. A summary of attendance at each scheduled meeting
is set out on page 71.
Advisers to the Committee
Deloitte LLP were appointed by the Committee, as its independent
remuneration advisers in October 2013, following a competitive
tender process.
During the year, Deloitte provided advice on new reporting
regulations, market data and other remuneration matters that
materially assisted the Committee. The fees paid to Deloitte in
respect of this work in 2014 totalled £51,450, calculated on a time
and material basis.
Deloitte also provided tax advisory services to the Group in
relation to the joint-venture in Spain, tax planning advisory
services in relation to the Trafford Centre and the Midsummer
Place acquisition, share scheme advice, and financial
modelling assistance.
Deloitte are a founding member of the Remuneration Consultants
Group, and adhere to its code of conduct. Deloitte were appointed
directly by the Committee and the Committee is satisfied that the
advice received was objective and independent.
The Committee also makes use of various published surveys
to help determine appropriate remuneration levels.
On behalf of the Board
Neil Sachdev
Chairman of the Remuneration Committee
27 February 2015
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Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Directors’ remuneration report
continued
Appendix: Policy table extract from the Directors’ remuneration policy approved by shareholders on 8 May 2014.
A full copy of our Directors’ remuneration policy can be found on the Company’s website, intugroup.co.uk/who-we-are/governance/corporate-policies.
Element and link to strategy
Operation
Maximum potential value
Performance metrics
None.
Salaries for 2014 are:
— David Fischel: £545,480
— Matthew Roberts: £430,090
Base salary increases may be
applied, taking into account the
factors considered as part of the
annual review. There is no maximum
increase or opportunity.
For new appointments salaries
may be set at a lower level. In such
cases, there may be scope for higher
than usual salary increases in the
first three years as the individual
progresses in the role.
None.
None.
Company pension contribution
is 24 per cent of base salary.
The Chief Executive receives an
additional 6 per cent of salary in
recognition of the additional value of
the benefit foregone on the closure
of the defined benefit scheme. This
amount was actuarially determined
to be cost-neutral to the Company.
Car allowance of up to £18,000
per annum.
The cost of insurance benefits may
vary from year to year depending
on the individual’s circumstances.
There is no overall maximum
benefit value but the Committee
aims to ensure that the total value
of benefits remains proportionate.
Maximum annual opportunity
of 120 per cent of salary.
Executives’ performance is
measured relative to targets in key
financial, operational and strategic
objectives in the year.
The measures selected and their
weightings vary each year according
to the strategic priorities, however
at least two thirds will be based
on Group financial measures
or quantitative reported key
performance indicators.
Entry award level for financial
measures is normally between
0 and 25 per cent of maximum.
Executive Directors
Base Salary
To provide an appropriately
competitive level of base pay
to attract and retain talent.
Pension
To help provide for an
appropriate retirement benefit.
Other benefits
To provide an appropriately
competitive level of benefits.
Short-term incentive
To align annual reward with annual
performance and to support
retention and alignment with
shareholders’ interests through
significant deferral of bonus into
shares.
Reviewed annually.
Salary levels take account of:
— Size and nature of the
responsibilities of each role
— Market pay levels for the
role Increases for the rest
of the Group
— The executive’s experience
— Changes to the size and
complexity of the Group
— Implications for
total remuneration
— Overall affordability
— Individual and
Company performance
The Committee may award an
out-of-cycle increase if it considers
it appropriate.
The Company operates an
approved defined contribution
pension arrangement.
A cash alternative may be offered in
certain circumstances, for example
where HMRC statutory limits have
been reached.
Benefits include a car allowance,
private medical insurance, life
assurance and long-term sickness
insurance. Other benefits may be
provided if the Committee considers
it appropriate.
In the event that an Executive
Director is required by the Group
to relocate, benefits may include,
but are not limited to, relocation
allowance and housing allowance.
Intu operates a short-term incentive
arrangement with a maximum
individual opportunity.
A proportion of any earned
bonus is normally deferred in Intu
shares, vesting over two years and
three years, subject to continued
employment.
The Committee awards dividend
equivalents in respect of dividends
over the deferral period which
may assume reinvestment on
a cumulative basis.
The Committee has discretion
to apply malus to unvested
deferred bonus awards in certain
circumstances including if there is a
material misstatement in the annual
financial statements or a material
failure of risk management.
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Intu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Element and link to strategy
Operation
Maximum potential value
Performance metrics
Executive Directors (continued)
Long-term incentives
To reward good long-term decisions
which help grow the value of Intu
over a three to five-year horizon
and support the retention of key
executives
Normal maximum grant size of 250
per cent of salary per annum.
In exceptional circumstances
opportunity of up to 375 per cent
of salary. To ensure that participants
were not unduly disadvantaged as
a result of the move towards longer
time horizons, the first award under
the plan had an opportunity of 375
per cent.
Intu operates a Performance Share
Plan (PSP), which was approved by
shareholders at the 2013 AGM.
Grants are made to eligible
employees at the discretion of
the Committee.
Awards can be made as
performance shares, nil-cost options
or jointly owned equity, and vest one
third, one-third, one third after three,
four and five years respectively.
The Committee awards dividend
equivalents in respect of dividends
over the vesting period, which
may assume reinvestment on
a cumulative basis.
The Committee has discretion to
apply malus to unvested awards in
certain circumstances including if
there is a material misstatement in
the annual financial statements or a
material failure of risk management
by the Company.
All employee share plans
To align interests of employees with
Company performance.
Executive Directors may participate
in the HMRC approved Share
Incentive Plan on the same basis as
all employees.
Participants can contribute up to
the relevant HMRC limit.
Long-term incentive performance
conditions are reviewed on an
annual basis, and are chosen to be
aligned with the long-term success
of the business.
The intention is that measures will
be one or more of TSR, total return/
NAV growth, EPS growth, relative
total property return or return on
capital.
For 2014, awards will be based
— 50 per cent on relative TSR
— 50 per cent on total return
(NAV growth plus dividends)
If the Committee considers that
the level of vesting based on the
extent to which the performance
conditions have been satisfied is
not a fair reflection of underlying
financial performance, the
Committee may adjust the level
of vesting (upwards or downwards)
accordingly. For the current
performance measures this applies
to the TSR portion only.
Entry vesting is 25 per cent
of maximum.
None.
Non- Executive Directors
Fees
To remunerate Non-Executive
Directors
None.
None.
Independent Non-Executive Directors
The Chairman’s fees are determined by the Remuneration Committee.
The Non-Executive Directors’ fees are determined by the Board.
The level of fees takes into account the time commitment, responsibilities,
market levels and the skills and experience required.
Non-Executive Directors normally receive a basic fee and an additional fee
for specific Board responsibilities, including membership and chairmanship
of committees.
The Chairman is entitled to receive certain benefits in addition to fees.
Additional fees may be paid to Non-Executive Directors on a per diem basis
to reflect increased time commitment in certain limited circumstances.
Expenses incurred in the performance of non-executive duties for the
Company may be reimbursed or paid for directly by the Company, as
appropriate, including any tax due on the expenses.
Other Non-Executive Directors
In addition to the above, in certain circumstances Non-Executive Directors.
(other than those deemed to be independent) may receive a fee in relation
to consultancy services (including Alternate Directors).
Such fees may be provided directly to the Director or, in certain
circumstances, paid to a third party company under a consultancy services
agreement. Such agreements may provide for the payment of an annual
fee and reimbursement of expenses.
Such an agreement is currently in place with the Peel Group for the
provision of Non-Executive Director services (including Alternative
Director services).
83
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Directors’ report
Under a £600 million Revolving Facility
agreement dated 25 February 2009 (as
amended by amendment agreements
dated 2 October 2009,19 February 2010
and 18 November 2011, and further
amended and restated on 30 October
2011) between, amongst others, the
Company and HSBC Bank PLC (as ‘Agent’),
on a change of control, if directed by a
lender, the Agent may by notice to the
Company cancel the commitment of
that lender and declare the participation
of that lender in all outstanding loans,
together with accrued interest and all other
amounts accrued and owing to that lender
under the finance documents, immediately
due and payable.
Under the terms and conditions of the
£300 million 2.5 per cent Guaranteed
Convertible Bonds issued on 4 October
2012 by Intu (Jersey) Limited (the ‘Issuer’)
and guaranteed by the Company, on
a change of control of the Company
bondholders would have a right for a
limited period of 60 days to exercise their
exchange rights at an enhanced exchange
price (i.e. lower than the prevailing
exchange price). In addition, bondholders
would become entitled for a limited period
of 60 days to require the Issuer to redeem
their bonds at their principal amount,
together with accrued and unpaid interest.
The Company is not party to any other
significant agreements that would take
effect, alter or terminate following a
change of control of the Company.
The Company does not have any
agreements with any Executive Director
or employee that would provide
compensation for loss of office or
employment resulting from a takeover
except that provisions of the Company
share schemes may cause options
and awards outstanding under such
schemes to vest on a takeover. The terms
of appointment of the Non-Executive
Directors currently provide that in the
event of change of control, the Directors
will be compensated for any additional
time commitment in certain limited
circumstances, to be calculated on a
per diem basis.
Going concern
After making enquiries, the Directors have
reasonable expectation that the Company
and the Group have adequate resources to
continue in operational existence for the
foreseeable future. For this reason they
continue to adopt the going concern basis
in preparing the financial statements.
Shareholders’ attention is drawn to the
going concern disclosure contained in the
notes to the accounts on page 101.
Internal control
The statement on corporate governance
on pages 57 to 69 includes the Board’s
assessment following a review of internal
controls and consideration of the 2005
Financial Reporting Council’s internal
control guidance for Directors.
Directors
The Directors of Intu who held office
during the year were as follows:
Chairman
Patrick Burgess
Deputy Chairman
John Whittaker1
Executive
David Fischel
Matthew Roberts
Non-Executive
Adèle Anderson
Richard Gordon1
Andrew Huntley
Louise Patten
Neil Sachdev
Andrew Strang
1
John Whittaker and Richard Gordon have appointed
Steven Underwood and Raymond Fine respectively
as their alternates under the terms of the Company’s
Articles of Association.
In accordance with provision B.7.1 of
the UK Corporate Governance Code, all
Directors are subject to re-election at the
forthcoming Annual General Meeting.
Pursuant to the Articles of Association
of the Company, the Company has
indemnified the Directors to the full extent
allowed by law. The Company maintains
Directors’ and Officers’ insurance which is
reviewed annually.
The Directors present their
Annual Report and the audited
financial statements of the
Group and Company for the
year ended 31 December 2014.
Pages 2 to 86 inclusive of this Annual
Report comprise the Directors’ report
that has been drawn up and presented
in accordance with English Company
Law and the liabilities of the Directors in
connection with that report will be subject
to the limitations and restrictions provided
by such law.
Use of Financial Instruments
The Financial review on pages 40 to
46, accounting policies on pages 102
to 105 and note 35 on pages 127 to
132 contain information on the use of
financial instruments.
Dividends
The Directors declared an interim ordinary
dividend of 4.6 pence (2013 – 4.6 pence
as adjusted for the rights issue bonus
factor) per share on 31 July 2014, which
was paid on 25 November 2014, and have
recommended a final ordinary dividend of
9.1 pence per share (2013 – 9.1 pence as
adjusted for the rights issue bonus factor).
Share capital and control of the
Company
Details of the Company’s share capital
including changes during the year in the
issued share capital and details of the
rights attaching to the Company’s ordinary
shares are set out in note 37 on pages 133
and 134. No shareholder holds securities
carrying special rights with regards to
control of the Company. Shares held by the
Company’s Employee Share Ownership
Plan rank pari passu with the shares in
issue and have no special rights, but voting
rights and rights of acceptance of any
offer relating to the shares rest with the
Plan’s Trustee and are not exercisable by
the employees.
There are no restrictions on voting rights
or any arrangements by which, with the
Company’s co-operation, financial rights
are held by a person other than the
shareholder, or any agreements between
shareholders known to the Company
which may result in restrictions on the
transfer of shares or on voting rights.
84
Intu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Additional information relating to the
Directors can be found in note 52 on pages
149 and 150 on Directors’ interests, in the
Governance section on pages 57 to 69, and
in the Directors’ remuneration report on
pages 71 to 83.
The powers of the Directors are
determined by UK legislation and the
Articles of Association of the Company,
together with any specific authorities
that may be given to the Directors by
shareholders from time to time, such as
the power to allot shares and the power to
make market purchases of the Company’s
shares which are described in note 37 on
page 134.
Articles of Association
The rules governing the appointment and
replacement of Directors are contained
in the Company’s Articles of Association.
Changes to the Articles of Association
must be approved by shareholders in
accordance with the legislation in force
from time to time.
Substantial shareholdings
The table at the foot of the page shows the
holdings of major shareholders in Intu’s
issued ordinary shares as at 31 December
2014 and 20 February 2015.
Employees
Intu actively encourages employee
involvement and consultation and places
emphasis on keeping its employees
informed of the Group’s activities and
financial performance by such means as
employee briefings and publication to all
staff of relevant information and corporate
announcements. In 2014, Intu conducted
one all employee survey covering a range
of topics. More details are provided in the
Our people section on page 33.
The annual bonus arrangements help
develop employees’ interest in the
Company’s performance; full details
of these arrangements are given in the
Directors’ remuneration report on pages
71 to 83. Note 49 on pages 145 to 149
contains details of conditional awards of
shares under the annual bonus scheme
and bonus shares currently outstanding.
Intu operates a non-discriminatory
employment policy and full and fair
consideration is given to applications for
employment from people with disabilities
or other protected characteristics under
the Equality Act where they have the
appropriate skills and abilities and to
the continued employment of staff
who become disabled.
Intu encourages the continuous
development and training of its employees
and the provision of equal opportunities
for the training and career development
of disabled employees and those with
protected characteristics.
Further information relating to employees
is given on pages 32 to 37 and in note
8 on page 107. The Group provides
retirement benefits for the majority of its
employees. Details of the Group pension
arrangements are set out in note 50 on
page 149.
The environment
We have a corporate responsibility (CR)
strategy and details of our policies and
the Group’s aims alongside the latest
full version of our annual CR report are
to be found on the Company’s website.
An overview of the Group’s CR activity
(which includes disclosures relating to
greenhouse gas emissions) is printed on
pages 48 to 53, and a summary booklet
is also available for download from the
website or on request from the Company
Secretary’s office.
Substantial shareholders
Shareholder
The Peel Group
Coronation Asset Management
(Pty) Limited
The family interests of
Sir Donald Gordon
Black Rock, Inc.
Public Investment Corporation
At 31 December 2014
At 20 February 2015
Number of
shares notified
288,608,899
% interest in
share capital
Number of
shares notified
21.92 288,608,899
% interest in
share capital
21.92
201,971,184
15.34 186,845,054
14.19
109,097,936
79,143,838
95,619,365
8.28 109,097,936
80,060,534
6.01
95,691,533
7.26
8.28
6.08
7.27
The Company recognises the importance
of minimising the adverse impact on the
environment of its operations and the
obligation to carefully manage energy and
water consumption and waste recycling.
The Company strives continuously to
improve its environmental performance.
The Environmental Management System
and associated Environmental Policy and
Guide are regularly reviewed to ensure that
the Company maintains its commitment
to environmental matters.
Additional disclosures
For the purpose of LR 9.8.4CR, the only
information required to be disclosed
by LR 9.8.4R relates to sub-section (1)
thereof (interest capitalised) where the
amount is nil (see note 10 to the accounts).
All other sub-sections of LR 9.8.4R are
not applicable.
Directors’ disclosure of information
to the auditors
So far as the Directors are aware, there is
no relevant audit information of which the
auditors are unaware and each Director
has taken all reasonable steps to make
himself or herself aware of any relevant
audit information and to establish that the
auditors are aware of that information.
Auditors
The auditors, PricewaterhouseCoopers
LLP, have indicated their willingness to
continue in office and a resolution seeking
to reappoint them will be proposed at the
forthcoming Annual General Meeting.
Annual General Meeting
The notice convening the 2015 Annual
General Meeting of the Company will
be published separately and will be
available on the Company’s website and
distributed to those shareholders who
have elected to receive hard copies of
shareholder information.
By order of the Board
Susan Marsden
Secretary
27 February 2015
85
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukGovernance Statement of Directors’ responsibilities
The Directors are responsible for the maintenance and integrity
of the financial and corporate governance information as
provided on the Company’s website. Legislation in the United
Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report and Accounts,
taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess
the Company’s and the Group’s performance, business model
and strategy.
Each of the Directors, whose names and functions are listed in the
Governance section on pages 54 and 55 confirm that, to the best
of their knowledge:
(a) the Group financial statements, which have been prepared
in accordance with IFRSs as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial
position and profit of the Group
(b) the Directors’ report includes a fair review of the development
and performance of the business and the position of the
Group, together with a description of the principal risks and
uncertainties that it faces
Signed on behalf of the Board on 27 February 2015
David Fischel
Chief Executive
Matthew Roberts
Chief Financial Officer
The Directors are responsible for preparing the Annual Report,
the Directors’ remuneration report and the financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group and Company financial statements
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union. Under company law
the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state
of affairs of the Group and the Company and of the profit or loss
of the Group and Company for that period. In preparing these
financial statements, the Directors are required to:
(a) select suitable accounting policies and then apply
them consistently
(b) make judgements and accounting estimates that are
reasonable and prudent
(c) state whether applicable IFRSs as adopted by the European
Union have been followed, subject to any material departures
disclosed and explained in the financial statements
(d) prepare the financial statements on the going concern basis,
unless it is inappropriate to presume that the Company will
continue in business
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and the Group and enable
them to ensure that the financial statements and the Directors’
remuneration report comply with the Companies Act 2006
and, as regards the Group financial statements, Article 4 of the
IAS Regulation. They are also responsible for safeguarding the
assets of the Company and the Group and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
86
Intu Properties plc – Annual Report 2014 intugroup.co.ukGovernance
Accounts
Independent auditors’ report
Consolidated income statement
Consolidated statement
of comprehensive income
Balance sheets
Statements of changes in equity
Statements of cash flows
Notes to the accounts
88
94
95
96
97
100
101
87
Strategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.ukAccounts Independent auditors’ report to the members
of Intu Properties plc
Report on the financial statements
Our opinion
In our opinion:
— Intu Properties plc’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair
view of the state of the Group’s and of the Company’s affairs as at 31 December 2014 and of the Group’s profit and the Group’s and
the Company’s cash flows for the year then ended;
— the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union;
— the Company financial statements have been properly prepared in accordance with International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
— the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
What we have audited
Intu Properties plc’s financial statements comprise:
— the Group and Company balance sheets as at 31 December 2014;
— the Group consolidated income statement and consolidated statement of comprehensive income for the year then ended;
— the Group and Company statements of changes in equity for the year then ended;
— the Group and Company statements of cash flows for the year then ended; and
— the notes to the accounts, which include a summary of significant accounting policies and other explanatory information.
Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements.
These are cross-referenced from the financial statements and are identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and IFRSs as
adopted by the European Union and, as regards the Company financial statements, as applied in accordance with the provisions of the
Companies Act 2006.
Our audit approach
Overview
Materiality
Audit scope
— Overall Group materiality: £96 million which represents 1% of total assets.
— The Group and Company financial statements are produced by the Group’s central finance department
using a single, consolidated general ledger, and the whole business was subject to the same audit scope.
Areas of focus
— Valuation of Investment Properties
— Business combinations entered into during the year
— Application of new accounting standards
The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements.
In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting
estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we
also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the
Directors that may represent a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are
identified as “areas of focus” in the table below. We have also set out how we tailored our audit to address these specific areas in order
to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be
read in this context. This is not a complete list of all risks identified by our audit.
88
AccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk Area of focus
Valuation of Investment Properties
Refer to page 65 (Audit Committee report), page 103
(Accounting policies), page 101 (Critical accounting estimates
and assumptions) and note 19 to the financial statements.
The existence of significant estimation uncertainty, coupled with
the fact that only a small percentage difference in individual
property valuations, when aggregated, could result in a material
change, warrants specific audit focus in this area.
The Group’s Investment Properties are all shopping centres and
comprise the majority of the assets in the Consolidated balance
sheet, their carrying value amounting to £8.0bn.
The valuation of the Group’s property portfolio is inherently
subjective due to, among other factors, the individual nature
of each property, its location and the expected future rental
revenues for that particular property.
The valuations were carried out by third party valuers, CBRE,
DTZ, Knight Frank, Jones Lang LaSalle and Cushman & Wakefield
(the “Valuers”). The Valuers were engaged by the Directors, and
performed their work in accordance with the Royal Institution
of Chartered Surveyors (“RICS”) Valuation – Professional
Standards. The Valuers used by the Group are well-known
firms, with considerable experience of the market in which the
Group operates.
In determining a property’s valuation the Valuers take into
account property specific current information such as the
current tenancy agreements and rental income attached to
the asset. They then apply assumptions as regards yield and
current market rent, which are influenced by prevailing market
yields and comparable market transactions, to arrive at the final
valuation. Due to the unique nature of each shopping centre,
the assumptions to be applied are determined having regard to
the individual property characteristics at a granular, unit by unit
level, as well as considering the qualities of the shopping centre
as a whole.
During 2014 significant transactions took place in the market
involving shopping centres. The prices paid indicated that the
value of the shopping centres which make up the Group’s
portfolio had increased compared to the valuation reflected in
the Group’s 31 December 2013 balance sheet.
How our audit addressed the area of focus
We read the valuation reports for all properties and attended
meetings with each of the Valuers. We confirmed that the
valuation approach for each was in accordance with RICS
and suitable for use in determining the carrying value in the
Consolidated balance sheet.
We assessed the Valuers’ qualifications and expertise and read
their terms of engagement with the Group to determine whether
there were any matters that might have affected their objectivity
or may have imposed scope limitations upon their work. We also
considered other engagements which might exist between
the Group and the Valuers. We found no evidence to suggest
that the objectivity of any Valuer in their performance of the
valuations was compromised.
We carried out procedures, on a sample basis, to test whether
property specific current information supplied to the Valuers by
management reflected the underlying property records held by
the Group and which had been tested during our audit. We found
them to be consistent.
Our work focused on the largest properties in the portfolio
and those properties where the assumptions used and / or
year on year capital value movement suggested a possible
outlier versus market data for the shopping centre sector.
We compared the investment yields used by the Valuers to an
estimated range of expected yields, determined via reference to
published benchmarks. We also considered the reasonableness
of other assumptions that are not so readily comparable to
published benchmarks, such as Estimated Rental Value, void
rates and rent free periods. Finally, we evaluated year on
year movements in capital value with reference to published
benchmarks. Where assumptions were outside the expected
range or otherwise deemed unusual, and/or valuations appeared
to experience unexpected movements, we undertook further
investigations and, when necessary, held further discussions with
the Valuers. In this way professional scepticism was exercised in
our evaluation of whether assumptions were appropriate in light
of the evidence provided by significant transactions which had
taken place in the market during the year.
It was evident from our interaction with management and
the Valuers and our review of the valuation reports that
close attention had been paid to each property’s individual
characteristics at a granular, unit by unit level, as well as
considering the overall quality, geographic location and
desirability of the asset as a whole. The evaluation of what
were the right assumptions to apply to any given property
included determining the level of impact that recent significant
market transactions should have on each individual property’s
valuation, given its unique characteristics. We saw evidence that
alternative assumptions had been considered and evaluated
by management and the Valuers, before determining the final
valuation. We concluded that the assumptions used in the
valuations were supportable in light of available and comparable
market evidence.
89
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk Independent auditors’ report to the members
of Intu Properties plc
continued
Area of focus
Business combinations entered into during the year
Refer to page 64 (Audit Committee report), page 105
(Accounting policies), and note 40 to the financial statements.
On 1 May 2014 the Group acquired 100% interests in shopping
centres at Derby and Sprucefield, and a 50% joint venture
interest in the Merry Hill shopping centre, from Westfield.
The consideration paid was £854.9m.
The acquisition has been accounted for as a single business
combination, with a gain on acquisition of £1.6m, calculated by
reference to the fair value of the assets and liabilities acquired.
The consolidated financial statements include disclosures
relating to the business combination, required by IFRS 3
Business combinations.
Following acquisition, the tenancy details and general ledger
balances for each of the entities acquired were migrated onto the
Group’s systems. Prior to migration, balances were mapped to
the Group’s own general ledger account lines, with adjustments
made as required to ensure that the balances entering the
system were in line with the Group’s accounting policies.
Due to the volume of data being integrated onto the Group’s
systems, the adjustments required and the level of manual
processing, there exists a risk that the financial information in
relation to entities acquired during the year may not have been
migrated on to the Group accounting systems accurately and
completely, resulting in a risk of material misstatement. As a
result the migration of financial data relating to the entities
acquired onto the Group’s systems, as well as the accounting for
the business combination, was an area of focus in our audit.
How our audit addressed the area of focus
We inspected the purchase agreements and assessed
management’s determination of the fair value of assets and
liabilities acquired. We focused on the fair value of the acquired
properties, including the valuation methodology applied and the
assumptions within the acquisition date valuation. We considered
the reasons for the movements in the valuation between the
acquisition date and the 30 June 2014 valuation point, in order
to assess whether there was information which came to light
within the two month period which should have impacted on
the 1 May 2014 valuations. We also reviewed the disclosures in
respect of the acquisitions from Westfield which were included
in the 31 December 2014 financial statements. Our assessment
included consideration of whether the acquisition of the
50% share in Merry Hill formed part of the single business
acquired. We noted that the acquisitions were acquired from
one vendor and announced as one transaction on the same
day. We concluded that the accounting and disclosures were in
accordance with applicable accounting standards.
The 31 December 2014 year end is the first for which we have
been required to audit the Merry Hill joint venture, intu Derby
and Sprucefield, both for the purposes of the Group audit, and
for the purposes of the audits of the individual subsidiary entities
which were acquired. We therefore performed first year audit
procedures which focused on:
— Evaluation and testing of the controls over the transfer of
accounting records onto the Group’s general ledger and lease
data onto the Group’s lease system; and
— Assessment of adjustments posted during the transfer
process in order to bring the numbers in line with the Group’s
accounting policies.
There were no concerns arising from our work over the migration
of data onto the Group’s systems.
90
AccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk How our audit addressed the area of focus
We performed an assessment as to whether the requirements of
IFRS 10, 11, 12 and the revised IAS 27, 28 had been appropriately
reflected in the consolidated financial statements. This included
assessing whether balances related to joint ventures which have
moved from proportional consolidation to the equity method of
accounting, had been correctly re-presented in accordance with
IFRS 12. We also assessed whether the numbers which show how
the 2014 Group financial statements would have been presented,
prior to the re-presentation were in line with the requirements
of the accounting standard. Our procedures covered all joint
ventures as at 31 December 2014, including the intu Uxbridge,
Parque Principado, and intu Merry Hill joint ventures entered into
during the year. We concluded that the accounting treatment
adopted and disclosures included in the financial statements are
in accordance with the new standards.
For those joint ventures entered into during the year we assessed
the classification as a joint venture, with a particular focus on intu
Uxbridge, where the Group’s share is 20%. We concluded that
the classification in each case is supported by the Group’s ability
to exercise joint control.
Area of focus
Application of new accounting standards
Refer to page 64 (Audit Committee report), page 101 (Accounting
convention and basis of preparation), and notes 22 and 48 to the
financial statements.
The consolidated financial statements for the year ended
31 December 2014 are the first to be prepared in accordance
with the requirements of new standards on accounting for joint
ventures and joint operations (IFRS 10, 11, 12 and the revised IAS
27 and 28). As a result, the Group’s investments in joint ventures
are subject to equity accounting for the first time, as opposed to
being proportionally accounted for in the income statement and
balance sheet of the Group.
The adoption of the new standards involves the re-presentation
of prior period amounts for balances related to joint ventures.
Joint ventures entered into during the year ended 31 December
2014 are also required to be equity accounted for. The standard
requires disclosure of how the 2014 Group financial statements
would have been presented, prior to the re-presentation as a result
of IFRS 11.
The comparatives have been re-presented for the changes
in classification and further details are provided in note 48.
An additional balance sheet showing the re-presented 1 January
2013 position has also been given.
Due to the judgement involved in determining the appropriate
classification of an investments (as a joint venture or joint
operation) and due to the size and number of balances being re-
presented, the application of the new accounting standards was an
area of focus in our audit.
How we tailored the audit scope
In establishing the overall approach to our audit, we assessed the risk of material misstatement, taking into account the nature,
likelihood and potential magnitude of any misstatement. Following this assessment, we applied professional judgement to determine
the extent of testing required over each balance in the financial statements.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements
as a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in
which the Group operates.
Although the Group has some interests in shopping centre operations outside the UK, the Group is structured as a single reporting
unit with a centralised accounting function, therefore the whole business was subject to the same audit scope. The Group and
Company financial statements are produced using numbers which are maintained on a single, consolidated trial balance, by the
Group’s finance department. The majority of the underlying accounting records are maintained on the Group’s single general ledger.
The intu Derby, intu Merry Hill and Sprucefield centres were in scope for the first time this year, having been purchased during 2014.
For Manchester Arndale, Cribbs Causeway, Centaurus Retail Park, Parque Principado and St David’s, Cardiff rental income and
property expense numbers are submitted quarterly by external property managers to the Group’s finance department, who then
review and enter the numbers onto the Group’s general ledger. We performed auditing procedures over the numbers within those
quarterly submissions, and on the process by which they are entered onto the Group’s general ledger. The quarterly submissions for
Parque Principado were in scope for the first time this year.
Materiality
The scope of our audit is influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole.
91
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk Independent auditors’ report to the members
of Intu Properties plc
continued
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall Group materiality
How we determined it
Rationale for benchmark applied
£96 million (2013: £82 million).
1% of total assets.
In arriving at this judgement we have had regard to the carrying value of the Group’s
assets, acknowledging that the primary measurement attribute of the Group is the
carrying value of investment property. This represents a consistent year-on-year basis for
determining materiality.
In addition, we set a specific materiality level of £8 million (2013: £7 million) for rental income and expenses. In arriving at this
judgement we have had regard to underlying operating profit acknowledging that this is a secondary measurement attribute of the
Group. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £8 million
(2013: £8 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Going concern
Under the Listing Rules we are required to review the Directors’ statement, set out on page 101, in relation to going concern. We have
nothing to report having performed our review.
As noted in the Directors’ statement, the Directors have concluded that it is appropriate to prepare the financial statements using
the going concern basis of accounting. The going concern basis presumes that the Group and Company have adequate resources to
remain in operation, and that the Directors intend them to do so, for at least one year from the date the financial statements were
signed. As part of our audit we have concluded that the Directors’ use of the going concern basis is appropriate.
However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s and
Company’s ability to continue as a going concern.
Other required reporting
Consistency of other in formation
Companies Act 2006 opinions
In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
— Information in the Annual Report is:
— materially inconsistent with the information in the audited financial statements; or
— apparently materially incorrect based on, or materially inconsistent with, our knowledge of the
Group and company acquired in the course of performing our audit; or
— is otherwise misleading.
We have no exceptions
to report arising from
this responsibility.
— the statement given by the Directors on page 57, in accordance with provision C.1.1 of the UK
Corporate Governance Code (“the Code”), that they consider the Annual Report taken as a whole to
be fair, balanced and understandable and provides the information necessary for members to assess
the Group’s and company’s performance, business model and strategy is materially inconsistent with
our knowledge of the Group and company acquired in the course of performing our audit.
— the section of the Annual Report on pages 63 to 67, as required by provision C.3.8 of the Code,
describing the work of the Audit Committee does not appropriately address matters communicated
by us to the Audit Committee.
We have no exceptions
to report arising from
this responsibility.
We have no exceptions
to report arising from
this responsibility.
Adequacy of accounting records and information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion:
— we have not received all the information and explanations we require for our audit; or
— adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from
branches not visited by us; or
— the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
92
AccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk Directors’ remuneration
Directors’ remuneration report – Companies Act 2006
opinion
In our opinion, the part of the Directors’ Remuneration Report
to be audited has been properly prepared in accordance with the
Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you
if, in our opinion, certain disclosures of Directors’ remuneration
specified by law are not made. We have no exceptions to report
arising from this responsibility.
Corporate governance statement
Under the Listing Rules we are required to review the part of the
Corporate Governance Statement relating to the company’s
compliance with 10 provisions of the UK Corporate Governance
Code. We have nothing to report having performed our review.
Responsibilities for the financial statements and the audit
Our responsibilities and those of the directors
As explained more fully in the Statement of Directors’
Responsibilities set out on page 86, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and ISAs
(UK & Ireland). Those standards require us to comply with the
Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and
only for the company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other
purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
What an audit of financial statements involves
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of:
— whether the accounting policies are appropriate to the Group’s
and the company’s circumstances and have been consistently
applied and adequately disclosed;
— the reasonableness of significant accounting estimates made
by the Directors; and
— the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the
Directors’ judgements against available evidence, forming
our own judgements, and evaluating the disclosures in the
financial statements.
We test and examine information, using sampling and other
auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We obtain
audit evidence through testing the effectiveness of controls,
substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information
in the Annual Report to identify material inconsistencies with
the audited financial statements and to identify any information
that is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course
of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the
implications for our report.
Ranjan Sriskandan (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
27 February 2015
Notes
(a)
The maintenance and integrity of the Intu Properties plc website is the responsibility
of the Directors; the work carried out by the auditors does not involve consideration of
these matters and, accordingly, the auditors accept no responsibility for any changes
that may have occurred to the financial statements since they were initially presented
on the website.
(b) Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
93
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk Consolidated income statement
for the year ended 31 December 2014
Revenue
Net rental income
Net other income
Revaluation of investment and development property
Gain on acquisition of businesses
Gain on disposal of subsidiaries
Administration expenses – ongoing
Administration expenses – exceptional
Operating profit
Finance costs
Finance income
Other finance costs
Change in fair value of financial instruments
Net finance costs
Profit before tax, joint ventures and associates
Share of post-tax profit of joint ventures
Share of post-tax profit of associates
Profit before tax
Current tax
Deferred tax
Taxation
Profit for the year
Attributable to:
Owners of Intu Properties plc
Non-controlling interests
Basic earnings per share
Diluted earnings per share
Notes
2014
£m
Re-presented
2013
£m
4
4
5
19
40
41
6
10
11
12
13
22
24
14
14
14
17
17
536.4
362.6
4.8
567.8
1.6
0.6
(30.8)
(13.8)
892.8
(197.1)
11.9
(56.8)
(157.6)
(399.6)
493.2
99.7
0.8
593.7
(0.5)
6.6
6.1
599.8
586.2
13.6
599.8
48.0p
46.3p
511.6
356.2
3.7
109.9
–
–
(27.6)
(21.2)
421.0
(192.6)
0.6
(164.5)
272.3
(84.2)
336.8
26.1
0.5
363.4
(0.8)
1.4
0.6
364.0
359.8
4.2
364.0
34.5p
32.0p
Details of underlying earnings are presented in the underlying profit statement on page 157. Underlying earnings per share are shown
in note 17(c).
94
AccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk Consolidated statement of comprehensive income
for the year ended 31 December 2014
Profit for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Revaluation of other investments
Exchange differences
Tax relating to components of other comprehensive income
Total items that may be reclassified subsequently to profit or loss
Other comprehensive income for the year
Total comprehensive income for the year
Attributable to:
Owners of Intu Properties plc
Non-controlling interests
Notes
25
14
2014
£m
599.8
21.1
7.0
(6.6)
21.5
21.5
621.3
608.1
13.2
621.3
2013
£m
364.0
8.1
(8.1)
(1.6)
(1.6)
(1.6)
362.4
359.2
3.2
362.4
95
Strategic reportGovernanceAccountsOther informationAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk Balance sheets
as at 31 December 2014
Non-current assets
Investment and development property
Plant and equipment
Investment in group companies
Investment in joint ventures
Investment in associates
Other investments
Goodwill
Deferred tax
Derivative financial instruments
Trade and other receivables
Current assets
Trading property
Trade and other receivables
Derivative financial instruments
Short-term investments
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Borrowings
Derivative financial instruments
Non-current liabilities
Borrowings
Derivative financial instruments
Other payables
Deferred tax
Total liabilities
Net assets
Equity
Share capital
Share premium
Treasury shares
Convertible bonds
Other reserves
Retained earnings
Attributable to owners of Intu Properties plc
Non-controlling interests
Total equity
Group
2014
£m
Re-presented
Group
2013
£m
Re-presented
Group
2012
£m
Company
2014
£m
Company
2013
£m
Notes
19
20
21
22
24
25
26
36
29
27
27
29
28
30
31
29
31
29
36
37
37
39
33
38
8,019.6
5.1
–
851.5
38.0
189.7
4.0
–
9.0
99.7
9,216.6
–
114.7
0.7
–
230.0
345.4
9,562.0
(251.5)
(0.6)
(21.3)
(80.7)
(354.1)
(4,332.7)
(275.8)
(2.6)
–
(4,611.1)
(4,965.2)
4,596.8
658.4
1,222.0
(45.1)
–
358.0
2,330.7
4,524.0
72.8
4,596.8
7,278.7
5.5
–
209.5
35.8
154.9
8.2
–
25.1
99.2
7,816.9
0.2
78.1
0.7
69.3
156.7
305.0
8,121.9
(238.1)
(0.9)
(70.9)
(10.1)
(320.0)
(3,944.0)
(220.5)
(4.3)
(12.0)
(4,180.8)
(4,500.8)
3,621.1
486.9
695.6
(48.2)
143.7
500.5
1,740.3
3,518.8
102.3
3,621.1
6,734.2
5.6
–
191.9
40.9
148.8
4.0
–
21.2
92.5
7,239.1
0.2
63.3
0.7
–
182.4
246.6
7,485.7
(211.3)
(0.4)
(94.1)
(19.1)
(324.9)
(3,659.1)
(492.3)
(3.2)
–
(4,154.6)
(4,479.5)
3,006.2
434.2
577.4
(43.9)
143.7
336.7
1,528.9
2,977.0
29.2
3,006.2
–
3.9
2,704.7
–
–
–
–
0.4
–
–
2,709.0
–
1,286.8
–
–
1.0
1,287.8
3,996.8
(394.1)
(0.4)
–
–
(394.5)
(230.0)
(25.6)
–
–
(255.6)
(650.1)
3,346.7
658.4
1,222.0
(45.1)
–
61.4
1,450.0
3,346.7
–
3,346.7
–
4.2
2,511.0
–
–
–
–
–
–
–
2,515.2
–
1,129.4
–
–
0.3
1,129.7
3,644.9
(555.9)
–
–
–
(555.9)
(285.0)
(12.8)
–
–
(297.8)
(853.7)
2,791.2
486.9
695.6
(48.2)
143.7
225.8
1,287.4
2,791.2
–
2,791.2
These consolidated financial statements have been approved for issue by the Board of Directors on 27 February 2015.
David Fischel
Chief Executive
Matthew Roberts
Chief Financial Officer
The notes on pages 101 to 150 form part of these consolidated financial statements.
96
AccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk Statements of changes in equity
for the year ended 31 December 2014
Group
At 1 January 2014
Profit for the year
Other comprehensive income:
Revaluation of other
investments (note 25)
Exchange differences
Tax relating to
components of other
comprehensive income
(note 14)
Total comprehensive income
for the year
Conversion of bond (note 33)
Other ordinary shares issued
Dividends (note 16)
Interest on convertible bonds
(note 33)
Share-based payments
(note 49)
Acquisition of treasury shares
Disposal of treasury shares
Non-controlling interest
additions
Distribution to non-controlling
interest
Disposal of subsidiaries
(note 41)
Realisation of merger reserve
(note 38)
At 31 December 2014
Attributable to owners of Intu Properties plc
Share
capital
£m
486.9
–
Share
premium
£m
695.6
–
Treasury
shares
£m
(48.2)
–
Convertible
bonds
£m
143.7
–
Other
reserves
£m
500.5
–
Retained
earnings
£m
1,740.3
586.2
Total
£m
3,518.8
586.2
Non-
controlling
interests
£m
102.3
13.6
Total
equity
£m
3,621.1
599.8
–
–
–
–
–
–
–
21.2
150.3
–
–
122.5
403.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1.0)
4.1
–
–
–
–
–
–
–
(143.7)
–
–
–
–
–
–
–
–
–
21.1
7.4
(6.6)
21.9
–
–
–
–
–
–
–
–
–
–
–
–
–
21.1
7.4
–
(0.4)
21.1
7.0
(6.6)
–
(6.6)
586.2
–
–
(155.9)
608.1
–
554.2
(155.9)
13.2
–
–
–
621.3
–
554.2
(155.9)
(2.9)
(2.9)
2.5
–
(3.9)
2.5
(1.0)
0.2
–
–
–
–
(2.9)
2.5
(1.0)
0.2
–
–
–
–
–
–
27.2
27.2
(1.2)
(1.2)
(68.7)
(68.7)
–
171.5
658.4
–
526.4
1,222.0
–
3.1
(45.1)
–
(143.7)
–
(164.4)
(164.4)
358.0
164.4
4.2
2,330.7
–
397.1
4,524.0
–
(42.7)
72.8
–
354.4
4,596.8
97
Strategic reportGovernanceAccountsOther informationAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk Statements of changes in equity
for the year ended 31 December 2014
continued
Group
At 1 January 2013
Profit for the year
Other comprehensive income:
Revaluation of other
investments (note 25)
Exchange differences
Tax relating to
components of other
comprehensive income
(note 14)
Total comprehensive income
for the year
Ordinary shares issued
Dividends (note 16)
Interest on convertible
bonds (note 33)
Share-based payments
(note 49)
Acquisition of treasury shares
Disposal of treasury shares
Non-controlling interest
additions (note 40)
Distribution to non-controlling
interest
At 31 December 2013
Attributable to owners of Intu Properties plc
Share
capital
£m
434.2
–
Share
premium
£m
577.4
–
Treasury
shares
£m
(43.9)
–
Convertible
bonds
£m
143.7
–
Other
reserves
£m
336.7
–
Retained
earnings
£m
1,528.9
359.8
Total
£m
2,977.0
359.8
Non-
controlling
interests
£m
29.2
4.2
Total
equity
£m
3,006.2
364.0
–
–
–
–
–
–
–
52.7
–
–
118.2
–
–
–
–
–
–
–
–
–
–
–
–
52.7
486.9
–
118.2
695.6
–
–
–
–
–
–
–
–
(7.0)
2.7
–
–
(4.3)
(48.2)
–
–
–
–
–
–
–
–
–
–
–
8.1
(7.1)
(1.6)
(0.6)
164.4
–
–
–
–
–
–
–
–
–
8.1
(7.1)
–
(1.0)
8.1
(8.1)
(1.6)
–
(1.6)
359.8
–
(142.1)
359.2
335.3
(142.1)
3.2
–
–
362.4
335.3
(142.1)
(5.8)
(5.8)
2.0
–
(2.5)
2.0
(7.0)
0.2
–
–
–
–
(5.8)
2.0
(7.0)
0.2
–
–
71.1
71.1
–
–
143.7
–
164.4
500.5
–
(148.4)
1,740.3
–
182.6
3,518.8
(1.2)
69.9
102.3
(1.2)
252.5
3,621.1
98
AccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk Statements of changes in equity
for the year ended 31 December 2014
Company
At 1 January 2014
Profit for the year
Total comprehensive income for the year
Conversion of bond (note 33)
Other ordinary shares issued
Dividends (note 16)
Interest on convertible bonds (note 33)
Share-based payments (note 49)
Acquisition of treasury shares
Disposal of treasury shares
Realisation of merger reserve (note 38)
At 31 December 2014
Company
At 1 January 2013
Profit for the year
Total comprehensive income for the year
Ordinary shares issued
Dividends (note 16)
Interest on convertible bonds (note 33)
Share-based payments (note 49)
Acquisition of treasury shares
Disposal of treasury shares
At 31 December 2013
Share
capital
£m
486.9
–
–
21.2
150.3
–
–
–
–
–
–
171.5
658.4
Share
capital
£m
434.2
–
–
52.7
–
–
–
–
–
52.7
486.9
Share
premium
£m
695.6
–
–
122.5
403.9
–
–
–
–
–
–
526.4
1,222.0
Share
premium
£m
577.4
–
–
118.2
–
–
–
–
–
118.2
695.6
Attributable to owners of Intu Properties plc
Treasury
shares
£m
(48.2)
–
–
–
–
–
–
–
(1.0)
4.1
–
3.1
(45.1)
Treasury
shares
£m
(43.9)
–
–
–
–
–
–
(7.0)
2.7
(4.3)
(48.2)
Convertible
bonds
£m
143.7
–
–
(143.7)
–
–
–
–
–
–
–
(143.7)
–
Convertible
bonds
£m
143.7
–
–
–
–
–
–
–
–
–
143.7
Other
reserves
£m
225.8
–
–
–
–
–
–
–
–
–
(164.4)
(164.4)
61.4
Retained
earnings
£m
1,287.4
158.4
158.4
–
–
(155.9)
(2.9)
2.5
–
(3.9)
164.4
4.2
1,450.0
Total
£m
2,791.2
158.4
158.4
–
554.2
(155.9)
(2.9)
2.5
(1.0)
0.2
–
397.1
3,346.7
Attributable to owners of Intu Properties plc
Other
reserves
£m
61.4
–
–
164.4
–
–
–
–
–
164.4
225.8
Retained
earnings
£m
1,383.0
52.8
52.8
–
(142.1)
(5.8)
2.0
–
(2.5)
(148.4)
1,287.4
Total
£m
2,555.8
52.8
52.8
335.3
(142.1)
(5.8)
2.0
(7.0)
0.2
182.6
2,791.2
99
Strategic reportGovernanceAccountsOther informationAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk Statements of cash flows
for the year ended 31 December 2014
Cash generated from operations
Interest paid
Interest received
Taxation
Cash flows from operating activities
Cash flows from investing activities
Purchase and development of property, plant and equipment
Sale of property
Acquisition of businesses net of cash acquired
Acquisitions of other investments
Investment in subsidiaries
Redemption of preference shares
Realisation of short-term investments
Cash received on part disposal of intu Uxbridge net of cash
sold with business
Parque Principado cash received net of cash reclassified
Investments in joint ventures
Repayment of capital by joint venture
Loan advances to joint ventures
Loan repayments by joint ventures
Distributions from joint ventures
Cash flows from investing activities
Cash flows from financing activities
Issue of ordinary shares
Acquisition of treasury shares
Sale of treasury shares
Non-controlling interest funding received
Cash transferred to restricted accounts
Borrowings drawn
Borrowings repaid
Interest on convertible bonds
Equity dividends paid
Cash flows from financing activities
Effects of exchange rate changes on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Notes
44
40
21
21
41
41
22
22
22
22
22
33
28
28
Group
2014
£m
292.7
(244.6)
8.8
(0.4)
56.5
(69.7)
–
(851.3)
(3.8)
–
–
69.3
174.1
(11.6)
(0.4)
14.3
(97.6)
52.7
4.9
(719.1)
492.0
(1.0)
0.2
27.2
(15.9)
989.4
(675.1)
(2.9)
(89.8)
724.1
(0.1)
61.4
151.1
212.5
Re-presented
Group
2013
£m
300.6
(335.2)
0.6
(0.7)
(34.7)
(44.1)
0.1
(382.1)
–
–
–
–
–
–
(0.5)
–
(0.4)
9.4
–
(417.6)
273.0
(0.9)
0.2
71.1
–
2,051.6
(1,875.3)
(5.8)
(90.9)
423.0
(0.1)
(29.4)
180.5
151.1
Company
2014
£m
(349.5)
(6.3)
–
–
(355.8)
(1.4)
–
–
–
(182.8)
197.2
–
–
–
–
–
–
–
–
13.0
492.0
(1.0)
0.2
–
–
(55.0)
–
(2.9)
(89.8)
343.5
–
0.7
0.3
1.0
Company
2013
£m
(254.5)
(7.9)
–
–
(262.4)
(1.0)
–
–
–
(197.2)
–
–
–
–
–
–
–
–
–
(198.2)
273.0
(0.9)
0.2
–
–
285.0
–
(5.8)
(90.9)
460.6
–
–
0.3
0.3
100
AccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk Notes to the accounts
1 Accounting convention and basis of preparation
These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union (‘IFRS’), IFRIC interpretations
and with those parts of the Companies Act 2006 applicable
to companies reporting under IFRS. The Directors have taken
advantage of the exemption offered by Section 408 of the
Companies Act not to present a separate income statement
or statement of comprehensive income for the Company.
The consolidated financial statements have been prepared under
the historical cost convention as modified by the revaluation
of property, available-for-sale investments, and certain other
financial assets and liabilities. A summary of the more important
Group accounting policies is set out in note 2.
The accounting policies used are consistent with those applied in
the last annual financial statements, as amended to reflect the
adoption of new standards, amendments and interpretations
which became effective in the year. During 2014, the following
relevant standards, amendments and interpretations endorsed
by the EU became effective for the first time for the Group’s
31 December 2014 financial statements:
— IFRS 10 Consolidated Financial Statements;
— IFRS 11 Joint Arrangements;
— IFRS 12 Disclosure of Interests in Other Entities;
— IAS 27 Separate Financial Statements (revised);
— IAS 28 Investments in Associates and Joint Ventures (revised);
— IAS 32 Financial Instruments: Presentation (amendment);
— IAS 36 Impairment of Assets (amendment); and
— Amendments to IFRS 10, IFRS 11 and IFRS 12
(transition guidance).
IFRS 11 removes the choice of accounting treatments previously
available under IAS 31 Interests in Joint Ventures. This has
impacted the Group’s accounting policy in respect of joint
ventures but has had no impact for joint operations. The Group’s
interests in joint ventures are now accounted for using the equity
method with the income statement and balance sheet showing a
single line for the Group’s share of profit and the net investment
in joint ventures respectively, rather than proportionally
consolidating the Group’s share of assets, liabilities, income
and expenses on a line-by-line basis. The Group’s interest in
joint operations is accounted for by including its interest in
assets, liabilities, income and expenses on a line-by-line basis.
This change in accounting policy has had no impact on net assets
or profit for the year ended 31 December 2013. The comparatives
have been re-presented for the changes in classification and
further details are provided in note 48. An additional balance
sheet showing the re-presented 31 December 2012 position
which also reflects the position at 1 January 2013 has also
been given.
Other pronouncements have not had a material impact on
the financial statements, but have resulted in changes to
presentation or disclosure.
A number of standards have been issued but are not yet adopted
by the EU and so are not available for early adoption. The most
significant of these are IFRS 9 Financial Instruments along with
related amendments to other IFRSs, and IFRS 15 Revenue
from Contracts with Customers. Based on the Group’s current
circumstances, these standards are not expected to have a
material impact on the financial statements.
Use of estimates and assumptions
The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of
estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements
and the reported amounts of income and expenses during
the reporting period. Although these estimates are based on
management’s best knowledge of the amount, event or actions,
actual results ultimately may differ from those estimates.
In particular, significant judgement is required in the use of
estimates and assumptions in the valuation and accounting for
investment and development property and derivative financial
instruments. Additional detail on these two areas is provided
in the relevant accounting policy in note 2 and in other notes
to the financial statements, such as investment properties
and derivatives.
Going concern
The Group’s business activities, together with the factors likely
to affect its future development, performance and position are
set out in the Strategic review on pages 18 to 25. The financial
position of the Group, its cash flows, liquidity position and
borrowing facilities are described in the Financial review on
pages 40 to 46. In addition, note 35 includes the Group’s risk
management objectives, details of its financial instruments and
hedging activities, its exposures to liquidity risk and details of its
capital structure.
The Group prepares regular forecasts and projections which
include sensitivity analysis taking into account a number of
downside risks to the forecast including reasonably possible
changes in trading performance and asset values and assesses
the potential impact of these on the Group’s liquidity position and
available resources.
In preparing the most recent projections, factors taken into
account include £260 million of cash (including the Group’s
share of cash in joint ventures of £30 million) and £411 million
of undrawn facilities at 31 December 2014. The refinancing of
debt completed in the year, extending the Group’s debt maturity
profile to 8.4 years, along with the relatively long-term and stable
nature of the cash flows receivable under tenant leases were also
factored into the forecasts.
After reviewing the most recent projections and the sensitivity
analysis, the Directors have concluded that there is a reasonable
expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future. Thus we
continue to adopt the going concern basis of accounting in
preparing the Group’s financial statements.
101
Strategic reportGovernanceAccountsOther informationAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 2 Accounting policies – Group and Company
Basis of consolidation
The consolidated financial information includes the Company
and its subsidiaries and their interests in joint arrangements
and associates.
All intra-group transactions, balances and unrealised gains
on transactions between Group companies are eliminated
on consolidation.
– subsidiaries
A subsidiary is an entity which the Company controls, that is
when it is exposed, or has rights, to variable returns from its
involvement with the entity and has the ability to affect those
returns through its power over the investee. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group and are de-consolidated from the date that control ceases.
The Company’s investment in Group companies is carried at cost
less accumulated impairment losses.
– joint arrangements
A joint arrangement is an arrangement of which two or more
parties have joint control. Joint control is the contractually agreed
sharing of control of an arrangement where decisions about the
relevant activities require the unanimous consent of the parties
sharing joint control.
A joint operation is a joint arrangement where the parties that
have joint control of the arrangement have rights to the assets,
and obligations for the liabilities, relating to the arrangement.
The Group’s interest in a joint operation is accounted for by
consolidating the Group’s share of the assets, liabilities, income
and expenses on a line-by-line basis.
A joint venture is a joint arrangement where the parties that have
joint control of the arrangement have rights to the net assets of
the arrangement.
The Group’s interest in a joint venture is accounted for using the
equity method as described below.
– associates
An associate is an entity over which the Company, either directly
or indirectly, is in a position to exercise significant influence.
Significant influence is the power to participate in the financial
and operating policies of the entity but is not control or joint
control of those policies. The Group’s interest in an associate is
accounted for using the equity method as described below.
– the equity method
Under the equity method of accounting, interests in joint
ventures and associates are initially recognised at cost and
adjusted thereafter to recognise the Group’s share of the
post-acquisition profits or losses and movements in other
comprehensive income. Loan balances relating to long-term
funding from Group companies to joint ventures and associates
are presented on the face of the balance sheet as part of
the investment.
– non-controlling interest
A non-controlling interest is the equity in a subsidiary not
attributable, directly or indirectly, to the Company. Non-
controlling interests are presented within equity, separately from
the amounts attributable to owners of the Company. Profit or
loss and each component of other comprehensive income is
attributed to owners of the Company and to non-controlling
interests in the appropriate proportions.
Foreign currencies
Items included in the financial statements of each of the
Group’s entities are measured using the currency of the primary
economic environment in which it operates. The consolidated
financial statements are presented in pounds sterling, which is
the Group’s presentation currency.
The assets and liabilities of foreign entities are translated into
pounds sterling at the rate of exchange ruling at the reporting
date and their income statement and cash flows are translated at
the average rate for the period. Exchange differences arising are
dealt with in other comprehensive income.
At entity level, transactions in currencies other than an entity’s
functional currency are recorded at the exchange rate prevailing
at the transaction dates. Foreign exchange gains and losses
resulting from settlement of these transactions and from
retranslation of monetary assets and liabilities denominated
in foreign currencies are recognised in the income statement
except where these relate to loans to foreign subsidiary entities
considered to be part of the net investment in those entities
in which case these amounts as recorded through other
comprehensive income.
Revenue recognition
The Group recognises revenue when the amount of revenue can
be reliably measured and it is probable that future economic
benefits will flow to the Group.
– property revenue
Rental income receivable is recognised on a straight-line basis
over the term of the lease. Directly attributable lease incentives
are recognised within rental income on the same basis.
Contingent rents, being those lease payments that are not
fixed at the inception of a lease, for example increases arising
on rent reviews or rents linked to tenant revenues, are recorded
as income in the periods in which they are earned. Rent reviews
are recognised as income from the date of the rent review,
based on management’s estimates. Estimates are derived
from knowledge of market rents for comparable properties
determined on an individual property basis and updated for
progress of negotiations.
Service charge income is recognised on an accruals basis in line
with the service being provided.
– trading property income
Revenue on the sale of trading property is recognised when the
significant risks and rewards of ownership have been transferred
to the buyer. This will normally take place on exchange
of contracts.
102
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 2 Accounting policies – Group and Company (continued)
Interest income
Interest income is accrued on a time basis, by reference to the
principal outstanding and the effective interest rate.
Dividend income
Dividend income is recognised when the right to receive payment
has been established.
Share-based payments
The cost of granting share options and other share-based
remuneration is recognised through the income statement with
reference to the fair value of the equity instrument, assessed at
the date of grant. This cost is charged to the income statement
over the vesting period of the awards. All awards are accounted
for as equity settled with the credit entry being taken directly to
equity. For awards with non-market related criteria, the charge is
reversed if it appears probable that the performance criteria will
not be met.
For share options an option pricing model is used applying
assumptions around expected yields, forfeiture rates, exercise
price and volatility. Where the share awards have non-market
related performance criteria the Group has used the Black-
Scholes option valuation model to establish the relevant fair
values. Where the share awards have a TSR market related
performance criteria the Group has used the Monte-Carlo
simulation valuation model to establish the relevant fair values.
Investments held in the Company’s own shares in connection
with employee share plans and other share-based payment
arrangements are accounted for as treasury shares (see
accounting policy below).
Exceptional items
Exceptional items are those items that in the Directors’ view
are required to be separately disclosed by virtue of their size,
nature or incidence to enable a full understanding of the Group’s
financial performance.
Taxation
Current tax is the amount payable on the taxable income for the
year and any adjustment in respect of prior years. It is calculated
using rates that have been enacted or substantively enacted by
the balance sheet date.
Deferred tax is provided using the balance sheet liability method
in respect of temporary differences between the carrying
amounts of assets and liabilities in the balance sheet and their
tax bases.
Temporary differences are not provided on the initial recognition
of assets or liabilities that affect neither accounting nor taxable
profit, and differences relating to investments in subsidiaries to
the extent that they will not reverse in the foreseeable future.
Deferred tax is determined using tax rates that have been
enacted or substantively enacted by the balance sheet date and
are expected to apply when the related deferred tax asset is
realised or the deferred tax liability is settled.
Deferred tax assets are recognised only to the extent that
management believe it is probable that future taxable profit
will be available against which the temporary differences can be
utilised. Deferred tax assets and liabilities are offset only when
they relate to taxes levied by the same authority and the Group
intends to settle them on a net basis.
Tax is included in the income statement except when it relates
to items recognised directly in other comprehensive income or
equity, in which case the related tax is also recognised directly in
other comprehensive income or equity.
Investment and development property
Investment and development property is owned or leased
by the Group and held for long-term rental income and
capital appreciation.
The Group has elected to use the fair value model.
Properties are initially recognised at cost and subsequently
revalued at the balance sheet date to fair value as determined by
professionally qualified external valuers on the basis of market
value. Valuations conform with the Royal Institution of Chartered
Surveyors (‘RICS’), Valuation – Professional Standards 2014.
The main estimates and judgements underlying the valuations
are described in note 19.
Properties held under leases are stated gross of the recognised
finance lease liability.
The cost of investment and development property includes
capitalised interest and other directly attributable outgoings
incurred during development. Interest is capitalised on the
basis of the average rate of interest paid on the relevant debt
outstanding. Interest ceases to be capitalised on the date of
practical completion.
Gains or losses arising from changes in the fair value of
investment and development property are recognised
in the income statement.
Depreciation is not provided in respect of investment and
development property.
Gains or losses arising on the sale of investment and
development property are recognised when the significant
risks and rewards of ownership have been transferred to the
buyer. The gain or loss recognised is the proceeds received less
the carrying value of the property and costs directly associated
with the sale.
Leases
Leases are classified according to the substance of the
transaction. A lease that transfers substantially all the risks and
rewards of ownership to the lessee is classified as a finance lease.
All other leases are normally classified as operating leases.
Group as lessee
Finance leases of investment property are accounted for as
finance leases and recognised as an asset and an obligation to
pay future minimum lease payments. The investment property
asset is included in the balance sheet at fair value, gross of the
recognised finance lease liability. Contingent rents are recognised
as they accrue.
103
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk At each balance sheet date the Group reviews whether there is
any indication that an impairment loss recognised in previous
periods may have decreased. If such an indication exists the
asset’s recoverable amount is estimated. An impairment loss
recognised in prior periods is reversed if, and only if, there has
been a change in the estimates used to determine the asset’s
recoverable amount. In this case the asset’s carrying amount
is increased to its recoverable amount but not exceeding the
carrying amount that would have been determined had no
impairment loss been recognised. The reversal of an impairment
loss is recognised in the income statement. No impairment
reversals are permitted to be recognised on goodwill.
Trading property
Trading property comprises those properties either intended for
sale or in the process of construction for sale. Trading property is
carried at the lower of cost and net realisable value.
Trade receivables
Trade receivables are recognised initially at fair value and
subsequently measured at amortised cost.
The Directors exercise judgement as to the collectability of
trade receivables and determine if it is appropriate to impair
these assets. Factors such as days past due, credit status of the
counterparty and historical evidence of collection are considered.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, deposits with
banks, whether restricted or unrestricted, and other short-term
liquid investments with original maturities of three months
or less.
Trade payables
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost.
Pensions
The costs of defined contribution schemes and contributions
to personal plans are charged to the income statement in the
year in which they are incurred. The Group has no defined
benefit scheme.
Borrowings
Borrowings are recognised initially at their net proceeds on issue
and subsequently carried at amortised cost with the exception of
certain convertible bonds as detailed in note 33. Any transaction
costs and premiums or discounts are recognised over the
contractual life using the effective interest method.
In the event of early repayment, all unamortised transaction
costs are recognised immediately in the income statement.
2 Accounting policies – Group and Company (continued)
Other finance lease assets are capitalised at the lower of the fair
value of the leased asset or the present value of the minimum
lease payments and depreciated over the shorter of the lease
term and the useful life of the asset.
Lease payments are allocated between the liability and finance
charges so as to achieve a constant financing rate.
Rentals payable under operating leases are charged to the
income statement on a straight-line basis over the lease term.
Group as lessor
Investment properties are leased to tenants under operating
leases, with rental income being recognised on a straight-line
basis over the lease term. For more detail see the revenue
recognition accounting policy.
Plant and equipment
Plant and equipment consists of vehicles, fixtures, fittings
and other equipment. Plant and equipment is stated at
cost less accumulated depreciation and any accumulated
impairment losses.
Depreciation is charged to the income statement on a straight-
line basis over an asset’s estimated useful life up to a maximum
of five years.
Other investments
Available-for-sale investments, being investments intended to
be held for an indefinite period, are initially and subsequently
measured at fair value. For listed investments, fair value is the
current bid market value at the reporting date. For unlisted
investments where there is no active market, fair value is
assessed using an appropriate methodology as described in
note 25.
Gains or losses arising from changes in fair value are included in
other comprehensive income, except to the extent that losses are
considered to represent a permanent impairment, in which case
they are recognised in the income statement.
Upon disposal, accumulated fair value adjustments are
reclassified from reserves to the income statement.
Goodwill
Goodwill arising on business combinations is carried at cost
less accumulated impairment losses. Goodwill is assessed for
impairment on an annual basis.
Impairment of assets
The Group’s assets are reviewed at each balance sheet date to
determine whether events or changes in circumstances exist
that indicate that their carrying amount may not be recoverable.
If such an indication exists, the asset’s recoverable amount is
estimated. The recoverable amount is the higher of an asset’s fair
value less costs to sell and its value in use. An impairment loss
is recognised in the income statement for the amount by which
the asset’s carrying amount exceeds its recoverable amount.
For the purposes of assessing impairment, assets are grouped
at the lowest levels for which there are separately identifiable
cash flows.
104
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 2 Accounting policies – Group and Company (continued)
Derivative financial instruments
The Group uses derivative financial instruments to manage
exposure to interest rate and foreign exchange risk.
They are initially recognised on the trade date at fair value and
subsequently re-measured at fair value. In assessing fair value the
Group uses its judgement to select suitable valuation techniques
and make assumptions which are mainly based on market
conditions existing at the balance sheet date. The fair value of
interest rate swaps is calculated by discounting estimated future
cash flows based on the terms and maturity of each contract
and using market interest rates for similar instruments at the
measurement date. These values are tested for reasonableness
based upon broker or counterparty quotes.
Amounts paid under derivative financial instruments (currently
for the Group this relates to interest rate swaps), both on
obligations as they fall due and on early settlement, are
recognised in the income statement as finance costs. Fair value
movements on revaluation of derivative financial instruments are
shown in the income statement through changes in fair value of
financial instruments.
The Group does not currently apply hedge accounting to its
interest rate swaps.
Share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new ordinary shares are shown in
equity as a deduction, net of tax, from the proceeds.
Dividends
Dividends are recognised when they become legally payable.
In the case of interim dividends to owners, this is the date of
payment. In the case of final dividends, this is when declared by
shareholders at the AGM.
Convertible bonds
Convertible bonds are assessed on issue, as to whether they
should be classified as a financial liability, as equity or as a
compound financial instrument with both debt and equity
components. This assessment is based on the terms of the bond
and in accordance with IAS 32. Each bond is assessed separately
and the detailed accounting treatment of each is given in note 33.
Treasury shares
Investments held in the Company’s own shares are deducted
from equity at cost. Where such shares are subsequently sold,
any consideration received is recognised directly in equity.
Current/non-current classification
Current assets include assets held primarily for trading purposes,
cash and cash equivalents, and assets expected to be realised
in, or intended for sale or consumption in, the course of the
Group’s operating cycle. All other assets are classified as non-
current assets.
Current liabilities include liabilities held primarily for trading
purposes, liabilities expected to be settled in the course of the
Group’s operating cycle and those liabilities due within one year
from the reporting date. All other liabilities are classified as non-
current liabilities.
Business combinations
Business combinations are accounted for in accordance with
IFRS 3 Business Combinations using the acquisition method of
accounting. The consideration transferred for the acquisition
of a subsidiary is the fair values of the assets transferred, the
liabilities incurred and the equity interests issued by the Group.
The consideration transferred includes the fair value of any
asset or liability resulting from a contingent consideration
arrangement. Costs associated with the acquisition are expensed
as incurred. Identifiable assets and liabilities assumed in a
business combination are measured initially at their fair values at
the acquisition date.
Goodwill arising on an acquisition comprises the excess of the
consideration over the fair value of the identifiable assets and
liabilities acquired. Where the fair value of the identifiable assets
and liabilities acquired exceeds the consideration this difference is
recognised in the income statement at the date of the acquisition.
105
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 3 Segmental reporting
Operating segments are determined based on the internal reporting and operational management of the Group. The Group is
primarily a UK shopping centre focused business and has one reportable operating segment.
The principal profit indicator used to measure performance is net rental income. An analysis of net rental income is given in note 4.
The Group’s geographical segments are set out below. This represents where the Group’s assets reside and where revenues are
generated. In the case of investments this reflects where the investee is located.
United Kingdom
Spain
United States
India
1 Non-current assets excluding financial instruments.
4 Net rental income
Rent receivable
Service charge income
Facilities management income from joint ventures
Revenue
Rent payable
Service charge costs
Facilities management costs recharged to joint ventures
Other non-recoverable costs
Net rental income
5 Net other income
Dividends received from other investments
Management fees
intu Digital
Net other income
Revenue
Re-presented
2013
£m
508.2
3.4
–
–
511.6
2014
£m
532.7
3.7
–
–
536.4
Non-current assets1
2014
£m
8,934.4
49.7
184.7
38.8
9,207.6
2014
£m
441.1
88.2
7.1
536.4
(22.2)
(98.7)
(7.1)
(45.8)
362.6
2014
£m
6.1
1.6
(2.9)
4.8
Re-presented
2013
£m
7,453.2
147.9
153.9
36.8
7,791.8
Re-presented
2013
£m
430.3
81.3
–
511.6
(22.4)
(91.8)
–
(41.2)
356.2
Re-presented
2013
£m
6.3
–
(2.6)
3.7
6 Administration expenses – exceptional
Exceptional administration expenses in the year totalled £13.8 million (2013 – £21.2 million). This includes costs relating to corporate
transactions, principally the acquisition of intu Merry Hill, intu Derby and Sprucefield (£11.8 million, including £3.8 million of stamp
duty). See note 2 for definition.
7 Operating profit
Operating profit is arrived at after charging:
Staff costs (note 8)
Depreciation
Remuneration paid to the Company’s auditors (note 9)
106
2014
£m
72.3
2.1
1.6
2013
£m
44.3
1.8
0.9
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 8 Employees’ information
Wages and salaries
Social security costs
Other pension costs
Share-based payments (note 49)
Group
2014
£m
61.3
5.8
2.7
2.5
72.3
Group
2013
£m
36.5
3.9
1.9
2.0
44.3
At 31 December 2014 the number of persons employed by the Group was 2,459 (2013 – 2,027). The Company had no employees
during the year (2013 – nil). The monthly average number of persons employed by the Group during the year was:
Head office
Shopping centres
2014
Number
261
1,916
2,177
2013
Number
203
1,077
1,280
The Group’s staff costs and numbers increased in 2013 following the creation of Intu Retail Services Limited, a subsidiary whose role
is to deliver facilities management to all intu branded shopping centres across the UK. These services were previously provided by
external service providers. As a result, 1,112 staff joined the Group on 1 July 2013 and a further 163 staff joined on 1 October 2013.
The Group’s staff costs and numbers for 2014 include a full year’s impact of this change and the impact of acquisitions in the year.
9 Auditors’ remuneration
Fees payable to the Company’s auditors and their associates for:
The audit of the Company’s annual accounts
Other services to the Group – statutory audit of the Company’s subsidiaries
Fees related to the audit of the Company and its subsidiaries
Audit-related assurance services1
Total fees for audit and audit related services
Other assurance services2
Total non-audit related services
Total fees
2014
£000
214
352
566
40
606
1,034
1,034
1,640
2013
£000
197
173
370
40
410
533
533
943
Fees payable to PricewaterhouseCoopers LLP (‘PwC’) and their associates for non-audit services to the Company are not required
to be disclosed separately as they are included on a consolidated basis. The Group also used accounting firms other than PwC for a
number of assignments.
1 Relates to review of the Group’s Interim Report.
2
2014 included £916,000 in respect of reporting accountant work associated with the rights issue and raising debt on intu Trafford Centre
and within the Secured Group Structure (SGS).
The role of the reporting accountant requires detailed knowledge of the entities involved. If a firm other than the audit firm were to
undertake this work then they would have to spend a significant amount of additional time becoming familiar with those entities.
PwC were therefore chosen to undertake this work as it was considered to be sensible and more efficient both in terms of time and costs.
For the same reasons, certain elements of the SGS work were undertaken by another firm that had performed the most recent audit for
those entities.
2014 also included £118,000 in respect of financial due diligence related to the acquisition of intu Merry Hill, intu Derby and Sprucefield.
PwC were chosen to undertake this work on efficiency grounds given the overall assignment, including reporting accountant work on
the rights issue. Additionally, as for all non-audit work, consideration was given as to whether PwC’s independence could be affected by
undertaking this work. It was concluded that this would not be the case.
2013 principally related to reporting accountant work associated with the Group raising debt within the SGS and on intu Metrocentre.
The reasons for using PwC were the same as above.
107
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk
10 Finance costs
On bank loans and overdrafts
On convertible bonds (note 33)
On obligations under finance leases
Finance costs
No finance costs were capitalised in the year ended 31 December 2014 (2013 – £nil).
11 Finance income
Interest receivable on loans to joint ventures
Other finance income
Finance income
12 Other finance costs
Amortisation of Metrocentre compound financial instrument
Cost of termination of derivative financial instruments and other costs1
Foreign currency movements1
Other finance costs
2014
£m
186.0
7.5
3.6
197.1
Re-presented
2013
£m
181.7
7.5
3.4
192.6
2014
£m
10.7
1.2
11.9
2014
£m
6.1
48.4
2.3
56.8
Re-presented
2013
£m
–
0.6
0.6
2013
£m
6.5
158.5
(0.5)
164.5
1
Amounts totalling £50.7 million in the year ended 31 December 2014 are treated as exceptional items, as defined in note 2 (2013 – £158.0 million). These finance costs include
termination of interest rate swaps on repayment of debt, payments on unallocated swaps and other fees.
13 Change in fair value of financial instruments
Loss/(gain) on derivative financial instruments
Loss on convertible bonds designated as at fair value through profit or loss (note 33)
Change in fair value of financial instruments
2014
£m
144.8
12.8
157.6
Re-presented
2013
£m
(274.1)
1.8
(272.3)
Included within the change in fair value of derivative financial instruments are gains totalling £70.3 million resulting from the payment
of obligations under derivative financial instruments during the year. Of these £17.1 million relate to the termination of swaps in the
year and £27.0 million to unallocated swaps (see note 12).
108
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 14 Taxation
Taxation for the year:
Overseas taxation
Current tax
Deferred tax:
On investment and development property
On other investments
On derivative financial instruments
On other temporary differences
Deferred tax
Total tax credit
2014
£m
0.5
0.5
–
(0.9)
(5.6)
(0.1)
(6.6)
(6.1)
2013
£m
0.8
0.8
0.2
(1.9)
3.2
(2.9)
(1.4)
(0.6)
The tax credits for 2014 and 2013 are lower than the standard rate of corporation tax in the UK. The differences are explained below:
Profit before tax, joint ventures and associates
Profit before tax multiplied by the standard rate in the UK of 21.5% (2013 – 23.25%)
Additions and disposals of property and investments
REIT exemption – corporation tax
REIT exemption – deferred tax
Non-deductable and other items
Overseas taxation
Unprovided deferred tax
Total tax credit
Tax relating to components of other comprehensive income is analysed as:
Deferred tax:
On other investments
Tax relating to components of other comprehensive income
2014
£m
493.2
106.0
(0.8)
(32.7)
(109.5)
1.5
0.5
28.9
(6.1)
2014
£m
6.6
6.6
Re-presented
2013
£m
336.8
78.3
4.0
(8.3)
(78.6)
1.5
0.7
1.8
(0.6)
2013
£m
1.6
1.6
15 Profit for the year attributable to owners of Intu Properties plc
Profits of £158.4 million are recorded in the accounts of the Company in respect of the year (2013 – £52.8 million). No income
statement or statement of comprehensive income is presented for the Company as permitted by Section 408 of the Companies
Act 2006.
109
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 16 Dividends
Ordinary shares
Prior year final dividend paid of 9.11 pence per share (2013 – 9.11 pence per share)
Interim dividend paid of 4.6 pence per share (2013 – 4.61 pence per share)
Dividends declared
Proposed final dividend of 9.1 pence per share
1 Adjusted for the rights issue bonus factor, see note 17.
2014
£m
96.2
59.7
155.9
119.8
2013
£m
94.4
47.7
142.1
In 2014, the Company offered shareholders the option to receive ordinary shares instead of cash for the 2013 final and 2014 interim
dividends of 9.1 pence (as adjusted by the bonus factor) and 4.6 pence respectively under the Scrip Dividend Scheme. As a result
of elections made by shareholders 16,442,684 new ordinary shares of 50 pence each were issued on 20 May 2014 and 5,257,861
new ordinary shares of 50 pence each were issued on 25 November 2014 in lieu of dividends otherwise payable. This resulted in
£62.2 million of cash being retained in the business.
In 2013, the Scrip Dividend Scheme resulted in £56.2 million of cash being retained in the business.
Details of the shares in issue and dividends waived are given in notes 37 and 39.
17 Earnings per share
On 22 April 2014, the Company issued 278,241,628 new ordinary shares of 50 pence each through a rights issue. Further details of the
rights issue are provided in note 37. To reflect the rights issue, the number of shares previously used to calculate basic, diluted, headline
and underlying earnings per share have been amended in the table shown below. An adjustment factor of 1.098 has been applied,
based on the ratio of an adjusted (ex-dividend) closing share price of 301.1 pence per share on 28 March 2014, the business day before
the shares started trading ex-rights and the theoretical ex-rights price at that date of 274.2 pence per share. The adjusted share price
has been calculated based on the Company’s share price of 311.1 pence per share on 28 March 2014 less the 2013 final dividend of
10 pence per share which the rights issue shares were not entitled to.
(a) Earnings per share
Basic and diluted earnings per share as calculated in accordance with IAS 33 Earnings per Share:
Profit for the year attributable to owners of Intu Properties plc
Interest on convertible bonds recognised direct to equity (note 33)
Basic earnings per share1
Dilutive convertible bonds, share options and share awards
Diluted earnings per share
Earnings
£m
586.2
(2.9)
583.3
23.2
606.5
2014
Shares
million
Pence per
share
1,214.6
96.4
1,311.0
48.0p
46.3p
Earnings
£m
359.8
(5.8)
354.0
13.3
367.3
Re-presented
2013
Shares
million
Pence per
share
1,027.1
122.4
1,149.5
34.5p
32.0p
1 The weighted average number of shares used for the calculation of basic earnings per share has been adjusted to remove shares held in the ESOP.
110
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 17 Earnings per share (continued)
(b) Headline earnings per share
Headline earnings per share has been calculated and presented as required by the Johannesburg Stock Exchange listing requirements.
Basic earnings
Remove:
Revaluation of investment and development property
Gain on acquisition of businesses
Gain on disposal of subsidiaries
Share of joint ventures’ items
Share of associates’ items
Headline (loss)/earnings
Dilution2
Diluted headline (loss)/earnings
Weighted average number of shares
Dilution2
Diluted weighted average number of shares
Headline (loss)/earnings per share (pence)
Diluted headline (loss)/earnings per share (pence)
1 Net of tax and non-controlling interests.
Gross
£m
(567.8)
(1.6)
(0.6)
(80.4)
(0.8)
2014
Net1
£m
583.3
(552.9)
(1.6)
(0.6)
(80.4)
(0.8)
(53.0)
23.2
(29.8)
1,214.6
96.4
1,311.0
(4.4)p
(2.3)p
Gross
£m
(109.9)
–
–
(15.9)
(0.5)
Re-presented
2013
Net1
£m
354.0
(108.8)
–
–
(15.9)
(0.5)
228.8
13.3
242.1
1,027.1
122.4
1,149.5
22.3p
21.1p
2 The dilution impact is required to be included as calculated in note 17(a) even where this is not dilutive for headline earnings per share.
(c) Underlying earnings per share
Underlying earnings per share is a non-GAAP measure but has been included as it is considered to be a key measure of the Group’s
performance and an indication of the extent to which dividend payments are supported by underlying earnings (see underlying profit
statement on page 157).
Basic earnings per share (per note 17(a))
Remove:
Revaluation of investment and development property (note 19)
Gain on acquisition of businesses
Gain on disposal of subsidiaries
Exceptional administration expenses (note 6)
Exceptional finance costs (note 12)
Change in fair value of financial instruments (note 13)
Tax on the above
Share of joint ventures’ adjusting items
Share of associates’ adjusting items
Non-controlling interests in respect of the above
Underlying earnings per share
Dilutive convertible bonds, share options and share awards
Underlying, diluted earnings per share
2014
Re-presented
2013
Earnings
£m
583.3
Shares
million
1,214.6
Pence per
share
48.0p
Earnings
£m
354.0
Shares
million
1,027.1
Pence per
share
34.5p
(567.8)
(1.6)
(0.6)
13.8
50.7
157.6
(6.7)
(81.1)
(0.8)
14.9
161.7
10.4
172.1
1,214.6
96.4
1,311.0
(46.7)p
(0.1)p
–
1.1p
4.2p
13.0p
(0.6)p
(6.7)p
(0.1)p
1.2p
13.3p
13.1p
(109.9)
–
–
21.2
158.0
(272.3)
(1.5)
(17.4)
(0.5)
8.6
140.2
13.3
153.5
1,027.1
122.4
1,149.5
(10.7)p
–
–
2.0p
15.4p
(26.5)p
(0.1)p
(1.7)p
–
0.8p
13.7p
13.4p
111
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 18 Net asset value per share
As for earnings per share, the comparative number of shares used to calculate each measure of net assets per share has been adjusted
by the bonus factor of 1.098 to reflect the rights issue. See note 17 for more details.
(a) NAV per share (diluted, adjusted)
NAV per share (diluted, adjusted) is a non-GAAP measure but has been included as it is considered to be a key measure of the
Group’s performance.
NAV per share attributable to owners of Intu Properties plc1
Dilutive convertible bonds, share options and awards
Diluted NAV per share
Remove:
Fair value of derivative financial instruments (net of tax)
Deferred tax on investment and development property
and other investments
Goodwill resulting from recognition of deferred tax liabilities
Share of joint ventures’ adjusting items
Non-controlling interests in respect of the above
Add:
Non-controlling interest recoverable balance not recognised
NAV per share (diluted, adjusted)
1 The number of shares used has been adjusted to remove shares held in the ESOP.
Net
assets
£m
4,524.0
22.2
4,546.2
Shares
million
1,303.7
8.6
1,312.3
2014
NAV per
share
pence
347p
347p
Net
assets
£m
3,518.8
3.8
3,522.6
Shares
million
1,055.5
45.1
1,100.6
333.2
14.1
–
4.1
–
26p
196.8
1p
–
–
–
20.4
(4.2)
1.3
(3.8)
Re-presented
2013
NAV per
share
pence
333p
320p
18p
2p
–
–
–
71.3
4,968.9
1,312.3
5p
379p
71.3
3,804.4
1,100.6
6p
346p
Restated NAV per share (diluted, adjusted) for 31 December 2013 is 346 pence per share. Adjusting the previously reported
31 December 2013 figures for the cash raised and the shares issued in the rights issue gives a pro forma NAV per share (diluted,
adjusted) of 335 pence per share.
(b) NNNAV per share (diluted, adjusted)
NNNAV per share (diluted, adjusted) is a non-GAAP measure but has been included as it is considered to be an industry standard
comparable measure.
NAV per share (diluted, adjusted)
Fair value of derivative financial instruments (net of tax)
Excess of fair value of debt over book value
Deferred tax on investment and development property
and other investments
Share of joint ventures’ adjusting items
Non-controlling interests in respect of the above
NNNAV per share (diluted, adjusted)
Net
assets
£m
4,968.9
(333.2)
(310.2)
(14.1)
(6.0)
17.0
4,322.4
Shares
million
1,312.3
1,312.3
2014
NAV per
share
pence
379p
(26)p
(24)p
(1)p
–
1p
329p
Net
assets
£m
3,804.4
(196.8)
(56.9)
(20.4)
(1.3)
6.3
3,535.3
Re-presented
2013
NAV per
share
pence
346p
(18)p
(5)p
(2)p
–
–
321p
Shares
million
1,100.6
1,100.6
112
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 19 Investment and development property
At 1 January 2013 – re-presented
Midsummer Place acquisition (note 40)
Parque Principado acquisition (note 40)
Additions – re-presented
Disposals – re-presented
Surplus on revaluation – re-presented
Foreign exchange movements – re-presented
At 31 December 2013 – re-presented
Acquisition of intu Derby and Sprucefield (note 40)
Additions
Disposal of subsidiaries1
Surplus on revaluation
Foreign exchange movements
At 31 December 2014
1 Disposal of subsidiaries relates to Parque Principado (£142.2 million) and intu Uxbridge (£208.2 million). See note 41.
A reconciliation to market value is given in the table below:
Balance sheet carrying value of investment and development property
Tenant incentives included within trade and other receivables (note 27)
Head leases included within finance leases in borrowings (note 31)
Market value of investment and development property
Freehold
£m
4,508.2
250.5
144.7
24.1
–
113.1
(2.5)
5,038.1
458.4
48.5
(350.4)
468.9
(0.9)
5,662.6
Leasehold
£m
2,226.0
–
–
17.9
(0.1)
(3.2)
–
2,240.6
–
17.5
–
98.9
–
2,357.0
Total
£m
6,734.2
250.5
144.7
42.0
(0.1)
109.9
(2.5)
7,278.7
458.4
66.0
(350.4)
567.8
(0.9)
8,019.6
2014
£m
8,019.6
96.9
(34.9)
8,081.6
Re-presented
2013
£m
7,278.7
96.4
(36.0)
7,339.1
All investment properties measured at fair value in the consolidated balance sheet are categorised as Level 3 in the fair value hierarchy
(see note 35 for definition) as one or more inputs to the valuation are partly based on unobservable market data.
Transfers into and transfers out of the fair value hierarchy levels are recognised on the date of the event or change in circumstances
that caused the transfer. There were no transfers in or out of Level 3 for investment properties during the year.
The market value of investment and development property at 31 December 2014 includes £74.4 million (31 December 2013 –
£29.3 million) in respect of property considered to be developments. These are accounted for as investment property and are valued
using the same methodology as other investment property.
The Group has only one class of investment and development property asset. All the Group’s significant investment and development
property relates to prime shopping centres which are of a similar nature and share characteristics and risks.
113
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 19 Investment and development property (continued)
Valuation process
It is the Group’s policy to engage independent external valuers to determine the market value of its investment and development
property at both 30 June and 31 December. The Group provides information to the valuers, including current lease and tenant data
along with asset specific business plans. The valuers use this and other inputs including market transactions for similar properties to
produce valuations (see valuation methodology below). These valuations and the assumptions they have made are then discussed and
reviewed with the Group’s asset management team and Directors.
The Group engages a number of independent valuation experts to undertake the Group’s property valuations. A summary of the
valuers and the value of property assets they have been engaged to value is given below:
DTZ
Cushman & Wakefield
CBRE
Jones Lang LaSalle
Others
2014
£m
4,623.5
2,200.0
1,248.1
–
10.0
8,081.6
Re-presented
2013
£m
4,100.5
1,900.0
1,188.6
143.1
6.9
7,339.1
In addition to the above, investment properties in the Group’s joint ventures were valued by Knight Frank, Jones Lang LaSalle and DTZ.
Valuation fees are a fixed amount agreed between the Group and the valuers in advance of the valuation and are not linked to the
valuation output.
Valuation methodology
The fair value of the Group’s investment and development property as at 31 December 2014 was determined by independent
external valuers at that date. The valuations are in accordance with the Royal Institution of Chartered Surveyors (RICS) Valuation –
Professional Standards 2014 and were arrived at by reference to market transactions for similar properties. Fair values for investment
properties are calculated using the present value income approach. The main assumptions underlying the valuations are in relation to
rent profile and yields as discussed below.
The key driver of the property valuations is the terms of the leases in place at the valuation date. These determine the majority of
the cash flow profile of the property for a number of years and therefore form the base of the valuation. The valuation assumes
adjustments from these rental values to current market rent at the time of the next rent review (where a typical lease allows only
for upward adjustment) and as leases expire and are replaced by new leases. The current market level of rent is assessed based on
evidence provided by the most recent relevant leasing transactions and negotiations. This is based on evidence available at the date of
valuation and does not assume future increases in market rent.
The nominal equivalent yield is applied as a discount rate to the rental cash flows which, after taking into account other input
assumptions such as vacancies and costs, generates the market value of the property. The nominal equivalent yield applied is assessed
by reference to market transactions for similar properties and takes into account, amongst other things, any risks associated with the
rent uplift assumptions.
Annual property income as disclosed in the table below reflects current annualised gross income.
The net initial yield is calculated as the current net income over the gross market value of the asset and is used as a sense check and to
compare against market transactions for similar properties.
Full definitions of nominal equivalent yield, annual property income and net initial yield are provided in the Glossary.
The valuation output, inputs and assumptions, are reviewed to ensure that they are in line with those of market participants.
A significant change in the nominal equivalent yield in isolation, would result in a significant change in the value of investment and
development property. A decrease in nominal equivalent yield of 50 basis points would result in an increase in the total market value
of £874 million (31 December 2013 – £718 million re-presented), while a 50 basis point increase would result in a decrease in the total
market value of £718 million (31 December 2013 – £611 million re-presented).
114
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 19 Investment and development property (continued)
The tables below provide details of the assumptions used in the valuation and key unobservable inputs:
intu Trafford Centre
intu Lakeside
intu Metrocentre
intu Braehead
Manchester Arndale
intu Derby
intu Watford
intu Victoria Centre
intu Milton Keynes
intu Eldon Square
intu Chapelfield
Cribbs Causeway
intu Bromley
intu Potteries
intu Trafford Centre
intu Lakeside
intu Metrocentre
intu Braehead
Manchester Arndale
intu Watford
intu Victoria Centre
intu Milton Keynes
intu Eldon Square
intu Chapelfield
Cribbs Causeway
intu Uxbridge
intu Potteries
intu Bromley
Parque Principado
Market value
£m
2,200.0
1,255.0
928.1
599.3
430.2
420.0
335.0
314.0
277.5
272.6
261.0
242.9
170.7
164.5
Market value
£m
1,900.0
1,124.5
885.2
602.3
399.0
323.0
306.0
251.0
250.2
245.5
241.5
213.9
162.6
159.2
143.1
Net initial
yield (EPRA)
3.9%
4.2%
4.3%
3.7%
4.6%
6.3%
4.5%
4.0%
4.5%
4.1%
5.0%
4.1%
5.3%
5.3%
Nominal
equivalent yield
4.5%
5.0%
5.4%
5.9%
5.2%
6.2%
6.3%
6.2%
4.9%
6.1%
6.0%
5.5%
7.1%
7.5%
Net initial
yield (EPRA)
4.2%
4.8%
5.0%
4.4%
5.0%
4.7%
4.7%
5.1%
4.8%
5.7%
4.2%
5.4%
6.1%
5.5%
6.9%
Nominal
equivalent yield
5.1%
5.5%
5.8%
5.9%
5.5%
6.5%
6.6%
5.5%
6.6%
6.4%
5.8%
6.4%
7.6%
7.5%
7.2%
2014
Annual property
income
£m
86.9
59.7
46.8
25.5
21.7
28.4
17.3
16.9
13.8
14.0
15.1
12.6
10.5
10.5
2013
Annual property
income
£m
86.0
58.6
48.2
29.1
21.8
17.0
17.6
13.9
14.6
15.3
12.4
12.3
10.7
9.9
11.5
115
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 20 Plant and equipment
Group
At 1 January
Additions
Charge for the year
At 31 December
Company
At 1 January
Additions
Charge for the year
At 31 December
Cost
£m
13.5
1.7
–
15.2
Cost
£m
9.0
1.4
–
10.4
Accumulated
depreciation
£m
(8.0)
–
(2.1)
(10.1)
Accumulated
depreciation
£m
(4.8)
–
(1.7)
(6.5)
2014
Net
£m
5.5
1.7
(2.1)
5.1
2014
Net
£m
4.2
1.4
(1.7)
3.9
Cost
£m
11.8
1.7
–
13.5
Cost
£m
8.0
1.0
–
9.0
Accumulated
depreciation
£m
(6.2)
–
(1.8)
(8.0)
Accumulated
depreciation
£m
(3.3)
–
(1.5)
(4.8)
2013
Net
£m
5.6
1.7
(1.8)
5.5
2013
Net
£m
4.7
1.0
(1.5)
4.2
Plant and equipment consists of vehicles, fixtures, fittings and other office equipment.
21 Investment in group companies
Company
At 1 January
Additions
Redemption of preference shares
Impairment reversed in the year
At 31 December
Cost
£m
3,328.1
182.8
(197.2)
–
3,313.7
Accumulated
impairment
£m
(817.1)
–
–
208.1
(609.0)
2014
Net
£m
2,511.0
182.8
(197.2)
208.1
2,704.7
Cost
£m
3,130.9
197.2
–
–
3,328.1
Accumulated
impairment
£m
(905.4)
–
–
88.3
(817.1)
2013
Net
£m
2,225.5
197.2
–
88.3
2,511.0
Details of principal subsidiary undertakings are provided in note 45.
116
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 22 Joint ventures
The Group’s principal investments in joint ventures own and manage investment properties.
At 1 January 2014 – re-presented
Acquisition of intu Merry Hill (note 40)
intu Uxbridge (note 41)
Parque Principado (note 41)
Other additions
Share of underlying profit
Share of other net profit
Share of profit
Distributions
Repayment of capital
Loan advances
Loan repayments
Foreign exchange movements
At 31 December 2014
Represented by:
Loans to joint venture
Equity
At 1 January 2013
Share of underlying profit
Share of other net profit
Share of profit
Investment in share capital
Loan advances
Loan repayments
At 31 December 2013
Represented by:
Loans to joint venture
Equity
St David’s,
Cardiff
£m
194.6
–
–
–
–
11.3
38.8
50.1
–
–
79.7
(13.5)
–
310.9
intu Merry
Hill
£m
–
403.8
–
–
–
5.1
26.8
31.9
(2.7)
–
–
–
–
433.0
Parque
Principado
£m
–
–
–
71.3
–
0.4
13.9
14.3
–
(14.3)
17.1
(39.2)
(1.9)
47.3
128.6
182.3
386.2
46.8
31.6
15.7
St David’s,
Cardiff
£m
179.0
7.9
17.1
25.0
–
–
(9.4)
194.6
62.4
132.2
2014
Total
£m
209.5
403.8
43.0
71.3
0.4
18.6
81.1
99.7
(4.9)
(14.3)
97.6
(52.7)
(1.9)
851.5
548.3
303.2
Re-presented
2013
Total
£m
191.9
8.7
17.4
26.1
0.5
0.4
(9.4)
209.5
63.0
146.5
Other
£m
14.9
–
43.0
–
0.4
1.8
1.6
3.4
(2.2)
–
0.8
–
–
60.3
1.9
58.4
Other
£m
12.9
0.8
0.3
1.1
0.5
0.4
–
14.9
0.6
14.3
At 31 December 2014, the Boards of joint ventures had approved £0.5 million (2013 – £nil) of future expenditure for the purchase,
construction, development and enhancement of investment property. Of this, £0.1 million is contractually committed. These amounts
represent the Group’s share.
It is intended that the exemption, conferred by regulation 7 of The Partnerships (Accounts) Regulations 2008, from needing to prepare
and file accounts, will be taken in respect of the following limited partnerships which are dealt with on a consolidated basis in these
financial statements: MH (No. 1) Limited Partnership, MH (No. 2) Limited Partnership, MH (No. 3) Limited Partnership, MH (No. 4)
Limited Partnership, MH (No. 5) Limited Partnership, MH (No. 6) Limited Partnership, MH (No. 7) Limited Partnership and MH (No. 8)
Limited Partnership.
117
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 22 Joint ventures (continued)
Set out below is the summarised information of the Group’s joint ventures with financial information presented at 100 per cent.
The summarised income statements are presented for the period from acquisition or becoming a joint venture:
Summary information
Group’s interest
Principal place of business
Summarised income statement
Revenue
Net rental income
Net other income
Revaluation of investment and development property
Administration expenses
Net finance costs
Profit for the year
Group’s share of profit for the year
Summarised balance sheet
Investment and development property
Other non-current assets
Current assets excluding cash and cash equivalents
Cash and cash equivalents
Current financial liabilities
Other current liabilities
Non-current financial liabilities
Other non-current liabilities
Partners’ loans
Net assets
Group’s share of net assets
St David’s,
Cardiff
£m
intu Merry
Hill
£m
Parque
Principado
£m
Other
£m
50%
Wales
50%
England
50%
Spain
38.8
27.2
1.2
75.5
(0.1)
(3.6)
100.2
50.1
594.1
20.6
7.5
13.1
(0.3)
(13.3)
–
–
(257.2)
364.5
182.3
43.0
29.6
–
53.7
(0.7)
(18.7)
63.9
31.9
868.9
0.5
5.9
30.0
(17.8)
(21.4)
–
–
(772.5)
93.6
46.8
10.5
6.8
–
28.8
(0.7)
(6.2)
28.7
14.3
164.4
4.4
1.6
12.1
(3.8)
(0.9)
(72.0)
(11.2)
(63.2)
31.4
15.7
12.0
8.7
–
1.5
(0.8)
–
9.4
3.4
245.1
2.3
1.9
9.0
(1.6)
(5.3)
–
–
(1.4)
250.0
58.4
2014
Total
£m
104.3
72.3
1.2
159.5
(2.3)
(28.5)
202.2
99.7
1,872.5
27.8
16.9
64.2
(23.5)
(40.9)
(72.0)
(11.2)
(1,094.3)
739.5
303.2
118
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 22 Joint ventures (continued)
Summary information
Group’s interest
Principal place of business
Summarised income statement
Revenue
Net rental income
Revaluation of investment and development property
Net finance costs
Profit for the year
Group’s share of profit for the year
Summarised balance sheet
Investment and development property
Other non-current assets
Current assets excluding cash and cash equivalents
Cash and cash equivalents
Current financial liabilities
Other current liabilities
Non-current financial liabilities
Partners’ loans
Net assets
Group’s share of net assets
St David’s,
Cardiff £m
Other
£m
Re-presented
2013
Total
£m
50%
Wales
41.4
25.0
31.2
(6.2)
50.0
25.0
520.4
22.6
8.0
13.6
(172.6)
–
(2.8)
(124.8)
264.4
132.2
10.8
1.6
0.6
–
2.2
1.1
25.0
1.4
1.8
4.2
(2.5)
(0.1)
(1.2)
–
28.6
14.3
52.2
26.6
31.8
(6.2)
52.2
26.1
545.4
24.0
9.8
17.8
(175.1)
(0.1)
(4.0)
(124.8)
293.0
146.5
119
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 23 Joint operations
The Group’s interests in Cribbs Causeway and Manchester Arndale are accounted for as joint operations. The Group holds 50 per cent
beneficial interests in the relevant freehold or leasehold of these properties. Each joint arrangement is governed by a Trust Deed giving
each party rights to income, and obligations for expenses, in respect of their beneficial interest in the property. The management
of the property is established under the Trust Deed as being undertaken by an entity jointly controlled by the beneficial owners of
the property. This entity does not have the right to a share of the income or expenditure from the property, other than the receipt
of a management fee. Therefore these interests are accounted for as joint operations. The principal place of business of the joint
operations is England.
24 Investment in associates
At 1 January
Share of profit of associates
Foreign exchange movements
At 31 December
Group
2014
£m
35.8
0.8
1.4
38.0
Group
2013
£m
40.9
0.5
(5.6)
35.8
Investment in associates comprises a 32.4 per cent holding in the ordinary shares of Prozone Intu Properties Limited (formerly Prozone
Capital Shopping Centres Limited) (‘Prozone’) (incorporated in India).
As required by IAS 28 Investments in Associates and Joint Ventures, the equity method of accounting is applied in accounting for the
Group’s investment in Prozone. The results of Prozone for the year to 30 September have been used as 31 December information is
not available in time for these financial statements. Those results are adjusted to be in line with the Group’s accounting policies and
include the most recent property valuations, as at 30 September 2014, determined by independent professionally qualified external
valuers in line with the valuation methodology described in note 19. The market price per share at 31 December 2014 was INR26
(31 December 2013 – INR18), valuing the Group’s interest at £13.0 million (31 December 2013 – £8.8 million). Following a review it was
concluded no adjustment was required at this time.
Set out below is the summarised financial information of Prozone at 100%:
Summarised income statement
Revenue
Profit for the year1
Summarised balance sheet
Investment and development property
Other non-current assets
Current assets
Current liabilities
Non-current liabilities
Non-controlling interests
Net assets
Group’s 32.4 per cent share of net assets
1
Included within profit for the year is revaluation of investment and development property of £2.3 million (2013 – £1.5 million).
2014
£m
4.6
2.4
185.5
3.3
20.3
(8.7)
(20.9)
(62.2)
117.3
38.0
2013
£m
2.8
1.5
171.2
3.3
17.0
(6.2)
(15.6)
(58.9)
110.8
35.8
120
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 25 Other investments
At 1 January
Additions
Revaluation
Foreign exchange movements
At 31 December
All these investments are available-for-sale investments and are analysed by type of investment as follows:
Listed securities – equity
Unlisted securities – equity
Group
2014
£m
154.9
3.8
21.1
9.9
189.7
Group
2014
£m
5.0
184.7
189.7
Group
2013
£m
148.8
–
8.1
(2.0)
154.9
Group
2013
£m
1.0
153.9
154.9
Listed investments are accounted for at fair value using the bid market value at the reporting date. The Group’s unlisted securities all
relate to the 11.4 million units in a US venture controlled by Equity One, convertible into Equity One shares and therefore the fair value
of the investment is measured by reference to the Equity One share price.
26 Goodwill
At 1 January
Additions
Disposal of subsidiaries (note 41)
At 31 December
27 Trade and other receivables
Current
Trade receivables
Amounts owed by subsidiary undertakings
Amounts owed by joint ventures
Other receivables
Prepayments and accrued income
Trade and other receivables – current
Non-current
Other receivables
Prepayments and accrued income
Trade and other receivables – non-current
Group
2014
£m
8.2
–
(4.2)
4.0
Company
2014
£m
–
1,284.4
–
0.9
1.5
1,286.8
–
–
–
Group
2013
£m
4.0
4.2
–
8.2
Company
2013
£m
–
1,126.4
–
1.0
2.0
1,129.4
–
–
–
Group
2014
£m
24.6
–
20.5
16.8
52.8
114.7
11.4
88.3
99.7
Re-presented
Group
2013
£m
16.0
–
0.5
18.8
42.8
78.1
8.9
90.3
99.2
Included within prepayments and accrued income for the Group of £141.1 million (2013 – £133.1 million) are tenant lease incentives of
£96.9 million (2013 – £96.4 million).
Amounts owed by subsidiary undertakings are unsecured and repayable on demand.
121
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 28 Cash and cash equivalents
Unrestricted cash
Restricted cash
Cash and cash equivalents
Group
2014
£m
212.5
17.5
230.0
Re-presented
Group
2013
£m
151.1
5.6
156.7
Company
2014
£m
1.0
–
1.0
Company
2013
£m
0.3
–
0.3
In 2014, restricted cash is the deposit paid in relation to the acquisition of Puerto Venecia, Zaragoza. In 2013, restricted cash primarily
reflected amounts held to match the 2014 loan notes shown within borrowings and cash deposited against a Spanish local property
tax included within trade and other payables.
A number of the Group’s borrowing arrangements place certain restrictions on the rent received each quarter. These do not prevent
access to or use of this funding within the borrowing entities, however they do place certain restrictions on moving those funds around
the wider group, typically requiring debt servicing costs to be paid before restrictions are lifted.
29 Derivative financial instruments
All derivative financial instruments held by the Group relate to interest rate swaps which are classified as held for trading (see note 35).
The derivative financial instrument held by the Company relates to the Bondholder option (see note 33) and is classified as held
for trading.
30 Trade and other payables
Current
Rents received in advance
Trade payables
Amounts owed to joint ventures
Amounts owed to subsidiary undertakings
Accruals and deferred income
Other payables
Other taxes and social security
Trade and other payables
Group
2014
£m
97.2
2.7
2.7
–
110.7
11.6
26.6
251.5
Re-presented
Group
2013
£m
Company
2014
£m
Company
2013
£m
95.3
5.0
–
–
97.8
17.7
22.3
238.1
–
–
–
376.8
10.6
0.4
6.3
394.1
–
–
–
544.6
8.1
–
3.2
555.9
Amounts owed to subsidiary undertakings are unsecured and repayable on demand.
122
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 31 Borrowings
Group
Current
Bank loans and overdrafts
Commercial mortgage backed securities (‘CMBS’) notes
Current borrowings, excluding finance leases
Finance lease obligations
Non-current
Revolving credit facility 2019
CMBS notes 2019
CMBS notes 2022
CMBS notes 2024
CMBS notes 2029
CMBS notes 2033
CMBS notes 2035
Bank loans 2016
Bank loan 2017
Bank loan 2018
Bank loan 2021
3.875% bonds 2023
4.125% bonds 2023
4.625% bonds 2028
4.250% bonds 2030
Debenture 2027
2.5% convertible bonds 2018 (note 33)
Non-current borrowings, excluding finance leases and
Metrocentre compound financial instrument
Metrocentre compound financial instrument
Finance lease obligations
Total borrowings
Cash and cash equivalents
Net debt
Carrying
value
£m
Secured
£m
Unsecured
£m
1.7
16.5
18.2
3.1
21.3
230.0
19.5
51.2
87.4
88.6
351.8
186.2
330.8
166.5
347.9
120.3
440.2
475.8
340.6
344.5
227.9
325.6
1.7
16.5
18.2
3.1
21.3
230.0
19.5
51.2
87.4
88.6
351.8
186.2
330.8
166.5
347.9
120.3
440.2
475.8
340.6
344.5
227.9
–
3,809.2
–
31.8
3,841.0
3,862.3
4,134.8
166.1
31.8
4,332.7
4,354.0
(230.0)
4,124.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
325.6
325.6
166.1
–
491.7
491.7
Fixed
rate
£m
–
13.3
13.3
3.1
16.4
–
19.5
51.2
87.4
88.6
351.8
–
–
–
–
–
440.2
475.8
340.6
344.5
227.9
325.6
Floating
rate
£m
1.7
3.2
4.9
–
4.9
230.0
–
–
–
–
–
186.2
330.8
166.5
347.9
120.3
–
–
–
–
–
–
2014
Fair
value
£m
1.7
19.1
20.8
3.1
23.9
230.0
20.3
62.8
95.4
101.9
429.5
208.4
330.8
166.5
347.9
120.3
474.1
518.4
392.7
376.8
241.0
325.6
2,753.1
166.1
31.8
2,951.0
2,967.4
1,381.7
–
–
1,381.7
1,386.6
4,442.4
166.1
31.8
4,640.3
4,664.2
Details of the Group’s net external debt are provided in the Other information section.
The fair values have been established using the market value, where available. For those instruments without a market value, a
discounted cash flow approach has been used.
The Group substantially eliminates its interest rate exposure to floating rate debt through interest rate swaps as described in note 35.
The market value of assets secured as collateral against borrowings at 31 December 2014 is £8,818.6 million. There are certain
restrictions on the realisability of investment property where a credit facility secured on that property is in place. In most
circumstances the Group can realise up to 50 per cent without restriction providing the Group continues to manage the asset.
Realising an amount in excess of this would trigger a change of control and mandatory repayment of the facility.
The Company had non-current borrowings of £230.0 million at 31 December 2014 consisting of a revolving credit facility expiring in
2019 (2013 – £285.0 million). This debt is floating rate, secured and its fair value is equal to book value.
123
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 31 Borrowings (continued)
Group
Current
Bank loans and overdrafts
Commercial mortgage backed securities
(‘CMBS’) notes
Loan notes 2014
Current borrowings, excluding finance leases
Finance lease obligations
Non-current
Revolving credit facility 2017
CMBS notes 2015
CMBS notes 2022
CMBS notes 2029
CMBS notes 2033
CMBS notes 2035
Bank loans 2016
Bank loan 2017
Bank loan 2018
3.875% bonds 2023
4.125% bonds 2023
4.625% bonds 2028
Debenture 2027
2.5% convertible bonds 2018 (note 33)
Non-current borrowings, excluding finance leases
and Metrocentre compound financial instrument
Metrocentre compound financial instrument
Finance lease obligations
Total borrowings
Cash and cash equivalents
Net debt
Carrying
value
£m
Secured
£m
Unsecured
£m
49.3
16.5
–
65.8
3.5
69.3
285.0
3.1
51.6
93.2
364.1
184.0
586.9
41.9
346.6
439.4
475.2
340.1
227.6
–
3,438.7
–
32.5
3,471.2
3,540.5
49.3
16.5
1.6
67.4
3.5
70.9
285.0
3.1
51.6
93.2
364.1
184.0
586.9
41.9
346.6
439.4
475.2
340.1
227.6
312.8
3,751.5
160.0
32.5
3,944.0
4,014.9
(156.7)
3,858.2
–
–
1.6
1.6
–
1.6
–
–
–
–
–
–
–
–
–
–
–
–
–
312.8
312.8
160.0
–
472.8
474.4
The maturity profile of debt (excluding finance leases) is as follows:
Repayable within one year
Repayable in more than one year but not more than two years
Repayable in more than two years but not more than five years
Repayable in more than five years
Re-presented
2013
Fair
value
£m
49.3
17.6
1.6
68.5
3.5
72.0
285.0
3.2
59.2
99.8
401.7
189.7
586.9
41.9
346.6
438.3
476.2
349.7
216.3
312.8
Floating
rate
£m
49.3
4.2
–
53.5
–
53.5
285.0
3.1
–
–
–
184.0
586.9
41.9
346.6
–
–
–
–
–
Fixed
rate
£m
–
12.3
1.6
13.9
3.5
17.4
–
–
51.6
93.2
364.1
–
–
–
–
439.4
475.2
340.1
227.6
312.8
2,304.0
160.0
32.5
2,496.5
2,513.9
1,447.5
–
–
1,447.5
1,501.0
3,807.3
160.0
32.5
3,999.8
4,071.8
Group
2014
£m
18.2
328.4
1,148.1
2,824.4
4,319.1
Re-presented
Group
2013
£m
67.4
14.4
1,601.3
2,295.8
3,978.9
Certain borrowing agreements contain financial and other conditions that, if contravened, could alter the repayment profile.
During the year there were no breaches of these conditions (see Financial covenants section on pages 153 and 154).
As at 31 December 2014 the Group had committed borrowing facilities of £640.7 million, £600.0 million expiring in 2019 and £40.7 million
expiring in 2021. At 31 December 2014, £410.7 million was undrawn (2013 – facilities £375.0 million, undrawn £90.0 million).
124
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 31 Borrowings (continued)
Finance lease disclosures:
Minimum lease payments under finance leases fall due:
Not later than one year
Later than one year and not later than five years
Later than five years
Future finance charges on finance leases
Present value of finance lease liabilities
Present value of finance lease liabilities:
Not later than one year
Later than one year and not later than five years
Later than five years
Group
2014
£m
4.2
17.0
64.3
85.5
(50.6)
34.9
3.1
13.5
18.3
34.9
Group
2013
£m
4.7
17.0
66.2
87.9
(51.9)
36.0
3.5
13.0
19.5
36.0
Finance lease liabilities are in respect of head leases on investment property. A number of these leases provide for payment of
contingent rent, usually a proportion of net rental income, in addition to the rents above.
32 Movement in net debt
Group
Balance at 1 January 2014
Acquisition of businesses
Cash received on part disposal of intu Uxbridge net of cash sold
with business
Parque Principado cash received net of cash reclassified
Borrowings drawn down
Borrowings repaid
Issue of ordinary shares
Cash flows with joint ventures
Other net cash movements
Other non-cash movements
Balance at 31 December 2014
Group
Balance at 1 January 2013
Acquisition of businesses
Borrowings drawn down
Borrowings repaid
Issue of ordinary shares
Loan repayments from joint ventures
Other net cash movements
Other non-cash movements
Balance at 31 December 2013
Cash and
cash
equivalents
£m
156.7
(851.3)
Current
borrowings
£m
(70.9)
–
174.1
(11.6)
989.4
(675.1)
492.0
(26.1)
(18.1)
–
230.0
Cash and
cash
equivalents
£m
182.4
(382.1)
2,051.6
(1,875.3)
273.0
9.4
(102.3)
–
156.7
–
–
–
1.4
–
–
–
48.2
(21.3)
Current
borrowings
£m
(94.1)
–
–
74.4
–
–
–
(51.2)
(70.9)
Non-
current
borrowings
£m
(3,944.0)
–
–
–
(989.4)
672.7
–
–
–
(72.0)
(4,332.7)
Non-
current
borrowings
£m
(3,659.1)
–
(2,051.6)
1,731.6
–
–
–
35.1
(3,944.0)
2014
Net
debt
£m
(3,858.2)
(851.3)
174.1
(11.6)
–
(1.0)
492.0
(26.1)
(18.1)
(23.8)
(4,124.0)
Re-presented
2013
Net
debt
£m
(3,570.8)
(382.1)
–
(69.3)
273.0
9.4
(102.3)
(16.1)
(3,858.2)
125
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 33 Convertible bonds
2.5 per cent convertible bonds (‘the 2.5 per cent bonds’)
On 4 October 2012 Intu (Jersey) Limited (the ‘Issuer’) issued £300.0 million 2.5 per cent Guaranteed Convertible Bonds due 2018 at
par all of which remain outstanding at 31 December 2014. At 31 December 2014 the exchange price was £3.5759 per ordinary share.
The Company has unconditionally and irrevocably guaranteed the due and punctual performance by the Issuer of all of its obligations
(including payments) in respect of the 2.5 per cent bonds and the obligations of the Company, as Guarantor, constitute direct,
unsubordinated and unsecured obligations of the Company.
Subject to certain conditions, the 2.5 per cent bonds are convertible into preference shares of the Issuer which are automatically
transferred to the Company in exchange for ordinary shares in the Company or (at the Company’s election) any combination of
ordinary shares and cash. The 2.5 per cent bonds can be converted at any time from 14 November 2012 up to the 20th dealing day
before the maturity date.
The initial exchange price was £4.3752 per ordinary share, a conversion rate of approximately 22,856 ordinary shares for every
£100,000 nominal of the 2.5 per cent bonds. Under the terms of the 2.5 per cent bonds, the exchange price is adjusted upon certain
events including the rights issue on 22 April 2014 and the payment of dividends by the Company.
The 2.5 per cent bonds may be redeemed at par at the Company’s option subject to the Company’s ordinary share price having traded
at 30 per cent above the conversion price for a specified period, or at any time once 85 per cent by nominal value of the 2.5 per cent
bonds originally issued have been converted or cancelled. If not previously converted, redeemed or purchased and cancelled, the
2.5 per cent bonds will be redeemed at par on 4 October 2018.
The 2.5 per cent bonds are designated as at fair value through profit or loss and so are presented on the balance sheet at fair value
with all gains and losses taken to the income statement through the changes in fair value of financial instruments line. At 31 December
2014, the fair value of the 2.5 per cent bonds was £325.6 million (2013 – £312.8 million), with the change in fair value reflected in
note 13. The 2.5 per cent bonds are listed on the Professional Securities Market of the London Stock Exchange.
During the year interest of £7.5 million (2013 – £7.5 million) in respect of these bonds has been recognised within finance costs.
In the Company’s balance sheet the bondholder option is held at its fair value of £25.6 million on a derivative financial instrument.
3.75 per cent convertible bonds (‘the 3.75 per cent bonds’)
In 2011 the Company issued £154.3 million, 3.75 per cent perpetual subordinated convertible bonds, with a conversion price of
£4.00 per ordinary share, in connection with the acquisition of intu Trafford Centre. These were accounted for as equity at their fair
value on issue which totalled £143.7 million. Following the rights issue on 22 April 2014, the conversion price was adjusted to £3.64
per ordinary share. On 2 July 2014 a conversion notice was issued for all the bonds resulting in 42,394,779 new ordinary shares
being issued.
During the year interest of £2.9 million (2013 – £5.8 million) has been recognised on these bonds directly in equity. This is deducted in
arriving at earnings per share (see note 17).
34 Operating leases
The Group earns rental income by leasing its investment properties to tenants under operating leases.
In the UK the standard shopping centre lease is for a term of 10 to 15 years. Standard lease provisions include service charge
payments, recovery of other direct costs and review every five years to market rent. Standard turnover based leases have a turnover
percentage agreed with each lessee which is applied to a retail unit’s annual sales and any excess between the resulting turnover rent
and the minimum rent is receivable by the Group.
The future minimum lease amounts receivable under non-cancellable operating leases for continuing operations are as follows:
Not later than one year
Later than one year and not later than five years
Later than five years
2014
£m
416.9
1,263.3
1,423.2
3,103.4
Re-presented
2013
£m
411.1
1,274.9
1,433.8
3,119.8
The income statement includes £3.6 million (2013 – £3.1 million) recognised in respect of expected increased rent resulting from
outstanding reviews where the actual rent will only be determined on settlement of the rent review.
126
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 35 Financial risk management
The Group is exposed to a variety of financial risks arising from the Group’s operations being principally market risk (including interest
rate risk, and foreign exchange risk), liquidity risk and credit risk.
The majority of the Group’s financial risk management is carried out by the Group treasury department and the policies for managing
each of these risks and the principal effects of these policies on the results for the year are summarised below.
Market risk
a) Interest rate risk
Interest rate risk comprises of both cash flow and fair value risks. Cash flow interest rate risk is the risk that the future cash flows of a
financial instrument will fluctuate due to changes in market interest rates. Fair value interest rate risk is the risk that the fair value of
financial instruments will fluctuate as a result of changes in market interest rates.
The Group’s interest rate risk arises from borrowings issued at variable rates that expose the Group to cash flow interest rate risk,
whereas borrowings issued at fixed interest rates expose the Group to fair value interest rate risk.
Bank debt is typically issued at floating rates linked to LIBOR. Bond debt and other capital market debt are generally issued at
fixed rates.
It is Group policy, and often a requirement of the Group’s lenders, to eliminate substantially all exposure to interest rate fluctuations
in order to establish certainty over cash flows by using floating to fixed interest rate swaps. Such swaps have the economic effect of
converting borrowings from floating to fixed rates.
As a consequence, the Group is exposed to market price risk in respect of the fair value of its fixed rate interest rate swaps, as discussed
in the Financial review on pages 40 to 46.
The table below shows the effects of interest rate swaps on the borrowings profile of the Group:
Borrowings1
Derivative impact (nominal value of interest rate swaps)
Net borrowings profile
Interest rate protection
Fixed
2014
£m
2,738.4
943.9
3,682.3
Floating
2014
£m
1,448.6
(943.9)
504.7
87.9%
Fixed
2013
£m
2,292.8
1,207.4
3,500.2
Re-presented
Floating
2013
£m
1,561.9
(1,207.4)
354.5
90.8%
1 Borrowings are stated at nominal value and excludes the Metrocentre compound financial instruments and finance leases. At 31 December 2014 they include the £230.0 million
(2013 - £285.0 million) drawn under the revolving credit facility which incurs interest at a variable rate. Excluding the revolving credit facility borrowing interest rate protection is 93.1 per
cent (2013 – 98.1 per cent).
Group policy is to target interest rate protection within the range of 75 per cent to 100 per cent.
The weighted average rate for interest rate swaps currently effective is 2.24 per cent (2013 – 2.71 per cent).
Unallocated and forward starting swaps are excluded from the above calculation. The nominal value of these swaps is £746.7 million
of which £125.0 million are forward starting. Their fair value of £242.5 million is included as a liability in the balance sheet.
The approximate impact of a 50 basis point shift upwards in the level of interest rates would be a positive movement of £83.6 million
(2013 – £73.7 million) in the fair value of derivatives. The approximate impact of a 50 basis point shift downwards in the level of interest
rates would be a negative movement of £90.2 million (2013 – £78.7 million) in the fair value of derivatives. In practice, a parallel
shift in the yield curve is highly unlikely. However, the above sensitivity analysis is a reasonable illustration of the possible effect from
the changes in slope and shifts in the yield curve that may actually occur. Where the fixed rate derivative financial instruments are
matched by floating rate debt, the overall effect on Group cash flow of such a movement would be very small.
b) Foreign exchange risk
Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a functional
currency other than sterling. The Group’s policy is to ensure the Group’s net exposure to foreign currency is less than 10 per cent of the
Group’s equity attributable to owners of the Company. At 31 December 2014 the Group’s exposure amounted to 6.4 per cent of equity
attributable to owners of the Company (31 December 2013 – 7.6 per cent).
127
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 35 Financial risk management (continued)
The table summarises the Group’s exposure to foreign currency risk:
Net exposure
2014
€m
87.0
2013
€m
90.2
2014
INRm
3,819.3
2013
INRm
3,766.2
2014
US$m
288.0
2013
US$m
254.9
The following foreign exchange rates apply to the Group’s foreign exchange risk:
Foreign exchange rate
2014
€m
1.2886
2013
€m
1.2020
2014
INRm
98.4238
2013
INRm
102.4470
2014
US$m
1.5593
2013
US$m
1.6563
The approximate impact of a 10 per cent appreciation in foreign exchange rates would be positive movement of £32.3 million
(2013 – £29.5 million) to equity attributable to owners of the Company. The approximate impact of a 10 per cent depreciation in
foreign exchange rates would be a negative movement of £26.5 million (2013 – £24.2 million) to equity attributable to owners of
the Company.
Liquidity risk
Liquidity risk is managed to ensure that the Group is able to meet future payment obligations when financial liabilities fall due.
Liquidity analysis is conducted to ensure that sufficient headroom is available to meet the Group’s operational requirements and
committed investments. The Group treasury policy aims to meet this objective through maintaining adequate cash, marketable
securities and committed facilities to meet these requirements. Undrawn borrowing facilities are detailed in note 31. The Group’s
policy is to seek to optimise its exposure to liquidity risk by balancing its exposure to interest rate risk and to refinancing risk. In effect
the Group seeks to borrow for as long as possible at the lowest acceptable cost.
Group policy is to maintain a weighted average debt maturity of over five years. As at 31 December 2014, the maturity profile of Group
debt showed an average maturity of eight years (2013 – eight years). The Group regularly reviews the maturity profile of its borrowings
and seeks to avoid bunching of maturities through the regular replacement of facilities and by arranging a selection of maturity
dates. Refinancing risk may be reduced by re borrowing prior to the contracted maturity date, effectively switching liquidity risk for
market risk.
The tables below set out the maturity analysis of the Group’s financial liabilities based on the undiscounted contractual obligations to
make payments of interest and to repay principal. Where interest payment obligations are based on a floating rate the rates used are
those implied by the par yield curve for the relevant currency. Where payment obligations are in foreign currencies, the spot exchange
rate ruling at the balance sheet date is used.
Group
Borrowings (including interest)
Finance lease obligations
Other financial liabilities
Derivative payments
Derivative receipts
Group
Borrowings (including interest)
Finance lease obligations
Other financial liabilities
Derivative payments
Derivative receipts
128
Within 1 year
£m
(180.2)
(4.2)
(17.0)
(121.6)
17.0
(306.0)
Within 1 year
£m
(221.8)
(4.7)
(22.6)
(69.6)
19.3
(299.4)
1–2 years
£m
(514.6)
(4.2)
(2.5)
(61.7)
15.7
(567.3)
1–2 years
£m
(180.6)
(4.3)
(3.8)
(71.6)
29.6
(230.7)
2–5 years
£m
(1,574.9)
(12.7)
–
(143.5)
34.0
(1,697.1)
2–5 years
£m
(2,056.3)
(12.7)
–
(141.8)
96.5
(2,114.3)
Over 5 years
£m
(3,607.3)
(64.4)
–
(198.7)
90.1
(3,780.3)
Over 5 years
£m
(3,045.5)
(66.2)
–
(518.0)
417.0
(3,212.7)
2014
Total
£m
(5,877.0)
(85.5)
(19.5)
(525.5)
156.8
(6,350.7)
Re-presented
2013
Total
£m
(5,504.2)
(87.9)
(26.4)
(801.0)
562.4
(5,857.1)
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 35 Financial risk management (continued)
Company
Borrowings (including interest)
Other financial liabilities
Amounts owed to subsidiary undertakings
Company
Borrowings (including interest)
Other financial liabilities
Amounts owed to subsidiary undertakings
Within 1 year
£m
(7.9)
(0.2)
(376.8)
(384.9)
Within 1 year
£m
(11.2)
(0.2)
(544.5)
(555.9)
1–2 years
£m
(7.5)
–
–
(7.5)
1–2 years
£m
(11.2)
–
–
(11.2)
2–5 years
£m
(545.0)
–
–
(545.0)
2–5 years
£m
(307.3)
–
–
(307.3)
Over 5 years
£m
–
–
–
–
Over 5 years
£m
–
–
–
–
2014
Total
£m
(560.4)
(0.2)
(376.8)
(937.4)
2013
Total
£m
(329.7)
(0.2)
(544.5)
(874.4)
Credit risk
Credit risk is the risk of financial loss if a tenant or counterparty fails to meet an obligation under a contract. Credit risk arises
primarily from trade receivables but also from the Group’s holdings of assets with counterparties such as cash deposits and
derivative instruments.
Credit risk associated with trade receivables is actively managed; tenants are managed individually by asset managers, who
continuously monitor and work with tenants, aiming wherever possible to identify and address risks prior to default.
Prospective tenants are assessed via a review process, including obtaining credit ratings and reviewing financial information,
which is conducted internally. As a result deposits or guarantees may be obtained. The amount of deposits held as collateral at
31 December 2014 is £3.4 million (2013 – £4.0 million).
It is Group policy to calculate any impairment of receivables specifically on each contract.
The ageing analysis of trade receivables is as follows:
Up to three months
Three to six months
Trade receivables
Group
2014
£m
22.5
2.1
24.6
Re-presented Group
2013
£m
13.6
2.4
16.0
At 31 December 2014 trade receivables are shown net of provisions totalling £7.1 million (2013 – £6.1 million).
The credit risk relating to cash deposits and derivative financial instruments is actively managed by the Group’s treasury department.
Relationships are maintained with a number of tier one institutional counterparties, ensuring compliance with Group policy relating to
limits on the credit ratings of counterparties (between BBB+ and AAA).
Excessive credit risk concentration is avoided through adhering to authorised limits for all counterparties.
Counterparty
Counterparty #1
Counterparty #2
Counterparty #3
Counterparty #4
Counterparty #5
Sum of five largest exposures
Sum of cash deposits and derivative financial instrument assets
Five largest exposures as a percentage of risk
Credit rating
AA–
A
A
A–
A
Authorised limit
£m
125.0
100.0
75.0
100.0
15.0
Group Exposure
31 December 2014
£m
170.6*
41.0
13.5
6.9
4.8
236.8
239.7
99%
* The exposure exceeded the authorised limit for seven days over the balance sheet date reducing back to below the limit on 5 January 2015. A review and authorisation process was
adhered to before the limit was exceeded and authorisation was given on the basis of the strength of the counterparty and the short time the limit would be exceeded.
129
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 35 Financial risk management (continued)
Classification of financial assets and liabilities
The tables below set out the Group’s accounting classification of each class of financial assets and liabilities and their fair values at
31 December 2014 and 31 December 2013.
The fair values of quoted borrowings are based on the ask price. The fair values of derivative financial instruments are determined
from observable market prices or estimated using appropriate yield curves at 31 December each year by discounting the future
contractual cash flows to the net present values.
2014
Profit to
other
comprehensive
income
£m
–
–
Profit/(loss) to
income
statement
£m
(15.9)
(15.9)
–
–
–
–
(128.9)
(128.9)
–
(12.8)
(12.8)
–
–
21.1
21.1
–
–
–
–
–
Re-presented
2013
Profit to
other
comprehensive
income
£m
–
–
–
–
–
–
8.1
8.1
–
–
–
–
–
Profit/(loss) to
income
statement
£m
3.4
3.4
–
–
–
–
–
–
270.7
270.7
–
(1.8)
(1.8)
Fair
value
£m
9.7
9.7
70.9
230.0
300.9
189.7
189.7
(356.5)
(356.5)
(19.5)
(4,664.2)
(4,683.7)
Fair
value
£m
25.8
25.8
41.9
69.3
156.7
267.9
154.9
154.9
(230.6)
(230.6)
(26.4)
(4,071.8)
(4,098.2)
Carrying
value
£m
9.7
9.7
70.9
230.0
300.9
189.7
189.7
(356.5)
(356.5)
(19.5)
(4,354.0)
(4,373.5)
Carrying
value
£m
25.8
25.8
41.9
69.3
156.7
267.9
154.9
154.9
(230.6)
(230.6)
(26.4)
(4,014.9)
(4,041.3)
Derivative financial instrument assets
Total held for trading assets
Trade and other receivables
Cash and cash equivalents
Total cash and receivables
Other investments
Total available-for-sale investments
Derivative financial instrument liabilities
Total held for trading liabilities
Trade and other payables
Borrowings
Total loans and payables
Derivative financial instrument assets
Total held for trading assets
Trade and other receivables
Short-term investments
Cash and cash equivalents
Total cash and receivables
Other investments
Total available-for-sale investments
Derivative financial instrument liabilities
Total held for trading liabilities
Trade and other payables
Borrowings
Total loans and payables
130
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk
35 Financial risk management (continued)
The table below presents the Group’s financial assets and liabilities recognised at fair value.
Assets
Derivative financial instruments:
– Fair value through profit or loss
Available-for-sale investments
Total assets
Liabilities
Convertible bonds:
– Designated as at fair value through profit or loss
Derivative financial instruments:
– Fair value through profit or loss
Total liabilities
Assets
Derivative financial instruments:
– Fair value through profit or loss
Available-for-sale investments
Total assets
Liabilities
Convertible bonds:
– Designated as at fair value through profit or loss
Derivative financial instruments:
– Fair value through profit or loss
Total liabilities
Level 1
£m
Level 2
£m
Level 3
£m
–
5.0
5.0
325.6
–
325.6
9.7
184.7
194.4
–
356.5
356.5
–
–
–
–
–
–
2014
Total
£m
9.7
189.7
199.4
325.6
356.5
682.1
Level 1
£m
Level 2
£m
Level 3
£m
Re-presented
2013
Total
£m
–
1.0
1.0
312.8
–
312.8
25.8
153.9
179.7
–
230.6
230.6
–
–
–
–
–
–
25.8
154.9
180.7
312.8
230.6
543.4
Fair value hierarchy
Level 1: Valuation based on quoted market prices traded in active markets.
Level 2: Valuation techniques are used, maximising the use of observable market data, either directly from market prices or derived
from market prices.
Level 3: Where one or more inputs to valuation are unobservable. Valuations at this level are more subjective and therefore more
closely managed, including sensitivity analysis of inputs to valuation models. Such testing has not indicated that any material
difference would arise due to a change in input variables.
Transfers into and transfers out of the fair value hierarchy levels are recognised on the date of the event or change in circumstances
that caused the transfer. There were no transfers in or out for the above financial assets and liabilities during the year.
Valuation techniques for level 2 hierarchy financial assets and liabilities are presented in the accounting policies.
131
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 35 Financial risk management (continued)
Capital structure
The Group seeks to enhance shareholder value both by investing in the business so as to improve the return on investment and by
managing the capital structure. The capital of the Group consists of equity, debt and hybrid financial instruments. The Group aims to
access both debt and equity capital markets with maximum efficiency and flexibility.
The key ratios used to monitor the capital structure of the Group are the debt to assets ratio and interest cover. The Group’s stated
medium to long-term preference is for the debt to assets ratio to be within the 40–50 per cent range and interest cover to be greater
than 1.60x. At 31 December 2014 the debt to asset ratio remains within the preferred range and the interest cover ratio continues to
be above the preferred level.
As the Group’s debt is sometimes secured on joint ventures, these ratios are monitored for the Group including share of joint ventures.
A reconciliation from the relevant amounts as presented to those including the Group’s share of joint ventures is presented in the
Other information section.
Debt to assets ratio
Market value of investment and development property
Net external debt
Debt to assets ratio
Interest cover
Finance costs
Finance income
Interest on convertible bonds recognised directly in equity
Underlying operating profit
Remove trading property related items
Interest cover
Group
2014
£m
8,963.4
(3,963.4)
44.2%
Group
2013
£m
7,623.8
(3,698.4)
48.5%
Group
2014
£m
(201.2)
1.2
(2.9)
(202.9)
370.3
(0.6)
369.7
1.82x
Group
2013
£m
(197.2)
0.6
(5.8)
(202.4)
345.6
(0.1)
345.5
1.71x
132
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 36 Deferred tax provision
Under IAS 12 Income Taxes, provision is made for the deferred tax assets and liabilities associated with the revaluation of assets and
liabilities at the corporate tax rate expected to apply to the Group at the time the temporary differences are expected to reverse.
For those UK assets and liabilities benefitting from REIT exemption, the relevant tax rate will be 0 per cent (2013 – 0 per cent), for
other UK assets and liabilities the relevant rate will be 21.5 per cent (2013 – 20 per cent) and for other assets and liabilities the relevant
tax rate will be the prevailing corporate tax rate in the relevant country.
Movements in the provision for deferred tax:
Group
Provided deferred tax provision/(asset):
At 1 January 2013
Acquisition of subsidiaries (note 40)
Recognised in the income statement
Recognised in other comprehensive income
Foreign exchange movements
At 31 December 2013
Recognised in the income statement
Recognised in other comprehensive income
Disposal of subsidiaries (note 41)
At 31 December 2014
Unrecognised deferred tax asset:
At 1 January 2014
On acquisition of subsidiaries
Income statement items
At 31 December 2014
Investment and
development
property
£m
Other
investments
£m
Derivative
financial
instruments
£m
Other
temporary
differences
£m
–
12.0
0.2
–
(0.2)
12.0
–
–
(12.0)
–
(0.3)
–
(0.2)
(0.5)
8.7
–
(1.9)
1.6
–
8.4
(0.9)
6.6
–
14.1
–
–
–
–
(11.2)
–
3.2
–
–
(8.0)
(5.6)
–
–
(13.6)
(23.1)
–
(16.9)
(40.0)
2.5
–
(2.9)
–
–
(0.4)
(0.1)
–
–
(0.5)
(45.8)
(1.0)
(8.9)
(55.7)
Total
£m
–
12.0
(1.4)
1.6
(0.2)
12.0
(6.6)
6.6
(12.0)
–
(69.2)
(1.0)
(26.0)
(96.2)
In accordance with the requirements of IAS 12 Income Taxes, the deferred tax asset has not been recognised in the Group financial
statements due to uncertainty over the level of profits that will be available in the non-REIT elements of the Group in future periods.
The Company recognises a deferred tax asset of £0.4 million, which resulted from carried forward losses and a difference between the
timing of certain deductions for tax and accounting purposes.
37 Share capital and share premium
Issued and fully paid
At 1 January 2013 – 868,473,001 ordinary shares of 50p each
Ordinary shares issued
At 31 December 2013 – 973,845,701 ordinary shares of 50p each
Ordinary shares issued on conversion of bonds (note 33)
Other ordinary shares issued
At 31 December 2014 – 1,316,838,051 ordinary shares of 50p each
Share
capital
£m
Share
premium
£m
434.2
52.7
486.9
21.2
150.3
658.4
577.4
118.2
695.6
122.5
403.9
1,222.0
During the year the Company issued a total of 655,398 ordinary shares in connection with the exercise of options by employees and
former employees under the Intu Properties plc Approved Share Option Scheme and the Intu Properties plc Unapproved Share
Option Scheme. As a result the Company’s share capital increased by £0.3 million and share premium by £1.3 million.
On 22 April 2014, the Company undertook a two for seven rights issue of 278,241,628 new ordinary shares at an issue price of
180.0 pence per share. Shareholders did not take up their rights for 2,747,838 shares, approximately one per cent of the total rights
issue shares. These shares were placed at 289.5 pence per share. The combined impact was that the Company raised a total of
£502.4 million, before £12.0 million of expenses, and as a result the Company’s share capital increased by £139.1 million and share
premium by £351.3 million net of expenses charged to share premium.
133
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 37 Share capital and share premium (continued)
On 20 May 2014 and 25 November 2014, the Company issued 16,442,684 and 5,257,861 new ordinary shares respectively to
shareholders who elected to receive their 2013 final and 2014 interim dividends in shares under the Scrip Dividend Scheme. The value of
the Scrip Shares was calculated in accordance with the terms of the Scrip Dividend Scheme, being the average middle market quotations
for each day between 31 March to 4 April 2014 inclusive and between 3 October to 9 October 2014 respectively less the gross amount of
dividend payable. As a result the Company’s share capital increased by £10.9 million and share premium by £51.3 million.
On 7 July 2014, the Company issued 42,394,779 new ordinary shares following conversion of 3.75 per cent convertible bonds
(see note 33). Utilising the convertible bonds equity reserve of £143.7 million, the Company’s share capital increased by £21.2 million
and share premium by £122.5 million.
Full details of the rights and obligations attaching to the ordinary shares are contained in the Company’s Articles of Association.
These rights include an entitlement to receive the Company’s report and financial statements, to attend and speak at General Meetings
of the Company, to appoint proxies and to exercise voting rights. Holders of ordinary shares may also receive dividends and may receive
a share of the Company’s assets on the Company’s liquidation. There are no restrictions on the transfer of the ordinary shares.
At 27 February 2015, the Company had an unexpired authority to repurchase shares up to a maximum of 125,208,732 shares with a
nominal value of £62.6 million, and the Directors have an unexpired authority to allot up to a maximum of 353,267,119 shares with a
nominal value of £176.6 million.
Included within the issued share capital as at 31 December 2014 are 13,131,185 ordinary shares (2013 – 12,620,925) held by the Trustee
of the ESOP which is operated by the Company (note 39). The nominal value of these shares at 31 December 2014 is £6.6 million
(2013 – £6.3 million).
38 Other reserves
Group
At 1 January 2013
Revaluation of other investments (note 25)
Exchange differences
Tax relating to components of other comprehensive income (note 14)
Ordinary shares issued
At 31 December 2013
Revaluation of other investments (note 25)
Exchange differences
Tax relating to components of other comprehensive income (note 14)
Realisation of merger reserve
At 31 December 2014
Company
At 1 January 2013
Ordinary shares issued
At 31 December 2013
Realisation of merger reserve
At 31 December 2014
Capital
redemption
£m
61.4
–
–
–
–
61.4
–
–
–
–
61.4
Translation
reserve
£m
(0.2)
–
(7.1)
–
–
(7.3)
–
7.4
–
–
0.1
Capital
redemption
£m
61.4
–
61.4
–
61.4
Other
£m
275.5
8.1
–
(1.6)
164.4
446.4
21.1
–
(6.6)
(164.4)
296.5
Merger
reserve
£m
–
164.4
164.4
(164.4)
–
Total
£m
336.7
8.1
(7.1)
(1.6)
164.4
500.5
21.1
7.4
(6.6)
(164.4)
358.0
Total
£m
61.4
164.4
225.8
(164.4)
61.4
During the year the merger reserve created as part of the March 2013 capital raise has been realised and transferred to retained
earnings following redemption of preference shares held by the Company.
134
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 39 Employee Share Ownership Plan (‘ESOP’)
The cost of shares in Intu Properties plc held by the Trustee of the Employee Share Ownership Plan operated by the Company is
accounted for as a deduction from equity.
The purpose of the ESOP is to acquire and hold shares which will be transferred to employees in the future under the Group’s
employee incentive arrangements as described in note 49 and the Director’s remuneration report on pages 71 to 83, including joint
ownership of shares in its role as Trustee of the Joint Share Ownership Plan. Dividends of £1.4 million (2013 – £1.8 million) in respect of
these shares have been waived by agreement.
At 1 January
Adjustment for rights issue
Acquisitions
Disposals
At 31 December
Group and Company
2014
Shares
million
12.6
1.3
0.3
(1.1)
13.1
2014
£m
48.2
–
1.0
(4.1)
45.1
2013
Shares
million
11.4
–
2.0
(0.8)
12.6
2013
£m
43.9
–
7.0
(2.7)
48.2
40 Business combinations
Acquisition during 2014
On 1 May 2014 the Group acquired interests in a number of entities for a consideration of £854.9 million. These entities together hold a
100 per cent interest in intu Derby, a 50 per cent joint venture interest in intu Merry Hill and a 100 per cent interest in Sprucefield retail
park in Northern Ireland. The transaction is accounted for as a single business combination as this was announced as one deal, from
one ultimate vendor and completed on the same day. Consideration was in cash and totalled £854.9 million, consisting of a payment
on completion of £867.8 million less £12.9 million received following final agreement of the completion balance sheet. The cash
flow statement reflects the £854.9 million less the cash acquired of £3.6 million. Acquisition related costs of £11.8 million have been
incurred in the year and recognised in the income statement in exceptional administration expenses. Further details of the acquisition
are given in the Strategic review.
The fair value of assets and liabilities acquired is set out in the table below:
Assets
Investment and development property
Investment in joint venture – intu Merry Hill
Cash and cash equivalents
Trade and other receivables
Total assets
Liabilities
Trade and other payables
Total liabilities
Net assets
Fair value of consideration paid
Gain on acquisition of businesses
Fair value
£m
458.4
403.8
3.6
2.8
868.6
(12.1)
(12.1)
856.5
854.9
1.6
The fair value of the assets, investment in joint venture and liabilities acquired exceeds the fair value of the consideration and as a
result a gain of £1.6 million is recognised in the income statement on acquisition.
The acquired companies contributed £28.7 million to the revenue of the Group and £76.9 million to the profit of the Group for the year.
Acquisitions during 2013
Acquisition of Midsummer Place
On 25 March 2013, the Group acquired 100 per cent of the Midsummer Place Shopping Centre (renamed intu Milton Keynes) with
certain integrated activities, assets and liabilities for cash consideration of £248.6 million. Assets and liabilities acquired consisted of
investment property with book and fair value of £250.5 million, along with other payables with book and fair value of £1.9 million.
Consideration was equal to the fair value of assets and liabilities acquired and so no goodwill arose. Acquisition related costs of
£11.2 million were incurred and recognised in the income statement in exceptional administration expenses.
During 2013 the acquired business contributed £11.4 million to the revenue and £9.3 million to the profit of the Group.
135
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 40 Business combinations (continued)
Acquisition of Parque Principado
In 2013, the Group and CPP Investment Board Real Estate Holdings Inc. (CPPIB) together established Parque Principado S.à r.l., set
up for the purpose of acquiring Parque Principado. On 4 October 2013 a 100 per cent owned subsidiary of Parque Principado S.à r.l.,
acquired 100 per cent of the share capital of Parque Principado S.L. and other properties for total cash consideration of €168.6 million
(£142.6 million). The businesses acquired form Parque Principado, a shopping centre in Oviedo, Spain. Acquisition related costs of
£2.0 million were incurred and recognised in the income statement in exceptional administration expenses.
CPPIB held a 49 per cent non-controlling interest in Parque Principado S.à r.l., the holding company for the Group’s Parque Principado
investment, and provided funding of £71.1 million. In 2014, CPPIB exercised an option allowing them to acquire an additional one per
cent of debt and equity, on terms in line with the original acquisition (see note 41).
The fair value of assets and liabilities acquired in 2013 is set out in the table below:
Assets
Investment property
Trade and other receivables
Cash and cash equivalents (including restricted cash of £4.1 million)
Total assets
Liabilities
Trade and other payables
Deferred tax liabilities
Total liabilities
Net assets
Fair value
£m
144.7
1.1
13.0
158.8
(8.4)
(12.0)
(20.4)
138.4
The fair value of the consideration of £142.6 million exceeded the fair value of the assets and liabilities acquired resulting in the
recognition of goodwill of £4.2 million in the balance sheet on acquisition. The goodwill arose due to the recognition of a deferred
tax liability. The deferred tax liability is calculated, as required under IFRS, on the basis of the tax gain that would arise in the acquired
company were it to dispose of the asset.
During 2013 the acquired businesses contributed £3.4 million to the revenue and £2.8 million to the profit of the Group.
41 Disposal of subsidiaries
On 20 June 2014, the Group sold 80 per cent of its interest in Intu Uxbridge Limited, a wholly owned subsidiary, for consideration of
£174.6 million, before expenses of £1.3 million. The Group retains a 20 per cent interest in the company and as a result of the terms
governing the management of the business, this interest has been accounted for as a joint venture from 20 June 2014. As a result of
this transaction the Group has recorded a gain on disposal of £0.6 million in the income statement. The cash flow statement records
a net inflow of £174.1 million being cash received of £174.6 million net of cash in the business of £0.5 million.
During the year CPPIB, who held a 49 per cent non-controlling interest in Parque Principado S.à r.l., exercised an option allowing
them to acquire an additional one per cent holding and certain rights relating to the management of the business. This has resulted
in Parque Principado, previously accounted for as a subsidiary, being accounted for as a joint venture from that date. As a result the
assets and liabilities of Parque Principado, previously recorded in the balance sheet at 100 per cent, and the related non-controlling
interest in reserves of £68.7 million, have been reclassified to investments in joint ventures. The cash flow statement shows an outflow
of £11.6 million representing cash in the business of £12.9 million, which is reclassified as part of the investment in joint ventures, net of
consideration received on exercise of the option of £1.3 million. No gain or loss arose on exercise of the option.
42 Capital commitments
At 31 December 2014, the Board had approved £80.1 million (2013 – £86.1 million) of future expenditure for the purchase,
construction, development and enhancement of investment property. Of this, £30.7 million (2013 – £54.3 million) is contractually
committed. The majority of this is expected to be spent in 2015.
43 Contingent liabilities
At 31 December 2014, the Group has no material contingent liabilities other than those arising in the normal course of business.
136
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 44 Cash generated from operations
Profit before tax, joint ventures and associates
Remove:
Revaluation of investment and development property
Gain on acquisition of businesses
Gain on disposal of subsidiaries
Depreciation
Share-based payments
Lease incentives and letting costs
Reversal of impairment of investment in group
companies
Finance costs
Finance income
Other finance costs
Change in fair value of financial instruments
Changes in working capital:
Change in trade and other receivables
Change in trade and other payables
Cash generated from operations
45 Principal subsidiary undertakings
Company and principal activity
Notes
19
40
41
20
21
10
11
12
13
Group
2014
£m
493.2
(567.8)
(1.6)
(0.6)
2.1
2.5
(8.3)
–
197.1
(11.9)
56.8
157.6
(29.6)
3.2
292.7
Re-presented
Group
2013
£m
336.8
Company
2014
£m
158.6
Company
2013
£m
53.0
(109.9)
–
–
1.8
2.0
(11.5)
–
192.6
(0.6)
164.5
(272.3)
(4.3)
1.5
300.6
–
–
–
1.7
2.5
–
(208.1)
26.4
(13.0)
7.5
12.7
(144.8)
(193.0)
(349.5)
–
–
–
1.5
2.0
–
(88.3)
17.4
(8.0)
0.8
2.0
(450.9)
216.0
(254.5)
— Barton Square Limited1 (property)
— Intu Shopping Centres plc (property) and its principal subsidiary undertakings:
Belside Limited (property) (Jersey)
Braehead Park Estates Limited (property)
Broadmarsh Retail General Partner Limited1 acting as General Partner of The Broadmarsh
Retail Limited Partnership (property)
Curley Limited (property) (Jersey)
IntuDigital Limited1 (online shopping centre) (31 March year end)
Intu Bromley Limited (property)
Intu Experiences Limited (commercial promotion)
Intu Midsummer Limited (property)
Intu Retail Services Limited (facilities management services)
Intu The Hayes Limited (finance)
Class of share capital % held4
Ordinary shares of £1 each
Ordinary shares of 50p each
Ordinary shares of £1 each
Ordinary shares of £1 each
‘A’ Ordinary shares of £1 each
‘B’ Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of 50p each
100
100
100
100
100
100
100
100
100
100
100
513
100
137
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 45 Principal subsidiary undertakings (continued)
Company and principal activity
— Intu (SGS) Limited1 (holding company) and its principal subsidiary undertakings:
Braehead Glasgow Limited (property)
Braehead Park Investments Limited (property)
Chapelfield GP Limited acting as General Partner of The Chapelfield Partnership (property)
Intu Lakeside Limited (property)
Intu (SGS) Finco Limited (finance)
Intu Watford Limited (property)
VCP (GP) Limited acting as General Partner of The Victoria Centre Partnership (property)
Wilmslow (No.3) General Partner Limited acting as General Partner of The Wilmslow No.3
Limited Partnership
— Intu Debenture plc (finance) and its principal subsidiary undertakings:
Intu Braehead Limited as partner in the Braehead Leisure Partnership (property)
Intu Braehead Leisure Limited as partner in the Braehead Leisure Partnership (property)
Intu Eldon Square Limited (property)
Potteries (GP) Limited acting as General Partner of The Potteries
Shopping Centre Limited Partnership (property)
Steventon Limited (property) (Jersey)
— Intu Finance MH Limited (finance)
— Intu (Jersey) Limited (finance) (Jersey)
— Sprucefield No.2 General Partner Limited1 acting as General Partner of Sprucefield No.2
Limited Partnership
— Liberty International Group Treasury Limited1 (treasury management)
— Liberty International Holdings Limited1 (holding company)
— Metrocentre (GP) Limited1 acting as General Partner of The Metrocentre Partnership (property)
— Nailsfield Limited (holding company) (Mauritius)
— The Trafford Centre Finance Limited1 (finance) (Cayman Islands)
— The Trafford Centre Limited1 (property)
Class of share capital % held4
‘A’ Ordinary shares of £1 each
‘B’ Ordinary shares of €1.3 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £100 each
Ordinary shares of £100 each
Ordinary shares of £1 each
Ordinary shares of 50p each
Ordinary shares of £1 each
Ordinary shares of US$1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
‘A’ Preference shares of 17p each
‘B’ Preference shares of £1 each
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
1002
100
100
100
100
100
1
2
3
Shareholdings in these companies are held by intermediate subsidiary undertakings except for Liberty International Holdings Limited where 40.2 per cent is held by Intu Properties plc,
31.1 per cent is held by Conduit Insurance Holdings Limited and 28.7 per cent is held by TAI Investments Limited.
By virtue of their 40 per cent interest in The Metrocentre Partnership, GIC Real Estate is entitled to appoint 40 per cent of the Directors of Metrocentre (GP) Limited. £72.8 million of
the non-controlling interest shown in the balance sheet as at 31 December 2014 (2013 – £33.0 million) and £12.5 million of the non-controlling interest share of profit for the year
shown in the income statement for the year ended 31 December 2014 (2013 – £4.0 million) relates to GIC Real Estate’s interest. At 31 December 2014, this was the Group’s only
subsidiary that has a non-controlling interest that is material to the Group. Summarised financial information is provided below.
Bilfinger Europa Facilities Management Limited (formerly Europa Support Services Limited) hold a 49 per cent interest in Intu Retail Services Limited. At 31 December 2014 an amount
of nil is included within the non-controlling interest balance in the balance sheet of £nil million (2013 – £nil million)) and £nil million of the non-controlling interest share of profit for
the year shown in the income statement for the year ended 31 December 2014 (2013 – £nil) relating to their interest.
4 Percentage held is the Group’s effective interest in the subsidiaries listed.
138
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 45 Principal subsidiary undertakings (continued)
Companies are incorporated and registered in England and Wales and have a 31 December year end unless otherwise stated.
The companies listed are those subsidiary undertakings whose results or financial position, in the opinion of the Directors, principally
affected the figures in the Company’s consolidated financial statements. A full list of related undertakings will be annexed to the
Company’s next annual return.
Intu (SGS) Finance plc and Intu Metrocentre Finance plc are consolidated as subsidiaries in these financial statements but are not
listed in the table above as the Group does not own the shares in these companies. These companies are vehicles set up on behalf of
the Group for the sole purpose of issuing some of the Group’s listed debt. The Group’s obligations in respect of this debt via a back-to-
back intercompany loan agreement between these companies and other Group companies, and security over investment property
via a deed of charge between the security trustees and other Group companies, mean that the Group is deemed to have control of
these entities.
Set out below is the summarised financial information of The Metrocentre Partnership at 100%, as consolidated:
Summarised income statement
Revenue
Profit for the year
Summarised balance sheet
Investment and development property
Other assets
Liabilities
Net assets
46 Related party transactions
Key management1 compensation is analysed below:
Salaries and short-term employee benefits
Pensions and other post-employment benefits
Share-based payments
2014
£m
65.9
31.2
909.5
50.8
(775.1)
185.2
2014
£m
5.4
0.4
1.6
7.4
2013
£m
66.7
10.0
867.0
38.1
(819.1)
86.0
2013
£m
4.8
0.4
1.3
6.5
1 Key management comprise the Directors of Intu Properties plc and employees who have been designated as persons discharging managerial responsibility.
As John Whittaker, Deputy Chairman and Non-Executive Director of Intu, is the Chairman of the Peel Group, members of the Peel
Group are considered to be related parties. Total transactions between the Group and members of the Peel Group are shown below:
Income
Expenditure
2014
£m
1.6
(0.9)
2013
£m
2.7
(1.0)
Income predominantly relates to leases of office space and a contract to provide advertising services. Expenditure predominantly
relates to costs incurred under a management services agreement and the supply of utilities. All contracts are on an arm’s length basis
at commercial rates.
Additionally, as part of the rights issue on 22 April 2014, the Peel Group agreed to underwrite their rights for which the Group paid an
underwriting fee of £1.0 million.
Balances outstanding between the Group and members of the Peel Group as at 31 December 2014 are shown below:
Amounts owed by members of the Peel Group
Amounts owed to members of the Peel Group
2014
£m
0.2
–
2013
£m
0.1
(0.1)
139
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 46 Related party transactions (continued)
Under the terms of the Group’s acquisition of intu Trafford Centre from the Peel Group, the Peel Group have provided a guarantee
in respect of Section 106 planning obligation liabilities at Barton Square which as at 31 December 2014 totalled £11.6 million
(2013 – £11.3 million).
In 2012, the Group acquired for €2.5 million, alongside a refundable deposit of €7.5 million, a three year option to purchase two
parcels of land in the province of Málaga, Spain from Peel Holdings Limited. The option was subsequently extended, for no additional
consideration, to 6 March 2015 and it is the Group’s intention, subject to shareholder approval, to exercise this option in March 2015.
During the year the Group paid £3.1 million towards costs associated with pre-development activity.
Richard Gordon, a Non-Executive Director of Intu, is the Gordon Family Interest’s representative on the Board, therefore those
companies comprising the Gordon Family Interest are considered to be related parties. As part of the rights issue on 22 April 2014,
the Gordon Family Shareholders agreed to underwrite part of their rights for which the Group paid an underwriting fee of £0.2 million.
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation in the
Group’s financial information.
Significant transactions between the Company and its subsidiaries are shown below:
Interest paid
Interest received
Dividend received
Investment in subsidiaries
Redemption of preference shares
2014
£m
(20.6)
13.0
9.1
182.8
(197.2)
2013
£m
(10.3)
7.9
–
197.2
–
The Company has provided Intu (Jersey) Limited a guarantee over obligations in relation to the 2.5 per cent convertible bonds
(see note 33).
Significant balances outstanding between the Company and its subsidiaries are shown below:
Amounts owed by subsidiary undertakings
Amounts owed to subsidiary undertakings
2014
£m
1,284.4
(376.8)
2013
£m
1,126.4
(544.6)
47 Directors’ emoluments
The details of individual Directors’ remuneration and pension benefits, as set out in the tables contained in the Directors’ remuneration
report on pages 71 to 83, form part of these financial statements.
140
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 48 Change in accounting policy
As described in note 1 the Group has adopted IFRS 11 Joint Arrangements in preparing these financial statements. The tables below
show the impact on the income statements and balance sheets for the periods presented in these financial statements. The adoption
of IFRS 11 Joint Arrangements has no impact on the profit for the year attributable to owners of Intu Properties plc and
non-controlling interests, basic earnings per share and diluted earnings per share, the consolidated statement of comprehensive
income or statement of changes in equity for current or comparative periods.
Details of the Group’s principal investments in joint ventures are given in note 22.
Consolidated income statement
Revenue
Net rental income
Net other income
Revaluation of investment and development property
Gain on acquisition of businesses
Gain on disposal of subsidiaries
Administration expenses – ongoing
Administration expenses – exceptional
Operating profit
Finance costs
Finance income
Other finance costs
Change in fair value of financial instruments
Net finance costs
Profit before tax, joint ventures and associates
Share of post-tax profit of joint ventures
Share of post-tax profit of associates
Profit before tax
Current tax
Deferred tax
Taxation
Profit for the year
Before adoption
£m
582.2
396.6
4.8
648.2
1.6
0.6
(31.1)
(13.9)
1,006.8
(201.2)
1.2
(56.8)
(157.0)
(413.8)
593.0
–
0.8
593.8
(0.6)
6.6
6.0
599.8
Impact of IFRS 11
£m
(45.8)
(34.0)
–
(80.4)
–
–
0.3
0.1
(114.0)
4.1
10.7
–
(0.6)
14.2
(99.8)
99.7
–
(0.1)
0.1
–
0.1
–
2014
As presented
£m
536.4
362.6
4.8
567.8
1.6
0.6
(30.8)
(13.8)
892.8
(197.1)
11.9
(56.8)
(157.6)
(399.6)
493.2
99.7
0.8
593.7
(0.5)
6.6
6.1
599.8
141
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 48 Change in accounting policy (continued)
Consolidated income statement
Revenue
Net rental income
Net other income
Revaluation of investment and development property
Administration expenses – ongoing
Administration expenses – exceptional
Operating profit
Finance costs
Finance income
Other finance costs
Change in fair value of financial instruments
Net finance costs
Profit before tax, joint ventures and associates
Share of post-tax profit of joint ventures
Share of post-tax profit of associates
Profit before tax
Current tax
Deferred tax
Taxation
Profit for the year
As previously presented
£m
533.2
369.5
3.8
125.8
(27.7)
(21.2)
450.2
(197.2)
0.6
(164.5)
273.8
(87.3)
362.9
–
0.5
363.4
(0.8)
1.4
0.6
364.0
Impact of IFRS 11
£m
(21.6)
(13.3)
(0.1)
(15.9)
0.1
–
(29.2)
4.6
–
–
(1.5)
3.1
(26.1)
26.1
–
–
–
–
–
–
2013
Re-presented
£m
511.6
356.2
3.7
109.9
(27.6)
(21.2)
421.0
(192.6)
0.6
(164.5)
272.3
(84.2)
336.8
26.1
0.5
363.4
(0.8)
1.4
0.6
364.0
142
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 48 Change in accounting policy (continued)
Consolidated balance sheet
Non-current assets
Investment and development property
Plant and equipment
Investment in joint ventures
Investment in associates
Other investments
Goodwill
Derivative financial instruments
Trade and other receivables
Current assets
Trading property
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Borrowings
Derivative financial instruments
Non-current liabilities
Borrowings
Derivative financial instruments
Other payables
Deferred tax
Total liabilities
Net assets
Before adoption
£m
Impact of IFRS 11
£m
2014
As presented
£m
8,888.8
5.1
–
38.0
189.7
5.9
9.0
113.8
9,250.3
0.1
128.1
0.7
260.1
389.0
9,639.3
(270.8)
(0.7)
(21.3)
(80.7)
(373.5)
(4,368.3)
(276.2)
(18.9)
(5.6)
(4,669.0)
(5,042.5)
4,596.8
(869.2)
–
851.5
–
–
(1.9)
–
(14.1)
(33.7)
(0.1)
(13.4)
–
(30.1)
(43.6)
(77.3)
19.3
0.1
–
–
19.4
35.6
0.4
16.3
5.6
57.9
77.3
–
8,019.6
5.1
851.5
38.0
189.7
4.0
9.0
99.7
9,216.6
–
114.7
0.7
230.0
345.4
9,562.0
(251.5)
(0.6)
(21.3)
(80.7)
(354.1)
(4,332.7)
(275.8)
(2.6)
–
(4,611.1)
(4,965.2)
4,596.8
143
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk As previously presented
£m
Impact of IFRS 11
£m
2013
Re-presented
£m
7,551.4
5.5
–
35.8
154.9
8.2
25.1
111.2
7,892.1
0.4
81.6
0.7
69.3
165.5
317.5
8,209.6
(245.8)
(1.2)
(149.2)
(11.4)
(407.6)
(3,944.0)
(220.5)
(4.4)
(12.0)
(4,180.9)
(4,588.5)
3,621.1
(272.7)
–
209.5
–
–
–
–
(12.0)
(75.2)
(0.2)
(3.5)
–
–
(8.8)
(12.5)
(87.7)
7.7
0.3
78.3
1.3
87.6
–
–
0.1
–
0.1
87.7
–
7,278.7
5.5
209.5
35.8
154.9
8.2
25.1
99.2
7,816.9
0.2
78.1
0.7
69.3
156.7
305.0
8,121.9
(238.1)
(0.9)
(70.9)
(10.1)
(320.0)
(3,944.0)
(220.5)
(4.3)
(12.0)
(4,180.8)
(4,500.8)
3,621.1
48 Change in accounting policy (continued)
Consolidated balance sheet
Non-current assets
Investment and development property
Plant and equipment
Investment in joint ventures
Investment in associates
Other investments
Goodwill
Derivative financial instruments
Trade and other receivables
Current assets
Trading property
Trade and other receivables
Derivative financial instruments
Short-term investments
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Borrowings
Derivative financial instruments
Non-current liabilities
Borrowings
Derivative financial instruments
Other payables
Deferred tax
Total liabilities
Net assets
144
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 48 Change in accounting policy (continued)
Consolidated balance sheet
Non-current assets
Investment and development property
Plant and equipment
Investment in joint ventures
Investment in associates
Other investments
Goodwill
Derivative financial instruments
Trade and other receivables
Current assets
Trading property
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Borrowings
Derivative financial instruments
Non-current liabilities
Borrowings
Derivative financial instruments
Other payables
Total liabilities
Net assets
As previously presented
£m
Impact of IFRS 11
£m
2012
Re-presented
£m
7,009.7
5.6
–
40.9
148.8
4.0
21.2
104.0
7,334.2
2.1
66.6
0.7
188.1
257.5
7,591.7
(220.9)
(0.6)
(94.2)
(19.1)
(334.8)
(3,751.6)
(495.8)
(3.3)
(4,250.7)
(4,585.5)
3,006.2
(275.5)
–
191.9
–
–
–
–
(11.5)
(95.1)
(1.9)
(3.3)
–
(5.7)
(10.9)
(106.0)
9.6
0.2
0.1
–
9.9
92.5
3.5
0.1
96.1
106.0
–
6,734.2
5.6
191.9
40.9
148.8
4.0
21.2
92.5
7,239.1
0.2
63.3
0.7
182.4
246.6
7,485.7
(211.3)
(0.4)
(94.1)
(19.1)
(324.9)
(3,659.1)
(492.3)
(3.2)
(4,154.6)
(4,479.5)
3,006.2
49 Share-based payment
The Group operates a number of share-based payment arrangements providing employee benefits and incentives. All schemes
are equity settled, and as such the expense recognised in the income statement is based on the fair value of the equity instruments
awarded as determined at their grant date. The expense is recognised on a straight-line basis over the vesting period based on Group
estimates of the number of shares that are expected to vest.
Share Option Schemes
Options to subscribe for ordinary shares may be awarded under the Intu Properties plc Approved Share Option Scheme and the Intu
Properties plc Unapproved Share Option Scheme.
Certain grants are subject to an earnings per share (‘EPS’) performance condition. Options granted to members of the Executive
Committee in 2012 are subject to a sliding scale performance condition based on EPS growth of between 4 to 6 per cent per annum
over a three-year period. Options granted to staff who are not members of the Executive Committee 2012 are not subject to a
performance condition.
145
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 49 Share-based payment (continued)
Except in the case of a ‘good’ leaver, options may not be exercised within three years of grant and before satisfaction or waiver of any
applicable performance condition, and are forfeited if the employee leaves the Group before the options become capable of exercise.
The options automatically lapse if not exercised within 10 years of the date of grant.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
Outstanding at 1 January
Awarded prior to rights issue
Forfeited prior to rights issue
Lapsed prior to rights issue
Exercised prior to rights issue
Adjustment for rights issue
Awarded after rights issue
Forfeited after rights issue
Exercised after rights issue
Outstanding at 31 December
Exercisable at 31 December
Number of options
5,867,697
–
(10,000)
(536,628)
(11,041)
897,337
1,834,800
(100,759)
(1,768,303)
6,173,103
2,406,626
2014
Weighted average
exercise price (pence)
320
–
335
430
272
n/a
292
287
255
275
253
Number of options
6,202,036
1,565,000
(234,417)
(93,016)
(1,571,906)
–
–
–
–
5,867,697
3,744,305
2013
Weighted average
exercise price (pence)
312
335
346
389
294
n/a
–
–
–
320
307
The weighted average share price at the date of exercise during the year was 307p (2013 – 334p).
The number of options outstanding at 31 December 2014 includes a total of 2,150,541 (2013 – 3,817,931) which are subject to a
capped gain price of £2.8563 per share (as adjusted for rights issue). In 2013, 663,192 were subject to a capped price of £3.066 per
share (adjusted for the rights issue). All were exercised in 2014. If the market price of shares at the date of exercise exceeds the capped
price, the maximum gain the holder of such options can realise is the difference between exercise price and the capped price per share.
Share options outstanding at 31 December 2014 had exercise prices between 232p and 292p (2013 – between 272p and 528p) and a
weighted average remaining contractual life of approximately seven years (2013 – seven years). More detail by exercise price ranges is
shown below:
Exercise price (pence)
232 to 292
Exercise price (pence)
272 to 346
387 to 528
2014
Weighted
average remaining
contractual life
7
2013
Weighted
average remaining
contractual life
7
5
Number of options
6,173,103
Number of options
5,331,069
536,628
The fair value of options granted during the year, determined using the Black-Scholes option pricing model, was £0.26 per option
(2013 – £0.34). The significant inputs to the model for the majority of options granted during the year were as follows:
Share price and exercise price at grant date
Expected option life in years
Risk free rate
Expected volatility
Expected dividend yield
2014
£2.92
4 years
1.8%
19.2%
4.7%
2013
£3.35
4 years
0.9%
22.0%
4.5%
Expected dividend yield is based on public pronouncements about future dividend levels. All other measures are based on
historical data.
146
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 49 Share-based payment (continued)
Performance Share Plan
The Company operates a Performance Share Plan (‘PSP’) for eligible employees at the discretion of the Remuneration Committee.
The PSP was approved by shareholders at the 2013 Annual General Meeting.
Awards may be made in the form of nil cost options, a conditional share award or a joint share ownership award and fixed value zero
cost option, and eligible employees may be granted any combination of such awards subject to any individual limits.
Vesting of PSP awards made in 2014 and 2013 is based on Total Shareholder Return (TSR) and Absolute Total Return (TR) with
performance measured one third over three years, one third over four years and one third over five years. Half of the awards vest by
reference to TR (25 per cent vesting for 6 per cent per annum return; full vesting for 10 per cent per annum; straight line vesting in
between). The remaining half of the awards vest by reference to TSR relative to the top five UK-listed REITs (25 per cent return vesting
for TSR in line with the third rated company; full vesting for TSR in line with the top rated company; straight line vesting in between)
subject to a Remuneration Committee operated discretionary assessment of underlying financial performance.
Movements in the number of PSP options outstanding are as follows:
Outstanding at 1 January
Adjustment for rights issue
Awarded during the year
Forfeited in the year
Outstanding at 31 December
2014
Number of
options
1,913,145
205,416
1,559,340
(129,825)
3,548,076
2013
Number of
options
–
–
1,913,145
–
1,913,145
The fair value of TSR options granted during the year was determined using the Monte-Carlo option pricing model. The fair value
of the TR options granted during the year was determined using the Black-Scholes option pricing model. The fair values per option
granted in the year were as follows:
Performance period
3 years
4 years
5 years
TSR
£0.74
£0.79
£0.84
2014
TR
£0.73
£0.73
£0.73
TSR
£0.72
£0.98
£1.42
The significant inputs to the valuation model for the TSR options granted during the year were as follows:
Performance period
Share price at grant date
Expected option life in years
Risk free rate
Expected volatility
Expected competitor volatility
Average correlation
TSR 3 years
£2.92
2.7 years
1.06%
20%
11%-17%
68%
TSR 4 years
£2.92
3.7 years
1.51%
23%
11%-17%
71%
2014
TSR 5 years
£2.92
4.7 years
1.83%
26%
11%-17%
72%
TSR 3 years
£3.57
2.5 years
0.38%
23%
20%-23%
72%
TSR 4 years
£3.57
3.5 years
0.58%
27%
24%-27%
74%
2013
TR
£0.89
£0.89
£0.89
2013
TSR 5 years
£3.57
4.5 years
0.81%
43%
41%-52%
78%
The fair value of the TR options, before taking account of the performance condition, is equal to the share price at the date of grant
of £2.92 (2013 – £3.57) as these awards accumulate dividends over the performance period. At the date of grant a 25 per cent vesting
has been assumed resulting in a fair value per share of £0.73 (2013 – £0.89) as above.
Joint Share Ownership Plan
Eligible employees may be invited to participate in the Joint Share Ownership Plan (‘JSOP’) which forms part of the Intu Properties
plc Unapproved Share Option Scheme and the PSP. Under the JSOP shares are held jointly by the employee and the Employee Share
Ownership Plan Trustee with any increases in the share price and dividends paid on those shares being allocated between the joint
owners in accordance with the terms of the scheme.
Conditions for exercise (including satisfaction of the same performance condition), forfeiture and lapsing are as set out above for
options or PSP generally.
147
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 49 Share-based payment (continued)
In 2012, individuals who received awards of unapproved options in 2011 and 2012 were given the option to exchange their awards for
jointly owned shares under the JSOP. In 2013, participants in the PSP were given the option to take their awards in the form of jointly
owned shares under the JSOP and fixed value zero cost options. No option was given in 2014.
Bonus Share Scheme
Under the Company’s Bonus Scheme (the ‘Bonus Scheme’), deferred shares may be awarded as part of any bonus.
Such awards comprise ‘Restricted’ shares and ‘Additional’ shares. Where awarded, Additional shares are equal to 50 per cent of the
Restricted shares and SIP shares (see below) combined. The vesting of deferred share awards is not dependent on the achievement
of any further performance conditions other than that participants remain employed by the Group for a specified time from the
date of the award, typically two to three years in the case of Restricted shares and four years in the case of Additional shares. The fair
value of Restricted shares granted with the condition for participants to remain employed by the Group for two years during the year,
determined using the Black-Scholes option pricing model, was £2.66 per share (2013 – £3.06 per share). The fair value of Restricted
shares with the condition for participants to remain employed by the Group for three years, determined using the Black-Scholes
options pricing model, was £2.54. The significant inputs to the model were as follows:
Vesting period
Remain employed for
Share price at grant date
Expected option life in years
Risk free rate
Expected volatility
Expected dividend yield
Movements in shares awarded under the Bonus Share Scheme are as follows:
Year of grant
Outstanding at 1 January
Awarded during the year
Adjustment for rights issue
Forfeited during the year
Vested during the year
Outstanding at 31 December
Restricted
1,085,286
428,424
183,348
(35,751)
(647,500)
1,013,807
2014
3 years
£2.92
3 years
1.5%
15.6%
4.7%
2014
Additional
–
–
–
–
–
–
2014
2 years
£2.92
2 years
1.1%
15.4%
4.7%
Restricted
995,099
545,219
–
(32,885)
(422,147)
1,085,286
2013
2 years
£3.35
2 years
0.6%
14.2%
4.5%
2013
Additional
–
–
–
–
–
–
Share incentive plan (‘SIP’)
The Company operates a SIP for all eligible employees, who may receive up to £3,000 (£3,600 from the tax year 2014/15) worth of
shares as part of their annual bonus arrangements. The SIP arrangements offer worthwhile tax advantages to employees and to
the Company.
The SIP Bonus shares can be released three years after the date of the award, provided the individual employee has remained in
employment, but the shares must then be held in trust for a further two years in order to qualify for tax advantages. The fair value of
shares granted during the year, determined using the Black-Scholes option pricing model, was £2.92 per share (2013 – £3.35 per share).
As these awards accumulate dividends, the fair value of each share awarded is equal to the share price at the date of grant of £2.92.
As part of the SIP arrangements, the Company also offers eligible employees the opportunity to participate in a ‘Partnership’ share
scheme, under which employees can save up to £125 a month (£150 a month from the tax year 2014/15). The Group offers one free
Matching share for every two Partnership shares purchased by the employee at the end of a 12 month saving period. Matching shares
are forfeited if the employee leaves the Group within three years of the date of award, and qualify for tax advantages if they are held in
the SIP for five years. The fair value of Matching shares is determined by the market price at the grant date.
The dividend payable in respect of the shares held in the SIP is used to purchase additional shares, known as Dividend Shares, which
are also held in trust and allocated to individuals and are subject to the same conditions of release.
148
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk 49 Share-based payment (continued)
Movements in SIP bonus shares granted are as follows:
Outstanding at 1 January
Awarded during the year
Adjustment for rights issue
Forfeited during the year
Vested during the year1
Outstanding at 31 December2
1 May still be held in trust.
2 Shares that remain within their three-year holding period.
2014
224,743
114,319
7,158
(20,171)
(65,778)
260,271
2013
147,935
84,956
–
(8,148)
–
224,743
50 Pensions
The Group operates defined contribution group pension plans for its head office and centre management staff. Additionally the Group
makes contributions to self-invested personal pension arrangements (‘SIPPs’) on behalf of an Executive Director. All contributions are
invested in funds administered outside of the Group.
In 2013, the Group also operated for Trafford Centre employees a trustee-based money purchase scheme (The Trafford Centre
Limited Retirement Benefits Scheme) and a stakeholder scheme. From 1 October 2013, the Group’s subsidiary, Intu Retail Services
Limited has operated a defined contribution group pension plan for its staff, including previous members of The Trafford Centre
Limited Retirement Benefit Scheme. Since 1 October 2013, the Group has made no further contribution to The Trafford Centre
Limited Retirement Benefits Scheme, which no longer has any active members.
The pension charge for the Group’s contributions to these arrangements is the amount paid which totalled £2.7 million for the year
ended 31 December 2014 (2013 – £1.9 million).
51 Events after the reporting period
On 19 January 2015 the Group completed the acquisition of Puerto Venecia Investments SOCIMI SA which owns the Puerto Venecia
shopping centre in Zaragoza, Spain. Initial consideration was €215.5 million which will be adjusted to reflect the finalisation of the
completion balance sheet. Additionally, loans of €59.1 million were acquired from the vendor. The value of investment properties
on acquisition was €450.8 million and loan liabilities of €180.9 million were acquired and refinanced on completion. An exercise is
being undertaken to assess the fair value of assets and liabilities acquired but has not been completed at the date of signing these
financial statements.
52 Directors’ interests
(a) In shares in the Company
The number of ordinary shares of the Company in which the Directors were beneficially interested were:
Chairman:
Patrick Burgess
Deputy Chairman:
John Whittaker*
Executive:
David Fischel
Matthew Roberts
Non-Executive:
Adèle Anderson
Richard Gordon
Andrew Huntley
Louise Patten
Neil Sachdev
Andrew Strang
2014
2013
37,627
29,266
296,155,452 192,102,358
965,646
154,506
666,987
64,499
18,124
7,004,818
7,714
12,857
–
–
13,712
5,436,526
18,000
10,000
–
–
* Total beneficial interest includes shares held by subsidiaries of the Peel Group of which John Whittaker is the Chairman. In addition, the 2013 reporting included the 3.75 per cent
convertible bonds issued on 28 January 2011 and converted on 7 July 2014, which are explained in detail in note 33, are held by the Peel Group and therefore constituted an interest
of John Whittaker. John Whittaker’s total interest in ordinary shares of the Company (including shares issuable on conversion of the 3.75 per cent convertible bonds) at 31 December
2013 was therefore 230,681,608, representing 23.69 per cent of issued share capital following such conversion. During the year, interest on the 3.75 per cent convertible bonds,
recognised directly in equity totalled £2.9 million (2013 – £5.8 million).
149
AccountsStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 52 Directors’ interests (continued)
Conditional awards of shares have previously been made to Executive Directors under the Company’s annual bonus scheme.
The awards comprise ‘Restricted’ shares and ‘Additional’ shares, the latter equal to 50 per cent of the Restricted and Share Incentive
Plan shares combined. Executive Directors were required to retain the shares, net of shares sold to meet tax and PAYE deductions,
which vested ahead of the normal vesting date.
Awards to Executive Directors under the scheme since January 2013 are as follows:
David Fischel
Market
price at
award
(pence)
336
335
292
292
Original
vesting
date
05/03/20141
07/03/2015
29/04/2016
29/04/2017
Market
price at
vesting
(pence)
292
–
–
–
Number of
shares at
31 December
2013
153,795
123,283
–
–
Adjustment
for rights issue
25,991
20,834
–
–
Number of
shares
awarded
during 2014
–
–
30,655
29,627
Number of
shares
vested
during 2014
179,786
–
–
–
Number of
shares at
31 December
2014
–
144,117
30,655
29,627
Award date
05/03/2012
07/03/2013
29/04/2014
29/04/2014
Matthew Roberts 05/03/2012
07/03/2013
29/04/2014
29/04/2014
336
335
292
292
05/03/20141
07/03/2015
29/04/2016
29/04/2017
292
–
–
–
113,170
94,626
–
–
19,125
15,991
–
–
–
–
24,558
23,530
132,295
–
–
–
–
110,617
24,558
23,530
1 Due to the rights issue, vesting was delayed to 7 April 2014.
Details of Restricted and Additional shares awarded in respect of the year ended 31 December 2014 are given in the Directors’
remuneration report on pages 71 to 83.
Awards may also be made under the Company’s Share Incentive Plan (‘SIP’). The SIP shares can be released three years after the date
of the award provided the individual Director has remained in employment but the shares must be held in trust for a further two years
in order to qualify for tax advantages. The dividend payable in respect of the shares held in trust is used to purchase additional shares,
known as Dividend Shares, which are also held in trust.
Current Directors:
David Fischel
Matthew Roberts
At
31 December
2013
Removed from
trust
Lapsed
Awarded1
Partnership,
matching and
dividend shares
At
31 December
2014
11,578
4,222
–
–
–
–
1,027
1,027
1,248
961
13,853
6,210
1 SIP shares in respect of the year ended 31 December 2013 awarded in April 2014. Details of SIP shares awarded in respect of the year ended 31 December 2014 are given in the
Directors’ remuneration report on pages 71 to 83.
(b) In share options in the Company
Executive Directors interests in share options and the PSP are given in the Directors’ remuneration report on pages 71 to 83.
(c) Other disclosures
No Director had any dealings in the shares of any Group company between 31 December 2014 and 27 February 2015, being a date
less than one month prior to the date of the notice convening the Annual General Meeting.
Other than as disclosed in these accounts, no Director of the Company had a material interest in any contract (other than service
contracts), transaction or arrangement with any Group company during the year ended 31 December 2014.
150
Notes to the accountscontinuedAccountsIntu Properties plc – Annual Report 2014 intugroup.co.uk Investment and development property
(unaudited)
1 Property data
As at 31 December 2014
Subsidiaries
intu Trafford Centre
intu Lakeside
intu Metrocentre
intu Braehead
Manchester Arndale
intu Derby
intu Watford
intu Victoria Centre
intu Milton Keynes
intu Eldon Square
intu Chapelfield
Cribbs Causeway
intu Bromley
intu Potteries
Other
Investment and development property
excluding Group’s share of joint ventures
Joint ventures
St David’s, Cardiff
intu Merry Hill
Parque Principado
Other
Investment and development property
including Group’s share of joint ventures
As at 31 December 2013
including Group’s share of joint ventures
Notes
A Revaluation surplus assessed from date of acquisition.
B Calculated in local currency.
Passing rent
Annual property income
ERV
Weighted average unexpired lease term
Please refer to the Glossary for definitions.
Market value
£m
Revaluation
surplus/deficit %
Net initial
yield (EPRA)
‘Topped-up’ NIY
(EPRA)
Nominal
equivalent yield
Occupancy
2,200.0
1,255.0
928.1
599.3
430.2
420.0
335.0
314.0
277.5
272.6
261.0
242.9
170.7
164.5
210.8
8,081.6
308.0
434.8
82.2
56.8
8,963.4
7,623.8
+16%
+11%
+4%
–1%
+7%
+8%A
+3%
–7%
+10%
+7%
+7%
+5%
+5%
–3%
+15%
+7%A
+21%B
3.9%
4.2%
4.3%
3.7%
4.6%
6.3%
4.5%
4.0%
4.5%
4.1%
5.0%
4.1%
5.3%
5.3%
4.7%
5.1%
5.7%
4.0%
4.4%
4.7%
4.1%
4.7%
6.6%
4.8%
4.6%
4.6%
4.9%
5.5%
4.3%
5.6%
5.4%
4.9%
5.2%
6.5%
4.5%
5.0%
5.4%
5.9%
5.2%
6.2%
6.3%
6.2%
4.9%
6.1%
6.0%
5.5%
7.1%
7.5%
5.2%
5.1%
6.0%
4.36%
4.60%
5.32%
4.74%
4.97%
5.79%
95%
96%
96%
92%
96%
100%
92%
93%
99%
95%
97%
90%
86%
95%
93%
95%
99%
95%
95%
31 December
2014
£m
401.4
436.2
515.3
7.4 years
31 December
2013
£m
367.9
402.1
476.0
7.5 years
151
Other informationStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk Investment and development property
(unaudited)
continued
2 Analysis of capital return in the year
Like-for-like property
Acquisitions
Part disposals
Developments
Total investment and development property
3 Additional property information
Market value
Revaluation surplus/(deficit)
2014
£m
7,839.7
923.2
126.1
74.4
8,963.4
2013
£m
7,187.5
–
357.0
79.3
7,623.8
£m
587.7
56.3
15.5
(11.3)
648.2
2014
%
8.2
n/a
n/a
n/a
n/a
Ownership
Note
Form of
OwnershipE
Gross area
million
sq. ft.F
Year
opened
Acquisition
DateG
As at 31 December 2014
intu Trafford Centre
intu Lakeside
intu Metrocentre
intu Braehead
Manchester Arndale
intu Derby
intu Watford
intu Victoria Centre
intu Milton Keynes
intu Eldon Square
intu Chapelfield
Cribbs Causeway
intu Bromley
intu Potteries
St David’s, Cardiff
intu Merry Hill
Parque Principado
Other
Investment and development property
including Group’s share of joint
ventures
As at 31 December 2013
Notes
100%
100%
90%
100%
48%
100%
93%
100%
100%
60%
100%
33%
64%
100%
50%
50%
50%
1998
1990
1986
1999
1976
2007
1992
1972
2000
1976
2005
1998
1991
1998
2009
1985
2001
2011
–
1995
–
2005
2014
–
2002H
2013
–
–
2005
–
–
2006
2014
2013
FH
FH
LH
FH
LH
FH/LH
LH
FH
FH
FH/LH
FH
FH/LH
LH
FH
FH/LH
FH
FH
A
B
C
D
2.0
1.4
2.1
1.1
1.6
1.3
0.7
1.0
0.4
1.4
0.5
1.1
0.5
0.6
1.4
1.7
0.8
1.8
21.4
18.2
A
Interest shown is that of the Metrocentre Partnership in intu Metrocentre (90 per cent) and the Metro Retail Park (100 per cent). The Group has a 60 per cent interest in the
Metrocentre Partnership which is consolidated as a subsidiary of the Group.
B The Group’s interest is through a joint operation ownership of a 95 per cent interest in Manchester Arndale, and a 90 per cent interest in New Cathedral Street, Manchester.
C The Group’s interest is through a joint operation ownership of a 66 per cent interest in The Mall at Cribbs Causeway and a 100 per cent interest in The Retail Park, Cribbs Causeway.
D
Includes the Group’s interests in intu Broadmarsh, Soar at intu Braehead, Sprucefield and intu Uxbridge.
E Form of ownership is shown as either freehold (‘FH’), leasehold (‘LH’) or freehold and leasehold (‘FH/LH’).
F Area shown is not adjusted for the proportion of ownership.
G The acquisition date is presented only where the centre was not built by the Group.
H
Intu held a 20 per cent stake in intu Victoria Centre, Nottingham prior to 2002 when it acquired the remaining 80 per cent to take its holding to 100 per cent.
152
Other informationIntu Properties plc – Annual Report 2014 intugroup.co.uk Financial covenants
(unaudited)
Intu (SGS) Finance plc and Intu (SGS) Finco Limited (‘Secured Group Structure’)
Term loan
3.875 per cent bonds
4.625 per cent bonds
4.250 per cent bonds
Loan
£m
351.8
450.0
350.0
350.0
1,501.8
Maturity
2018
2023
2028
2030
LTV
covenant*
LTV
actual
Interest
cover
covenant*
Interest
cover
actual
80%
47%
125%
241%
* Tested on the Security Group, the principal assets of which are intu Lakeside, intu Braehead, intu Watford, intu Victoria Centre, intu Chapelfield and intu Derby.
The structure has a tiered operating covenant regime giving the Group a significant degree of flexibility when the covenants are below
certain levels. In higher tiers the level of flexibility is reduced. The Group retains operating control below loan to value of 72.5 per cent
and interest cover above 1.4x. No financial covenant default occurs unless the loan to value exceeds 80 per cent or the interest cover
falls below 1.25x.
The Trafford Centre Finance Limited
There are no financial covenants on the intu Trafford Centre debt of £812.7 million at 31 December 2014. However a debt service
cover ratio is assessed quarterly and where this falls below specified levels restrictions come into force. The loan to 31 December
2014 market value ratio is 38 per cent. No restrictions are in place at present.
Intu Metrocentre Finance plc
4.125 per cent bonds
Loan
£m
485.0
Maturity
2023
LTV
covenant
100%
LTV
actual
52%
Interest
cover
covenant
125%
Interest
cover
actual
212%
The structure’s covenant regime gives the Group a significant degree of flexibility when the covenants are below certain levels.
The Group retains operating control below loan to value of 70 per cent and interest cover above 1.4x. No financial covenant default
occurs unless loan to value exceeds 100 per cent or interest cover falls below 1.25x.
Other asset-specific debt
intu Bromley
Sprucefield
intu Merry Hill
intu Milton Keynes4
Barton Square
St David’s, Cardiff
Parque Principado5
Loan
outstanding
at 31 January
20151
£m
114.1
30.0
191.3
125.3
42.5
122.5
€94.7m
Loan to
31 December
2014
market value2
67%
44%
44%
45%
49%
40%
51%
LTV
covenant
80%
65%
65%
65%
65%
65%
65%
Interest
cover
covenant
120%
150%
150%
150%
175%
150%
150%
Interest
cover
actual3
198%
509%
338%
242%
205%
298%
273%
Maturity
2016
2016
2016
2017
2017
2021
2019
1
2
3
The loan values are the actual principal balances outstanding at 31 January 2015, which take into account any principal repayments made in January 2015.
The loan to 31 December 2014 market value provides an indication of the impact the 31 December 2014 property valuations could have on the LTV covenants. The actual timing and
manner of testing LTV covenants varies and is loan specific.
Based on latest certified figures, calculated in accordance with loan agreements, which have been submitted between 31 December 2014 and 31 January 2015. The calculations are
loan specific and include a variety of historic, forecast and in certain instances a combined historic and forecast basis.
4 During the year, the loan facility was extended by one year.
5 50 per cent of the debt is shown which is consistent with the Group’s economic interest.
153
Other informationStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk Financial covenants
(unaudited)
continued
Intu Debenture plc
Loan
£m
231.4
Maturity
2027
Capital cover
covenant
150%
Capital cover
actual
231%
Interest cover
covenant
100%
Interest cover
actual
114%
The debenture is currently secured on a number of the Group’s properties including intu Potteries, intu Eldon Square, intu Broadmarsh
and Soar at intu Braehead.
Should the capital cover or interest cover test be breached, Intu Debenture plc (the ‘Issuer’) has three months from the date of delivery
of the valuation or the latest certificate to the Trustees to make good any deficiencies. The Issuer may withdraw property secured
on the debenture by paying a sum of money or through the substitution of alternative property provided that the capital cover and
interest cover tests are satisfied immediately following the substitution.
Financial covenants on corporate facilities
£600m facility, maturing in 2019*
£300m due in 2018 2.5 per cent
convertible bonds**
Net worth
Net worth
covenant
actual
£750m £2,575.3m
Interest cover
covenant
120%
Interest cover
actual
192%
Borrowings/net
worth covenant
110%
Borrowings/net
worth actual
57%
n/a
n/a
n/a
n/a
175%
10%
*
Tested on the Borrower Group which excludes, at the Group’s election, certain subsidiaries with asset-specific finance. The facility is secured on the Group’s investments in
Manchester Arndale and Cribbs Causeway.
** Tested on the Group excluding, at the Group’s election, the borrowings on certain subsidiaries with asset-specific finance.
Interest rate swaps
The table below sets out the nominal amount and average rate of hedging, excluding lenders’ margins, in place under current and
forward starting swap contracts.
Nominal amount
£m
Average rate
%
1,678.3
1,382.4
926.8
675.9
665.6
283.5
3.20
3.41
4.62
4.82
4.83
4.53
In effect on or after:
1 year
2 years
5 years
10 years
15 years
20 years
154
Other informationIntu Properties plc – Annual Report 2014 intugroup.co.uk Group including share of joint ventures
(unaudited)
for the year ended 31 December 2014
The information below is presented to show the Group including its share of joint ventures. A reconciliation from the amounts shown in
the Group’s income statement and balance sheet is also shown.
Underlying profit for the year ended 31 December 2014
Rent receivable
Service charge income
Facilities management income from joint ventures
Revenue
Net rental income
Net other income
Administration expenses
Underlying operating profit
Finance costs
Finance income
Other finance costs
Underlying net finance costs
Underlying profit before tax, joint ventures and associates
Tax on underlying profit
Share of underlying profit of joint ventures
Remove amounts attributable to non-controlling interests
Interest on convertible bonds deducted directly in equity
Underlying earnings
Balance sheet as at 31 December 2014
Assets
Investment and development property
Investments in joint ventures
Derivative financial instruments
Cash and cash equivalents
Other assets
Total assets
Liabilities
Borrowings
Derivative financial instruments
Other liabilities
Total liabilities
Net assets
Group’s income
statement
£m
441.1
88.2
7.1
536.4
362.6
4.8
(30.8)
336.6
(197.1)
11.9
(6.1)
(191.3)
145.3
(0.6)
18.6
1.3
(2.9)
161.7
Share of joint
ventures
£m
39.3
9.5
(3.0)
45.8
34.0
–
(0.3)
33.7
(4.1)
(10.7)
–
(14.8)
18.9
(0.3)
(18.6)
–
–
–
Group’s
balance sheet
£m
Share of joint
ventures
£m
8,019.6
851.5
9.7
230.0
451.2
9,562.0
(4,354.0)
(356.5)
(254.7)
(4,965.2)
4,596.8
869.2
(851.5)
–
30.1
29.5
77.3
(35.6)
(0.4)
(41.3)
(77.3)
–
Group
including
share of joint
ventures
£m
480.4
97.7
4.1
582.2
396.6
4.8
(31.1)
370.3
(201.2)
1.2
(6.1)
(206.1)
164.2
(0.9)
–
1.3
(2.9)
161.7
Group
including
share of joint
ventures
£m
8,888.8
–
9.7
260.1
480.7
9,639.3
(4,389.6)
(356.9)
(296.0)
(5,042.5)
4,596.8
155
Other informationStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk Group including share of joint ventures
(unaudited)
for the year ended 31 December 2014 continued
Net external debt
The table below provides a reconciliation between the components of net debt included on the Group’s balance sheet and net
external debt including the Group’s share of joint ventures’ debt and cash.
Total borrowings
Cash and cash equivalents
Net debt
Metrocentre compound financial instrument
Short-term investments1
Net external debt – before Group’s share of joint ventures
Add share of borrowing of joint ventures
Less share of cash of joint ventures
Net external debt – including Group’s share of joint ventures
Analysed as:
Debt including Group’s share of joint ventures
Cash including Group’s share of joint ventures
Short-term investments1
Net external debt – including Group’s share of joint ventures
2014
£m
4,354.0
(230.0)
4,124.0
(166.1)
–
3,957.9
35.6
(30.1)
3,963.4
4,223.5
(260.1)
–
3,963.4
2013
£m
4,014.9
(156.7)
3,858.2
(160.0)
(69.3)
3,628.9
78.3
(8.8)
3,698.4
3,933.2
(165.5)
(69.3)
3,698.4
1 Short-term investments represents CMBS notes issued in respect of intu Metrocentre and received as cash in February 2014 following refinancing of this debt.
Debt to assets ratio
2014
£m
8,963.4
(3,963.4)
44.2%
2013
£m
7,623.8
(3,698.4)
48.5%
2014
£m
(201.2)
1.2
(2.9)
(202.9)
370.3
(0.6)
369.7
1.82x
2013
£m
(197.2)
0.6
(5.8)
(202.4)
345.6
(0.1)
345.5
1.71x
Market value of investment and development property
Net external debt
Debt to assets ratio
Interest cover
Finance costs
Finance income
Interest on convertible bonds recognised directly to equity
Underlying operating profit
Less trading property related items
Interest cover
156
Other informationIntu Properties plc – Annual Report 2014 intugroup.co.uk Underlying profit statement
(unaudited)
The underlying profit information in the table below shows the Group including its share of joint ventures which have been included on
a line-by-line basis.
Net rental income
Net other income
Administration expenses
Underlying operating profit
Finance costs
Finance income
Other finance costs
Underlying net finance costs
Underlying profit before tax and
associates
Tax on underlying profit
Share of underlying profit/(loss) of
associates
Remove amounts attributable to
non-controlling interests
Interest on convertible bonds deducted
directly in equity
Underlying earnings
Underlying earnings per share (pence)
Weighted average number of shares
(million)
Year ended
31 December
2014
£m
396.6
4.8
401.4
(31.1)
370.3
(201.2)
1.2
(6.1)
(206.1)
Year ended
31 December
2013
£m
369.5
3.8
373.3
(27.7)
345.6
(197.2)
0.6
(6.5)
(203.1)
164.2
(0.9)
142.5
(0.9)
–
1.3
(2.9)
161.7
13.3p
–
4.4
(5.8)
140.2
13.7p
Six months
ended
31 December
2014
£m
207.4
2.8
210.2
(16.2)
194.0
(103.5)
0.7
(3.0)
(105.8)
Six months
ended
31 December
2013
£m
188.5
1.4
189.9
(13.8)
176.1
(98.7)
–
(3.2)
(101.9)
88.2
(0.6)
–
2.1
–
89.7
6.9p
74.2
(0.6)
(0.1)
1.5
(2.9)
72.1
6.9p
Six months
ended
30 June
2014
£m
189.2
2.0
191.2
(14.9)
176.3
(97.7)
0.5
(3.1)
(100.3)
76.0
(0.3)
–
(0.8)
(2.9)
72.0
6.4p
Six months
ended
30 June
2013
£m
181.0
2.4
183.4
(13.9)
169.5
(98.5)
0.6
(3.3)
(101.2)
68.3
(0.3)
0.1
2.9
(2.9)
68.1
6.8p
1,214.6
1,027.1
1,297.9
1,049.7
1,129.5
1,004.0
For the reconciliation from basic earnings per share see note 17.
157
Other informationStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk EPRA performance measures
(unaudited)
1 Summary
The EPRA Best Practice Recommendations identify six key performance measures, including the EPRA Cost Ratios. The measures are
deemed to be of importance for investors in property companies and aim to encourage more consistent and widespread disclosure.
The Group is supportive of this initiative but continues to disclose additional measures throughout this report which it believes are
more appropriate in the Group’s current circumstances.
In 2014, the Group retained its EPRA Gold Award for exceptional compliance with the EPRA Best Practice Recommendations.
The EPRA measures, as calculated including the Group’s share of joint ventures, are summarised below and detailed in the
tables following:
EPRA cost ratio (including direct vacancy costs)
EPRA cost ratio (excluding direct vacancy costs)
EPRA earnings
– per share
EPRA NAV
– per share
EPRA NNNAV
– per share
EPRA net initial yield
EPRA ‘topped-up’ NIY
EPRA vacancy rate
Table
2
2
3
3
4(a)
4(a)
4(b)
4(b)
5
5
6
2014
19.4%
15.5%
£154.9m
12.8p
Restated
2013
18.9%
15.7%
£134.6m
13.1p
£4,740.0m £3,669.5m
334p
£4,322.4m £3,535.3m
321p
4.7%
5.0%
3.0%
329p
4.4%
4.6%
3.0%
361p
Details of the Group’s performance against the EPRA Best Practice Recommendations on Sustainability Reporting can be found
in full in the 2014 Corporate Responsibility Report. In 2014, the Group was awarded a Gold EPRA Sustainability Best Practice
Recommendations award.
2 EPRA Cost Ratios
Other non-recoverable costs
Administration expenses – ongoing
Net service charge costs
Remove:
Service charge costs recovered through rents
EPRA costs – including direct vacancy costs
Direct vacancy costs
EPRA costs – excluding direct vacancy costs
Rent receivable
Rent payable
Gross rental income less ground rent payable
Remove:
Service charge costs recovered through rents
Gross rental income
2014
£m
49.1
31.1
11.3
(3.3)
88.2
(17.9)
70.3
480.4
(23.4)
457.0
(3.3)
453.7
2013
£m
43.9
27.7
10.7
(2.5)
79.8
(13.5)
66.3
447.6
(23.5)
424.1
(2.5)
421.6
EPRA cost ratio (including direct vacancy costs)
EPRA cost ratio (excluding direct vacancy costs)
19.4%
15.5%
18.9%
15.7%
158
Other informationIntu Properties plc – Annual Report 2014 intugroup.co.uk EPRA performance measures
(unaudited)
3 EPRA earnings
EPRA earnings per share has been presented as recommended by EPRA which seeks to assist comparison between European
property companies. However, we believe that our measure of underlying earnings per share is more appropriate than the EPRA
measure in the context of our business as set out in note 17. The key difference relates to the adjustments in respect of exceptional
items where EPRA is prescriptive about the adjustments that can be made limiting these to acquisition related costs and costs incurred
on termination of derivative financial instruments. A reconciliation of EPRA earnings per share to the Group’s measure of underlying
earnings per share is provided below.
On 22 April 2014, the Company issued 278,241,628 new ordinary shares of 50 pence each through a rights issue. The number of shares
previously used to calculate earnings per share have been adjusted to reflect the rights issue as per note 17.
Earnings
£m
583.3
Shares
million
1,214.6
Earnings
£m
354.0
Shares
million
1,027.1
Re-presented
2013
Pence per
share
34.5p
Basic earnings per share
Remove:
Revaluation of investment and
development property
Gain on acquisition of businesses
Gain on disposal of subsidiaries
Share of associates’ adjusting items
Share of joint ventures’ adjusting items
Change in fair value of financial
instruments
Exceptional administration costs –
acquisition and disposal related
Exceptional finance charges – termination
of derivative financial instruments
Tax on the above
Non-controlling interests in respect of
the above
EPRA earnings per share
Reconciliation to the Group’s measure of
underlying earnings per share
Remove:
Other exceptional items
Other exceptional tax
Add:
Share of joint ventures’ adjusting items
Non-controlling interest in respect of
the above
Underlying earnings per share
(567.8)
(1.6)
(0.6)
(0.8)
(81.7)
157.6
13.1
44.1
(5.6)
14.9
154.9
7.3
(1.1)
0.6
–
161.7
2014
Pence per
share
48.0p
(46.7)p
(0.1)p
–
(0.1)p
(6.7)p
(109.9)
–
–
(0.5)
(17.5)
13.0p
(272.3)
1.1p
3.6p
(0.5)p
1.2p
12.8p
0.6p
(0.1)p
–
–
13.3p
13.2
155.1
3.4
9.1
134.6
10.9
(4.9)
0.1
(0.5)
140.2
1,027.1
1,027.1
1,214.6
1,214.6
(10.7)p
–
–
–
(1.7)p
(26.5)p
1.3p
15.1p
0.3p
0.8p
13.1p
1.0p
(0.4)p
–
–
13.7p
159
Other informationStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk EPRA performance measures
(unaudited)
Continued
4 EPRA NAV
(a) EPRA NAV
EPRA NAV has been presented as recommended by EPRA which seeks to assist comparison between European property companies.
However, we believe that our measure of NAV per share (diluted, adjusted), as presented in note 18a, is more appropriate than the
EPRA measure in the context of our business. The key difference is the swaps not currently used for economic hedges of debt which
are excluded in the Group’s definition of NAV per share (diluted, adjusted). The adjustment in respect of the non-controlling interest
recoverable balance not recognised is due to historic accounting practices and is required, in our view, to give a more appropriate value
of net assets attributable to equity owners of the Group. A reconciliation of EPRA NAV to the Group’s measure of NAV per share
(diluted, adjusted) is provided below.
As for earnings per share, the comparative number of shares have been adjusted to reflect the rights issue. See note 17 for details.
NAV attributable to owners of Intu Properties plc
Dilutive convertible bonds, share options and awards
Diluted NAV
Remove:
Fair value of derivative financial instruments (excluding swaps
not currently used for economic hedges of debt and net of tax)
Deferred tax on investment and development property and
other investments
Goodwill resulting from recognition of deferred tax liabilities
Share of joint ventures’ adjusting items
Non-controlling interest in respect of the above
Add:
Non-controlling interest recoverable balance not recognised
EPRA NAV
Reconciliation to the Group’s measure of underlying earnings per
share
Remove:
Swaps not currently used for economic hedges of debt
(net of tax)
NAV per share (diluted, adjusted)
Net assets
£m
4,524.0
22.2
4,546.2
Shares
million
1,303.7
8.6
1,312.3
2014
NAV per
share
pence
347p
347p
Net assets
£m
3,518.8
3.8
3,522.6
Shares
million
1,055.5
45.1
1,100.6
Re-presented
2013
NAV per
share
pence
333p
320p
104.3
14.1
–
4.1
–
8p
1p
–
–
–
61.9
20.4
(4.2)
1.3
(3.8)
6p
2p
–
–
–
71.3
4,740.0
1,312.3
5p
361p
71.3
3,669.5
1,100.6
6p
334p
228.9
4,968.9
1,312.3
18p
379p
134.9
3,804.4
1,100.6
12p
346p
(b) EPRA NNNAV
The Group’s measure of NNNAV per share (diluted, adjusted) disclosed in note 18 is equal to the EPRA NNNAV measure
presented below.
EPRA NAV
Fair value of derivative financial instruments (net of tax)
Excess of fair value of debt over book value
Deferred tax on investment and development property and
other investments
Share of joint ventures’ adjusting items
Non-controlling interests in respect of the above
EPRA NNNAV
160
Net assets
£m
4,740.0
(104.3)
(310.2)
(14.1)
(6.0)
17.0
4,322.4
Shares
million
1,312.3
1,312.3
2014
NAV per
share
pence
361p
(8)p
(24)p
Net assets
£m
3,669.5
(61.9)
(56.9)
(1)p
–
1p
329p
(20.4)
(1.3)
6.3
3,535.3
Re-presented
2013
NAV per
share
pence
334p
(6)p
(5)p
(2)p
–
–
321p
Shares
million
1,100.6
1,100.6
Other informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 5 EPRA net initial yield and ‘topped-up’ NIY
Investment and development property
Less developments
Completed property portfolio
Allowance for estimated purchasers costs
Gross up completed property portfolio valuation
Annualised cash passing rental income
Property outgoings
Annualised net rents
Notional rent on expiration of rent free periods or other lease incentives
Topped-up net annualised rent
EPRA net initial yield
EPRA ‘topped-up’ NIY
2014
£m
8,963
(74)
8,889
457
9,346
436
(21)
415
19
434
4.4%
4.6%
EPRA net initial yield and ‘topped-up’ NIY by property is given in the Investment and development property section.
6 EPRA vacancy rate
intu Trafford Centre
intu Lakeside
intu Metrocentre
intu Braehead
Manchester Arndale
intu Derby
intu Watford
intu Victoria Centre
intu Milton Keynes
intu Eldon Square
intu Chapelfield
Cribbs Causeway
intu Potteries
intu Bromley
St David’s, Cardiff
intu Merry Hill
Parque Principado
EPRA vacancy rate is the ERV of vacant space divided by total ERV.
2014
%
3.4
2.2
2.7
3.8
2.6
0.1
2.6
3.3
0.8
3.1
1.2
8.2
3.0
4.8
5.0
3.0
0.7
3.0
2013
£m
7,624
(29)
7,595
361
7,956
397
(20)
377
17
394
4.7%
5.0%
2013
%
2.7
2.3
3.5
3.1
2.7
n/a
1.1
2.4
1.8
2.9
3.8
5.8
4.4
4.7
4.9
n/a
2.5
3.0
161
Other informationStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk Financial record
2010 – 2014
Net rental income
Underlying earnings
Underlying earnings per share1
Dividend per share1
Property revaluation surplus
2010
£277m
£97m
14.0p
13.7p
£501m
2011
£364m
£139m
15.0p
13.7p
£63m
2012
£363m
£138m
14.7p
13.7p
£41m
2013
£370m
£140m
13.7p
13.7p
£126m
2014
£397m
£162m
13.3p
13.7p
£648m
NAV per share (diluted, adjusted)1
Market value of investment and development property
Net external debt
355p
£5,099m
£2,437m
356p
£6,960m
£3,374m
357p
£7,073m
£3,504m
346p
£7,624m
£3,698m
379p
£8,963m
£3,963m
Debt to assets ratio
Interest cover
Change in like-for-like net rental income
Occupancy
Growth in footfall (like-for-like)
48.0%
1.56x
2.1%
98%
3%
48.5%
1.71x
3.6%
97%
2%
49.5%
1.69x
(2.7)%
96%
(1)%
48.5%
1.71x
(1.9)%
95%
(2)%
44.2%
1.82x
(3.2)%
95%
+0%
Amounts presented include the Group’s share of joint ventures.
1 Amounts for 2013 and earlier are as adjusted by the bonus factor. See note 17.
162
Other informationIntu Properties plc – Annual Report 2014 intugroup.co.uk Glossary
ABC1 customers
Proportion of customers within UK social groups A, B and
C1, defined as members of households whose chief earner’s
occupation is professional, higher or intermediate management,
or supervisory.
Annual property income
The Group’s share of passing rent plus the external valuers’
estimate of annual excess turnover rent and sundry income such
as that from car parks and mall commercialisation.
Debt to assets ratio
Net external debt dividend by the market value of investment
and development property.
Diluted figures
Reported amounts adjusted to include the effects of dilutive
potential shares issuable under convertible bonds and employee
incentive arrangements.
Interest rate swap
A derivative financial instrument enabling parties to exchange
interest rate obligations for a predetermined period. These are
used by the Group to convert floating rate debt to fixed rates.
IPD
Investment Property Databank Limited, producer of an
independent benchmark of property returns.
Like-for-like property
Investment property which has been owned throughout both
periods without significant capital expenditure in either period,
so that income can be compared on a like-for-like basis. For the
purposes of comparison of capital values, this will also include
assets owned at the previous reporting period end but not
throughout the prior period.
Long-term lease
A lease with a term certain of at least five years.
Earnings per share
Profit for the period attributable to owners of Intu divided by the
weighted average number of shares in issue during the period.
LTV (loan to value)
The ratio of attributable debt to the market value of an
investment property.
EPRA
European Public Real Estate Association, the publisher of
Best Practice Recommendations intended to make financial
statements of public real estate companies in Europe clearer,
more transparent and comparable.
ERV (estimated rental value)
The external valuers’ estimate of the Group’s share of the
current annual market rent of all lettable space net of any non-
recoverable charges, before bad debt provision and adjustments
required under IFRS regarding tenant lease incentives.
NAV per share (diluted, adjusted)
NAV per share calculated on a diluted basis and adjusted to
reflect any unrecognised surplus on trading properties (net of
tax), to remove the fair value of derivatives (net of tax), to remove
goodwill resulting from the recognition of deferred tax liabilities,
and to remove deferred tax on investment and development
property and other investments.
Net asset value (NAV) per share
Net assets attributable to owners of Intu Properties plc divided
by the number of ordinary shares in issue at the period end.
Exceptional items
Exceptional items are those items that in the Directors’ view
are required to be separately disclosed by virtue of their size,
nature or incidence to enable a full understanding of the Group’s
financial performance.
Net external debt
Net debt after removing the Metrocentre compound financial
instrument and, for 31 December 2013, short-term investments
representing CMBS notes issued in respect of intu Metrocentre
and received as cash in February 2014.
Headline rent ITZA
Annual contracted rent per square foot after expiry of
concessionary periods in terms of zone A.
Interest cover
Underlying operating profit excluding trading property related
items divided by the net finance cost plus interest on convertible
bonds recognised in equity excluding the change in fair value of
financial instruments, exceptional finance costs and amortisation
of compound financial instruments.
Net initial yield (‘EPRA’)
Annualised net rent on investment property (after deduction
of revenue costs such as head rent, running void, service
charge after shortfalls, empty rates and merchant association
contribution) expressed as a percentage of the gross market
value before deduction of theoretical acquisition costs, consistent
with EPRA’s net initial yield, and as provided by the Group’s
independent external valuers.
Net rental income
The Group’s share of net rents receivable as shown in the income
statement, having taken due account of non-recoverable costs,
bad debt provisions and adjustments to comply with IFRS
including those regarding tenant lease incentives.
163
Other informationStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk Glossary
Continued
Scrip Dividend Scheme
The Group offers shareholders the opportunity to participate
in the Scrip Dividend Scheme. This enables participating
shareholders to receive shares instead of cash when a Scrip
Alternative is offered for a particular dividend.
Short-term lease
A lease with a term certain of less than five years.
Tenant (or lease) incentives
Any incentives offered to occupiers to enter into a lease.
Typically incentives are in the form of an initial rent free period
and/or a cash contribution to fit out the premises. Under IFRS the
value of incentives granted to tenants is amortised through the
income statement on a straight-line basis over the lease term.
Topped-up NIY (‘EPRA’)
Net initial yield adjusted for the expiration of rent free periods and
other unexpired lease incentives.
Total financial return
The change in NAV per share (diluted, adjusted) plus dividends
per share paid in the period expressed as a percentage of opening
NAV per share (diluted, adjusted).
Total property return
The change in capital value, less any capital expenditure incurred,
plus net income in the year expressed as a percentage of the
capital employed (opening capital value plus capital expenditure
incurred) in the year as calculated by IPD.
Trading property
Property held for trading purposes rather than to earn rentals
or for capital appreciation and shown as a current asset in the
balance sheet.
Underlying earnings per share (EPS)
Earnings per share adjusted to exclude valuation movements,
exceptional items and related tax.
Underlying figures
Amounts described as underlying exclude valuation movements,
exceptional items and related tax.
Vacancy rate (‘EPRA’)
The ERV of vacant space divided by total ERV.
Yield shift
A movement (usually expressed in basis points) in the yield of a
property asset.
NNNAV per share (diluted, adjusted)
NAV per share (diluted, adjusted) adjusted to include the fair
values of derivatives, debt and deferred taxes.
Nominal equivalent yield
Effective annual yield to a purchaser from an asset at market
value before taking account of notional acquisition costs
assuming rent is receivable annually in arrears, reflecting ERV but
disregarding potential changes in market rents, as determined by
the Group’s independent external valuers.
Occupancy
The passing rent of let and under offer units expressed as a
percentage of the passing rent of let and under offer units
plus ERV of un-let units, excluding development and recently
completed properties. Units let to tenants in administration and
still trading are treated as let and those no longer trading are
treated as un-let.
Passing rent
The Group’s share of contracted annual rents receivable at
the balance sheet date. This takes no account of accounting
adjustments made in respect of rent free periods or tenant
incentives, the reclassification of certain lease payments as
finance charges or any irrecoverable costs and expenses, and
does not include excess turnover rent, additional rent in respect
of unsettled rent reviews or sundry income such as from car
parks etc. Contracted annual rents in respect of tenants in
administration are excluded.
PMA
Property Market Analysis LLP, a producer of property market
research and forecasting.
Property Income Distribution (PID)
A dividend, generally subject to UK withholding tax at the
basic rate of income tax, that a UK REIT is required to pay to its
shareholders from its qualifying rental profits. Certain classes
of shareholder may qualify to receive a PID gross, shareholders
should refer to intugroup.co.uk for further information.
The Group can also pay non-PID dividends which are not subject
to UK withholding tax.
Real Estate Investment Trust (REIT)
REITs are internationally recognised property investment vehicles
which have now been introduced in many countries around the
world. Each country has its own rules, but the broad intention
of REITs is to encourage investment in domestic property by
removing tax distortions for investors.
In the UK, REITs must meet certain ongoing rules and
regulations, including the requirement to distribute at least
90 per cent of qualifying rental profits to shareholders.
Withholding tax of 20 per cent is deducted from these Property
Income Distributions (see Glossary). Profits from a REIT’s non-
property business remain subject to normal corporation tax.
The Group elected for REIT status in the UK with effect from
1 January 2007.
164
Other informationIntu Properties plc – Annual Report 2014 intugroup.co.uk Dividends
PID SPECIAL NOTE:
UK shareholders
For those who are eligible for exemption from the 20 per
cent withholding tax and have not previously registered for
exemption, an HM Revenue & Customs (‘HMRC’) Tax Exemption
Declaration is available for download from the ‘Investors’ section
of the Intu Properties plc website (intugroup.co.uk), or on request
to our UK registrars, Capita Asset Services. Validly completed
forms must be received by Capita Asset Services no later than
the dividend Record Date, to be advised; otherwise the dividend
will be paid after deduction of tax.
South African and other non-UK shareholders
South African shareholders may apply to HMRC after payment
of the dividend for a refund of the difference between the 20 per
cent withholding tax and the UK/South African double taxation
treaty rate of 15 per cent. Other non-UK shareholders may
be able to make similar claims for a refund of UK withholding
tax deducted. Refund application forms for all non-UK
shareholders are available for download from the ‘Investors’
section of the Intu Properties plc website (intugroup.co.uk), or
on request to our South African registrars, Computershare, or
HMRC. UK withholding tax refunds are not claimable from Intu
Properties plc, the South African Revenue Service (‘SARS’) or
other national authorities, only from the UK’s HMRC.
Additional information on PIDs can be found at intugroup.co.uk/
investors/shareholders-bondholders/real-estate-investment-trust/.
The above does not constitute advice and shareholders should
seek their own professional guidance. Intu Properties plc does
not accept liability for any loss suffered arising from reliance on
the above.
The Directors of Intu Properties plc have proposed a final
dividend per ordinary share (ISIN GB0006834344) of 9.1 pence
(2013 – 9.1 pence as adjusted for the rights issue bonus factor)
to bring the total dividend per ordinary share for the year to
13.7 pence (2013 – 13.7 pence as adjusted by the rights issue
bonus factor). A scrip dividend alternative will continue to
be offered.
The dividend may be partly paid as a Property Income
Distribution (‘PID’) and partly paid as a non-PID. The PID element
will be subject to deduction of a 20 per cent withholding tax
unless exemptions apply (please refer to the PID special note
below). Any non-PID element will be treated as an ordinary UK
company dividend. For South African shareholders, non-PID
cash dividends may be subject to deduction of South African
Dividends Tax at 15 per cent.
The following are the salient dates for the payment of the
proposed final dividend.
Tuesday 31 March 2015
Sterling/Rand exchange rate struck
Wednesday 1 April 2015
Sterling/Rand exchange rate and dividend amount in SA
currency announced
Monday 13 April 2015
Ordinary shares listed ex-dividend on the Johannesburg
Stock Exchange
Thursday 16 April 2015
Ordinary shares listed ex-dividend on the London Stock Exchange
Friday 17 April 2015
Record date for 2014 final dividend in London and Johannesburg
Thursday 28 May 2015
Dividend payment date for shareholders
South African shareholders should note that, in accordance with
the requirements of Strate, the last day to trade cum-dividend
will be Friday 10 April 2015 and that no dematerialisation or
rematerialisation of shares will be possible from Monday 13 April
2015 to Friday 17 April 2015 inclusive. No transfers between the
UK and South African registers may take place from Thursday
31 March 2015 to Sunday 19 April 2015 inclusive.
165
Other informationStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk Shareholder information
Registered Office
40 Broadway, London SW1H 0BT
Registered in England & Wales no. 3685527
Websites
intugroup.co.uk
intu.co.uk
Registrars
All enquiries concerning shares or shareholdings, including
notification of change of address, queries regarding loss of a
share certificate and dividend payments should be addressed to:
For shareholders registered in the UK
Capita Asset Services
The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU
Telephone (within UK) 0871 664 0300 (calls cost 10p per
minute plus network extras; lines are open 9.00 am – 5.30 pm
Monday – Friday)
Telephone (outside UK) +44 20 8639 3399
Email: ssd@capitaregistrars.com
capitashareportal.com
For shareholders registered in South Africa
Computershare Investor Services (Pty) Ltd
70 Marshall Street, Johannesburg 2001
South Africa
Postal address:
PO Box 61051
Marshalltown 2107, South Africa
Telephone +27 11 370 5000
Facsimile +27 11 688 5221
Email: web.queries@computershare.co.za
computershare.com
Payment of dividends
Shareholders who wish to have their dividends paid directly into
a bank or building society account should complete a mandate
form available from the appropriate registrars.
Share price information
The latest information on the Intu Properties plc share price is
available on the website intugroup.co.uk.
Web-based enquiry service for shareholders
Shareholders registered in the UK can go to capitashareportal.
com to obtain details of their shareholdings and dividends.
The shareholder’s surname, Investor Code (found on any
correspondence from registrars) and postcode are required to
use this service. Shareholders may also use this service to amend
or change their address and dividend mandate details.
Shareholders registered in South Africa can go to computershare.
com/investor to obtain details of their shareholdings.
Shareholders will need to follow a registration process in order
to access such information. Unfortunately, due to South African
legal requirements, shareholders may not update records, but will
be able to view their entire holding of shares globally. Please note
that the Computershare company code for Intu Properties plc
is ITUZ.
166
Share dealing
Existing UK shareholders may trade Intu Properties plc shares
through Capita Share Dealing Services who provide an easy to
use, real-time online, telephone and postal dealing service.
Contact details are:
capitadeal.com
Telephone (within UK) 0871 664 0364 (calls cost 10p per
minute plus network extras; lines are open 8.00 am – 4.30 pm
Monday – Friday)
(Ireland) Lo-call 1 890 946 375
(outside UK) +44 20 3367 2686
Existing South African shareholders whose shares are held in
electronic format through Computershare CSDP may trade
Intu Properties plc shares through Computershare’s low cost
telephone share dealing service on 0861 100 950 (SA calls only).
Sharegift
Shareholders with a small number of shares, which may be
uneconomic to sell on a commission basis, may wish to consider
donating them to the charity Sharegift (registered charity no.
1052686). Further information can be found on Sharegift’s
website sharegift.org or by calling them on 020 7930 3737.
Strate Charity Shares
SA shareholders for whom the cost of selling their shares
would exceed the market value of such shares may wish to
consider donating them to charity. An independent non-profit
organisation called Strate Charity Shares has been established
to administer this process. The South African Revenue Service
(SARS) has advised Strate Charity Shares that the value of any
shares donated may be deducted from taxable income, as
the scheme is registered under section 18A of the Income Tax
Act. For further details, queries and/or donations contact the
Strate Share Care toll free help line on 0800 202 363 or
+2711 373 0038 if you are phoning from outside South Africa or
email charityshares@computershare.co.za
Electronic communication
The Company supplies information such as the Annual Report
via its website to shareholders who have consented to such
communication. Shareholders will be notified by email or post
when new information is available on the website.
Shareholders can at any time revoke a previous instruction in
order to receive hard copies of shareholder information.
UK shareholders may register to receive email alerts by logging
on to the website of the UK Registrars (capitashareportal.
com) and following the instructions given to register an email
address. SA shareholders may register to receive email alerts
by written instruction to the SA Registrar, Computershare, sent
either by email (ecomms@computershare.co.za) or by facsimile
(+27 11 688 5248). Once registered, shareholders are sent a
‘Notice of Availability’ email highlighting that the Annual Report
or other information is available for viewing on the website.
Other informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 167
Other informationStrategic reportGovernanceAccountsOther informationIntu Properties plc – Annual Report 2014 intugroup.co.uk 168
Other informationIntu Properties plc – Annual Report 2014 intugroup.co.uk .
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This report contains ‘forward-looking statements’ regarding the belief or current
expectations of Intu Properties plc, its Directors and other members of its senior
management about Intu Properties plc’s businesses, financial performance and
results of operations. These forward-looking statements are not guarantees of
future performance. Rather, they are based on current views and assumptions
and involve known and unknown risks, uncertainties and other factors, many of
which are outside the control of Intu Properties plc and are difficult to predict,
that may cause actual results, performance or developments to differ materially
from any future results, performance or developments expressed or implied
by the forward-looking statements.
These forward-looking statements speak only as at the date of this report. Except as
required by applicable law, Intu Properties plc makes no representation or warranty
in relation to them and expressly disclaims any obligation to update or revise any
forward-looking statements contained herein to reflect any change in Intu Properties
plc’s expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
Any information contained in this report on the price at which shares or other
securities in Intu Properties plc have been bought or sold in the past, or on the
yield on such shares or other securities, should not be relied upon as a guide to
future performance.
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40 Broadway,
London SW1H 0BT
intugroup.co.uk
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